BlackBerry Limited Stock

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. [Operator Instructions] 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.

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 Dematteo, and Chief Financial Officer, Tim Food. 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.

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'll 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'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. 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. 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.

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 -- our expectations.

QNX had a record quarter, and strategically, we reached an important milestone with our first Alloy Kore 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 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 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 an 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 with Alloy Kore. 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 industries transition to our 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 1/3 of them have the type of high-performance centralized compute architecture, where QNX's capability is most relevant, and we have a very strong market share in that segment. Industry forecasts indicate that this segment could expand to roughly 3/4 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'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 SDP 8, our next-generation platform designed for these higher performance compute architectures. We are working with major -- multiple major global OEMs and Tier 1 suppliers as they evaluate and develop on SDP 8. 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 SDP 8 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 noncontractual 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 Kore expands QNX from a foundational operating system towards a broader software platform. This quarter, we reached an important milestone with our first Alloy Kore design win. Coretura, the commercial vehicle software joint venture between Volvo Group and Daimler Truck selected Alloy Kore as the foundational software platform for its next-generation high-performance compute architecture.

Coretura plans to deploy Alloy Kore 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 Kore and demonstrates the opportunity to expand QNX from individual foundational software components to a broader software platform within the vehicle.

Alloy Kore 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 Kore 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 Kore 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 Kore 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, GM 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 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'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 environment 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 XHEART also selected QNX OS for safety built on SDP 8 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 a 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 plans. While many gen markets remain early, the combination of a broadening pipeline, growing customer base and increasing demand for safety-critical software gives us confidence that Jim can materially expand QNX's long-term addressable market. Taken together, core automotive, Alloy Kore 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. 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 agencies in the U.S. federal government as well as internationally with the Dutch Police, the U.K.'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.

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. 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'll discuss in more detail shortly.

Turning first to the segments. QNX revenue was $80 million, exceeding the high end of guidance and growing 27% year-over-year. Adjusted gross margin expanded 4 percentage points year-over-year to 87%, matching the highest reported quarterly level in the business' history. Adjusted EBITDA increased 41% to $29 million, representing a margin of 36% for the quarter. This performance reflects the benefit of meaningful revenue growth and a favorable mix, particularly higher-margin royalty revenue, while we continue to invest in go-to-market and R&D. The combination of continued growth and profitability, again for QNX comfortably above the rule of 40 benchmark in Q2.

In Secure Communications, revenue was $61 million, representing 2% year-over-year growth and within our guidance range. Adjusted gross margin for Secure Comms was 61% and reflecting lower margin Secusmart device revenue in the quarter. Adjusted EBITDA was $8 million, representing a margin of 13% with disciplined expense management, partially offsetting the lower gross margin. Overall, the segment delivered a 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 2027, 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 Kore and GEM. Second, disciplined share repurchases. We retained significant capacity under our current NCIB buyback program, and we'll continue to evaluate repurchases and 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 GEM 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 million to $325 million and adjusted EBITDA by $20 million at the midpoint to between $95 million and $105 million. For Q3, we expect QNX revenue to be between $82 million and $88 million, which is 24% year-over-year growth at the midpoint and adjusted EBITDA of between $27 million 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.

The Secure Communications, an already dynamic backdrop in the U.S. where Secure Comms has a substantial footprint with the U.S. federal government is being further complicated by recent geopolitical developments including trade tensions between Canada and the United States. As a result, we're prudently updating our full year revenue outlook.

While we haven't yet seen anything material rising 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 Comms to $260 million to $270 million. And adjusted EBITDA outlook to be between $50 million and $58 million. For Q3, we expect revenue to be between $55 million 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 $19 million at the midpoint to $616 million to $636 million. representing 14% year-over-year growth. We're also raising our adjusted EBITDA outlook by $21 million at the midpoint to $141 million to $158 million which is 43% year-over-year growth. For Q3, we expect total company revenue of between $143 million and $154 million and adjusted EBITDA of between $28 million 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 our 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.

And with that, let me hand the call back to John.

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 Kore has moved from strategic opportunity to commercial validation and we continue to build the long-term opportunity in gym 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're seeing today reflects the foundation we built through the transformation work over the past 2 years, and we're 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 Instructions] The first question today comes from Suthan Sukumar with Stifel.

Congrats on the quarter. 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 license strength you saw in the quarter?

Suthan, thanks for the question. Some good stuff there. So yes, we're feeling great about the leverage in our model. I think we've 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 we 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 start of the show.

So what we're seeing is, obviously, we've had Significant growth in our backlog over the last few years as we've secured newer, larger design wins. And what we're seeing is some of those are now moving into production. And that backlog that $950 million that we last reported, is starting to convert. So it's a great line of sight for us in terms of revenue. That's 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've definitely got the wind at our backs in that business. It's really on fire in terms of the core automotive side of things.

That's good color. For my next question, I just wanted to touch on the fiscal AI opportunity here. How does the revenue model in GEM compared to a typical automotive program? I'm just wondering if it's still kind of a per unit type model or is it different? And secondly, is there an Alloy Kore opportunity in the GEM market?

So I'll take the first part and then maybe hand over to John for the second part. So in terms of the model, it's fundamentally the same, Suthan. So it's 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 GEM expand in some of these more nascent markets actually move towards higher production volumes, I would expect to see then to move down the price curve per unit, but ultimately with a much higher scale.

So I wouldn't think of it much differently. It's pretty much the same model and Ultimately, it's the same software, and that's 1 of the beauties of the market is that we're able to leverage the investment that we've made, the products that we battle tested in the automotive side and roll them out across into these adjacent verticals. So relatively similar.

But John, on the Alloy Kore opportunity.

Yes. Thanks. Yes, on the alloy core, what I would say about it in the GEM space and the physical AI space, is it's definitely early days. It's a market that's really forming now. And our approach has really been to take a broader type of ecosystem approach. So you're 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.

This quarter, we actually launched the QNX Launchpad program. There's another kind of way for us to engage with the industry more broadly. So we kind of use our core assets of that real-time performance operating system and how that helps manage this whole physical world, a digital world collision that's starting to happen. And I do think there's going to 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 the lines of what we're doing with alloy, that's probably something that will develop over time.

The next question comes from Paul Treiber with RBC Capital Markets.

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.

Yes. I think I'll 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 kind of the longer-term growth trend, 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's not how we partner with our customers. So from quarter-to-quarter, things can be there. But overall, when you look at the year, at the midpoint level, where we're at now, we're projecting it to be 19% growth year-over-year, which is, I think, really strong growth. It's above what we thought we would be at the start of the year.

The fact that the other thing I would say is the design wins and the fact that we booked more design wins in the first half of the year, and 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 side. I'd avoid getting too fixated on quarter-to-quarter on what that might look like because I think the long-term trajectory of the business is really in a healthy place.

Yes. QNX is definitely not slowing down. It's -- if anything, it's accelerating. But from quarter-to-quarter, that's not going to be linear.

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

So we -- yes, this is a really good opportunity for us as part of our transition to SDP 8 and a significant incremental value that we bring to our customers. Ultimately, it gives us greater certainty as we look forward. And as John mentioned, it's moving away from noncontractual 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 to be recognized earlier. I mean we're kind of feeling our way into this right now. It's for new contracts. And over time, we should see this start to grow. But for us, this is great. I mean, it's just credit certainty, earlier cash and ultimately, potential for some revenue too.

The only thing I would add to it, Paul, is what we -- all the things Tim said, really help the business in so many ways. But the customer dynamic, what we love about it also, the conviction that our customers have with our product. This is a strong statement because typically, in the automotive industry, they give you an estimate and they'll adjust it. Now our customers are coming in and say, we're bought into you guys for the long term to the point where we'll actually make a minimum commitment. That's a new dynamic, and I think that is attributable to how the strength of the product is and our vision and where we're going, that they want to make a longer-term firm commitment with us which is definitely an inflection point from where we were a few years ago.

The next question comes from Todd Coupland with CIBC.

Yes, I'm wondering if you can talk about the Ally 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.

Thanks, Todd. Yes, really healthy pipeline, I would tell you, and it does span everything. It just so happens that Coretura and the commercial was the first one out of the gate. But we're -- we've got a lot of global OEMs and Tier 1s that we're 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 how this simplifies their world.

I think the value proposition of 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's resonating. And I think if anything, the Alloy Kore, the Coretura win, generally, well, people, I think we get more interest. Hey, tell us a little bit more about that. how can that work for us. So we're a very healthy pipeline. Obviously, their big decisions that take time to work through the funnel, but we're very excited about what this could mean for the business long term.

And then my second question had to do with U.S. Fed. You've obviously clipped the guidance for the second half of the year. What would you expect with what you know now to get visibility on whether or not that's actually going to play out?

Yes. As Tim mentioned in his remarks, we don't see anything today that specifically is creating that. It's more of a, I think, a general cautionary, a lot of -- when we think about the Secure Comms business, $220-plus million of it is ARR, very durable, very good, strong line of sight to. And then the balance between our guidance and our new deals upfront revenue. And with all, Todd, just the geopolitical uncertainty that's happening around the world, the timing of some of those deals I don't know, it's just -- we feel a little bit more uncertain about it with some of the unrest that's happening around the world in 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 the government in and of itself tends to be a bit of a longer sales cycle. And on top of that, some of the geopolitical activity now, we thought the right thing to do is to be a little more cautious there.

The next question comes from John Shao with TD Cowen.

John, you mentioned robotaxi and congrats on a win with Uber. So could you help us frame this robo tax opportunity as whether exposure is direct or indirect in the content per vehicle? And maybe comment on the time line.

Yes, good questions. Time line, like I said, we see robotaxi's tremendous opportunity. There's 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 the company like Uber, we think puts us in a strong position for that over time.

I will say, though, the whole physical AI space going back to my analogy of baseball, it's -- we're in the early days here. the ASP per car, whether it's a broader kind of a core type of play that there's so many variables right now in a market that's just really starting to develop and starting to mature that we'll play that out. But we do think our strong pole position with our safety certified foundational software capability starting to resonate with the robotaxi. And we think that's a really strong place to be. And we'll -- as the industry develops, we're -- we think we're in a really good position to capture our -- more than our fair share of the market.

Thanks for the color. And if I'm talking to our operating cash flow guidance, I think the company is going to have close to $0.5 billion cash but in this fiscal year. And Tim, you mentioned the company will consider tuck-in acquisition, especially in the GEM space. So could you help us understand your current pipeline in terms of -- and how you evaluate these deals and what the trigger is, is more driven by the valuation or functionality and you're actually okay with paying a premium?

Yes. There's a lot of good things in, John. So first of all, it's a good problem to have. It's a good problem to have. Like what are you going to do with all the cash that we're generating. So I mean we are -- as we mentioned, we're doing -- we're investing in the business right now. We'll take a look at share buybacks as well when that's appropriate. But yes, M&A, if we see a really large opportunity in GEM, in physical AI and all the other verticals that John mentioned. So if we can fast track, then we will. We've got the balance sheet to give us the flexibility to be able to do that.

But -- like it was mentioned, the bar is going to be high. The strategic fit has to be very good. The financial profile has to be appropriate. And 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. They spend a lot of time looking at this. So we're not going to say much more than that today, as you'd probably expect. But if something comes up that fits our criteria, then we're definitely in a position to be able to execute on it.

The next question comes from Kingsley Crane with Canaccord Genuity.

Have been bouncing on a few calls, so apologies if some of this has been asked, but just want to frame the Coretura record win in another way. So of the $100 million added to backlog, I 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 [indiscernible] and Hypervisor versus this Alloy Kore engagement?

Yes. I think we try to address it a little bit in our comments around the Coretura win, if we had just done a traditional QNX operating system addressing maybe 1 or 2 domains relative to the more complete platform approach that we -- kind of the holistic CAR approach that we're moving towards 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 the combination of moving up the stack and moving into more domains.

A few years ago, a lot of what we did was digital cockpit, now it's ADAS, it's body control. It's a broader set of capabilities. And that, coupled with the middleware layer and some of the diagnostic systems and capabilities that Vector brings to the table. The combination of those 2 stitch together with services that delivers it reliably for our customers I think that's what's 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.

Okay. Really helpful. And then Tim, I understood on the comments around conservatism on secure comms 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 applied to Q3, at least in our model. So is that the right way to think about it? Is that purely due to the sort of federal concerns and just how to think about those 2 quarters.

Yes. So I think John address this earlier but just to reiterate the point. the way we look at the secure comms business, which remains stable, it remains profitable. It's generating cash is that it has a solid base of ARR, which is roughly speaking around about 80% of that business. And then 20% -- the remaining 20% of the guide really relies on some bigger government opportunities that drive in quarter revenue.

So right now, we're just feeling not as good in terms of the timing on some of those deals, not that they're necessarily going away, but the timing becomes slightly less certain than before. So as a result, we're just taking a prudent view on things and see where things kind of land. But like John mentioned in his remarks, we haven't seen -- well, that's just me, we haven't actually seen anything material so far. So I hope that remains the case.

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

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.

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

Hi, everyone. Thanks for joining. Again, Kingsley Crane, a technology analyst here at Canaccord. Thrilled to have the BlackBerry team with us here once again. We've got John Giamatteo, CEO; and Tim Foote, CFO. Thank you so much for being here.

Thank you, Kingsley.

Thanks, Kingsley.

Maybe we'll start with you, John. You reported Q1 back in June, 26% growth, Rule of 40 business in both segments, your first cash positive fiscal Q1 in 9 years, and you raised the full year guide. So you've described this as a transition from a turnaround to profitable growth. Just what's working now that maybe wasn't working 2 years ago?

Yes. When we sat here a couple of years ago, I think we were still on our journey. And part of that journey, I think, has been laser-like focus on 2 specific areas of the business. I think when we made our transition 10 years ago off of devices and into software and services, we were -- we dabbled in a lot of different things. We got into the endpoint security game with the Cylance acquisition. And I think narrowing our focus towards mission-critical secure communications on the secure comm side and really fueling the investment on all the growth opportunity that we see on the QNX side. I think that laser focus on those 2 things, sometimes you take all the oxygen out of the air when you have a big acquisition. And I think by divesting that and really honing our focus, our money, our resources onto those 2 parts of the business, I think that's helped us with sustainable execution and where we are today.

So when you look at how the stock has traded, it kind of oscillates between -- well, in the past, it's been more of this value sum of the parts debate. And then it becomes this much broader growth narrative. Can you -- how do you manage the business through that kind of transition internally? And then how do you manage investor expectations? Maybe you might both have something to say.

Yes. It's always hard. But I guess what I would say, more fundamentally, we're not stock pickers. We're business builders. And that's really what we focus on is really building a strong foundation for growth for the company for the long term. The stock -- it's going to do what it's going to do from time to time. But I think if we're growing, we're generating profit, our margin expansion over the last quarter has been exceptional and generating cash. We're hitting those fundamentals, I'm sure the stock is going to take care of itself. And I think that's what we're starting to see.

That's a perfect summary. I have nothing more to add to that. Yes, exactly focus on the fundamentals, and we're delivering.

So worth pointing out, you have nearly $1 billion in backlog. Could you just walk us through how that backlog converts? What has to happen between a design win and start of production and how we could expect that to play out over the next couple of years? Is there any way to accelerate it?

Yes. So we're really proud of our QNX royalty backlog. It's a great aspect to the QNX business that makes us a really long-term business and also gives us a great deal of visibility that other software companies just don't have. So like you say, we're just short of $1 billion. It's been growing really healthily -- this past year, we added twice as much into that royalty backlog as we took out to recognize in the P&L. So that's a really healthy leading indicator. If you keep doing that in the long term, you're going to be growing the business pretty solidly. So one of the questions I get is how robust is that backlog number. So we monitor churn on an ongoing basis. And the churn is pretty low, relatively low, single-digit percentage churn. And partly, that's because we're so diversified with our QNX business that we work with so many different OEMs. We work with different powertrains, for instance, so EV versus ICE versus hybrid. So if one is winning and one is losing, we kind of ride the waves with that.

So the question about conversion into the P&L. So that $950 million, when we look at it today, first of all, it's not a static number. As we go forward, we're adding new designs every quarter. But if we take that number as it is today, what we see is sequential growth every year for the first 4 years. And in that first 4 years, we're converting more than half of that backlog into the P&L. And then obviously, it starts to tail. But like I said at the beginning, we're really pleased about the growth in that backlog, and it's a great asset for the company.

Development licenses, you had those be the strongest they've been in quite some time this most recent quarter, and you called out that, that can be viewed as one of the earliest indicators of future growth. So how should we think about those serving as a leading indicator and then just the time line for that to translate?

That's a great question. So when we think about QNX, there's always a lifetime to every design that we get built into. So be that a car, be it a robot, be it a medical instrument, there's kind of a similar pattern in that at the beginning, OEM will buy software development licenses. So it's really an SDK software development kit. -- for developing software on top of QNX. And we take most of that revenue upfront at that point. Then over a period of somewhere between a year and 3 years, depending on what they're developing, they're going to develop the software that goes into that endpoint. They'll consume professional services. But then the really interesting bit happens when it goes into production, which is when we start to get royalties.

The royalties are 100% revenue -- 100% margin revenue, excuse me. And that's what we're talking about with this $1 billion of backlog. So the fact that we've had a record quarter this past quarter for that early-stage revenue, the development licenses is a really good leading indicator that people are developing on QNX and in particular, our latest version of QNX called SDP 8 for future designs that will come into production.

Right. So you call it SDP 8.0, which also now has AMD x86 support alongside ARM support. But what is it about 8.0 other than being the latest and greatest piece of software that has developers excited, has customers excited?

Yes. Maybe I'll start and feel free. So this is -- we're really pleased about this development. It creates more clear blue water between us and the competition. So one of the things we're seeing, and it's actually a real tailwind for this business is a move towards high-performance compute at the edge. So in the past, you'll see a car will have 200 small ECUs powering single functions, not very interesting to QNX because QNX handles complexity, high performance. It's not really designed for that. What you're seeing is a consolidation of those chips into fewer high-performance chips. And the really important thing is if you're making that investment into the silicon, are you getting the bang for the buck in terms of the software? Like does that translate into what you can do with the software.

And the older version of QNX and certainly the latest version of many of our competitors, they don't harness that full potential of the chip, whereas SDP 8 has been developed to scale. So you go from 2 cores to 4 cores to 8 cores, are you seeing that linear scaling of performance? And SDP 8 does that. And it puts us in the same conversation as Linux from a performance perspective. But importantly, we're real time, we're deterministic, we're safety certified, which is obviously what Linux is not. So it puts us into a category of our own.

Yes. The only thing I would add on top of -- I think that's the biggest part is that high-performance compute and taking the advantage of all the technology that's coming out. But the other little kind of, I think, nuggets of QNX goodness that goes along with that on SDP are things like safety certifications as it goes to continuing that on everything that we do, real-time determinism on everything that we do as we go to SDP 8. For our customers, having backwards compatibility is an important aspect. So it helps them seamlessly move to the next level at their speed. So I think the high-performance compute advantages that with all the other kind of things that come along with the value proposition of QNX is one of the reasons why we think SDP 8 is getting so much traction right now.

So SDP 8 is getting a lot of traction now. Alloy Kore could be a huge opportunity and you're starting to see that become more relevant over the next year is the idea. But so what does that do to content and economics per vehicle? And then does that end up changing who you compete with materially?

We're excited about what this opportunity represents. Everything that we've achieved thus far. And I'll point out that the $950 million backlog has no Alloy Kore in it at this point. And when you think about Alloy us moving up and going from an OS provider to a platform provider inside the quantum of increase there multiples dramatically. And we're just scratching the surface. We've got a tremendous pipeline, and we think that's going to fuel the next kind of version of growth for the company on the QNX side of the business. So Alloy Kore -- and I think what's great about it, it really solves a need for our customers. All of this pulling together software, different middleware, OS application, pulling all this together and stitching it together and bringing it to the marketplace. That's not easy.

It's not a core competency that I would say a lot of our customers have. So the fact that they can lean on a company like us who has those core competencies at the OS level, the partnership that we put in place with Vector, which is the biggest middleware player, stitching all of that together, delivering that to them in a high-performance way that helps reduce their cost and enables them to focus on the application layer where they can really differentiate themselves. I think all those kind of value propositions are coming together, and we think is going to generate a real good opportunity for us in the future.

So it's a high-performance platform, and it can reduce some cost for customers, but certifying some of these components can also take quite a while. And that's a significant value for customers. Would that also potentially shorten that time line for backlog conversion for an Alloy Kore customer? Could that be a benefit in the future?

Yes, I think it could. I think it absolutely could. But we're -- right now, we want to come back here and announce our first Alloy Kore win, get that -- get some runs on the board with that. We couldn't be more excited about where that's tracking right now. So stay tuned, watch this space, and we'll be back with some news when we get some big wins that the first place you're really going to see Alloy Kore show up, you're not going to see it show up on the P&L. You're going to see it show up in our backlog because just all the way the revenue model runs through the process. So when you see us announce -- we're at $950 million, I think, is where we -- when we exceed the $1 billion mark, you know we are making progress in our vision and our goal, and we hope to get there.

So when we talk about physical AI, it's important to think about probabilistic versus deterministic and especially when you think about safety and some of the implications for human safety. And one of the quotes that you've had that I like is that a car is robot on wheels. But like can you just help the audience understand why your success in automotive places you in a strong competitive position to win in the general embedded market.

Thanks for teeing that up. That is -- that's the thing -- we're excited about everything at BlackBerry. I would tell you, just not only the core business and the Alloy Kore opportunity and even secure comms is actually firing on all cylinders last quarter. But in this particular topic, there's a lot of investment going into it, as you all know, when you have a company like NVIDIA talk about how this could be a $4 trillion kind of market over the course of the foreseeable future and us having a deep partnership with a company like NVIDIA. They develop their Halo safety stack and all the different applications for things like robotics, for things like surgical robotic arms in the medical space, industrial automation, AMRs and autonomous forklifts.

You look at all of these use cases, all of these applications when you have a partner like NVIDIA come out and say, our entire Halo safety stack is on top of QNX. That's a heck of a statement. That's a heck of an endorsement. And I think the traction that we got, the subject matter expertise that we put in place on the automotive side and the fact that almost every car manufacturer in the world is adopting QNX and different variants of it, I think, is a great testament to how well positioned we are to address this exploding market. How fast it's going to explode, where it's going to explode, we're following all of that, and we're partnering with all the right players. But I think when it does take off in earnest, I think we couldn't be better positioned to participate in it.

So you mentioned that endorsement from NVIDIA with Halos. You also have strong relationships with Qualcomm and Arm. How much of this build-out over the next couple of years is going to be channel-led versus direct sales and maybe you can get your tentacles out within the channel before it ramps more materially?

I think our -- what's great about our channel model is while we have these great partnerships with Qualcomm and NVIDIA and Texas Instruments, Arm, NXP, you name it. We've got a great deep partnership, and they love the fact of what our software can do to enable their high compute technology in all these different applications. So when they come out to a robotic manufacturer and say, our entire stack has been developed on top of QNX. That in and of itself gives us a position because that endorsement -- so we -- most of our applications, we are working directly with the OEMs. Sometimes there's a Tier 1 provider in part of it. But this partnership that we have with the silicon players is more like a give and take for both of us. We're developing this high-performance software. They're developing this high-performance hardware. We're bring -- our interests are completely aligned because of how well we're positioned. And we've proven that with the automotive space. And now that's starting to take hold in this whole physical AI explosion that we're starting to see.

So I just want to circle back on timing. We might not necessarily know how quickly this could develop, but automotive is closer to 3 to 5 years. How do you think that could play out in physical AI and robotics?

Yes. It's -- I think it's early days for -- again, a lot of this is going to show up in for us, backlog, which will turn into revenue, which will turn. But what's encouraging to us is just the momentum, the investment, the massive -- and when the industry puts this level of energy and investment into a category like this, we think there's a near-term opportunity for us to really drive this part of the business forward. We're, I think, in a really good position, the fact that we have such a strong position with automotive as our kind of foundational component and then the fast-growing aspect of physical AI, albeit on a small base, it's one of our fastest-growing segments inside the company right now. But it's -- we see that -- we see opportunities, real opportunities coming through the pipeline right now.

I want to touch on secure comms as well. So you had an excellent quarter. I think revenue grew 24%, ARR was closer to 5%, DBNRR still remains below 100%. So can you just remind us how much of that was related to deal timing, how you think that could play over the next couple of quarters? And then is 100% NRR aspirational? Or like what's the pathway to get there?

A lot of questions in there, great questions. So we're really pleased about the turnaround in the secure comms business. I think if you looked at it a couple of years ago, the profile is very different to where we are now. We've repositioned that towards some modest growth now, profitable, cash flow generative. And importantly, you mentioned dollar-based net retention, but I think more holistic is ARR. So ARR has been growing sequentially each of the last 4 quarters. And this past quarter, it was 5% higher year-over-year. That means when you look at dollar-based net retention, we've had some churn in our more commoditized UEM product, which is why that's not 100%. But we're replacing that with at least that again in new business that we're winning. So we're winning in a number of different verticals right now, particularly government and defense, where obviously there's some budget expansion, and we -- that's a tailwind for this business.

So net-net, overall, we're seeing a growth in ARR. And if you look at our guidance, we're guiding to around about $270 million-ish for the year. $220 million of that is ARR. So very solid, very recurring. So that means there's a bit of a go get. In Q1, we had a really big win with the Canadian government for deployment of our SecuSmart encrypted voice and data platform. We see a pipeline of similar kind of opportunities, but timing can be a little bit variable. Government is great once you're in, you're in for a long time, but sometimes it can take a little bit of time to get in. So you're going to see a little bit of variation from quarter-to-quarter. But what I would urge people to do is more look at the trend line from year-to-year, which right now we believe is looking positive.

So a big benefit for secure comms has been sovereign demand. So defense budgets are rising across NATO. You have excellent demand -- sovereign demand in Europe. how cyclical do you think that, that is? And then how structural do you think that could be and just the impact on secure comms demand?

Yes. We -- to Tim's point, we've -- 80% of that business, I don't want to say you get set your watch by it, but it's repeatable, it's reliable, it's recurring. It's something -- the other 20% in governments, we found since 75% of that business is actually with governments around the world, that tends to be a little -- could be a little lumpy from time to time. Right now, there is a lot of activity, a lot of geopolitical and all the different dynamics that are happening around the world that I think is having a lot of governments ask about their mission-critical communications, enhanced encryption technology like our SecuSUITE portfolio. Our ad hoc emergency notifications is deployed widely through governments around the world.

So we certainly are seeing some demand and some uptick in opportunities around that. But at the same time, governments, it's one of those -- it takes a while to get in. It's -- you got to go through high levels of certification, FedRAMP. In Germany, they have a BSI certification that we're one of the only vendors that has passed it. So now they're talking to us about mobile device management broadly across the German market. So it's kind of -- you got to stick with it. And then once you get in, it becomes a sticky longer-term relationship. So definitely some ebbs and flows that go along with that, that part of the business, but we feel like it's certainly stabilized Germany -- solid profitability and solid cash generation that helps us invest in growth opportunities like QNX and other parts of the company.

Getting close on time. I just want to make sure the audience has a chance to ask a question if they'd like. I mean, John, Tim, any parting words for our audience?

Thanks for coming out. We appreciate your interest in the company. A few years ago, there was a few less people in this room. So we appreciate the interest in the company. What I would tell you is we are on a rock-solid foundation now. We've got good line of sight to top line growth. We've got great line of sight to margin expansion. The way we've addressed the cost structure of the kind of what I would call the old bloated BlackBerry is trim, it's lean, it's mean, it's focused. So when we start to see these upside top line opportunities, they drop right to the bottom line pretty quickly, which enables us to get to a Rule of 40, even sometimes a Rule of 50 type of quarter, which is something that we're proud of.

The only other thing since where the clock has ticked off is I would tell you it's a little bit of a softer thing. It's not -- we're here in a finance conference and everybody is talking numbers and trends and all of those things. But I would tell you the employee engagement across BlackBerry globally has never been higher. People are excited. Our people are loving what they're doing. They love the contributions that they're making to the industries that they operate in. And I think that's another little bit of piece of the special sauce that's helped us kind of engineer this turnaround is our people are completely engaged with it as well.

So Kingsley, thanks for the opportunity, and thanks, everybody, for coming out and hear our story.

Thanks so much.

Thank you.

Hello, and welcome to the Annual and Special Meeting of Shareholders of BlackBerry Limited. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent with recording, transfer and use of same. It is now my pleasure to turn today's meeting over to Mr. Dick Lynch, BlackBerry's Board Chair. Mr. Lynch, the floor is yours.

Thank you. Hello, everyone. I am Dick Lynch, Chair of the BlackBerry Limited Board of Directors. On behalf of the Board and management, it's my pleasure to welcome you to the company's annual meeting. I will serve as Chair of today's meeting. As we have done in recent years, we are hosting our meeting in a virtual-only format through a live audio webcast. We have found that the virtual format is more inclusive and many more shareholders have been able to join us virtually than previously at our in-person meetings. Even though the meeting is in virtual format, procedures have been implemented to ensure that shareholders and proxy holders, regardless of their location will be able to participate in this meeting and engage with us.

Registered shareholders and valid proxy holders who are participating online will be able to listen to the meeting, submit questions and vote in real time. Nonregistered beneficial shareholders will also be able to submit questions through the online meeting platform. The Secretary of the meeting will cover the procedures for all of this in just a moment. Phil Kurtz, the Chief Legal Officer of the company, will act as Secretary of the meeting. Phil is joining me today as is our Chief Executive Officer, John Giamatteo. Following the formal business of the meeting, John will provide an update on BlackBerry's strategy and performance, and then we'll address questions submitted by shareholders.

Before we turn to the formal portion of the meeting, I'd like to take a minute or 2 to reflect on this past year from the perspective of a Board member who with obvious obligations to you, the shareholder, but with additional perspective of having watched management, our employees and our customers. This past year, we began to reap the rewards of a strategic refocus of the business. That refocus has also involved a very detailed tactical reconfiguration of the business. Last year, John, our CEO, described for you how we are now 2 virtually autonomous business units. At this time, he can confidently say 2 independently profitable business units with a number of quarters of profit to demonstrate that point. Before -- both Secure Communications and QNX are proud leaders in their marketplaces with each aggressively pursuing profitable expansion.

The Board, working with management, remain focused on assuring ongoing tactical results and further strategic actions to drive additional value going forward. While yes, management is done what they're paid to do, I do want to recognize their work in front of this group of owners. The entirety of the BlackBerry team has delivered for us again this year. But you, as shareholders, know this based on your activity in the market, particularly over the last couple of quarters. With volume of daily trading and our stock having increased dramatically over that time, I conclude many of you are new shareholders or longer-term committed shareholders, doubling down on your investments.

The Board and the entire BlackBerry team are anxious to deliver for you. As the company continues to evolve, your Board is also evolving. This past year, we have been joined by Barry Mainz. With Barry's multiplicity of experiences in areas of BlackBerry's business units, he has quickly become a welcome and contributing member of the Board. But enough said by me, let me just conclude by committing the Board to further ongoing strategic perspective and appropriate actions to continue what now has become an obvious committed and focused march to increased shareholder value. I would now like to call this meeting to order and ask Phil to go over the procedures and items of business for the meeting.

Thank you, Dick. I'd like to start by highlighting a couple of important procedural matters that apply to our virtual meeting relating to questions and voting. Questions or comments can be submitted at any time by any shareholder or proxy holder who logged in with a control number or invite code. Simply click on the Q&A tab on the meeting platform landing page, type your question in the text box at the bottom of the messaging screen and then click the send button. If you logged into the meeting as a guest without a control number, you'll not be able to submit questions.

Questions will not be displayed, but will be read or summarized as appropriate. Generally, questions or comments will be addressed only during the Q&A session after the formal part of the meeting. However, questions relating to procedural matters or that are directly related to an item of business will be addressed earlier as appropriate. In order to expedite the formal business of today's meeting, I will make all motions on voting matters. For convenience, voting is available electronically through the meeting platform using the Vote tab at any time until just before the conclusion of the formal business of the meeting.

I'll provide more details on the voting procedure after the presentation of the items of business. Final detailed voting results will be published on the Canadian Securities Administrators SEDAR+ website and the SEC's EDGAR website and on our website after the conclusion of the meeting. Pina Pacifico of Computershare Investor Services will act as scrutineer for the meeting today. I've received a declaration from Computershare confirming that the notice of this meeting was properly given to all of the shareholders entitled to receive notice and to the directors and auditors, together with the management proxy circular and form of proxy. Copies of the management proxy circular and other meeting materials are available under the company's profile on SEDAR+ and EDGAR as well as on the Envision website established for the meeting.

I received the scrutineers' preliminary report stating that a quorum of shareholders is in attendance. Scrutineer's report shows that there are shareholders or proxy holders represented on this live webcast today holding 341,513,331 common shares of the company, representing approximately 58.3% of the common shares issued and outstanding. I therefore declare this Annual and Special Meeting of Shareholders to be regularly called and properly constituted for the transaction of business. The first item of business is the presentation of the financial statements of the company for the fiscal year ended February 28, 2026. These include the consolidated balance sheets as of February 28, 2026, and February 28, 2025, and the related consolidated statements of shareholders' equity, operations and cash flows, together with the auditor's report.

Copies of these documents have been mailed to the shareholders who requested them, and they're also available on SEDAR+ and EDGAR. The second item of business is the election of directors for the ensuing year. As determined by the Board, the number of directors to be elected today is 8. Information with respect to each of the individuals nominated for the position of director was set forth in the management proxy circular, and each of the nominees has agreed to serve as a director if elected. As we have done at previous meetings, we'll be nominating and approving individual directors and not a slate of directors. Bylaw A4 of the company sets out a procedure requiring shareholders to provide advanced notice if they wish to nominate any person for election as a director of the company.

The company has not received notice in accordance with the bylaw from any shareholder intending to propose a nominee for election at this meeting. Since there are no other nominations, I move to elect the directors named in our proxy circular. The next item of business is the reappointment of our independent auditors. I move that PricewaterhouseCoopers LLP be reappointed as the independent auditors of the company until the next Annual Meeting of Shareholders and that the Board of Directors of the company be authorized to fix their remuneration. The next item of business is the approval of unallocated entitlements under the company's deferred share unit plan or DSU plan for directors. The maximum number of common shares of the company that may be issued under the DSU plan is expressed as a percentage being 1% of the company's total common shares that are outstanding.

The DSU plan does not have a fixed maximum number of common shares issuable under it and is therefore considered to be an evergreen plan. Under Toronto Stock Exchange rules, unallocated equity awards that remain available for grant under evergreen plans are subject to shareholder approval every 3 years. Shareholders last approved unallocated awards under the company's DSU plan in 2023. I move that the resolution to approve the unallocated entitlements under the DSU plan as set out in the management proxy circular be adopted. The next item of business is the approval of 2 amendments to the company's employee share purchase plan, or ESPP. The first amendment is to increase the number of common shares of the company issuable under the ESPP by 3 million common shares.

The second amendment is to allow participants to purchase common shares at 85% of the lesser of: one, the fair market value at the start of an offering period; and two, the fair market value at the date of the purchase for offering periods beginning on or after October 1 of this year. The ESPP is intended to encourage employees to take an ownership interest in the company. Under the ESPP, participants are able to buy common shares at a discount or can receive a cash contribution from the company to subsidize the purchase. ESPP was originally approved by the Board on May 6, 2015, and was confirmed by the shareholders of the company at the Annual and Special Meeting held on July 23, 2015. The number of common shares issuable under the plan has not been increased since 2020. I move that the resolution to approve the amendments to the ESPP as set out in the management proxy circular be adopted. The next item of business is the approval of our annual nonbinding resolution on executive compensation or say-on-pay vote.

This resolution provides that on an advisory basis and without diminishing the role and responsibilities of the Board of Directors, shareholders accept the approach to executive compensation disclosed in the management proxy circular. I move that the resolution be adopted. The next item of business is the approval of a nonbinding resolution on the frequency of say-on-pay votes. As required pursuant to Section 14A of the U.S. Exchange Act, every 6 years, we provide our shareholders with an opportunity to vote on how often the company should hold a say-on-pay vote. The resolution provides that on an advisory basis, shareholders wish the company to include an advisory vote on the company's approach to executive compensation each year, every 2 years or every 3 years.

Since 2012, the company's say-on-pay policy has provided that the company hold a say-on-pay vote every year, and the company continues to believe that shareholders should be able to express their views on our executive compensation program on an annual basis. I move to include an advisory vote on the company's approach to executive compensation every year. The final item of business is a proposal submitted by a shareholder to amend Bylaw #A3 of the company as set out in the management proxy circular. The shareholder proponent did not contact us seeking an opportunity to present or otherwise address its proposal at the meeting, and therefore, we are presenting the proposal on its behalf.

I note that the proposal does not have the support of management. Do any shareholders or proxy holders have any questions or any discussion with respect to the proposal? Seeing none. So I hereby move the resolution relating to the proposal to a vote. Again, management recommends that the resolution not be adopted. That concludes all items to be voted on at this meeting.

As mentioned earlier, voting today is being conducted electronically and voting is open. All registered holders and proxy holders who have properly logged in with their control number or invite code and wish to vote may do so by clicking on the Vote tab on the screen. If you've already voted and do not wish to change your vote, you do not need to vote again now. If you do vote again online, your vote today will revoke the proxy you previously submitted. For those who wish to vote, please click on the Vote tab and select the For or Withhold button with respect to all directors or each individual director and with respect to the reappointment of PricewaterhouseCoopers as the company's auditors.

And then by selecting the For, Against or Abstain button with respect to the approval of unallocated entitlements under the DSU plan, the approval of amendments to the employee share purchase plan and the advisory vote on executive compensation and then by selecting the 1 year, 2 years or 3 years button next to the advisory vote on the frequency of the say-on-pay vote; and finally, by selecting the For, Against or Abstain button with respect to the shareholder proposal. Your vote has been cast when a checkmark appears. We will provide registered shareholders and proxy holders with a few seconds to complete their voting. Once the balloting closes, the voting options will disappear. The scrutineers have provided me with a preliminary voting report.

On the election of the directors, all 8 nominees have been elected as directors of the company to hold office until the next annual meeting of the company in 2027 or until their respective successors are elected or appointed. The motion to reappoint the auditors is also carried and PricewaterhouseCoopers has been reappointed as the independent auditors of the company. The motions to approve the unallocated entitlements under the DSU plan and the amendments to the ESPP are carried as well. Say-on-pay resolution also passed with the support of a substantial majority of the votes as did the resolution to hold a say-on-pay vote each year. Lastly, the shareholder proposal has been defeated.

As noted earlier, detailed voting results will be published on SEDAR and EDGAR and on our website after the conclusion of the meeting. In a few moments, John will provide an update on the company's business. Ahead of that, please note that John's presentation and the Q&A session that will follow it may contain forward-looking statements. Shareholders should be aware that any forward-looking statements are made as of today based on certain assumptions and are subject to risks and uncertainties that could cause actual results, performance or achievements of the company to differ materially from those disclosed here today.

We are adopting for this presentation the cautionary language regarding forward-looking statements that is set out in the company's annual report on Form 10-K to which we refer you for additional details concerning the risks, uncertainties and assumptions relating to our forward-looking statements. Please note that the slides for John's presentation will be available in the Investors section on the blackberry.com website. Now Dick will conclude the formal part of the meeting.

Okay. Thank you, Phil. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. And John will now make some remarks about the state of the company, John?

Thank you, Dick. And good morning, and thank you all for being here today. It is a genuine privilege to address you today as shareholders of a company that has fundamentally transformed. I'd like to begin by saying plainly what this transformation represents. BlackBerry is no longer a company in turnaround. We're a profitable growth company. And today, I want to talk to you about where that growth is taking us. For years, you placed your trust in this company through a difficult period of change. This morning, I want to thank you for that patience because the strategy we set in motion back in early 2024 is now delivering what we promised. Profitability, growth and cash generation.

Let me put fiscal 2026 in perspective. We delivered 4 more consecutive quarters of improving GAAP net income. We swung from a net loss of $79 million to net income of $53 million. Fourth quarter revenue grew 10% year-over-year. And across the entire year, we met or exceeded every single guidance range we communicated. That was the foundation. And our performance in the first quarter of fiscal 2027 is the confirmation. Revenue grew approximately 26% year-over-year to $153 million. Adjusted EBITDA more than doubled. And both our businesses, QNX and Secure Communications delivered Rule of 40 performances in the same quarter.

One particular milestone I'm especially proud of. This was our first fiscal Q1 of positive cash flow in 9 years. That tells you the transformation isn't a story anymore. It's a financial model that's working. And on the strength of it, we've raised our full year revenue and adjusted EBITDA guidance. Before I turn to each business, it's worth remembering who depends on us. Automakers, embedded systems innovators, world governments and enterprises rely on BlackBerry to deliver on the highest standards of safety, security and reliability. Now let me tell you why I'm so optimistic about what's ahead, starting with QNX.

QNX is the market leader in safety-certified automotive software, running in more than 275 million vehicles around the world. Put simply, QNX turns decisions into reliable physical action, whether that decision comes from a person, a sensor or AI. That leadership alone is a tremendous asset. But I want you to understand that our opportunity today extends well beyond the automotive operating system. One reason is a new platform we call Alloy Kore. Alloy Kore has the potential to expand BlackBerry's role from an operating system provider to a platform provider, increasing the software content we deliver in every vehicle, significantly expanding our pricing and accelerating our backlog.

Conversations with prospective customers are progressing well, and we remain confident of securing our first design win this fiscal year. And it's not just cars. Our general embedded business is QNX's fastest-growing segment, expanding into physical AI, robotics, industrial automation and medical devices, anywhere safety and reliability are nonnegotiable. Our partnerships with NVIDIA, ARM, Qualcomm and leading silicon players place BlackBerry right at the center of the next generation of intelligent systems.

Next, I'd like to turn to Secure Communications. BlackBerry Secure Communications protects governments and enterprise communications at the highest levels of certification and coordinates response across agencies when a crisis hits. Every G7 government and 18 of the G20 rely on us in some way. Not long ago, this segment was a headwind. Today, it is a contributor to our growth and our profitability. Secure Communications just delivered its strongest quarter in several years and achieved Rule of 40 performance. We extended and expanded our relationship with Shared Services Canada. Our recurring revenue is stable. Customer retention is improving and churn is down. And the demand tailwinds behind it are wide-ranging, digital sovereignty, cybersecurity, modernization and rising government investment in secure communications.

This is a healthier, stronger, more stable business than it has been in years. As we look across the business as a whole, we are encouraged by this performance, and we're focused on building long-term shareholder value. Our QNX backlog gives us long-term visibility into future royalty growth. Our balance sheet is strong, strong enough to invest in growth and provide options that were not available to us in the past. And our management team remains disciplined and focused on durable growth, profitability and cash generation. So let me leave you with this. Two years ago, we asked you to believe in a transformation, a transformation that has returned us to growth, returned us to profitability and finds us generating cash.

We have 2 businesses with real momentum and genuine long-term upside from Alloy Kore reshaping our role in the automotive world to physical AI and the increase in our GEM opportunities to secure communications, powering the future of trusted government communication. What connects both businesses is trust, earned in the places it is hardest to achieve. Safe by design, certified to the most demanding standards, secure at every layer. The turnaround is complete and what's in front of us now is the opportunity to grow and to focus on creating lasting value. Thank you again for joining us today, and thank you for your continued confidence in BlackBerry.

We'll now turn to questions from shareholders. But first, I'll provide some details of protocols for the question period. Shareholders and proxy holders may submit questions by using the Q&A tab on the meeting platform page. As a reminder, we're unable to receive questions from guests who have not logged in with a control number or invite code. We'll now give attendees a moment to submit some questions. We'll answer as many as we can in the time permitted. And before answering, we'll read out or summarize the question.

Questions that are redundant, offensive, not primarily related to our business or otherwise out of order will not be addressed. Please limit your questions to topics relating to today's meeting, and please keep them brief so we can address a variety of questions in the time available. Now we'll turn to the question list. We have one question on the platform, John, for you. And it's about IVY. The question is, does IVY still exist as previously described? Or has it been integrated into other QNX platforms such as Cabin?

Yes. IVY has been integrated into the broader QNX platform. It's probably important to mention that the QNX platform has really evolved from just the operating system to a variety of others. So it's truly a platform from Cabin to Sound to Alloy Kore to QNX everywhere. So it is a broader set of capabilities than it ever has been. And it's one of the reasons why we're seeing and experiencing such significant opportunities for growth.

Thanks, John. At this time, we have no further questions in the Q&A section. So we can give a moment. A last call for questions if anybody has. But seeing none, I will turn the call back to Dick Lynch.

Okay. Thanks, Phil, and thank you, John, as well. That ends today's meeting. I'd like to thank everyone for attending. We look forward to welcoming you again to next year's meeting.

That concludes the meeting. You may now disconnect.

Good morning, and welcome to the BlackBerry First Quarter Fiscal Year 2027 Results Conference Call. My name is Betsy, and I will be your conference moderator for today's call. [Operator Instructions] 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, BlackBerry. Please go ahead.

Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's Fiscal First Quarter 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 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 the replay of today's call. Some of the statements we'll be making today constitute forward-looking statements and are not -- and are made pursuant to the safe harbor provisions of applicable U.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 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 and 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.

Thanks, Suzanne. And good morning, and thanks, everyone, for joining today's call. We're excited to report a strong start to the fiscal year. Last quarter, we talked about turning the page from cost restructuring to value creation through profitable growth. And this quarter, we delivered exactly that. In Q1, we saw a rock solid execution across both QNX and secure communications with both businesses delivering Rule of 40 performance during the quarter, reflecting a combination of healthy growth and strong profitability. In QNX, we continue to benefit from the long-term trends we discussed for several quarters. including software-defined vehicles, centralized compute, a general embedded market and physical AI.

In Secure Communications, we continue to see stabilizing fundamentals, combined with tailwinds from growing government demand and the impact of large customer wins. Total company revenue came in at $153 million, well above the high end of our guidance. Adjusted EBITDA more than doubled year-over-year, and we achieved positive GAAP net income for the fifth consecutive quarter. We also continued to generate positive operating and free cash flow despite Q1 being a seasonal low. We're proud of the quarter but also recognize that we're still early in this next chapter with more work to do. It is important to remember, our focus is on driving long-term shareholder value, not managing to individual quarters.

Let me start my review of the quarter with the QNX business. This was another rule of 40 quarter for QNX. Revenue came in significantly above the top end of guidance at approximately $72 million, representing 26% year-over-year growth. This performance was driven by strength across all components of QNX, including development licenses, professional services and royalties. I want to call out one number in particular. Development license revenue in Q1 was the highest it has been in 8 quarters. And this really matters because development licenses are one of the earliest indications of future growth with customers investing in tools as they begin developing new software platforms on QNX.

Customers typically buy these tools at the very start of a program, years before a vehicle reaches production and royalties begin. What's more, these are predominantly tools for our new [indiscernible] platform. So a strong quarter today builds the foundation for royalty revenue for the future. During the quarter, we secured new design wins across both automotive and gem. In automotive, the wind span geographies and domains. In ADAS, we secured a new design win with a leading European automaker that is developing a safety platform on powerful Qualcomm Snapdragon SoCs. We also secured a win with a Tier 1 supplier for a driver monitoring system to be built on a Texas instrument chipset used by a Japanese OEM.

Additionally, we added a significant design win for SDP 8 with a commercial vehicle OEM to provide the foundation for a multi-domain architecture across cockpit, ADAS and centralized compute. In the quarter, we secured a strategically important sale of SDP 8 Development tools to a U.S.-based software developer supplying a major Asian OEM. This is a strong commitment to developing on our latest QNX platform for the long term. In GEM, we continue to see traction with wins that included a significant royalty commitment by a leading semiconductor equipment manufacturer as well as expanding an existing medical diagnostics relationship with Luminex, through a platform upgrade to our latest [ SDP 8 ] technology.

Taken together, these wins demonstrate solid progress in expanding both the scale of QNX adoption and the value delivered for deployment. Looking beyond the quarter, we remain confident in the long-term opportunities in front of us. That confidence is grounded in the multiple long-term growth drivers we see across QNX, many of which are in their early stages and have the potential to create significant shareholder value over time. The first growth driver is GEM, while representing a minority of QNX's revenue and backlog today, it remains our fastest-growing segment and significantly expands our long-term opportunity beyond automotive into robotics, industrial automation, medical devices and other safety-critical applications. We are particularly excited about the long-term opportunity in physical AI.

As intelligent machines become increasingly autonomous and operate around people the requirements for safety, security, reliability and real-time determinism become even more important. Unlike probabilistic AI systems, QNX technology is deterministic and safety certified, which is exactly why it is so hard to replicate and why customers trust it for systems where failure is not an option. In many ways, automotive has been a proving ground for the demands of physical AI. Modern vehicles are essentially robots on wheels, and QNX has established itself as a trust platform supporting many of the industry's most advanced autonomous and safety critical systems.

The second growth driver is Alloy Kore. We continue to make encouraging progress in discussions with customers and remain confident of securing our first design win this fiscal year. While we're not ready to declare victory yet, we continue to believe Alloy Kore represents a significant opportunity for BlackBerry over the long term. What makes Alloy Kore exciting is that it is expected to expand our role from operating system provider to platform provider, substantially increasing our software content per vehicle, expanding our average selling price by multiples and driving meaningful backlog growth.

As we -- as with our core QNX business, Design wins and backlog are expected to come first and royalty revenue build over time as programs move into production, reinforcing the long-term visibility of the business. Our strategic partnerships with NVIDIA, Qualcomm, Arm and other silicon ecosystem leaders continue to strengthen our position in next-generation intelligent systems. These relationships are important sales channels for QNX and help position us for future growth across all physical AI and GEM markets. Taken together, we believe these growth drivers significantly expand the long-term opportunity for QNX and reinforce our confidence in the future trajectory of the business.

Turning to Secure Communications, which delivered its strongest quarter in years. For the first quarter, revenue was approximately $74 million, exceeding the top end of guidance and delivering 24% year-over-year growth. Annual recurring revenue, or ARR, stabilized sequentially but grew more than 5% year-over-year to $220 million. And our dollar-based net retention rate, or DBNRR was healthy at 92%. We're pleased that the Secure Communications business stands on a much more stable foundation today than it did just a couple of years ago. We continue to see encouraging trends in customer retention, recurring revenue and government demand for secure communication solutions.

This past quarter demonstrated what can happen when a stable underlying business is combined with a significant government win. Governments around the world continue to prioritize digital sovereignty, cybersecurity modernization and secure communications infrastructure creating favorable demand conditions for our solutions. In Q1, this showed up in revenue from the significant expansion and multiyear extension with Shared Services Canada that we discussed last quarter, driving our strongest performance in several years. As part of the new deal, the Canadian government is meaningfully scaling its deployment of [ SECI ] Smart's encrypted voice data and video solutions. In line with the digital sovereignty trend, this deployment on a sovereign architecture contributed significant in-quarter revenue recognition.

It's important to recognize that large government deals like this tend to have long sales cycles and don't happen every quarter. Outsized growth and profitability, such as this past quarter are typically followed by more normalized quarters. Overall, secure communications continues to evolve from a business once viewed as a headwind into a stable, growing business with meaningful upside when large government opportunities are successfully converted.

In addition to the large deal with Shared Services Canada, we secured a number of renewals, expansions and new logos primarily across government, defense and regulated industries. In North America, we secured deals with the U.S. Air Force, U.S. Cyber Command, the U.S. Senate, the U.S. Secret Service and the White House Communications Agency. In EMEA, we secured wins across government and defense, including BAE Systems, the U.K.'s National Crime Agency and Metropolitan Police service, the Bavarian State tax office and GIZ, the German Society for International Cooperation as well as the Saudi National Bank and [indiscernible]. Taken together, these wins reflect steady demand and highly sensitive mission-critical environments.

Touching briefly on licensing. For the first quarter, licensing revenue was solid and came in at $7 million, ahead of guidance due to the better-than-expected revenue from pre-existing arrangements as well as a number of new onetime licensing deals. As we continue to see positive momentum with customers across QNX and Secure Communications as we move into Q2. Within QNX, demand remains healthy in both Automotive and GEM with strong customer engagement and a growing design win pipeline. In Secure Communications, the business remains supported by structural tailwinds. And while some churn remains, it's much lower than in prior quarters. Overall, we are very pleased with our start to fiscal year 2027 and the progress reflected in the quarter.

While neither QNX nor secure communications will grow in a perfectly straight line, what matters most is the long-term trajectory of the business, and we're encouraged by what we see. Demand across our markets remains healthy. Customer engagement is strong, and our backlog continues to expand, giving us confidence in our outlook and in the disciplined execution that gets us there.

With that, let me now turn the call over to Tim who will provide further details on our financials.

Thank you, John, and good morning, everyone. As John mentioned, this was a very strong quarter for BlackBerry. In fact, a rule of 40 quarter. What was particularly encouraging was not simply the revenue growth we delivered, but the quality of that growth as higher-margin QNX royalties become a larger part of our revenue mix, we expect more of our revenue to translate into margin expansion, profitability and cash generation. We believe we are increasingly positioned to benefit from the operating leverage inherent in our business model as revenue continues to grow.

This quarter was a good example of that dynamic in action. Revenue for the quarter was approximately $153 million, exceeding the high end of our guidance range and growing 26% year-over-year. Total company adjusted gross margin expanded by 4 percentage points year-over-year to 79%, while adjusted EBITDA more than doubled and exceeded expectations at approximately $36 million, representing 24% of revenue. Adjusted net income for the quarter was approximately $25 million, and we achieved positive quarterly GAAP net income for the fifth consecutive quarter. Adjusted EPS also exceeded expectations at the high end of our guidance range at $0.04.

Looking at the segments. QNX revenue exceeded the top end of the guidance range at approximately $72 million, growing 26% year-over-year. QNX adjusted gross margin expanded by approximately 5 percentage points year-over-year to 86%, helping drive adjusted EBITDA growth of 52% to approximately $19 million, representing approximately 27% of revenue for the quarter. In fact, based on revenue growth and profitability, QNX effectively delivered a rule of 50 quarter in Q1.

In Secure Communications, strong revenue performance of approximately $74 million also exceeded the high end of our guidance range, growing 24% year-over-year and contributing to operating leverage. Adjusted gross margin expanded by approximately 2 percentage points year-over-year, driven in part by a favorable mix of higher-margin software revenue. This resulted in adjusted EBITDA of approximately $20 million, representing a margin of 27%. Our licensing business contributed approximately $6 million of adjusted EBITDA in the quarter and continues to provide a valuable source of profitability and cash flow. Importantly, we converted the strong profitability in the quarter into cash.

We generated approximately $5 million of operating cash flow in Q1, which allowing for the patent sale in fiscal year 2024 represents the first time in 9 years we've been cash flow positive in the fiscal first quarter. This solid cash generation continues to strengthen our balance sheet and increases our flexibility to allocate capital in ways that create long-term shareholder value. At the end of the first quarter, we reported $423 million of cash and investments, representing net cash of approximately $223 million. This remains a strategic asset for the company and provides significant optionality as we evaluate growth opportunities and capital allocation priorities.

Early in the quarter, we continued to execute our share buyback program, buying back 2.6 million shares for approximately $10 million. This brings the total for the program launched last May to 18 million shares for approximately $17 million or an average price of $3.85 per share. We believe the share buybacks executed over the last year represents an excellent use of capital and demonstrate the disciplined approach we take in creating shareholder value. Last month, we announced a renewal and upscaling of the program, allowing us to repurchase approximately 27 million additional shares. The buyback program is one of several levers available to us as we allocate capital in a disciplined and shareholder-focused manner.

With that, let's turn to our outlook. With a strong beat in Q1, we are raising both our full year revenue and adjusted EBITDA outlook for QNX to a range of $295 million to $312 million, and $74 million to $86 million, respectively. As John mentioned, we remain very confident in the trajectory of the QNX business and the pipeline of opportunities before us. For Q2, we expect QNX's revenue to be in the range of GBP 70 million to GBP 75 million and adjusted EBITDA to be between GBP 16 million and GBP 21 million. The Secure Communications, we are pleased with the progress that this business is making in becoming a stable, growing part of Blackberry. For the full fiscal year, we are reiterating our growth rate of between 4% and 8%. For Q2, we expect revenue for secure comms to be in the range of $57 million to $63 million and for adjusted EBITDA to be between $5 million and $10 million.

For licensing, we are raising our full year revenue guidance to approximately $29 million and adjusted EBITDA to approximately $25 million. We are raising our Q2 revenue guidance for licensing as well to approximately $10 million and adjusted EBITDA to approximately $9 million. For the full fiscal year at a total company level, based on our improved outlook for QNX and licensing, we are raising both our revenue and adjusted EBITDA outlook to a range of $594 million to $621 million and $119 million to $139 million, respectively. The 90% flow-through of incremental revenue into adjusted EBITDA is another data point demonstrating a strong operating leverage in our model.

In Q2, we expect total company revenue to be between $137 million and $148 million driving adjusted EBITDA between $20 million and $30 million. We expect to deliver adjusted basic earnings per share between $0.03 and $0.04 for the quarter. And in addition, we expect another quarter of positive operating cash flow of between breakeven and $10 million.

And with that, let me hand back over to John.

Thanks for the summary, Tim. Before we jump into Q&A, as we step back and look at the quarter, I think there are 3 key takeaways. First, we delivered a very strong quarter with solid execution from our QNX and secure communications teams, both of which achieved Rule of 40 performance. Second, we remain excited about the long-term opportunities for QNX, particularly in GEM and physical AI and the ASP expansion potential from Alloy Kore. And third, we are pleased with the progress we are making with our business model, which gives us greater operating leverage and improves the quality and durability of our earnings.

That being said, it's still early in fiscal 2027, so we're remaining measured. As we said all along, growth won't necessarily be linear from quarter-to-quarter, but the drivers of long-term value creation are firmly in place, and we're investing behind them with discipline.

So let's now move to Q&A. Operator, can you please open up the lines for us.

[Operator Instructions] Our first question today will come from Kingsley Crane with Canaccord Genuity.

Congrats on a really significant quarter in Q1 year. I just want to touch base on secure comps. I mean the segment has grown 4 quarters in a row, $259 million revenue in '26, nearly $295 million annualized revenue in Q1, and so then we have the ARR base at $220 million in that DBNRR that tick down events to 92%. But clearly, the success in the segment is not fully described by recurring revenue. So I would just like to double-click on how you think both the nonrecurring and recurring base will trend over the next year? And just if looking at ARR is kind of no longer as helpful as maybe it once used to be.

Great question, Kingsley. I'll start, Tim, you can chip in. I -- we do think AR is a really good indicator of the underlying kind of stability and base level of the business. We use that as a measure to -- manage our cost structure and investments. And then there's going to be from the delta between the $220 million and our $280 million or so guidance for the year, tends to be on some of these shared services candidate deals or deals that require some upfront revenue recognition based on some of the data centers or technology that we're building out ahead of time from it.

So we believe AR is still a really good indicator just to the underlying stability of the business. And then the market and the opportunities that we're seeing with the geopolitical environment that we operate in today. It's more of a push for digital sovereignty than ever before. Those things are going to generate opportunities along the lines of SSC from time to time. They take -- there are long sales cycles. One of the things about the government is it takes a long time to get in and get deep with them, but it does become sticky and a long-term source of revenue and profit for us.

So to reiterate, I think AR is still a very good, solid barometer and then the conversion of opportunities from quarter-to-quarter on some of these large government opportunities is probably the best way to judge the upside.

Okay. Great. That's really helpful. And then really encouraging to hear the continued success with Alloy Kore and that we could secure a design win by the end of this year. I guess bigger picture, I'm curious what mix do you think Alloy Kore could represent of deployed vehicles, maybe even like a couple of years, like with 5% in fiscal '30, be reasonable? Would that be conservative at this point? I know it's kind of a long-term question.

Yes. I probably don't want to get into the numbers exactly how much it's going to be long term, but I will say it's significant. We think the upside, the increase in TAM repositioning ourselves from a operating system provider to a more deeper platform provider increases the addressable market for us and the dollars, the revenue, the ASP that we could generate per car by multiples significantly. It's not a 10% or a 20% income increase, it's like hundreds of percents increase. There's a tremendous amount of upside associated with that.

I think our -- it's early days. We are very confident we're going to get some wins this year. We'll announce them when they when they come. But I think the trust that our team, John Wall, in particular and his team around the world have earned with the OEMs on the OS side has really put us in a strong position to kind of move up the stack, work with some really trusted partners of the long lines of Vector, stitching together and integrating that middleware layer with the operating system layer. And that trust that the fact that they're coming to us saying, hey, you could do more for us so we could focus our resources on other things that will help us, we think, is a really strong sign. So watch this space. We're going to announce the wins as they come, but again, we think it's going to be a significant increase to the overall QNX business for the long term.

The next question comes from Suthan Sukumar with Stifel.

Congrats on a very solid print here on all fronts, impressive to see. For my first question, I just wanted to double-click on Alloy Kore. Is this new offering going to be strictly for net new programs? Or might there be an opportunity from a retrofit back book perspective with programs already in flight.

Great question, Suthan. Yes, it could be -- whether it's SDP or SDP, it could be whatever platform that we're working with a particular OEM and whatever particular models are. We do see it being a little bit more geared towards SDP 8 in our current architecture, some of the new designs and new models. So if I have to say what's the percentage of kind of future new models with advanced chipsets and advanced operating system and advanced middleware capabilities definitely tends to lean a little bit more there. But it can be and will be retrofitted to the extent that the OEM wants it to be at SDP 7 or kind of earlier versions of the product.

Yes. I'll just add to that, if I may. There's potential for some programs that are currently in flight to be effectively curtailed and moved over to Alloy Kore quicker. So what that would represent is an uplift on existing backlog, which would obviously be a significant thing for us. So yes, mainly net new programs, new platforms that potentially could accelerate the movement to those new platforms and with it, an uplift in backlog.

For my second question, I just wanted to touch on the GEM opportunity a little more here. Can you speak a little bit about competitive win rates in all your verticals outside of auto. Kind of curious how they're stacking up to automotive where you obviously have strong leadership. It's thinking about what might be structurally different in the competitive backdrop when you look at auto versus nonauto. Because I know in the ladder, there's more of a prevalence of open source, but just wondering if that's even a factor at all.

Yes. We think our strength and experience in the auto side is I think what really positions us so well for the GEM space. as we kind of said before, cars are basically robots on wheels, big computers that are increasingly with autonomous driving, interacting with society. So when we put that over towards the GEM space, we definitely see robotics as a major category for that real-time determinism, the safety certification, security, the reliability, all of those values that go into how we support the auto industry. We think, give us an edge up on some of these use cases and categories in the GEM space.

As we always try to be really focused and disciplined on particular categories. chasing every sector, every -- it's a big market out there. In GEM, we've been really clear, robotics, medical instrumentation, industrial automation, those are probably the 3 most significant categories that the values of what we provide in auto really adjust well to those sectors of GEM. And as a result, the pipeline is strongest it's ever been. We're seeing some really good opportunities across robotics and industrial automation in particular. So watch this space. We'll report more wins as they come, but we think that our institutional knowledge and experience from auto really adapts well to where the market is going from a GEM perspective.

The next question comes from Todd Coupland with CIBC.

I wanted to ask about Secure com as well. Could you just characterize the pipeline in the context of that wider win you had with the Canadian government. Is that a trend you're seeing in other NATO countries. And I guess part of my question along these lines is the net dollar retention has kind of been in the low 90s for a little while here. Where do you expect that to trend if in fact, this business is truly stabilizing to growing consistently?

Great questions, Todd. Thank you. Yes. I think really, that's fundamental to our strategy on the government side is plant the flag with one of our digital sovereignty products and solutions, and then expand it with other parts of the portfolio. And I think that worked really well with us with Shared Services Canada. We've built a strong pipeline, particularly across EMEA and Asia Pacific as far as some of these digital sovereign types of solutions, the encrypted data, voice and video solution, the [ Secusmart ], is really getting a tremendous amount of traction based on some of the geopolitical realities. And I think governments are starting to realize maybe I shouldn't do top secret communications on WhatsApp and signal and telegram and go to a much more secure, reliable communication.

So all of those trends, we think, is generating a really healthy pipeline for us across the business. So hopefully, that gives you a little bit more color on that one. DBNRR, we'd love for it to be higher. We're doing everything we can in terms of execution in the business and customer support to make it higher. I think long term, we'll -- we expect that to tick up higher from 92%, and our goal is to try to get it closer to 100%. We do have some inherent headwinds on some parts of the portfolio that dragged that down a little bit. But we are confident we're moving in the right direction, and we're targeting something closer to 100% as kind of our long-term goal. But the fact that ARR picked up 5% year-over-year, and DBNRR is kind of holding while we handle this transformation and execute upon it, we think those are good early signs.

Great. And then my second question around margins, clearly strong in the quarter. What's a good segment range to be expecting in QNX and Secure com?

Yes. Great question, Tom. So as I kind of mentioned in the prepared remarks, there's significant operating leverage in this model. I think on the QNX side, as we see a rotation more towards royalties, which come in at pretty much 100% margin, you're going to see potentially some further expansion. And a quarter like this past quarter where we did see strength in royalties, you see that in action. So we delivered 86%. I think there is potential for that to grow.

I think on the Secure Comms side, really to echo what John said, there's 80-ish percent of the business is ARR, and then you get these kind of time to time these big deals, which driving quarter revenue when you get a quarter with big in-quarter revenue, if the mix is predominantly towards software, which it certainly bolsters case in this quarter, then you can see some pretty significant expansion. So I think what we've done is we've set up the business this stable platform for Secure Comms that as we go and hunt these big deals, you can see some real expansion, but it's going to be a little bit of volatility from quarter-to-quarter.

So I think it's going to be a broader range on Secure Comms, whereas QNX should more or less start to trickle up as we see more of these bigger programs come online.

The next question comes from John Shao with TD Cowen.

Could you discuss your partnership strategy with NVIDIA given this physical AI opportunity how do the economic works? I know it's just too early, but could you describe the pipeline opportunity at this point?

Our relationship with NVIDIA has really evolved over the time. I mean, we started working together on the automotive sector with their [ Thor ] platform and then basically standardizing their architecture on QNX. And that relationship worked. It got closer and closer. And as they started thinking about physical AI and their whole halo safety stack, which is going to power that. I think their natural inclination was to partner with a company that has the capabilities that has the proof points that has the partnership that we have in the auto space, I think we were the natural choice for them to -- again, on their -- now their entire physical AI safety stack that they're going to be rolling out is standardizing on QNX.

So like any relationship, I think you establish it, you have some wins together. You build on that trust and those capabilities, and you take it to the next level when the new market opportunity presents itself. So I think it has been an evolving relationship and one that we're proud to be a part of.

That totally makes sense. John, you mentioned geopolitical risk earlier. So I just want to ask a question that front. Right now, China seems to be manufacturing the most robotics at the moment, and you have design win with OEM in that market. How should we think about the geopolitical risk and maybe some mitigations to reduce that risk?

From China specifically, John, or...

Yes, just exposure to China.

Yes. Yes. We've got a deep presence in China. In fact, I was in Shanghai meeting with our team and customers and partners and government officials. So we're very, very close to what's going on there. We've got strong partnerships. And I think as they continue to look to export some of their technology and their solutions outside of China. The need for safety certification and some of the unique capabilities that we provide, I think, are really hand in glove type of fit. So I don't think we'll be able to just naturally serve everything in China in every category and every opportunity. But I think there's going to be pockets where our technology in QNX and everything that we stand for in terms of certifications and safety and real-time determinism, all of those values are a really, really good fit for a country that wants to export more of their technology to the rest of the world.

So we think we can help them do that, and we work closely with them and the Canadian government to facilitate it. So obviously, [indiscernible], it's an evolving thing, and it's something we stay really close with. But we think our capabilities and the nature of what we provide can help them as they think about expanding beyond China into other markets around the world.

The next question comes from Steven Li with Raymond James.

I've shared the color on Alloy Kore potential wins. In terms of GEM's potential wins, could they be comparable in size to Alloy Kore or are they much smaller at this point?

I think just the nature of it, Steven, it will probably be more in volume in terms of the number of wins and a little bit a little bit smaller originally in terms of the actual dollar value itself just because with cars, you're talking tens of millions, you're talking models, you're talking -- they take a very long-term 10-year outlook. So just by the nature of the 2 industries and how they operate I think auto will tend to be a little bit higher.

That being said, we're really -- we've got some interesting opportunities that are brewing in the GEM space that we're looking forward to sharing with you all later on in the year. that we expect is going to continue to move the business forward. So definitely a little bit more in auto, but I would tell you, GEM is one of our -- is our fastest-growing segment inside of QNX right now, and we see a lot of tremendous opportunities across the categories that we talked about.

Great. And John, given your comments just now, so timing-wise, should we expect meaningful GEM's contract award this year? Or this is a more longer-term opportunity.

Yes. We -- if I'm honest, I'd be disappointed if we didn't have a couple of big GEM wins to share with you. We're really pleased with the pipeline on GEM and the pipeline on Alloy Kore. The uptake on SDP 8 has been tremendous, Steven. And the fact that QNX now is really a more diverse platform of capabilities from cabin to sound to the base operating system to alloy core the depth and breadth of what we have to offer our customers has never been stronger. So 2 of those segments, we're feeling really, really good about.

Okay. And then just one more for me, John. So I think in your prepared remarks, you said -- you mentioned developers license is the highest it's been in Q1. What is the mix auto versus GEM's in that?

Yes. We don't typically break that out, but it's kind of fairly representative of what you'd expect from the business that 80% kind of 20%.

So 80-20...

Kind of the mix.

The next question comes from Paul Treiber with RBC Capital Markets.

The long-term growth opportunity for QNX. You put some context to it. I was just looking at the '27 guidance was almost exactly in line with the long-term outlook that you gave at the Investor Day in '24, which is calling for 14% CAGR. Just based on the backlog and pipeline at this point, is mid-teens growth. What do you see as a reasonable long-term outlook for QNX like what you did sellback the Investor Day? Or do you see the potential for stronger growth over the long term?

Paul. So we're not going to give long-term guidance on this call today. I think -- we'll save that for our Investor Day that we've got coming up in the near future. What I will say, though, is we've never been as excited by the opportunities we've got here. I think the GEM opportunity is the potential to be absolutely huge. You're going to see that showing up in our backlog. It's going to translate into revenue. And then adding on top, potential from Alloy Kore, which could really be transformative for this business. Like John mentioned, multiples ASP, this -- both of those things have real opportunity to greatly accelerate revenue growth over the -- sort of midterm for this business. So yes, we're not going to pin down to a number. I think we feel incredibly confident about the trajectory of this business and our ability to execute against that.

And just for additional context in terms of the magnitude of growth of both businesses. I think you've been calling out that 80-20 mix. Is the expectation or historically, as GEM has been growing, I mean you mentioned it's bit faster, but how much faster has it been growing versus automotive?

Materially, materially faster. But obviously, it's a smaller base, so in terms of absolute dollars. This is how I look at it is that, yes, GEM's going great. Auto is growing as well. So it's not like that mix shift is necessarily going to happen rapidly because you've got 2 parts of the business that are both growing and you add in the potential here for Alloy Kore to really move the needle, that could really accelerate auto growth. So I see that as a really good problem to have if it's a problem at all, to have 2 really strong growth opportunities. So I don't see success for GEM to be -- that the mix shifts to 50-50. I just see success for GEM, is that we deliver solid growth over multiple years into the future.

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

Terrific. Hey, thank you, everybody, for joining us on today's call. We look forward to providing you a good comprehensive update next quarter, and we'll see you next time. Thanks, everybody.

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

Good morning. Thank you for joining us. My name is Luke Junk. I'm the Baird analyst covering electronic solutions and vehicle tech. It's my pleasure to introduce to you today BlackBerry, company built around 2 distinct franchises, QNX, which is a safety certified foundational operating system embedded in more than 275 million vehicles and increasingly as well a broad set of industrial, medical and robotics platforms and secure communications with mission-critical voice, critical event management and endpoint management solutions. Pleased to have Tim, CFO, to my left; and John Wall, President of QNX joining us for the discussion today. Tim and John, thanks for being here. Thank you.Yes, jump right into the conversation. So over the past year, BlackBerry's transition back to profitable growth and increasingly your positioning as the software and the human X-led company. Tim, can you just how do you see the business today what's changed in the business? And more importantly, where you see the biggest driver of growth looking out over the next few years?

So we've been on a bit of a journey. We've been on a turnaround that I'm here to say the turnaround is complete and BlackBerry is now a growth company. So we've done a lot of hard work over the last couple of years since we had a change in the management team to really look at what's working. We took a look at the portfolio, made the decision to sell off a business called Cylance. We took a lot of cost out of the run rate. , And ultimately, what we've done is we've managed to focus the remaining organization on 2 key objectives. And we've got John here who runs our QNX division. It's a division we're very excited about. We see a lot of runway for growth. I think we're really only just getting started QNX's a long way to go. But like I said, I think now we pivoted from value creation from getting -- get back to profitability through cost reduction to now looking to get operating leverage from a growing top line. And we've got a lot of secular tailwinds that are really propelling the QNX business in particular, but also our Secure comms division as well. And we think those tailwinds are going to run for quite some time.

So just bringing that to the here and now in terms of fiscal '27, if we look at the guidance for TX revenue around $300 million, the high end of that range implies 15% growth or so. Effectively, the EBITDA side of the equation flat at the midpoint as you're reinvesting. Can you just walk us through how you're prioritizing reinvestment versus margin expansion this year? And in terms of upside drivers, maybe what would drive upside both top and bottom line through '27?

Yes, a lot in there. So we've done a bit of a journey. We've been on a turnaround that I'm here to say the turnaround is complete and BlackBerry is now a growth company. So we've done a lot of hard work over the last couple of years since we had a change in the management team to really look at what's working. We took a look at the portfolio, make the decision to sell off a business called Cylance, We took a lot of cost out of the run rate,

And ultimately, what we've done is we've managed to focus the remaining organization on 2 key objectives. And we've got John here who runs our QNX division. It's a division we're very excited about. We see alot of runway for growth. I think we're really only just getting started QNX's a long way to go. But like I said, I think now we pivoted from value creation from getting -- get back to profitability through cost reduction to now looking to get operating leverage from a growing top line. And we've got a lot of secular tailwinds that are really propelling the QNX business in particular, but also our Secure comms division as well. And we think those tailwinds are going to run for quite some time.

So just bringing that to the here and now in terms of fiscal '27, if we look at the guidance for TNX revenue around $300 million, the high end of that range implies 15% growth or so. Effectively, the EBITDA side of the equation flat at the midpoint as you're reinvesting. Can you just walk us through how you're prioritizing reinvestment versus margin expansion this year? And in terms of upside drivers, maybe what would drive upside both top and bottom line through '27?

Great question. Yes. So you're right. We're guiding to 15% at the top end, which is our target. Obviously, pricing a little bit of downside risk for things like macro. But 15%, that's an acceleration of growth year-over-year -- we were 14% last year, moving onto 15%. And you're right. We could have taken the decision from a capital allocation standpoint this year to kind of harvest the incremental EBITDA that's coming off as a result of that increased top line. But we decided to strategically reinvest in a number of growth strategies. So we're going to talk about QNX moving up the stack and just being the foundational level with the operating system, moving up the stack with our new alloy core products, which John will talk about more, but also huge opportunity that we see in verticals adjacent to automotive.

So things like robotics, physical AI, medical instrumentation, industrial automation. There's a whole plethora of new markets that we're really quite underpenetrated or not even penetrated at all where our product resonates very strongly. So we've made the decision to reinvest that into the business because we feel that most value growth from here is really going to come from accelerating that top line and trying to harvest the opportunities we see.

Another lens we can look through certainly in this business is the royalty backlog. So you disclosed at the beginning of the year, I think it was around $950 million at the end of fiscal '26, if I remember right, grew about 10% year-over-year. You've said that certainly more is coming into the backlog than is being recognized in the P&L right now, royalties only part of that QNX revenue stream. So maybe you can talk about what is driving that acceleration in terms of new design wins, expansion within existing programs, content per vehicle, some of the major growth drivers in the backlog.

I think the major growth drivers at this point have been more content per vehicle. We're seeing more high-performance compute in the vehicle -- when we used to think of an ADAS platform, we would think of a single platform of high-performance compute. Now there's smart camera that's attached to it that's yet another socket for us. There are zonal controllers coming into the vehicle. So just more sockets for us to go after within the vehicle. But I think beyond that, we've introduced our new product, SVP 8, which is designed to scale with hardware, 8 cores, 16 cores, 3 cores, 64 cores, basically cloud compute [indiscernible]. And we're creating a higher level of value for the OEMs and the Tier 1's. So we're seeing more value coming out of that. And then specifically, as Tim mentioned, we have Alloy Core, where we partnered with a company called Vector in Germany. And now we're providing more than the operating system we're providing kind of the base level platform for an ECU, we're providing diagnostics, logging, communication as well as the operating system, life cycle management, et cetera. And this really has the opportunity to increase the ASP by 2, 3 or 4x what we're currently doing. So if you look at the expansion of the number of sockets, our new initiatives to push higher up the stack, that's really what's driving it.

I want to revisit a few of those points as we go through the conversation here. But in the near term, I'm sure one of the questions on people's minds is just given that royalty backlog looking beyond fiscal '27 into fiscal '28 and '29, just what sort of midterm visibility do you have in the business sitting here right now, Tim?

Yes. So one of the great things about QNX business is the level of visibility that we have compared to a traditional SaaS company where you might really have a year visibility. When we get locked into a design,we're in that design for 3, 5, 7 [indiscernible] decades. So it's a long-term model, which means that clearly, we've got a lot of benefit coming from that. Right now, we see an acceleration heading forward in terms of the amount of revenue that will come out of the backlog on an annual basis. And like you said, in terms of the growth of that backlog in this past year, we added nearly double to the backlog compared to what we took out in the P&L. So if you maintain that kind of ratio over the time, clearly, we're going to see significant growth [indiscernible] recognized in the P&L.

Yes. And just remind everyone like [indiscernible] just jump into the conversation, feel free to do that as well. I want to talk about some of these foundational things that you've been investing in and are setting up the story on the QNX auto side and certainly want to talk about [indiscernible] as well. But on auto, John, you mentioned SDP 8.0 and some of the parameters there. Can you maybe bring it to life in terms of where we are in the adoption curve right now in terms of what you saw in design wins in fiscal '26 and for existing programs, just how customers are looking at that on a go-forward basis?

Yes. I think the changes that we made to SDP versus SDP 7 are significant enough that all our customers are moving to SDP 8 either any new programs starting to is going to be an SDP 8 program. And those that started maybe a year ago or 2 years ago on SDP 7 have a plan to migrate to SDP 8. What we've heard from some of our customers is they could actually downgrade their hardware moving to SDP 8 because they get some much better performance. And that's a very strong equation when it comes to the value of the versus the uplift of our software. So it's a value proposition for the customer. So we see SDP 8 is the product going forward. We will be moving anybody that's on SDP 7 to the next program on SDP 8. Our partners have all moved to SDP 8 our silicon partners, the adoption has been very...

Can you talk about some of the near-term wins? I think you had a digital cockpit upsell in the most recent quarter, ADAS systems in Europe with certainly a chip connection in terms of Qualcomm as a supplier and then a Tier 1 supplier award for China on a Chinese SoC. Can you talk about which of these or maybe all of them are most representative in terms of where these next legs of growth are coming from? It really touches on some of the things that you mentioned, John, in terms of what's been going into backlog.

Yes. I mean we also mentioned the BMW high class as a big win as well. Those are all indicative of camera, cockpit, ADAS. These are all areas we form strong relationships with silicon partners. So we're winning really across the board within the vehicle. And I think that's a representation -- a small representation of the design wins that we're winning smart camera, digital cockpit, ADAS platform.

I want to talk about China as well. So competitive positioning there. It's been a growing piece of the story. If you look at the last few quarters, China is coming up more and more often in terms of the TNX story. I think the Xterra system on SoC award this quarter on the back of some wins in recent quarters is really showing where that momentum is going. Can you talk about just the positioning from a high level today, domestic OEMs versus multi in China and how you're competing against local alternatives in what's obviously historically been a pretty price-sensitive market.

China is a very unique market. It's certainly different from the other markets because there are a lot of domestic competitors to QNX. I think the way that we've been looking at it is that we kind of position QNX as a platform for the world that no matter where you ship your vehicles, this is going to be an accepted platform from a safety perspective, from a security perspective. We often like to position QNX as being Switzerland when it comes to selling software. So I think we have a better product that from my perspective is what it.

What we're doing is we're trying to work with more local Chinese vendors that can bring more value to the platform, similar to what we did with Vector for the rest of the world, we're working with some local Chinese companies to end up bringing more of a platform play, try to increase the speed of their deployments. A lot of people talk about speed of China, they move faster, but they also had no baggage. So now they're starting to have baggage. They're starting to have cars that are in the market that they have to support. So the platform play that we're doing with Vector is something that we want to do in China as well, but maybe using more of the Chinese flavor .

You mentioned certainly exports, I think, are a key part of this, also just safety certification. And maybe if we can unpack that advantage, your comment on QNX is the best solution to some of the alternatives in China and where you're seeing incremental focus from local OEMs, certainly, if there's more of a safety [indiscernible] around the decision, I would assume that puts QNX driver seat.

It absolutely gives us an advantage. And I think without naming them, I think some of the software players in China are not necessarily well accepted outside of China. And I think that the export marketplace plays a big role in helping us to sell our software in China. I mean that is how we position it you trying to maintain 2 platforms, the domestic platform export platform, which is what they were trying to do in the beginning, I think is very difficult. And so I think it's an advantage for us to kind of be able to sell something that we use domestically and on the export market.

Okay. Well, let's wait long enough. Let's talk about [indiscernible] core and middleware opportunities maybe just level set, this I think, is on track for general release this calendar year. I think, John, your CEO has called it one of the most underappreciated parts of the business. What needs to happen from an execution standpoint between now and year-end for that to fuel more obvious in the BlackBerry story looking out over maybe the next year or so, John?

Yes. So we need to have some design wins that we talked about. I think that's the #1 piece. From an execution and developing the platform, we've got it. That's not a problem. We're well in control. We have a number of customers that have made comments. So Mercedes-Benz made a public comment about our Core. We're in the process of a design win today in Europe that we hope that we'll be able to announce in the next 2 weeks to 2 months, depending how the contract negotiation goes. And I think that, that's really what's going to help propel this. We've been having -- we have a number of customers that we can't name that have the platform, have an early access to the platform, and that's both in North America and Europe. So as we can start to announce some of these wins, I think this is what's going to really start to bring this to life.

So Mercedes one customer you've said that is publicly trialing Allior right now, can you just talk about that engagement specifically and sort of how closely you can work with them to drive towards hopefully a design win in the near future?

Yes. I mean -- so we've been talking to Mercedes about this concept and other OEMs for several years. And I think the thing that's very interesting, and I repeat this is this is not us trying to push this platform into the market. This was a [indiscernible] were asked to build this by one of the OEMs because the platform is really a nondifferentiating piece of the car. People don't see this part of the system, but it is the foundation of the system and it's where a lot of the car companies have struggled. -- performance, stability and a lot of delays are based on that layer of platform. So we feel pretty good that we're building the right platform because we're building what we're being asked to build. So it's not rolling the dice on a road map here. This is what the customers have asked for. If the customer wants to know, we can. And in this case, they want more. And we feel very comfortable that we're going to be validated on this platform.

Tim, you said that ASPs here could be your deck many multiples, correct me if I'm wrong, more OS royalties. Just help us understand the unit economics in terms of some of the drivers of that comment. And then obviously, there's a little complexity here in that you've got a partnering factor and just the value attribution. I think more of the value ultimately is going to land with QNX and BlackBerry, but just maybe any way to contextualize that...

Yes. From a unit economics perspective, we see this as potentially being transformational. So selling the real-time operating system, it's a relatively small part of the software stack. It's a critical part, one which we feel very passionate about. Obviously, we feel it's got a strong competitive moat. But as soon as we start to move up the stack and take all these other components that John mentioned, start to pre-integrate safety certify, you're effectively taking a lot of work off the plate of the OEM. And you're actually giving them a superior product as well. It's much more integrated, it's much more robust. So really, there's a lot of value to the OEM coming from this. We're able to free up a lot of their software engineers to go work on the pieces that John saying this is undifferentiated, work on the differentiating things. Things like the applications, how good is your protection engine, -- how good is your infotainment system.

These are the things that make a vehicle look different to another. So by taking all of this off their hands and actually, we believe even with a significant uplift in unit economics from our perspective, this actually potentially save money for the OEM. It's a very compelling proposition. In terms of the relationship, yes, the IP is predominantly QNX. So very significantly QNX focused. We'll take the full top line and then the share will come through cost of goods sold. So in terms of gross margins, we've got a very strong gross margin from QNX. We're in the low to mid-80s for QNX, we're not going to be too far removed from that. It's clearly not going to be quite the same, but it might be too far. So that's why I say it could potentially be transformational because significant uplift, many multiples of the unit economics just for the operating system.

Yes. Can you talk about Vector as a partner? I think maybe there's a mixed knowledge base who your partner is and just reputation what they represent is that you obviously have some choice and to work with...

Yes. So we call Vector a like-minded company. So Vector is a German company, and they provide what's called classic AUTOSAR and adaptive AUTOSAR. So classic AUTOSAR, think of that as a software foundation for brake controllers, engine controllers. They are the dominant force in the world to work with [indiscernible] , and then adaptive AUTOSAR is a framework and application framework for high-performance compute. They're the dominant force. So we would joke that, hey, we're in programs together all the time, why don't we work more closely. And then the industry started saying, hey, we really need the industry to work more together. So we got together at the ARM APM a few years ago and decided we should get this to go. The teams are integrated. It's one software team that's building this, and it's been a great experience working but they are a [indiscernible]

What about the competitive set for this offering? I mean should we think about folks like Electrobiti, internal OEM stacks like CAD, something else? Or even is there a competitor for what you're bringing to market right now?

So yes, there's a lot of things you mentioned. The Tier 1's are trying to build the platform. And again, the problem there is one of the things when you talk about the core platform, they have all the properties that Tim talked about really tight integration, high performance ever. But it's also a platform that can take from chip to chip and to Tier 1 to Tier 1 and be able to the assets. As soon as you get locked in with the Tier 1, you're in the ecos -- and you cannot take what that Tier 1 has built and bring it to another Tier 1. So one of the big advantages of our core is to provide a consistent foundation that allows the customer to be able to reuse their assets regardless of the chip and regardless of their integrator, whether it's a Tier 1, whether it's just a software integrator, it just gives them a lot of, I would say, flexibility on who they work with.

And Tim, can you just remind us on timing? So sensibly if you get that first design win and hopefully follow-up design win, we're still probably talking a couple of years out in terms of the revenue contribution. Is that right?

Yes, absolutely. So it follows the normal QNX model in such that really interesting part talking about this multiples in really comes when the vehicles are being produced. So clearly leading up to that, there's going to be a period of time where there's a development phase, which is exactly the same as you can see in the QNX. There will still be some early stage revenue, development services as before and also a subscription to have access to the platform. That's something new that we've not had before. So the really interesting part would obviously be production. But what you'll see initially, Luke, is it will go into backlog. And at scale, this can be really significant for backlog. Obviously, we've got to get a couple of design wins in the bag, as John said, -- once we do, we'll definitely be talking about the impact that our backlog because we believe that could be...

Yes. We'll look forward to that. I want to switch to the other big growth engine within QNX, which is General Embedded, as you referred to it or the general embedded market. I think about 20% of QNX revenue today, but I think you said it represents more like half of the STP 8.0 pipeline. How should we think about mix looking out a few years from now? And maybe more importantly, the gating factors driving that, be it sales capacity, deal size, structurally, this is a different market, pipeline conversion, the main things that you're thinking of?

Yes. I mean when we look at the market, what we're really focused on today is we decided we're going to go after medical, and medical robotics, industrial automation and robotics. And they all share a very strong tie. I was actually at the Boston Robotics event last week. I was on a [indiscernible] panel. And what I learned is that those that are building robots at scale for factory warehouse or warehouse automation have the exact same requirement of automotive, highest levels of safety. These robots and they're not humanoid robots. We're talking about automated forklifts, skateboards to carry cargo. They need to operate in uncaged environment that they must not do harm to many humans. So we're going to start to see more interaction between the robots and humans. These are actually the scale is quite large. These are millions of units. So that looks very good from our perspective. Some of the other markets, industrial automation, yes, the deals are smaller, but there's more of them. So I think it's -- from our side, it's getting more feet on the ground, more salespeople that can actually take advantage of these opportunities. The opportunities are there. The world is shifting to high-performance compute. Everything is getting more automated, that requires safety. And also the big thing that we see in robotics that is a real feather in the cap for QNX is, is a real-time operating system, which means it's deterministic. What does that mean? That means we can react to an event in a very consistent manner. Same way every time, no matter how busy the system is. That is essential in robotics that's operating in very tight spaces and has to be able to react to. And we were told this over and over last week, we visited a bunch of customers that determinism is critical in...

What about content? I think that's one of the offsets is you mentioned QNX from an [indiscernible] standpoint in automotive, relatively small contribution relative to what you're thinking about for Allied. Should we think of this being a more content-rich environment. And I think you've also alluded to the fact that maybe with M&A, you could add something that looks like Alloy Core, but really more positioned on the gun side of the equation.

Yes. I mean we're learning. This is a new market. Again, what I learned about the robotics market, it's a nascent market. It really is. We see humanoid robotics, dancing and choreograph, but the reality of it is it's going to be robots that are automated forklifts, skateboards to help manufacturing warehouses, et cetera. We've already started understanding there are a lot of things in common with Alloy Core that they require. There may be some tweaks, there may be some changes. But I think we're going to get to a platform like Alloy Core for medical, for industrial automation for robotics much sooner than we did for automotive. I think there's more of a willingness in those markets to embrace a platform that doesn't work for them and for them to really focus on the applications.

Tim, would you touch on [indiscernible]

Yes. So one of the things I said earlier that we've done a lot of heavy lifting. We've come back to profitability and also positive cash flow generation. Last year, we generated $50 million of operating cash flow. This year, we're guiding to doubling that up to $100 million. Our balance sheet is strong. So we do have capacity. What I would say is we've come a long way in terms of getting focus and obviously improving significantly the financials. So any M&A, if we were to do it, the bar is going to be pretty high. It's going to be high on both sides, strategic fit and also the financial profile. And why I say strategic fit is really important. John has got a heck of a lot of opportunity [indiscernible] still in the relative early innings on the side and we're really only just getting going on. Huge oppertunities [indiscernible] . However, if we can find an acquisition which makes sense can give us some of that scale, critical mass in automotive [indiscernible] -- so there might be some ways to fast track that. But regardless, I'm very excited about the organic opportunities we've got in front of us.

Yes. We got a couple of minutes left. Maybe a final question on [indiscernible] would be chip maker relationship. So a couple of months ago had an announcement with NVIDIA. Maybe we could double click on that and then load that out. So it's not just the NVIDIA story.

No, that's...

Exactly as well. Yes, in our regular QBRs with silicon partners, whether it's NVIDIA, Qualcomm, TI, NXP, et cetera, the move into robotics is to basically take the automotive stacks that they had and tweak them for the robotics because, again, the properties are so similar, safety, security, determinism. So we were able to make an announcement with NVIDIA that the IGX platform, which is the platform for robotics will be running QNX similar to their AGS platform or the Drive OS for automotive. We're seeing the same thing. We talked about the silicon partners. Their plan is to take QNX and position that for the other markets as well. So we believe the silicon partners play an enormous role in our success. So we're thrilled that this is kind of where this is going. And it really helps us when we get to the customer because, again, in a lot of these situations, customers pick silicon before they pick software. Starting to change with Alloy Core, we will see that will change where it will be the software platform will be picked first and maintained, but traditionally, the hardware is picked...

Well, fortunately, we are just about out of time for questions here. So I'm going to stop it there. John, Tim, thank you so much for the time.

Thank you

Thank you....

All right. We're going to get rolling here. I'm Todd Coupland from CIBC. And welcome to the BlackBerry session.

From BlackBerry, we have John Wall, who's President of QNX. He's on my left. To his left is Tim Foote, Chief Financial Officer. John has been with QNX since 1993, If I did my research. Rejoined in -- left in '97, rejoined in '98 and has been there ever since 1998. And Tim has been with BlackBerry since 2016. And Tim was made the CFO in February of 2024. Welcome, John and Tim. And Suzanne Spera, who's IR lead, just recently joined BlackBerry. She's sitting at the table on the right here.

So gentlemen, welcome. We look forward to this conversation and getting into why BlackBerry has been doing so well this year.

It's great to be here, Todd.

Yes. Thank you. So Tim, why don't we start with you? Over the past year, BlackBerry has transitioned to profitable growth and positioned as a software company, which is QNX-led. Can you frame out what the business is today and what's changed? And what are the biggest drivers recently? And how will that look like over the next few years?

Yes, great. It's really good to be here, especially with the fireplace here for a fireside chat. So that's great. So BlackBerry has been on a real journey. So anyone who's kind of looked at BlackBerry in the past, maybe been in the stock in the past, I think now is a great time to relook at the story. I think it's fundamentally a different company from where we were. I think over the last couple of years, we've been in like the first part of the story for us on this journey, which has been really about value creation through getting the cost structure right. So we've had to make some really difficult decisions. We sold off an asset, Cylance. We've taken out a huge amount of cost out of the profile, more than $150 million at the run rate.

And like you said, Todd, we pivoted the company from one which was loss-making, burning significant amount of cash to one that's now solidly profitable. We've had 8 consecutive quarters of improving GAAP net income and also generating cash. We generated $50 million of operating cash flow this past fiscal year. So that value creation has been about increasing profitability, but really, if you look at it on a declining to now, sort of, fairly flat top line. Where we're going now as a company is really value creation through a significantly growing top line and the operating leverage that comes from that. So all the way through this period, our QNX business, which John is going to talk about in a lot more depth, that's been growing nicely, and it's actually starting to accelerate.

It's a business really with the wind at its back. It's got some great technology, a world-class team and some really strong secular tailwinds. So we'll get into that in a lot more detail. But the other side of the business, which is just shy of half of the revenue is in our Secure Communications business, which is really the heritage of BlackBerry, if you like. It's about how do you secure mission-critical communications. That has now pivoted back to growth as well. So there's a couple of tailwinds in there, digital sovereignty, which is a real buzz thing at the moment, but also defense spending. Both of those are catalysts for that side of the business. And actually, we're guiding to the first year of top line growth for Secure Communications in the last 6 years.

So you put it together, you look at BlackBerry as a whole now, you've got the QNX business, like you said, QNX-led, is our #1 focus. growing, accelerating and generating a lot of opportunity. But you've also got the Secure Communications and our licensing business, which we don't really talk a lot about. All 3 of those are now growing and adding value through profitability and cash flow.

So Tim, to set up the conversation for a numbers-oriented crowd, frame up what revenue growth and EBITDA margin should investors expect for the company overall?

Yes. So if you look at the QNX division, we delivered 14% growth -- top line growth this past fiscal year. It was a Rule of 40 division overall. We continue to see acceleration at the top end of our range, which is our target. We go from 14% to 15% growth. Secure Comms is somewhere between 4% and 8% year-on-year growth, and our licensing business is relatively flat. So you put that all together, we're now back into modest single-digit growth as a total company, but profitable as a whole. And when you look at cash flow, I mentioned we generated $50 million of operating cash flow. That's going to double this year to $100 million.

But we have made a conscious decision this year to reinvest the incremental EBITDA that's coming out of the QNX business back into it. So I think when we get into the opportunities that we see, the organic opportunities we see, they're really very exciting. And I think right now, that's a great place to deploy capital.

So John, let's talk about QNX here. For those of the people in the audience here who may not be as familiar, just describe what is QNX for auto, what is QNX for general embedded, and give an overview of BlackBerry's role there.

Sure. So the good news is QNX for auto and QNX for GEM are the same thing, which makes the GEM market very exciting for us. But what we do is we provide what we call foundational software for mission-critical applications where functional safety and the highest level of security is required. So we make an operating system, and we make a virtualization system. And then we build on top of that platform. What we don't do is we don't get into the application space. So we play a very horizontal role in the car where we could underpin the digital cockpit, safety features, ADAS features, autonomous drive features, just about every high-performance compute platform in the vehicle is available to us.

And now what we're seeing in the general embedded market is the same things that we've seen in automotive, which is the need for higher performance compute, the need for more speed. We're seeing that in the other markets. The whole physical AI world where we're talking about cooperative robots requiring that same safety, same determinism, and security. We're really seeing that growing in the GEM market. So we feel we have a very strong opportunity there.

Cooperative robots. I'm going to work that into our research. What are the main levers for QNX growth right now?

So there are several main levers. I would say expanding in the GEM market is all upside for us. We're 80% automotive today. So a big opportunity there. The other opportunity is in automotive, there's still more sockets to be won. The automotive market is just starting to mature in this high-performance compute. There were a lot of challenges. We've seen that in the automotive market, but we're starting to see that mature and move forward. And then there's also the ability for us to sell more.

So we recently made an announcement that we're working with a German car company called Vector. Vector is a very well-known software company that's supplying to most of the automotive world. And so we're building a platform together that is 1 plus 1 is 3. So we're building out a platform where the ASP is going to be significantly higher than an operating system or a virtualization solution?

I do want to talk about Alloy Kore. We'll come back to that and Vector in a moment. One question we often get from investors, though, is software in the vehicle has been a trend that's been growing for quite a long time. Why hasn't QNX been growing at 15% a year for the last few years?

So I -- we have been winning, I would say, for the last 6 years, but car companies have had trouble getting to production. And the way our business model is structured is 30% to 40% of our revenue is development seats and services, but the bulk of our revenue is when the cars ship. And if the cars are not shipping and programs get delayed, then we don't see the revenue. So this is what I'm talking about when I'm saying the carmakers are now maturing. They're understanding the software. They understand where they should be playing in the software stack, should be much more focused on the applications and things that their customers can see. We've seen all the struggles in the past few years. So now we're seeing things are getting into production.

So your backlog is $950 million. It's grown rapidly in the last few years. Should the backlog growth match the revenue growth? Should those 2 come together over time?

Matthew, we talked about that. I'll let Tim handle that one.

Okay. Fair enough. So yes, so our backlog, just to paint the picture for anyone who's less familiar, that is the royalty piece that John was talking about the production base piece, and that's closing in on $1 billion now of backlog of estimated future revenue to come from that. That has been growing quickly. I think now we're getting to a law of big numbers kind of situation. And the way I look at it is how much goes into backlog each year versus how much we're taking out to recognize in the P&L. And this past year, we put in twice as much as we took out.

So for me, that's a really strong indication of future growth. Clearly, if you keep doing that perpetually, then in theory, your royalty revenue is going to double over time. So that's what I'm really focused on. It is -- it means that this business has got a line of sight that a lot of software companies do not enjoy. And we've got line of sight to know what our royalty revenue at least is going to be for the next 2, 3, 4, even 5 more years. So it is a very solid aspect of this business. It's very sticky. Once you get into a design, you tend to generate revenue from it for 5 to 10 years, which is a luxury that others don't.

So Tim, investors ask this question all the time, how solid is that backlog? Is it contractual? You mentioned it's royalties, and that's obviously tied to vehicle production. But should investors be worried whether or not you're actually going to get that backlog or not over time?

Clearly, it's estimated, so it's not guaranteed, right? However, churn, we monitor churn of the backlog. It's a relatively low number. One of the good things really is we're not single threaded. So the QNX business really works with everyone in the industry. And we've seen some big shifts. So electric vehicles, for instance, have obviously shifted out to where they previously thought. But what's happened is you see a growth in hybrid and a continuation of internal combustion engine ICE programs. So when you're kind of as ubiquitous as QNX, if one is losing, be it a type of powertrain or a single OEM, it tends to be that the others are kind of winning. So we kind of ride with the wave. So yes, there is obviously some churn. It's wrong to say there isn't. But generally speaking, it's pretty low.

What's the split in the backlog between automotive and GEM? And how will that shift over the next couple of years?

So it's kind of mirroring. As John said, if you took a typical quarter, it's kind of 80-20 in favor of automotive. And the backlog kind of mirrors that as well. So over time, we actually think GEM is going to become a bigger portion of the pie. But the interesting thing is it's going to have to run pretty quick because we still see growth coming out of automotive and pretty significant growth. But when we get into the Alloy Kore conversation, the ASP difference there is huge. I mean we've got to couch it. We haven't announced our first design win, but we are in active pricing conversations with customers, and they haven't kicked us out of the building. But we're talking multiples higher. So not just 10%, 20%, 30%. We're talking like 4, 5, 6x potentially. So if automotive continues to grow, GEM may not instantly become 30%, 40%, 50%, but that doesn't matter. It's all growth and it's all upside to the story.

So that's a good transition. So maybe for the audience, describe what Alloy Kore is, and why are the OEMs interested in it?

So Alloy Kore, specifically for automotive, is a foundation layer of software that provides everything an ECU requires to support a function. So it has virtualization capabilities. It does diagnostics, it does logging, it does communication. These are all the things that are essential to any ECU going into a car. And the idea here is that we provide this on the hardware of choice, and it accomplishes 3 things. First of all, it separates the OEM's software from the hardware, meaning they can reuse their assets. Time to market, they can get to market much quicker because they're now focused on their application level, not what we call in the underwear of software that they really don't belong. And it will help them reduce the delays that they've experienced.

When we looked at the market, when we looked at where the carmakers were struggling, it was all at that layer. It was all at that really low-level layer that really requires specialized people to do that work. The good news with Alloy Kore was it's not a push for us into the market. This was a pull. We had developed Alloy Kore, it wasn't called Alloy Kore at the time, but 6 or 7 years ago, and the OEMs weren't prepared. They just said, yes, we'll do that. We won't need that from you. Now the OEMs have come to us and said we really need to help with our platform. And so what they're looking for is they're looking for the ability to switch out hardware, but always maintain that same level of abstraction to the hardware. I mean you can think of it as iOS or Android for phones.

And if the ASP for a QNX OS was $10, what would be the ASP for an Alloy Kore deployment?

It's going to be anywhere between 2.5 to 5x more.

Okay. And you have a partner, I guess, or a pilot program announced with Mercedes. Give us an update on how that's going, and how that would manifest itself to a design win and into the backlog if, in fact, they decide to go with you?

Obviously, I can't talk about the specifics of the discussions with Mercedes, but I can tell you that from a technical perspective, it's the right solution. So that's at the stage that we're at now. It's more of a negotiation.

Yes. And maybe think about it this way, if 90 million vehicles are produced globally, how much of the market is Ally Kore appropriate for?

Going forward, I would say probably most of the market because there's going to be compute even in the less -- or the least expensive vehicles will have some level of compute going forward. I mean maybe not today, but they will in the future.

And sir, one last follow-up on Alloy Kore. So you get a design win now. When does that flow into the financial results?

So the programs that we're targeting are model year '29 or '30. Now there is still a subscription fee to the platform. So we will see development revenue, project level revenue, but the royalties will start in '29 or '30.

So then that shows up in backlog, I guess, now versus revenue in the next couple of years in terms of royalty revenue that is.

It will. Absolutely.

Yes.

So we did have one investor question on this, wondering whether or not automation from AI can do any of that middleware instead of your offer. Can you just talk about the risk of automation from that?

Yes. So we obviously, we think about that. We use AI internally at QNX. We use it to do -- when we look at our engineers, we say 30% of the time, they're being creative, 70% of the time, they're doing work that's grunt work they don't want to do. So we're using AI to help with that to become more efficient. We're not using AI to do creative work at QNX. We're using engineers to do creative work. And even when we do, we allow AI to help us with some of the more mundane work, we still always have a human in the loop because when you're building safety, functionally safe software, highly secure software, you have to have -- the safety standards don't contemplate AI building it for you.

So we asked Claude, "How long would it take you to build QNX ?" And Claude told us it would take $12 billion in 10 years.

It's not a hallucination, right?

No, no. But I mean, when you look at this platform, it's very complex. I mean you're not talking about an application. You're talking about an operating system, all the peripheral pieces, the file systems, networking. How we do the optimization of that networking in the context of the protocols for automotive. This requires a lot of expertise that's not in the open domain. So while we think about it, we look at it. Our vision is to keep a strong offense, not to play defense against these things. There's not much I can do about it.

Yes. And in the discussions on Alloy Kore with the OEMs, do you find that they are back to reconsidering whether or not they should do this internally with the AI tools? Or is it still full-on interest in Alloy Kore?

Full on interest. I've not heard anybody say they're going to use AI tools to try to do what we're doing. That doesn't mean they're not thinking that, but we've not heard that.

Talk about your competitive position and the competitive environment with respect to QNX.

So our main competitor, I mean, we used to talk about our main competitor being VxWorks, Green Hills, the other RTOS out there. We don't see them in automotive very much. We see them in GEM because they have a long incumbency there. But really, when we're looking at our competitor in automotive, we're -- our competitor is Linux. And on the safety side, we have not yet -- we have yet to see a compelling Linux solution that makes any sense for the carmakers.

I mean it seems like your market share is -- I mean, monopolistic seems too strong, but...

Some have used that word. Some...

It's very high.

It's very high. It's very high.

And sticky. Let's talk about the GEM market. A lot of people are wondering what is QNX's exposure to the emergence of physical AI. Can you just talk about the potential there?

Yes. I mean my marketing team has been harassing me for the last 3 years to come up with an AI story for QNX, and I just wasn't able to do it. And then I got a call from an IP company for silicon that said, "Hey, you guys are the foundation of physical AI." And started thinking about it, okay, what does that mean? Well, everything we're talking about with AI today is typically in the digital realm, chatbots, developing code. But where AI is going in the future is going to be much more in the physical world, robots. When you think about autonomous drive for cars, it's really a robot on wheels. And -- so we started thinking about that, and we started positioning the company in a way that we have a story around physical AI. And it's a compelling story, and it's really a true story about what we're doing in the field.

It's really the timing, the cooperative robots, everybody moving to higher performance compute. It's really an inflection point, I think, in the last year, 1.5 years, for QNX. NVIDIA, we did a press release with NVIDIA where their IGX platform for robots is going to be based on QNX, very similar to what they're doing in automotive. The other chip makers have told us, basically, they're going to leverage their automotive software stacks for robotics. And we're in a position where that's QNX.

So that's a good transition, the NVIDIA announcement. What does that collaboration mean for you? And how should investors think about the potential?

Well, I mean, I think it's Jensen that said this is a $4 trillion market, robotics. So obviously, it's very good for us. We've been working with NVIDIA for 25 years. Same people. People tend to stick around at NVIDIA, very similar to QNX. They're very vested in QNX. We have meetings with them on a biweekly basis with the executives. I mean, I think it just opens up a whole new realm for us. I also think on the automotive side, they're starting to get more traction in the Level 4 driving. They use QNX. So this is fabulous for QNX.

Any way to frame for investors, I guess, the ASP in one of these products and how that might manifest itself in your financials over the next 1 to 3 years?

I don't have that...

We don't give that, Todd, simply because if we said it on average, it's x dollars when we go and talk to BMW or Ford tomorrow, they're going to -- well hang on, I'm paying this. So we don't give that. It is -- how we look at it, how we manage the business really is on a per instance basis, right? So that is single-digit dollars currently just for the barebones operating system. The good news is we recently launched a new version of QNX operating system, going from our Series 7 to 8, significant uplift in performance, and maybe John can talk about that. But in terms of the ASP, it allows OEMs to be able to use to get a lot more bang for the buck out of the chip. And they could potentially even do the same thing with a less expensive chip.

So there's a lot of value to be had. And therefore, we are able to command a significant premium. Now we're not talking like the multiples on Alloy Kore, but 30%, 40% uplift is definitely what we've been seeing so far. So that's another way of creating further value. John, did you want to speak?

Yes. I mean I think a couple of things make it -- just to add to what Tim said is it's -- we do volume-based pricing. So if somebody is building an MRI machine and they sell 10 of them, the royalty is going to be different. And so it's going to be kind of a meaningless number at the end of the day. But I did want to comment on the SDP 8 Series 8 of the operating system. We talked about competitors. This is where we had an Achilles' heel with SDP 7 is performance-wise, scalability looking forward to the next generation of compute, 16 cores, 32 cores, 64 cores, our product did not scale.

So SDP 8 scales as well or better than Linux. Performance-wise, we match Linux, but we maintain safety, security. And what's becoming more critical that we have not talked about in -- when we've done these investor conferences is determinism. The fact that we are a real-time operating system, when you start talking about robotics, factory floors, the difference between responding to something in 1 millisecond versus 15 milliseconds is a difference between a disaster on a production floor.

Yes. And that seems to be a line in the sand at the moment for the customers, isn't it?

Absolutely. I mean I think if you're looking at our push into GEM in particular and you're looking at industrial automation, PLCs, it is an absolute line in the sand. They need that determinism. We had a very large design win in industrial automation just recently. And this company did an analysis of all operating systems that were available to them, and they said none of them could match QNX.

We have about 3 minutes left, and I want to talk about Secure Comm a little bit, if we could. So Tim, maybe for those less familiar with your Secure Comm business, maybe talk about the 3 units and its role within BlackBerry.

Yes. So we have 3 product groups, one is called Unified Endpoint Management, which is about controlling the flow of sensitive data to an endpoint, typically a phone, but also a laptop and other devices. That's around about half of the revenue comes from that product. It's a very mature product. But I think it's now found a niche, and that is really high security, on-premises deployments. Really, we're the only show in town that's left in that space right now. And that is really resonating.

I mentioned digital sovereignty, the need to control your data within your geographical bounds is something many governments, including the Canadian government are looking very strongly at, and the OEM is really perfect for that. We also have a product called Secusmart, which is encrypted voice and data, military-grade encryption. We're seeing a lot of traction with defense agencies right now for this product, but also general government. And then the third and final one is called AtHoc which is a critical events management solution. So it's a 2-way communication if there's some kind of crisis and you need to communicate with your employees or wider population. This is -- it's like AMBER Alerts on steroids. So different profiles, different growth profiles through them. But like I mentioned, the defense tailwind and also our digital sovereignty are really helping all 3 of those products.

I mean you recently did a really interesting deal with the Canadian government where you expanded exactly in that way. Should investors expect to see that kind of deal in other countries around the world?

We certainly got a very strong pipeline of opportunities right now, and they're all kind of similar in nature. A lot of them are with government. And like I mentioned, it's government that really want to control their data. They don't want to trust all their data to a hyperscaler, particularly a U.S.-based hyperscaler at this time. So it's kind of a renaissance for our business right now.

A lot of investors wonder about QNX and Secure Comm and they're together within BlackBerry. Maybe talk about -- would you view both of them as still core to the company at this point? And if not, why not?

So QNX, wonderful business. I think, hopefully, you're getting some of the enthusiasm we have for that business from this chat. It is our #1 priority. Clearly, there aren't a lot of synergies between these 2 businesses. But right now, given the pivot we've done as a company, there's no burning platform here. However, we're not unaware of the potential benefits of having a pure-play QNX-focused business. So -- but right now, our core focus is on making sure that, that Secure Comms business as with the QNX business is the best it can be, grow and harness the opportunities that we see in front of us. And if there are opportunities down the road for M&A, then obviously, as a public company, we have to look at that.

Great. Appreciate it. Thanks very much.

Thank you.

Thank you.

Good morning, and welcome to the BlackBerry Fourth Quarter and Full Fiscal Year 2026 Results Conference Call. My name is Betsy, and I will be your conference moderator for today's call. [Operator Instructions] 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, BlackBerry. Please go ahead.

Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's Fourth Quarter and Full Fiscal Year 2026 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 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'll 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'll indicate forward-looking statements by using words such as expect, will, should, model, indeed, believe and similar expressions. Forward-looking statements are based on estimates and presumptions 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 and 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 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.

Thanks, Suzanne, and thanks to everyone for joining today's call. BlackBerry finished the fiscal year with another strong quarter, delivering double-digit top line growth and marking the eighth consecutive quarter of improving GAAP profitability, capping 2 full years of significant progress in the fundamentals of the business. When this new management team was appointed, we promised a turnaround to transform BlackBerry into a profitable growth company, and I'm pleased to report that we've done exactly that. These are not just data points or even a trend, but a consistent track record of delivery. The turnaround is complete, and the BlackBerry story is now a growth story.

QNX delivered another Rule of 40 quarter, rounding out a Rule of 40 year. We achieved the second consecutive record for revenue in the quarter, exceeding the top end of the guidance range at $78.7 million, representing 20% year-over-year growth. The nature of the business means -- building on a solid and underappreciated Q3, we believe QNX is as strong as ever. Revenue was driven by a record quarter for royalties and development revenue had its best quarter of the year. We are delighted to report that QNX royalty backlog continues to grow, increasing to approximately $950 million. We added significantly more into the backlog than we recognized in the P&L this year. The backlog provides QNX with a line of sight to ongoing multiyear durable revenue growth that few companies enjoy.

Consistently adding backlog year after year, significantly above the rate it is recognized in the P&L is a key indicator of future revenue growth potential. This is not a business that is slowing down, but rather one that is compounding, powered by our continued leadership in automotive and growing momentum across physical AI, robotics, industrial, medical and emerging markets. The royalty engine is just getting started, and we're more excited than ever about the future of QNX. It is important to reiterate that QNX's growth should not be judged from quarter-to-quarter. The nature of the business means that design wins aren't evenly spread and therefore, neither are development tool purchases.

Further, the majority of revenue we secure from a design win will come once it moves into production, which is often 2 to 3 years in the future. As a result, some quarters like Q1 tend to be seasonally softer, while others such as Q4 are typically much stronger. We saw this last year. Q1 grew at a single-digit rate year-over-year in fiscal 2026. But QNX still delivered 14% growth for the full fiscal year. We expect a similar cadence this year. Despite that unevenness from quarter-to-quarter based on our strong backlog, pipeline and operating leverage, we expect QNX to remain a Rule of 40 business for fiscal year 2027. Therefore, it is important to focus more on the strength of our full year growth, the continued expansion of our backlog and our growing design win pipeline all of which points to QNX remaining a solidly double-digit growth business.

Our QNX strategy is underpinned by our automotive leadership. This past quarter, we demonstrated that with a wide range of design wins in multiple domains. Our largest win of the quarter was with a Tier 1 supplier for the Chinese market where QNX will be deployed on Chinese chip maker, Axera's SOCs in a range of smart sensors for use by a number of leading OEMs. China remains a large, valuable and growing market for us, demonstrated by this win, which comes on the back of several other significant wins in recent quarters. We continue to demonstrate our leadership in the digital cockpit domain, including a major win with one of the world's top 5 automakers based in North America.

We were able to successfully upsell the customer to a broader range of our product portfolio for a platform that we expect to go into production this year. We also secured a significant ADAS safety system design win in Europe with another top 5 OEM that is deploying a Qualcomm Snapdragon chipset. In addition to the progress in our core auto strategy, we have 2 key growth accelerators that offer significant upside potential. The first is the move up the automotive software stack beyond the core operating system into the middleware layer with our Alloy Kore platform. This platform combines QNX's safety-certified operating system and virtualization with our partner Vector's safe middleware to provide a pre-integrated safety-certified lightweight and scalable foundation for a number of key domains throughout the car.

Alloy Kore reduces software integration overhead for OEMs, accelerates their development and frees them up to focus engineering resources on differentiating customer experiences in the app layer. We continue to work very closely and effectively with Vector and remain on track for general release of the product this calendar year. While as expected, we haven't secured any design wins for Alloy Kore yet conversations with several leading OEMs, including Mercedes-Benz are progressing well. The platform represents an opportunity for significant ASP expansion compared to the revenue from selling the core operating system. Alloy Kore could be many multiples of that. The second growth vector where we're seeing significant traction is the general embedded space. Currently, approximately 20% of QNX revenue comes from non-auto verticals and the addressable market opportunity is massive, potentially larger than for automotive.

The technology we developed for auto is intentionally highly adaptable for use in adjacent verticals, and we're investing in go-to-market to drive adoption. Sales cycles in these verticals are often relatively long, but the pipeline we've been building is starting to convert and fiscal year 2026 delivered wins in several of our target verticals. This past quarter, we secured a significant win for our general embedded development platform or GEDP to be deployed in industrial automation controls for a major North American OEM. This was one of a number of wins in industrial automation, which is a key target vertical. We also secured a number of wins in medical instrumentation, including with Johnson & Johnson, where QNX OS for safety will power a new AI-driven heart pump.

Robotics represents one of our most exciting long-term opportunities as we stand to capture growth in physical AI. We are building pipeline momentum and expect this vertical to become a meaningful part of GEM growth over time. QNX has already proven itself as the platform of choice for physical AI, given its large footprint in all levels of autonomous driving. The car is the most complex consumer device and is essentially a robot on wheels. We believe our strong partnerships will support this growth. Recently, Arm announced its new Arm AGI CPU for use in physical AI. And during the launch event, CEO, Rene Haas identified QNX as one of its foundational software ecosystem partners in support of their aspirations in this space. We also have strong relationships with other leading silicon providers, including NVIDIA and Qualcomm, who are also pushing into physical AI and we believe these partnerships help position us well for future growth.

Now moving over to Secure Communications. Just over a year ago, the Secure Communications division was barely discussed. In fact, at the time it was viewed as a drag on our overall story, a business in transition as we focus from a broader cyber portfolio to our core strengths in mission-critical secure communications and digital sovereignty. Today, the situation has changed considerably. This past quarter, secure communications delivered a near Rule of 40 quarter, a result that would have seemed unthinkable a year ago. We believe it now represents under-recognized value within our portfolio. Revenue was strong at $72.5 million exceeding the top end of our guidance by 12% and delivering 8% year-over-year growth. Digital sovereignty, the desire for governments to retain critical data and communications on sovereign solutions hosted and operated in country is no longer a buzzword. Instead, it is a budget line item for governments worldwide and we are winning in this space with a demand environment that has seldom been stronger.

Together with rapidly growing defense budgets among NATO allies and beyond, the Secure Communications division is benefiting from meaningful tailwinds. Secusmart, our military grade encrypted voice and data platform delivered a strong quarter with revenue growing meaningfully year-over-year. This performance was primarily driven by sales to the German government, where Secusmart is a key and trusted supplier meeting the very demanding certification requirements of the German cybersecurity Authority, BSI. Our investment in the platform to support iOS devices in addition to Android, has driven a significant market opportunity for us with the German government, and we see a strong line -- pipeline of opportunities as we head into fiscal year 2027.

Outside of Germany, we were thrilled to announce a multiyear extension and expansion to our contract with Shared Services Canada. SSC is the Canadian government agency responsible for delivering and operating IT infrastructure and digital services for most federal agencies. As part of the deal, the Canadian government has significantly expanded its number of Secusmart licenses. This will help drive a strong start to fiscal year '27 with meaningful revenue from this deal expected in the new fiscal year. Other wins in the quarter included NATO and the Malaysian anti-corruption establishment. UEM continues to stabilize. Although full year revenue declined year-over-year, the renewal rate continued to improve and the value of multiyear deals increased by 47% year-over-year.

In Q4, we secured a number of new logo wins particularly by capitalizing on the BSI certification in Germany and where UEM is sold in conjunction with Secusmart. This quarter's wins were global and included the IRS, the German Bundesbank, the Council of the European Union, the Netherlands Rijkswaterstaat as well as Switzerland's Bank Julius Baer. AtHoc, our Critical Event Management solution had a solid quarter and full year, recording double-digit year-over-year revenue growth for Q4 and high single-digit growth for the full fiscal year. This past quarter, we secured expansions and renewals with a number of customers, including the U.S. Air Force, the U.S. Coast Guard and the U.S. Department of the Treasury as well as a new logo win with Australia's Department of Foreign Affairs and Trade. Key metrics for the Secure Communications business indicate an inflection point. Annual recurring revenue, or ARR, for Secure Comms increased by $2 million or 1% sequentially to $218 million, which is $10 million or 5% growth year-over-year.

Dollar-based net retention rate or DBNRR also improved by 2 percentage points sequentially to 94%, 1 percentage point higher than in Q4 of the prior year. Another reason we're confident in the durability of BlackBerry's growth is the competitive moat we enjoy across our QNX and Secure Communications businesses. This moat is multilayered and importantly, addresses the concerns investors have today about AI and software models. Let me give you 3 reasons why we believe our moat is durable. The first is that our QNX pricing model is different from traditional seat-based SaaS models. The majority of QNX's revenue is consumption-based, primarily driven by royalties tied to the number of high-performance systems powered by QNX in cars, robots and other intelligent edge devices rather than seat-based licenses.

Second, our software is embedded in the most demanding, highly regulated safety critical use cases imaginable where users' lives depend on the software working exactly as it should. AI is probabilistic by nature, meaning outputs can vary but the QNX platform is deterministic, delivering the same result every time without exception. That distinction matters enormously when our software controls the vehicle safety features such as adaptive cruise control or autonomous drive. We have built deep trust with customers through decades of flawless execution backed by certifications, such as the rigorous ISO 26262 standard for functional safety.

The stakes are high and the cost of failure could be catastrophic and the benefit of replacing a proven certified platform for a marginal price saving in our view, is not a trade-off that any responsible OEM will make. As a relatively small portion of the bill of materials, we see the risk and reward equation heavily skewed to our favor. The third is cost of delivery. QNX's scale across the automotive and other verticals drives a cost of delivery advantage that individual OEMs attempting to build and maintain their own solution, even with AI tools cannot match. On the Secure Comm side, our products are deployed in mission-critical, highly regulated, highly sensitive environments. The license to operate in those environments comes in the form of hard-earned certifications, which assess people and processes as well as long-standing customer relationships that take years to build.

Far from being complacent, we see AI as a net tailwind for our business rather than a threat. QNX is positioned to be a critical enabler for physical AI where there is 0 margin for error and learnings from our leadership position in demanding automotive environments serve as a perfect blueprint. Further, in the hands of our R&D experts, powerful new AI tools increase productivity, accelerate development cycles, strengthen our competitive advantages and enhance the operating leverage already embedded in our model. Touching briefly on licensing. Licensing revenue came in at $4.8 million, slightly below guidance due to quarterly variation in returns from pre-existing arrangements that are not indicative of any change in the underlying business. And with that, let me now turn the call over to Tim, who will provide further details on our financials.

Thank you, John, and good morning, everyone. Earlier, John described how both QNX and Secure Communications delivered stronger-than-expected revenue. This past quarter, we saw the impact of this year-over-year revenue growth in both divisions and for BlackBerry overall. QNX gross margins expanded by 1 percentage point to 84%, record revenues of $78.7 million. Further, this drove an 11% year-over-year growth in adjusted EBITDA for QNX to $21.4 million, representing 27% of revenue for the quarter.

For the full year, QNX delivered $71 million of adjusted EBITDA or 26% of revenue, which together with the 14% revenue growth meant that QNX was a Rule of 40 business, both for the quarter and the full fiscal year. The strong top line for Secure Comms also drove operating leverage, with gross margins expanding by 8 percentage points year-over-year in Q4 driven in part by stronger Secusmart software license revenue. This translated into a 27% adjusted EBITDA margin for Secure Comms growing to $19.5 million for Q4 and $56.1 million for the full year, well ahead of guidance from this time last year. Our licensing business contributed $6.3 million of adjusted EBITDA in the quarter and $21 million for the full year. This relatively passive income stream remains a solid source of both profitability and cash flow for BlackBerry.

Adjusted operating costs, excluding amortization for our corporate functions, came in at $11.1 million in Q4 and $41 million for the full fiscal year. Tight cost control reduced corporate overhead by 5% year-over-year in fiscal year 2026. Pulling this all together, BlackBerry had a very strong fiscal quarter and solid fiscal year. Total company revenue grew 10% year-over-year in Q4 and 3% year-over-year for fiscal year 2026. For the quarter, year-over-year, gross margins expanded by approximately 5 percentage points to 78.2% and adjusted EBITDA margins by 8 percentage points to 23%. For Q4, BlackBerry generated $36.1 million of adjusted EBITDA driving full year performance, exceeding the top end of our guidance range at $107.1 million. Adjusted earnings per share for Q4 also beat the top end of the guidance range at $0.06.

In Q4, we converted this strong profitability into cash flow. During the quarter, we generated $45.6 million of operating cash flow and a further $38 million in deferred proceeds from the sale of Cylance to Arctic Wolf. This conversion of profitability into cash continues to strengthen our balance sheet. We exit fiscal year 2026 with $432.4 million of cash and investments or $232 million of net cash. This provides the company with substantial optionality for capital deployment. This past quarter, we continued to execute on our share buyback program, repurchasing 6.7 million shares for $25 million. This brings the total since the program launched in May of last year to 15.5 million shares or $60 million. The share buyback program serves 2 purposes, offsetting dilution from equity-based compensation and signaling how we value the company relative to current price levels.

Further, given our capital generation, we are actively considering tuck-in M&A as a way to further accelerate growth in QNX. While QNX has a strong organic path to durable long-term growth. We also see opportunities to increase both the speed and scale of that growth through strategic buy-side M&A. The bar is high, however, and any M&A need to be compelling both strategically and financially. Moving now to guidance for Q1 and the full fiscal year. As John mentioned, the turnaround is now complete. BlackBerry is now positioned as a sustained growth story. QNX entered fiscal year 2027, with solid momentum. For Q1, we expect revenue to be in the range of $60 million to $64 million, reflecting the seasonal cadence that we've seen from QNX in recent years.

As John mentioned, growth from quarter-to-quarter is unlikely to be linear due in part to the impact of upfront revenue from development licenses. Therefore, some quarters will have stronger year-over-year growth than others, but we believe the trajectory is clear and consistent. For the full fiscal year, we expect to continue to drive solid top line growth with revenue in the range of $290 million to $307 million. The top end of the range represents approximately 15% growth an acceleration over fiscal year 2026, and this is our target. However, given the current uncertainty in the macro environment, we believe it's only prudent to price in some risk to the lower end of the range. On the cost front, we continue to invest organically in our QNX business to capture the opportunities we see in front of us.

We expect a sustained top line growth to translate into adjusted EBITDA for QNX in the range of $69 million to $81 million for the full year. We expect Secure Comms to return to full year growth for the first time in 6 years. This is an important inflection point. The combination of digital sovereignty tailwinds and the benefits from key investments such as Secusmart iOS support, FedRAMP High authorization for AtHoc and UEM BSI certification is helping stabilize UEM and drive growth for AtHoc and Secusmart. We expect Q1 revenue in the range of $66 million to $70 million. For the full fiscal year, we expect to deliver top line growth in the range of 4% to 8% or $270 million to $280 million. We expect adjusted EBITDA for the fiscal year 2027 to be in the range of $57 million to $65 million. For our licensing division, the revenue stream is relatively solid, and we expect licensing to remain a consistent source of profitability and cash flow.

As a result, we continue to expect revenue to be approximately $6 million each quarter and adjusted EBITDA of approximately $5 million per quarter. Bringing everything together at the total company level, we expect BlackBerry to deliver an acceleration in top line growth in the range of 6% to 11% for fiscal year 2027, or $584 million to $611 million. We expect adjusted EBITDA of between $110 million and $130 million and non-GAAP EPS to increase significantly to be between $0.15 and $0.19. This EPS guidance does not reflect the impact of any potential future share repurchases. Finally, in terms of cash, consistent with historical patterns, Q1 is expected to be a seasonal low for cash flow, driven by the billings and payments timing. However, for the first time in 3 years, we expect BlackBerry to maintain positive operating cash flow generation in Q1 in a range of breakeven to $10 million.

Further, improved cash conversion is expected to drive full year operating cash flow of approximately $100 million, nearly doubling year-over-year. And with that, let me now turn the call back to John.

Thanks for the summary, Tim. And before we move to Q&A, let me briefly summarize the key takeaways from this past year. BlackBerry's turnaround is complete and we are now firmly focused on growth and value creation. Over the past fiscal year, we delivered consistently improving fundamentals highlighted by a record revenue quarter for QNX. Today, QNX is a Rule of 40 business with growing backlog and strong sustained momentum. Secure Communications has returned to growth, supported by a demand environment for digital sovereignty that is both real and accelerating. Across the company, we are growing, generating meaningful cash and deploying it with discipline. We have a proven track record of execution, a clear strategy, and we are well positioned for the road ahead. So with that, let's now move to Q&A. So Betsy, if you can please open up the lines.

[Operator Instructions] The first question today comes from Kingsley Crane with Canaccord Genuity.

Congrats on really impressive results. This term physical AI is in vogue now, and you've been building capabilities in the GEM space for years. I'm just curious if customers understand that automotive really can be a blueprint here and thinking about the distinction between deterministic action and probabilistic action, that seems important not just in auto, but also in other areas like general robotics. Just curious on that.

Yes. Yes. That's a really good perspective Kings. And that's something that we think is really resonating in the prospects and the pipeline that we're building in the robotics space and particularly in the GEM space. The credibility that we have in the automotive space with autonomous and all the safety certified capabilities that we provide there really translates so well into an environment like physical AI and I think for that reason, we get a lot of looks at new opportunities that maybe others don't and maybe we wouldn't have had in the past. But we think the combination of leveraging that subject matter expertise, the building out of our go-to-market function and some of the partnerships that we have there, we're really starting to see some solid pipeline. It will take some time to convert it and to turn it into backlog and royalties and the rest of it, but we are very encouraged by the momentum that we see in that space.

Thanks, John. Really helpful. And for Tim, look, the ASPs on the GEM wins are meaningfully higher than automotive. Could you just remind us of the delta between those? And would these opportunities in physical AI meaningfully expand that further?

Yes. Great question, Kingsley, and great to speak with you. Yes. So one of the things, obviously, is the volume equation. When you look at auto, you have some very significant volumes in terms of production runs. And you don't typically see that in GEM. But quite often in this space, particularly things like robotics and physical AI. Right now, it's speed to market, that's the most important thing as opposed to sort of driving gross margins for the OEMs themselves. So what we're seeing is less price sensitivity on that side of the house. What we see is, ultimately, the growth story is to have more instances of QNX running with more layers of software as well. And physical AI as John mentioned, being a really compelling safety critical use case is a really high-performance edge compute type environment that we really would excel in.

So yes, we believe that as GEM starts to grow as a portion of the overall pie because it is growing pretty fast right now, that could be pretty accretive to our gross margins going forward.

The next question comes from Todd Coupland with CIBC.

I wanted to ask about Alloy Kore. You talked about general availability later in the year, how meaningful this could be? How meaningful could this be to your backlog, maybe put that into the context of the $950 million you just reported.

Yes. Todd, we -- I will tell you -- Tim and I talk about this all the time. We think this is one of the most underappreciated part of the business in terms of our -- the upside potential that we have to this current year because we're finding more and more OEMs are looking for us to do more and more of this kind of partnership with the likes of Vector. So we're -- the pipeline for that is growing significantly and we do think it can have a meaningful impact to the overall backlog. We're confident on rolling it out in time. And we're also confident in converting a number of opportunities that are pretty -- progressing really, really well. So it's hard to put a specific number on it. It'd probably be inappropriate for me to do that. But I do think it can have a significant impact to that $950 million backlog and set us up even better for future growth in a place where we already have a lot of credibility.

And then in terms of robotics, exclude an automation, industrial automation, are you bucketing that in physical AI? Or is that a separate category? And then specifically on that, what does the pipeline look like? And how meaningful could that be to your backlog and growth in the coming year?

Yes. Robotics, physical AI, we would -- when we think about the general embedded space, we think of really 3 categories that we've had great momentum on industrial automation, medical instrumentation. It's a really nice win this quarter with Johnson & Johnson. And then robotics and physical AI, we kind of bring that together. Today, it represents an overall 20% of our backlog-ish of our revenue. And we think the robotics component of it is probably going to be one of the faster-growing segments of those 3 verticals that we're focusing on. So we'll continue to provide updates on wins as we make further progress in this space. But between Alloy Kore and the GEM in those 3 verticals, we think the growth trajectory is very optimistic about the growth trajectory of those businesses.

[Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets.

It's good to see the QNX backlog growth, it did improve to 10% this year, up from 6% last year. Could you walk through some of the drivers of that improved growth, whether it's obviously, new deals, but then also if there was any increases in any existing deals? And then what are some of the key product categories that are seeing stronger growth or contributing to that growth?

Yes. Great. I'll start, Tim, you chip in. I think part of the growth in the backlog, Paul, is we've built out the portfolio of QNX in a pretty comprehensive way. A few years ago was QNX SDP 7.0. Today, it's SDP 8.0, our next-generation capability. Today, it's QNX Cabin, which gives our OEM customers the ability to more cost effectively deploy their products. QNX Sound is another component of it. Alloy Kore is another component. So what was, I think, a more limited focus in the product is a much broader set of capability and some of the wins this quarter with a major OEM in North America, where we've kind of gone deeper and richer with some of these other capabilities.

So having a broader portfolio within the auto space, has, I think, been really, really helpful. And then obviously, we've already talked a little bit about the GEM momentum in those 3 verticals. So the combination of all of that is I think what helped us resulted in a really strong backlog number for the year.

And then secondly, just on investments that you're making, looking at guidance, it implies 20% EBITDA margins at the midpoint basically flat despite revenue growth. So obviously, you're making investments. Could you walk through what are some of those larger investments? And then also if you still expect leverage of corporate overhead and other cost efficiencies?

Yes. Really good question. So ultimately, we've got very strong balance sheet, Paul. So what we're looking to do is obviously deploy that capital intelligently to drive growth. We see now, as John mentioned, we turn to a growth story. We see value creation going forward, coming primarily now from top line growth and the operating leverage that, that drives. So when we look at the QNX business, we see significant growth opportunities in many different ways. So obviously, backing the Alloy Kore opportunity driving forward with the full portfolio in the SDP 8.0 launch, making sure we've got the right go-to-market for GEM. So we're backing all of those things. So looking at the QNX guide for the year, we're actually sort of holding EBITDA relatively flat, and that's a deliberate choice.

We're making those investments in R&D and in sales and marketing to really drive that top line growth. Now going forward, we see opportunities then for further leverage to come in the future. But for this year, we're really focused on that. The other part you mentioned was the corporate overhead. I think we've done some tremendous heavy lifting over the last couple of years and taken out a significant amount of cost. Now we continue to take a very close look at every single dollar that we deploy across the business, but particularly in the corporate overhead. So when longer-term contracts are coming up for renewal, we're taking a hard look at those and seeing, do we really need it? Can we downsize it? Are there alternatives?

So what I'd say you'd expect to see this year is actually a decrease, a further decrease in corporate overhead from, I think it's $41 million, maybe take $4 million or $5 million off of that going into the new year. But I don't think cutting cost is really now the main focus there. We've turned the page on that, Paul, and we're really looking to drive top line growth.

The next question comes from Steven Li with Raymond James.

A quick one. How did share count jump to 643? I'm drawing a blank here, Tim.

643. No, I don't think that's right.

It's not -- I mean, the diluted share count was 643 for the Q4.

Now the share count should have come down. We're just scrambling to see what the numbers are. So -- we've gone from 590 basic down to 588 and that's really a function of the buyback continue to -- particularly...

And then on the diluted share count?

We need to take a look at that, Steve, and then come back to you.

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

Terrific. Thank you, Betsy. Thanks, everybody, for being part of the call today. Before I wrap up, I just want to make a quick note that our QNX team is going to be in Boston on May 27 and 28 for the Robotics Summit and Expo, one of the industry's largest events. John Wall will be opening the conference as part of keynote there, and I'll also be on a panel with leaders from Amazon Robotics, Universal Robots and Locus Robotics. The team will also be showcasing the latest of our QNX innovations and how we provide the trusted foundation that robotics and physical AI systems rely on to operate safely and predictably in the real world. So if you're in the area, please stop by. We'd love to see you there. And with that, thanks for joining today's call, and we'll see you all next time.

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

Good morning, everyone, and thank you for joining us in the room today at CES and online. I just wanted to start off with a quick safe harbor statement. And the clicker is not working. Okay. Safe harbor statement. Sorry. Okay. If everyone wants to have a quick look at this. You've seen it before. It's going to be online. Just remember, these are forward-looking statements. Okay.

So I will now pass it off to John Giamatteo, our CEO.

Well, good morning. Welcome, everybody, here to Vegas here in the room. Thanks for taking some time out of your busy week to hear a little bit about our updated story on the company and the progress and the direction that we're going. And everybody online, thank you guys for all tuning in. It's a great way to kick off the year. I'm joined here by some of our leadership team on the QNX side of the business. You're going to hear from Grant Courville and Justin Moon, who's kind of the brain trust of the technology and where the direction of the company is going from a QNX perspective.

And of course, our CFO, Tim Foote, is with us as well. So we'll go through a comprehensive update on the company and the progress that we're making along the way. Real quickly, I don't think I need to go into this too much, but an iconic Canadian company headquartered out of Waterloo, Canada. Our global footprint is over 20 countries around the world that we operate in, 1,700 employees. A lot of that is based in Canada and Waterloo and Ottawa is probably 2/3 of our employees is based right there in our Canadian heritage. This year, we're on pace to exceed $530 million worth of revenue, really in a transitional year as we shifted from a cyber to a more Secure Comms focused part of the business.

We've been able to hold the top line and yield and really generate some better leverage in the overall business model. The company today is really focused on 3 fundamental businesses. The QNX business, which is kind of our growth engine of the company, we're going to double-click on that in a lot more detail today about the market, our leadership, our competitive moat, where we think it's going and how this is going to generate a tremendous amount of growth and excitement for the company. The Secure Comms business has gone through a major transformation as we pivoted from cyber to Secure Comms. This is a rock-solid business, stable business, generates predictable revenue, predictable profit and predictable cash, which enables us to invest in the growth engine of the business from a QNX perspective.

So we're really not going to touch too much on Secure Comms today, but just know that's a financial kind of engine that helps us feed the investment that's required to drive the QNX business forward. And finally, our licensing, long heritage, lot of patents. We have a lot of different business models that we monetize thousands and thousands of intellectual property that is generated over our long and strong 40-year history as a company. So those are the 3 divisions. That's kind of how we manage the business and really kind of position the company for growth in the future.

One of the things we're super proud about the progress that we've made over the past 18 months is not only that we've stabilized revenue and actually now pivoting towards growth is the overall underlying fundamentals of the company, 7 consecutive quarters of improving our net income profitability with the last 3 actually breaking into net income positive. That's a long journey with something that required a lot of heavy lifting and a lot of different things that went on with the company.

But now we believe we're in a sustainable, profitable position for the company long term as we invest for growth, particularly with QNX. From an operating cash perspective, the balance sheet is shored up. We went from a place where we were burning cash not too long ago to a place where we see we have sustainable cash generation quarter-over-quarter, maybe with the exception of one seasonal quarter based on just kind of the nature of the business.

So overall, think about it, 3 businesses. We've stabilized it on the top line. We're pivoting for growth. We'll talk more about that in the future. But the overall in fundamentals of the profitability of the company is something that we're excited about. And we're going to talk a little bit more now about QNX in particular, the market that we see in front of us, the expanding market that we are going after.

And to kind of kick things off, I'd like to welcome to the stage, Grant Courville from the QNX leadership team to take you through that. Grant?

Thanks very much. So before I dive into the presentation. I'm going to talk a bit about trends. I'm going to talk a bit about the opportunity, which is super exciting. But first, let me thank you for everybody who's here in person because navigating CES with over 100,000 people descending on Las Vegas all the same time is no easy task. And thank you for everybody online as well for joining because we are super jazzed, very excited about what we're going to share with you today.

And also, if you have time for the people that are here, what we're showing on the show floor. So a little bit of from where I'm from. So I'm responsible for product strategy and strategic alliances at QNX. I have a long history with QNX. I joined the company actually when they were just getting out of the start-up phase. So I'm definitely been in the embedded world for a very long time. And just briefly, if you think about where QNX is focused, it's the embedded industry, but more importantly, critical devices, devices for safety, security, reliability performance where things have to work all the time and in a predictable fashion, the most critical devices on the planet.

And that spans markets such as automotive, industrial, medical, the emergence of robotics, you're seeing down and whatnot. So where that performance and reliability matters, that's where we add absolutely the most value. And quite frankly, we're the de facto choice for that class of devices for the markets that we target. And I think everybody would agree with that. We sometimes get asked, hey, what about the competition? What's our defensive moat?

Well, one of the things I should share that probably doesn't get a lot of airtime is really the culture that we have, the people that we have, the expertise that we have, the processes that we have, the ability to support our customers, not just in what they're building today, but what they're building in the future and what they have to maintain and support, not just for a few years, but 10 years, 20 years. That's the world we live in. That's how we've wired our company, and we're proven and trusted to deliver that. So it's not just about the software. It's about everything else and how we built the organization and the trust in QNX and BlackBerry that we've built over the years.

From a performance perspective, 2024, here at CES actually, we launched our QNX 8.0 product. You may hear QNX SDP 8.0. The big focus there and what we saw coming was this demand for performance at the edge and scale. So take the critical devices and now they want to make -- put more intelligence at the edge, make more use of the scale with the silicon that's coming out from the various silicon vendors. And so what we did is we laser focused on QNX 8.0 for performance, scalability in real time without compromising safety, security, reliability. And that's exactly what QNX 8.0 is all about. So it was launched in 2024, been adopted by the silicon vendors. Our customers, you're going to start hearing a lot about QNX 8.0.

And the goal there is to future-proof what our customers are building today and what they're going to build in the future. There's no doubt in my mind that the devices, and we're seeing it again across the industries, where the devices are becoming more intelligent and the demand for performance and reliability is increasing. And we're super proud of what you see in the bottom here, where the top 10 OEMs have selected QNX technology, 7 out of the 7 top Tier 1s, 24 or 25 EV manufacturers and just recently announced there's 275 million vehicles on the road today running our technology. Super proud of that. And this is a testament to the trust and proof that our customers have seen from us over the years.

And from a financial perspective, of course, we've seen solid double-digit growth over the last 5 years, and you're going to continue to see that going forward. So let's talk about our Serviceable Available Market, the SAM. So think about our core products. And as you can see, our addressable market is growing, and we've got solid growth there from an addressable market, and as I shared earlier, solid growth from a revenue perspective.

Justin Moon, who will follow me with -- is going to talk about some of the strategic investments, which again, are really exciting and in the early stages and whatnot. And you can see what happens. All of a sudden, the addressable market that we can target is now 3x. So we've got -- and all of these strategic investments are building on our core components. So everything I talked about earlier from a company and organization perspective, technology perspective, we're building on top of that and solving some industry problems that need to be solved.

So here, this is something you've probably seen, and I'm hoping you're very aware of, but it's the evolution of the vehicle. And most of the vehicles, and if you look at the chart on the right, most of the vehicles today still deploy a distributed architecture. So think of the 100 ECUs you've heard about or 150 systems in the car. You might not be aware, a lot of those systems are little microcontrollers, things that don't even run an operating system. Think of a dome light and door locks and whatnot. But what you're starting to see is the adoption of more advanced compute.

And you'll hear terms like zonal controller, central compute, High-Performance Compute. But even in advance of that, you're starting to see consolidation of systems in the car. Think of the digital cockpit today, you're consolidating an instrument cluster and infotainment where we're very complementary to Android, where our technology is underpinning all of that. Think of ADAS or consolidated safety systems in the car. That's more in its infancy, the consolidation. But guess what, we've got a number of design wins, and we're winning there as well, safety, security, reliability and complexity that we know how to tame complexity and help our customers tame complexity.

Camera, smart sensors, same thing.

Again, more compute at the edge, more performance at the edge or in the smart sensor, guess what, we're winning there as well. So super excited. And everything that we built up over the decades is leading us to this level of success. And as a real example of the SDV progression, and I think we'd all agree that the adoption of the true ultimate software-defined vehicles is maybe taking a little more time than we all thought.

But if you think about the announcement that was made yesterday by BMW, which we're incredibly proud of, -- that's building on our long-term BMW relationship and something we announced in 2021. But what they announced is they've selected QNX for their new generation of vehicles called Neue Klasse, which is going to have 4 High-Performance Compute systems. They call them superbrains. And those compute systems have 20x the performance capability, the compute capability than any of their vehicles on the road today. Think about that, 20x, incredible. And guess which software and which company that they're trusting to help them get to there -- get there. It's QNX and BlackBerry. So we are so proud.

And if you want to think about an innovative automaker, obviously, BMW absolutely. And there's a real-world example of a software-defined vehicle, and they are absolutely abstracting the hardware in the vehicle from the software. And as this chart shows, the complexity, these systems are getting much more complex, and Justin will talk about that in a bit as well. They're getting much more complex. And again, they're trusting our technology, they're trusting our people, they're trusting our company to help them get there and team that and be able to build out that software-defined vehicle. So thank you, BMW. We are absolutely thrilled and proud to be working with such an innovative automaker.

Now before I leave this slide, here's another very, very interesting thing is you see the number of vehicles that are going to be shipped over time. The interesting thing there is the number of systems in the car is going to grow by 3x in terms of the number of systems that we can run on. And that will be everything from these domain controllers that I talked about to more of the high performance or where they're adding more compute at the edge, such as smart sensors. So as much as the number of vehicles is growing, you're going to see the growth within the vehicle and the number of systems that we can run on grow even more. And of course -- and you'll see this from Justin, the software content there as well is going to grow.

So again, we're really excited. And you'll see when we talk to people on the show floor, like I said, it's super exciting to talk about this kind of stuff. So lastly for me, and then I'll hand over to Justin, who will talk about our strategic investments that we're making. And by the way, as I mentioned earlier, these strategic investments are building on our core technology, our core components. So as I mentioned earlier, we're pretty much the de facto choice for safe, secure, reliable, high-performance systems across markets, whether it's industrial or robotics or medical, aerospace and defense, where there's complexity, where there's a degree of criticality, that's where we provide a lot of value.

And it's understood by the industry, by our partners, by our customers that we're the de facto choice there. And we're -- again, something we've worked hard to get to and earn that trust and prove to the industry and our customers that we're there for the long term, but that's where we are, and we continue to innovate. So really important. From a high-performance perspective, I mentioned QNX 8.0, we can scale from single core to 4 core, 8 core, 16, 32, and you might go, oh, my God, they're going to put 32 core, 64 core systems in embedded. Yes, that is happening.

Again, it will be a progression. But what we're doing there is we're future-proofing for our customers. In other words, we can show them we'll get 1:1 linear scalability of performance in QNX 8.0 as the number of cores increase. So more performance linearly will enable that performance linearly. Our previous generation operating system couldn't do that. And that was one of the big things we solved, again, without compromising real time or safety or security.

The other thing as well that we've done from a strategy, product strategy perspective, again, a number of years ago, is our software is common between safety and non-safety systems. So if you think about it, that means companies that are trying to adopt more of a platform strategy. In other words, hey, I want common platform, I want to reduce my number of vendors. They can use our tech, our technology, our products, our services in safety systems and non-safety systems, same tools, same programming interfaces, same software.

And I don't think I mentioned it, but we've never ever failed a safety certification. And for anybody that's aware of what's involved there, it's not easy. But again, it's something we know what to do and our customers trust us to do. So again, from a value perspective, this is something we've been providing for decades. And again, we're innovating and building for the future. And I'm very excited to pass the talking stick as I like to say, over to Justin Moon, who's going to tell you more about some of the innovation that we're building on, the strategic investments that we have that are building on our core technology. So Justin?

Thanks, Grant. Hi, everybody. I'm Justin. I'm responsible for that world-class software engineering organization that builds all of those core products that Grant just talked about. I'm going to take you on a bit of a journey. We're going to talk about 3 kind of underlying subjects. Grant talked about things like trust. We're going to talk about growth. We want to talk about how we accelerating, not necessarily just our journey, but how are we helping our customers accelerate their paths in terms of what does their next generation look like from a software perspective.

I'm going to talk a little bit about solution and product innovation, what does that mean to us? I'm going to dive a little bit into some of the investments and maybe not so investments, maybe I have a couple of surprises for you on how we're going to be doing growth and expansion in some of the adjacent markets outside of automotive. And ultimately, I also want to talk to you about how we are seeding the future, not next-generation future, but talking about how are we seeding the next decision makers in the future? How are we helping people in academia? How are we helping the hobbyists? How are we helping the researchers really fundamentally understand the power of our technology? How are we reducing those barriers so that we are actually increasing the level of exposure for all of our technologies.

Start with product innovation. Grant mentioned it a couple of times, complexity. Complexity management is one of the largest trends that are happening in automotive from a software perspective or any of those adjacent markets that Grant had mentioned, robotics, industrial control. As we increase the amount of software in a system, the software complexity is going to astronomically increase as well. Complexity is our friend. This is what we do.

We absolutely look complexity in the face and say, we can take this on. We can help you Mr. or Mrs. customer. We can get you to the endpoint from a complexity management perspective. We build those foundational components that allow them to truly focus on their value add. Gone are the days of having to look into the weeds of all of the base layer software and all of those types of things.

Historically, we're an operating systems and virtualization company with all of the great things that Grant talked about with respect to SDP 8.0, but we're also expanding that portfolio to look at what does it mean to solve a little bit more for our customers? How can we do a little bit more? The interesting thing is it's not something that we're pushing into the market. It was a pull. We get customers coming to us and say, QNX, can you do more? So we answered the call. So I'm going to talk a little bit about what we're doing in that regard.

The first was what we announced yesterday, Alloy Kore. Alloy Kore is a joint development effort between QNX and Vector Informatik. You couldn't find 2 more like-minded companies in the automotive industry, both solid software technology companies, the safety and security cultures match to a T. It was almost kismet, if you will. It was like the 2 teams had always been working with each other. We got into the same room. We started whiteboarding. Within 8 months, we had first prototypes. Within a year, we had an early access. We did the announcement from a naming perspective. Now we're looking at what does it mean? So what is Alloy Kore really?

If you look at the slides today, software landscape is pretty layered in automotive. You have an operating environment, then there's going to be some middleware. You're going to have services on top of that and people are actually building applications on top of those types of things. It's a lot of software layers. So if you think about it as a software developer, the more layers I have to go through to do something, obviously, it's going to take more time.

And where is the majority of the money spent when you start building these systems, it's hardware. So we have to make sure that we're giving solutions to our customers so that they can horizontally scale their investments from a hardware and software perspective and also give them the ability to use the hardware to their advantage as opposed to them having to glue a bunch of things together. Really, what this is, it's about reimagination of how you do technology integration. It's a reimagining of how you do safety and security integration. And it also solves some of those most software side of things from a commercialization and legal perspective.

Really, what this is, is a true focus on how we solve industry trends, but the really important thing is this is also how we drive the ASP up. We are delivering more software into the vehicle. We're not talking about adding additional layers here because that adds complexity. What we're saying is we're doing true integration with our partner so that things work in the most performant way, safe, secure, reliable. It's really about reimagining what the software stack looks like in a vehicle, and it's actually just as appropriate in any of the adjacent markets as well.

I just have to take a moment and say thank you to our Vector team as well. I mean I can't say how great it's been from a partnership perspective, great company. So that was Alloy Kore. Now you've heard General embedded, and I know John has talked about GEM in the past. Really what general embedded is to us is not something new. We spent lots of time in the general embedded markets. And you can see at the bottom of this, this is what we talk about when we talk about general embedded from a QNX perspective. It's industrial control, it's robotics, it's medical.

But what we're saying here is all of these complexity challenges that we've helped our customers solve, all of the trends that we've tried to hit with our customers in terms of our software solutions are absolutely the same in these adjacent markets. When you start tackling the next generation of human interactive robotics, the software stack looks very similar. Sensors are kind of the same. It's still a human interaction after all, what is a very smart vehicle, if not a robot that is actually interacting with a human today.

So you can imagine all of the investment that we've done into the automotive industry, and you saw the numbers, Grant showed you the core business is growing. the core, the things that we invested in previously, SDP 8.0, that business is growing. All of that investment that we've done "to drive" some automotive growth, 100% is the same going into these markets. So we're not talking about having to build all new things to go after these adjunct markets. We've invested in the technology. Now it's about packaging. Now it's about appropriate go-to-market strategies to really go after some of the larger companies. Again, this is not something new. These are not new markets for us. These are adjacent markets for our products.

There is some significant growth in a lot of the general embedded markets that we have today. It's a really, really interesting growth strategy for us. I mean there's some numbers at the bottom of the slide in terms of the potential addressable for just the industrial robotics industry, $2.7 billion. It's a pretty healthy business. We are looking at what does it mean to take advantage of some of that, right? So -- and how does our technology fit.

Lastly, I want to talk about how we future-proofing not just from a technology perspective, but how do we future-proof mind share. We're working with all of the leading OEMs today. We work with a lot of the technology companies that exist from an automotive perspective, from a general embedded perspective. But as we have the competitive moat and the defensive moat and all the things that we've been talking about in terms of how our technology is protecting our future or how it's driving our growth, we also have to make sure that those that may know nothing about QNX technology or they're still in school.

We need to make sure that those next, next-generation decision-makers fully understand the value of the products that we provide. So if you think about it, this is what QNX Everywhere is. QNX Everywhere is the opportunity for us to completely abolish the barrier to entry to use our products. Our products could be leveraged in noncommercial ways for academia, for research groups within our customers. If you think about it from a proof-of-concept perspective, proof-of-concept teams generally don't have a huge budget. The production teams have all of the budget because that's where the money is made.

So they would grab stuff off the shelf and they would build their proof of concept and say, "Hey, yes, this thing will work, and then they have to spend money and time to move to production. So you can think about the value, the value of being able to leverage production-grade software even in a proof-of-concept perspective, barrier-free. It's very, very big for our customers. And if you think about it from a university perspective, embedded software engineering and universities waned. The interest of waned significantly over the last -- I'm looking at Grant, probably 10 years. Everything moved to application developments and higher-level software.

We are driving a new wave of interest. And you can think about it, look at the universities that are up here. These are not small universities. These are very prestigious universities that very much have said we absolutely need to have QNX and embedded software as part of our curriculums moving forward. I mean the numbers don't lie. Over 100 major universities. Look at, we have 5,000 registrants that are doing courses, online courses, the courses that we provide. 6,000 students have attended classes, workshops. And look, at the end of the day, over 12,000 licenses are in use as part of this QNX Everywhere platform.

Again, we're talking about growth. We're talking about trust here as well. These prestigious universities trust that we are giving them technology that's relevant for the future, and they see it. They're building curriculum around it. Growth, this is -- these are the next decision makers. That is future growth. If we have mindshare today, we will have mindshare tomorrow. We take them on that journey. We support the universities. We make sure we build the labs with the universities so that they understand the true value of what does it mean to leverage QNX technology.

With that, I'm going to pass it back to John. John is going to take us home and really -- this is why invest in BlackBerry.

Terrific. Thank you, guys. Thanks for that update on QNX. It's not often we get the opportunity to kind of take it down to another level with the investment community. So I hope you're getting some benefit out of it. To kind of just bring things together, I want to talk a little bit about why BlackBerry, why we think it's a tremendous opportunity right now to be investing in our great company. BlackBerry, I will tell you, has always been about security, trust and innovation. Yes, sorry. I got to get into the screen. Sorry about that. Always been about security, trust and innovation. And that really is a testament to our portfolio. And you heard a little bit about the QNX elements of the portfolio today, high-performance solutions that underpin safety critical systems, whether they're autos or whether it's various segments of the GEM market.

On the -- from a portfolio perspective on the Secure Comms side, mission-critical encryption technology that powers governments and large enterprises and critical infrastructure providers around the world. Strength of our portfolio is something we believe we have competitive differentiation around and sustainable opportunities for growth. From a robust growth profile, you could see we've got a good kind of backlog of revenue that's going to come through our P&L on the QNX side of the business as we sit at $865 million worth of backlog, up from $460 million back in Q4 '22.

So a lot of runway to drive that growth, and that's before some of the dynamics that Justin talked about in terms of going up the stack with Alloy Kore, our partnership with Vector and really having a broader kind of position in the actual marketplace. So also on the Secure Comms side, this is much more about QNX today. But on the Secure Comms side, you'll probably recall our ARR was in steep decline over the last couple of years. In the last 18 months, it's stabilized and even grown a little bit. So when you look at the underpinning financials and the under ARR is a long-term indicator of where the revenue is going. $865 million of backlog in QNX, that's why we think we've got an opportunity to pivot for sustainable growth as we go into the next fiscal year.

Our enhanced financial profile made a lot of hard work on getting that back to where we need it to be. We're profitable. We're sustainably profitable. We're sustainably generating cash. We are on a Rule of 40 path within the QNX business and probably a Rule of 40 plus, not too long from now in terms of the momentum that we have going on in that part of the business. And as I mentioned, on the Secure Comms side, rock solid, stable profitability and cash that's going to continue to contribute to the company.

And then finally, our capital allocation progress. I think we've been very, very pragmatic about that as we've kind of strengthened our balance sheet, as we've really positioned ourselves to invest in the future. To date, a lot of our investment has been in organic investments. Things like Alloy Kore, things like QNX Everywhere. These are the components that we've been investing from an organic perspective. And now that we've got the wherewithal with a stronger balance sheet, we'll take a look at some other opportunities that might help us accelerate our growth even further.

So portfolio, our growth profile, the direction that we're going from a financial perspective and our overall capital position, we think positions us really well as a company and is a company that investors should be thinking about for long-term growth. So we could talk a lot about it, but I've always been a believer that pictures and videos are sometimes better than a thousand words. So why don't I transition to a little video that just kind of brings a lot of what myself and Grant and Justin have been talking and how it brings it to life.

[Presentation]

Hopefully you enjoyed that brings a little bit color to what we're talking about in the future of this business. So with that, I think we're going to queue up here for some Q&A.

We'll do some Q&A from the room. And then also if you're online and you want to submit a question through the portal, please go ahead and do so. So we have the presenters here, and we also have Tim Foote, CFO, joining us for the Q&A. Okay. Anybody in the room have a question?

William Kerwin, Morningstar. Thank you for the presentation and the booth today. I wanted to ask about China and QNX and just get an update on what your penetration looks like in the Chinese market with those domestic OEMs versus the Western OEMs? And then also how you're kind of observing the dynamic of low-cost competition of those Chinese OEMs coming into Western markets and how that might be pressuring the development timelines for those Western OEMs?

I can start and others can join in. If you think about the trends and the needs from an automotive first, I'm assuming you're thinking mostly automotive. I think right?

Yes.

Okay. From an automotive perspective, the needs that they have from a safety, security, reliability perspective remain the same, whether you're building a vehicle in China or you're building a vehicle outside of China. One of the interesting things that we -- so where I said earlier, we were dominant in winning in digital cockpits, that applies to China as well, where I said we were winning in these new consolidated ADAS systems. We actually have wins in China for the consolidated ADAS systems beyond China.

The other dynamic that's occurring is where you see a lot of the Chinese OEMs that are looking to export globally all of a sudden, everything that we do matters even more. So think about the ISO 26262 safety certification. We're certified at the highest level. That's an international standard, and that's pretty much required globally. Think of security standard is one called 21434, which applies to 56 countries beyond China. All of a sudden, that applies. So if they want to export their vehicles and have their vehicles be accepted and see success beyond the borders of China, then all of a sudden, everything that we're doing serving the global OEMs 100% applies in China. I don't know, Justin or anything...

You also mentioned speed, the speed at which they're able to take it from beginning to full SOP. In certain markets, there is more of a proclivity to being okay with a software update to add a feature later because I know what's coming, right? So I don't believe that's necessarily a global mindset that I'm going to buy a car and I'll get features at some point. But I know that it is fairly well accepted in certain markets that, that feature will come eventually, and I just do a software update in my vehicle as a matter of course, just like my updating my phone.

In certain markets, I'm updating my car. So speed, yes, absolutely, they're putting pressure on the global OEMs in terms of speed. But that also speaks to things like Alloy Kore. We want to make sure that we're driving focus. Gone are the days of one single company doing everything from beginning to end. We need to be able to say, base layer software, is that really differentiating? Or is that something that is really true value to your end customer, whoever that end customer may be it a Tier 1, the end customer being the OEM or OEM being a vehicle occupant because the OS and how we do diagnostics and all of those types of things, is that really differentiating to you? Should you be looking at that? From a speed and scale perspective, the one thing you can do is adopt a horizontally available platform like Alloy Kore and build and innovate on those focus areas that actually will reduce that time to market as well.

And just to add briefly to what Justin was mentioning, I was actually in China about a month ago. And as we all know, China is all about speed, go fast. And if you think about what we're doing with Alloy Kore, we're taming the complexity. We're doing the pre-integration. Guess what, that's going to help and enable exactly what they're trying to do, go fast. In fact, everybody is trying to accelerate China is take it to the next level, if you like. But things like Alloy Kore, so when I was talking to the Tier 1s and OEMs that I was meeting with there, they were incredibly excited about that because, again, that's a level of work that they have to do. And back to what I was saying earlier, safety certified, security certified out of the box. So very, very interesting.

And then also on the kind of the low-cost competition of these Chinese OEMs coming into Western markets, are you seeing that accelerate software development time lines for those Western OEMs? Is it pressuring those? What's that dynamic like?

Yes. I mean the time to market and the whole notion of SDV and whatnot, I mean, yes, there's pressure to move quicker. But again, the OEMs that we talk to, and I mentioned one of them earlier and the others, no one wants good enough safety. No one wants good enough security. They want trusted, proven, reliable software. And just to me, the comparison of [indiscernible] robotics absolutely 100% applies, 2-ton robot. That has to deal with an unpredictable environment around it. So again, that comes into play as well. So from a low-cost perspective, sometimes it's like, well, does that mean you're going to compromise on that? No one wants to do that. No one wants to talk about that. And the OEMs that we'll deal with definitely do not want to do that, and that's exactly how it should be.

And we think we can deliver that real -- just nobody wants to compromise. But at the same time, we can help them with the speed with things like Alloy Kore and doing more and bringing it together. So that's kind of like the -- our answer to let's be thoughtful, let's do it the right way, but let's actually do it in a way where we can help them speed their time to market.

All right. Thanks for that. Anybody else have a question here? Okay. I have a few online. So I'll start with that. Given QNX backlog has seen around 23% year-over-year growth, can we expect that to grow even higher given the GEM market revenue is ramping up?

Well, that's a great question. So obviously, we're not going to give color on the met. We're going to give that in a few weeks' time when we give our Q4 results, but the really interesting thing about the GEM expansion is the level of traction that we've got this fiscal year. So when we launched SDP 8.0, I think it's fair to say, guys, that we were expecting it to be largely an auto story at the beginning. But what surprised us is the pace of growth that's coming out of the general embedded market.

And when we look at SDP 8.0 right now, our pipeline is roughly 50-50, where right now, our revenue is more 80-20 skewed towards automotive. So the fact that GEM is growing so quickly, yes, we do expect that to be become a much bigger part of our backlog going forward. And that will help to accelerate the growth of the backlog.

Okay. Just a follow-up on that GEM question. Could you help us size the impact of the GEM expansion on overall revenue growth and revenue mix? What percentage of current revenue is attributed to GEM in end markets? And how has it been shifting in recent quarters?

Another really good question. So if you take a slice like Q4 or Q3 in isolation, roughly, it's around about 80-20. And why is that? Well, we've got a big backlog, and that provides a significant amount of the revenue that comes out every quarter is based on designs that we've won over previous years. So for that mix to shift for a particular quarter, it's going to take a little bit of time. We'll add new designs. We're adding GEM designs at a faster rate than we ever have in the past. But it's going to take a little bit of time for those to move into production. However, the growth in GEM, I mean, we heard the story from Grant earlier about a lot of runway we've got for growth in automotive. If we can add on top growth in GEM at the rate that we're starting to see now, that just only accelerates the rate of growth that we're going to see for QNX overall.

Okay. Anybody -- here we go.

It's Paul Treiber from RBC. Previously, you mentioned QNX growth will be driven by more sockets and more layers. And I guess Alloy Kore is an example of one and then BMW is probably an example of another. Where do you see the most leverage off those? Specifically, Alloy Kore, what magnitude does it expand the TAM for QNX? And then automotive, like the sockets, is BMW a good example of that like 4x? Is that typical?

Not typical in terms of the performance -- you're talking about the number of High-Performance Compute systems...

Yes. Installed base.

Yes. That's where the auto industry is going. I mean, BMW is arguably the most innovative -- one of the most innovative OEMs on the planet and the 20x performance and the 4 superbrains they call them actually in the car that they're doing is an example of where the industry is going. And there's a lot of challenges around that. So to your point, and what I was trying to share earlier is that there'll be more systems in the car that we can run on that could run our operating system, or safety certified operating system, our virtualization or hypervisor technology and whatnot. And Justin, when Justin talking about Alloy Kore, it actually builds on top of that.

So to your point, as these systems become more driven towards performance and intelligence and whatnot, that's an opportunity for our, I'll say, our core products, our core component products, OS and hypervisor, where we're winning today and continue to win. And I was mentioning earlier, smart sensors and whatnot. And then once Alloy Kore is released, and that's towards the end of this year, then all of a sudden, it's -- that's now an opportunity because it's addressing the complexity challenges and the time-to-market challenges, as Justin was sharing earlier. Do you want to share any more on that?

No.

I think just -- I'll put it in my own words. To me, it's like a one-two punch. SDP 8.0 supports the 4 superbrains and a 20x performance, that's all SDP 8.0 powered from an operating perspective. And then Alloy Kore is stitching it together from the kernel to the operating system to the middleware and delivering that in a much more comprehensive fashion. That's kind of on top of the SDP 8.0 opportunity. So we think there's both in there, Paul.

I would just add that when we think about Alloy Kore, and I will caveat, we don't have any signed contracts yet because it's still early access. We're not talking like a 5%, 10% uplift. We're talking several x uplifts per socket, if you like. So this could be really transformational for us from an ASP perspective. Obviously, we've got to get there. We've got to deliver it. We've got to get it signed and see these vehicles in production. We are talking a significant shift for ASP for QNX Platform.

Yes. And there was a press release actually yesterday as well from Mercedes-Benz, who are endorsing Alloy Kore. That's the first public one. And I think as Justin mentioned, we're talking too many others. But Tim's point is very well taken. It's a multiplier on our revenue for sure. And I like the 1, 2 punch analogy. It's perfect.

Okay. Thank you. I think we're out of time. So thank you for joining us online. Thank you for joining us in the room. Thank you.

Thank you.

Thank you...

Thank you for being here.

Thank you.

Good afternoon, and welcome to the BlackBerry Third Quarter Fiscal Year 2026 Results Conference Call. My name is Nick, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn today's call over to Martha Gonder, Director of Investor Relations, BlackBerry. Please go ahead, ma'am.

Thank you, Nick. Good afternoon, everyone, and welcome to the BlackBerry's Third Quarter Fiscal Year 2026 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 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 U.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 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 and 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 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, Cedar+ and blackberry.com websites.

And with that, let me now turn the call over to John.

Thanks, Martha, and thanks to everyone for joining today's call. Q3 was another quarter of solid results, adding to our track record of consistently meeting or beating guidance. Once again, we delivered across the 3 core metrics of revenue, profitability and cash.

Total company revenue came in at $141.8 million, above the high end of our guidance range. Q3 was another strong quarter of profitability with adjusted EBITDA beating guidance, and it was also our third consecutive quarter of achieving GAAP profitability. Adjusted EBITDA for the total company was $28.7 million, which represents a 20% margin. GAAP net income improved by $24.2 million year-over-year to $13.7 million in Q3 and non-GAAP EPS exceeded guidance at positive $0.05. Conversion of profitability into cash was also strong. Operating cash flow was $17.9 million up 3x year-over-year, reflecting strong execution and disciplined cost management.

Moving on to the results from our divisions. QNX delivered an all-time record for quarterly revenue at $68.7 million. This represents 10% year-over-year growth beating expectations and finishing at the high end of the guidance range. Revenue was driven primarily by solid growth in royalties with development seat and professional services revenue also growing both sequentially and year-over-year.

During the quarter, we were excited to announce John Walls appointment as President of QNX. In our opinion, nobody knows the embedded software space both the technology and the market, quite like John. He has a very strong reputation with customers and partners and within the company. QNX has tremendous opportunities for multiyear growth and driving our key initiatives to harness those opportunities will be John's #1 priority moving forward.

We saw more design win momentum in Q3, exceeding our internal targets and the pipeline of potential design wins in Q4 continues to grow. This design win growth demonstrates the progress we're making with the initiatives to drive deeper into automotive and wider into the general embedded space. In the quarter, we secured a number of major automotive design wins with top European and Asian OEMs for ADAS and cockpit domains, all being developed on the latest version of the QNX platform, SDP 8. The number of customers using SDP 8 continues to grow each quarter with many leading OEMs now developing on it.

We continue to see traction with other new products as well. We're securing new wins for both QNX Sound and QNX Cabin as OEMs recognize the strategic benefit of these products for reducing their bill of materials and time to market. This was the second quarter in a row that QNX Sound was chosen by a leading Chinese OEM with this quarter's win being deployed in their luxury EV range.

We've also secured another multiyear contract for our cloud-based QNX Cabin product with a top 5 global automaker based in Europe. A potential needle mover for ASP per vehicle is the vehicle software platform that we're codeveloping with leading middleware provider, Vector. Development is progressing well, and the second early access version is scheduled for release by the end of January. Early discussions with a number of OEMs are progressing, and we're targeting significantly higher pricing per vehicle compared to the core RTOS. Once we've secured some wins, we'll provide more color on the potential upside from this product.

And finally, for auto, earlier this week, we announced that leading technology market analysts Counterpoint Research has determined that QNX is now powering more than 275 million vehicles on the road. This is a $20 million increase year-over-year and clearly demonstrates how significant a player we are in the space. In the nonautomotive general embedded space, we continue to drive across our target verticals of industrial automation, medical instrumentation and robotics.

Let me provide some additional color on a couple of in-quarter wins with industrial automation companies. The first was with one of our long-time customers, Bently Nevada, an industry-leading and online condition monitoring used for wind turbines and other applications who has adopted SDP 8. Additionally, 2 leading industrial automation OEMs. One North American and one European have also adopted SDP 8 to be used in a variety of their applications from robotics, to manufacturing production.

We also had an exciting development in the aerospace and defense vertical with NASA, who are adding QNX SDP 8 to their supported operating systems. Earlier this year, we launched QNX General Embedded Development Platform, or GEDP, as we call it, which is a subscription-based solution tailor-made for OEMs in GEM verticals. GEDP aims to accelerate the time to market for developers of embedded systems. And feedback from our customers so far has been extremely positive as they can leverage this platform for all supported versions of QNX across their portfolio. In the quarter, we saw a number of new design wins from customers for GEDP. So in summary, Q3 was another great quarter for QNX in fact, an all-time record quarter.

Moving now to Secure Communications. In Q3, we delivered revenue of $67 million, beating the top end of guidance and consensus. This was a great achievement by the division as we were faced with U.S. government shutdown for a portion of the quarter. These strong results were in large part driven by better-than-expected renewals of UEM and navigation of U.S. government shutdown. As a percentage of revenue for the last 12 months, UEM remains just over half of the Secure Communications total with Secusmart at slightly more than AtHoc for the remainder. Key metrics for the division remains solid with annual recurring revenue, or ARR, increasing $3 million sequentially to $216 million, and dollar-based net retention rate, or DBNRR was at 92%. Secusmart revenue grew sequentially, but was lower year-over-year due to a tough compare as a result of the strong upgrade cycle from the German government in Q3 of the prior fiscal year.

AtHoc, despite having the most exposure of the 3 product groups to the U.S. federal government shutdown, delivered year-over-year and sequential revenue growth. Earlier this year, we achieved FedRAMP high certification becoming the only critical events management solution provider to achieve this stringent level of security, directly enabling significant U.S. government expansions this quarter including both the U.S. Navy and the Department of Justice. AtHoc continues to grow outside of North America as well, securing new wins with the National University of Malaysia, Australia's Department of Foreign Affairs and Trade and key U.K. energy infrastructure provider, Scottish and Southern Energy.

For UEM, in addition to the continued trend for reduced customer churn, we had some significant expansion deals for this product in the quarter. One of these expansion deals included an 8-figure multiyear renewal with the Dutch government. Other strong renewals included the Scottish Police Service and the U.K. Ministry of Defense as well as a number of financial services companies. As we mentioned in Q2, BlackBerry UEM became the first solution to be certified by Germany's Federal Office for Information Security, or BSI. And in Q3, we closed our first deal that was enabled by this very demanding security certification. Targeted investment in certifications like BSI for UEM and FedRAMP high for AtHoc are strengthening our portfolio's position at the heart of government secure communication strategies.

Overall, this was another solid quarter of performance for our Secure Communications division. This has been a year of stabilization with improvements in renewal rates and our ability to close new business. Finally, licensing revenue was $6.1 million, which was in line with expectations. And with that, let me now turn the call over to Tim for more color on our financials.

Thank you, John, and good afternoon, everyone. As John mentioned, we continue to drive strong reliable results across the board that either meet or beat expectations. Revenue for the total company in the quarter topped the high end of the guidance range at $141.8 million. Total company adjusted gross margins remained relatively flat at 78% and increased 3 percentage points sequentially as a result of a favorable revenue mix and continued optimization of our cost of sales profile. Adjusted operating expenses were $85.4 million, up 7% year-over-year as we continue to deploy capital to strategically invest for growth in our QNX business.

Total company adjusted EBITDA continues to be strong at 20% of revenue or $28.7 million. Adjusted net income for Q3 was $26.8 million and GAAP net income was $13.7 million. This is the third quarter in a row that we've delivered positive GAAP net income and the seventh consecutive quarter of sequential improvement. In fact, Q3 had the strongest level of quarterly GAAP net income at any time since the fourth quarter of fiscal year 2022, almost 4 years ago.

Adjusted EPS for the quarter beat the top end of guidance at positive $0.05. QNX had its best ever quarter of revenue, achieving $68.7 million, up 10% year-over-year and 9% sequentially. QNX gross margins expanded by 1 percentage point sequentially and were down 2 percentage points year-over-year to 84%. In Q3, we did not have the P&L benefit of grant funding from Canada's Strategic Innovation Fund, like we did in the first 2 quarters of the fiscal year. But even without this benefit, adjusted EBITDA was a very solid 24% of revenue and hit the top end of guidance at $16.4 million. Secure Communications revenue exceeded the top end of guidance for the quarter at $67 million. Gross margin was 1 percentage point lower year-over-year and higher sequentially at 72% as a result of leverage and revenue mix.

The better-than-expected revenue also drove leverage to the bottom line. Adjusted EBITDA in the quarter was $17.3 million, up 10 percentage points sequentially to a strong 26% margin. Finally, our Licensing division delivered results in line with guidance. The revenue was $6.1 million and adjusted EBITDA of $5.3 million. Adjusted corporate operating costs, excluding amortization, came in at $10.3 million in Q3, broadly in line with guidance.

This was another good quarter for conversion of profitability into cash. Operating cash flow was $17.9 million, a significant improvement from $3.4 million in Q2 and up over 200% year-over-year. Free cash flow was $17 million in the quarter. Our balance sheet remains solid with total cash and investments, up $111 million year-over-year and $14 million sequentially to $377.5 million.

We are deploying BlackBerry's capital to drive growth and shareholder value. We continue to invest organically, especially in our QNX business where we're supporting the key initiatives that John outlined earlier, to go deeper into auto and wider into target verticals. Notwithstanding this increased investment, we continue to deliver positive operating and free cash flow, further increasing our net cash position.

So in addition to organic investment, we're also continuing to take advantage of what we believe to be an undervalued share price and repurchase shares through our buyback program. In Q3, we ordered the repurchase of $5 million or 1.2 million shares at an average price per share of $4.13. A portion of these shares settled just after the quarter end on December 1, so it won't show in this quarter's 10-Q filing. All of the shares have been canceled, bringing the total number of shares bought back this fiscal year to $8.8 million. We have, therefore, more than offset potential dilution from our long-term incentive and employee share purchase plans.

Turning now to financial outlook for the fourth fiscal quarter and the full fiscal year. We expect revenue for QNX in Q4 to be in the range of $71 million to $77 million. Having just delivered an all-time record in Q3 for quarterly revenue, we expect to set another new record in Q4. For adjusted EBITDA, we expect QNX to be in the range of $17 million to $23 million. We are maintaining our full year revenue guidance at the midpoint while also narrowing the range to $260 million to $266 million.

For full year adjusted EBITDA, we're raising the bottom end and the midpoint of our guidance such that the range is now $67 million to $73 million, as QNX continues to deliver a combination of double-digit growth and strong profit margins.

For Secure Communications, we're increasing the expected revenue for Q4 such that it's now in the range of $61 million to $65 million and for adjusted EBITDA to be between $11 million and $15 million. For the third quarter in a row, we are raising our full year revenue guidance for secure communications, such as the high end of the range we provided last quarter is now the low end of the range, such it's now between $247 million to $251 million. We're also raising our guidance for adjusted EBITDA with it now expected to be between $47 million and $51 million. For licensing, we reiterate our prior guidance for revenue to be approximately $6 million and adjusted EBITDA to be approximately $5 million per quarter.

For the full fiscal year, we're holding revenue guidance of approximately $24 million and adjusted EBITDA of approximately $20 million. We continue to expect adjusted corporate OpEx, excluding amortization, to be approximately $40 million for the full fiscal year. At total company level, we expect revenue for Q4 to be in the range of $138 million to $148 million and adjusted EBITDA to be between $22 million and $32 million.

For the full fiscal year 2026, we are raising the guidance midpoint for the total company revenue by $6 million with a range now between $531 million and $541 million and raising guidance for adjusted EBITDA at the midpoint by $7.5 million to be in the range of $94 million to $104 million. For context, when including Cylance, adjusted EBITDA from continuing and discontinued operations for the prior year was $39.3 million. For non-GAAP EPS, we expect it to be between $0.03 and $0.05 in the fourth quarter and to now be between $0.14 and $0.16 for the full fiscal year.

Moving on to our cash flow outlook. We expect another sequential increase in operating cash flow for Q4 with it in the range of a solid $40 million to $45 million. This increase means that for the full fiscal year, we're again raising our guidance and expect to generate between $43 million and $48 million in operating cash flow. This does not include the additional $38 million of cash from the second tranche of proceeds from the sale of Cylance to Arctic Wolf that we expect to receive in Q4 which is classified separately as cash flows from investing activities. Therefore, we expect to generate in excess of $80 million of cash in Q4, further strengthening our already solid balance sheet. With that, let me now turn the call back to John.

Well, thanks for that, Tim. And before we move to Q&A, let me quickly summarize what has been another strong quarter for BlackBerry. We continue to consistently deliver reliable results across the 3 core metrics of revenue, profitability and cash at both the company and divisional levels. QNX delivered its best ever revenue quarter and a solid adjusted EBITDA of 24%, all while continuing to invest for long-term growth. In addition to these strong financial results, QNX also hit the milestone of powering 275 million vehicles on the road. Secure Communications exceeded revenue expectations and demonstrated significant leverage in the model with a 26% adjusted EBITDA margin.

To put this in perspective, this time last year, the cybersecurity division had an EBITDA margin of only 9%. Overall, both divisions helped drive another quarter of GAAP profitability and cash generation. So with that, let's now move to Q&A. And Nick, if you could please open up the lines.

[Operator Instructions] And the first question today will come from Kingsley Crane with Canaccord Genuity.

Congrats on a really nice quarter. So we've talked about the GEM opportunity naturally requiring more investment in the near term as you work towards gaining critical mass in key end markets. And again, really nice wins in the quarter on that segment. But as you think about fiscal '27, where do you think you need to invest more within that space? Like what's working, what needs more help?

Yes, Kingsley, I think on that one, I think from a product perspective, we're in really good shape. I think the GEDP platform that we talked about is a really good leverage point for us to bring value to our customers. So I think you'll probably see us continue to invest in go-to-market activities. More feet on the street. It's a broader market. Partnerships with distributors and other technology providers that maybe can help bring us to market a little bit faster. So these are probably the areas that we'll continue to invest in as we go into the next fiscal year.

Okay. Great. And then the follow-up would be on this luxury China EV win. We're really encouraged by that. What ultimately allowed you to win that deal? Do you think it was cost savings, weight savings, superior software functionality and then -- to what extent could this be a blueprint for more success in China?

I think it's -- honestly, I think it's all of the above. I think it's cost savings, it's weight savings. It's the performance of the product itself. I would say the Chinese market tends to be very price sensitive. So I think the amount of money that they can save leveraging our technology and what that does to their overall BOM is a compelling value proposition. So that probably swayed a little bit more. But the broader value proposition is very, very sound, pardon the pun. But it's -- I think the actual cost savings is probably the lead one on that.

And the next question will come from Luke Junk with Baird.

John, maybe if we could start just in terms of getting to a vehicle platform award, just if you could talk about some of the gates you're advancing through right now to get you closer to that outcome. And then as we look forward to a couple of weeks to CES, should we expect to hear more about this at CES as well?

Yes. Luke, great question. I'll tell you, it's an area that has got a lot of focus right now inside the company. And from a technology perspective, bringing QNX SDP 8 and the middleware together and the integration, the connective tissue, making that a seamless kind of product that we could bring to our customers. It's a lot of collaboration with our partner, Vector to really bring that. So I think the product itself is really sound. It's just a matter of the integration with our partner and then bringing that to the marketplace. So a lot of good progress that's moving in this regard, but we're pleased with the progress, and you'll hear more about it.

Okay. And then I wanted to follow up to your answer about luxury China EV win. In terms of the cost sensitivity, I mean, certainly, that's a well-known factor in the China market. And I'm just wondering, in terms of system design or things that are sort of you can bring to the table from a QNX standpoint to put BOM into a more compelling position? Like just what are some of the key areas that you can enable for a Chinese OEM in that respect, John?

Yes. I think certainly, the cost savings and the time-to-market capabilities are something that's compelling. But one thing we do think is going to start getting more traction in the Chinese market is safety solutions. I think in the past, they've kind of used some basic technologies. And because they've had some high-profile safety issues, we're excited about the opportunities that could be there for us for SDP 8 and bringing kind of the core RTOS to the -- so it's great. Sometimes you get in with maybe Sound or Cabin or different things like that and maybe drag along kind of the core product in some ways. But it's -- I think it's a testament to the broad portfolio of the platform. You might lead with Sound and get your foot in the door and then bring the RTOS along.

More times than not, it's the other way around. It's -- because that's the meat and potatoes from the operating system level. So we're working every single angle in the Chinese market. But I think they are a little more acutely aware and concerned with the need for having an SDV platform that has safety certifications, probably more so than they have been in the past.

The next question will come from Todd Coupland with CIBC.

Great. Thanks, good evening, everyone. I wanted to start with QNX, 15% growth last quarter, 10% this quarter, guide implies 15% growth. How should we think about the trend in this business given that fluctuating growth rate as we're thinking about fiscal 2027?

Yes. Great question, Todd. So ultimately, we'll give the guide for fiscal '27 at the end of Q4, so in 90 days' time. Look, double-digit growth has been very solid. And Ultimately, we're going to be giving the backlog number as well in Q4, which will be a good lead indicator of where we're moving. On the backlog, we're actually feeling pretty good, as John mentioned in his prepared remarks that after a difficult start, we've actually accelerated pretty well, and we've got some really good momentum now as we head into Q4 and conversion of that backlog into revenue, which will start in FY '27 is going to really drive that business forward.

And what we saw in Q3 was strong royalties and royalties driven by some of these new programs that we've been winning over the last couple of years now starting to come online. So yes, it's an exciting time and some of the growth accelerators such as going up the stack, things like Sound and Cabin that we've mentioned, we're starting to see traction from those 2. So I'm going to put a pin in it and say, come back in 90 days, and we'll give you more information on next year, but we feel very positive about the momentum that we've got in this business.

Great. Tim, and then just on secure comm, the business is trending probably about half of the decline rates you've been projecting the last couple of quarters. Is this the new normal? And again, similar type of mindset as we think about fiscal '27? Could this business actually turn into a growth segment with defense spending trending positive and other segments doing better. So just talk about how we should think about that.

Great question, Todd. That's a really good question. We're actually -- right now, as you would imagine, just modeling out next year, taking a look at the pipeline and things do tend to be a little lumpy sometimes in this space. So I don't think 1 quarter necessarily translates into. But I will say we have a really strong pipeline within secure comms, one of the stronger pipelines that we've had in a long time.

So that bodes well for us. It's probably, like Tim said before, it's next quarter, we'll give guidance for the next fiscal year, but it was a solid quarter. To be honest with you, we are happy we navigated the U.S. government shutdown the way that we did. We were a little spooked by that as the quarter was going on, but I think that turned out to be a pretty good result for us in the end. And now it's just a matter of converting the pipeline that we've got in front of us to tee up a really solid fiscal year '27. So we'll come back to you with more insights into that, but certainly pleased with the way that business is performing.

The next question will come from Trip Chowdhry with Global Equities Research.

Thank you. Congratulations on a very solid execution. I have 2 quick questions. The first regarding the government shutdown. Do you think now everything is normal? Or you think like almost more than half of the quarter was in shut down, do you think the remaining half made up of the first half? That's first question.

Second question, very refreshing to hear your wins in the robotic space. I was wondering if you can put some more color about what kind of robots may be using your technology? And any color on the demand side also? That's all for me.

Thanks, Trip. I'll cover a little bit on government, and we'll cover a little bit on robotics, Trip, just to give you some color on it. But as far as government is concerned, it's been a really interesting year. We started the year with Liberation Day and the uncertainty that, that brought. That in some ways, created some opportunities and also created some headwinds.

We also had in the government space, the continuing resolutions at one point, then a full-on shutdown at one point. But I think the good thing -- I think what we learned from this experience, remember, DOGE was another one. How much -- how was that going to impact our business. But one of the learnings that I think we took away from the last 6 or 9 months on the secure comp side is what we do in terms of mission critical events management, mission-critical SecuSUITE encrypted voice, data and video. Mission-critical UEM and the security that, that provides.

These mission-critical -- when it comes time to take a look at what they're going to cut, what we found they're a little bit hesitant to really take a hatchet to mission-critical types of software solutions. So we were a little concerned about the timing with the -- in Q3 with the U.S. federal government, in particular, because everything is shut down, their procurement then had a backlog of contracts that they had to process, but I think we were fortunate enough to kind of work through that where it really didn't impact the quarter as much as we initially thought it was going to be.

So there's a lot of different dynamics with the governments, but I have to say, I think, we've been successfully navigating a lot of the waves there in some of the changes that's gone on. We'll come back to you, Trip, with more details on robotics and medical instrumentation and industrial automation and give you more colors on the wins.

Sometimes, we're a little bit -- some of our customers are a little hesitant to share too much information about the use case and the design win. There's -- for confidentiality and different reasons. But in the robotics space, when we think of humanoid robotics, we think of the more technology that's going into this vertical. There's more compute power. There's more performance that's required and that's a sweet spot for QNX.

So regardless of the type of robotics, if you need high compute and you need high performance, SDP 8 is the solution for them to look at. So we'll bring that a little bit more to life, I think, in the future. Actually, we'll have some demos at the booth where we -- at CES this year to show it a little bit more. But hopefully, that gives you a little bit color on robotics and we'll be sure to share some more in the future.

Yes. That's perfect. Thank you so much, and happy holidays.

Thanks, Trip.

Thanks, Trip.

The next question will come from Paul Treiber with RBC Capital Markets.

You made an interesting comment on the pricing opportunity for the vehicle software platform. Can you just speak to what you see as a potential ROI or the cost savings that the automakers would benefit from that? And then also, could you speak to the economics, the split between QNX and Vector or maybe your ability to capture a disproportionate share of the pricing there?

Paul. So ultimately, what we're providing here -- and remember, this has been a pull from the OEMs have come to us and asked if we can help in this area. Because I think if we look back over the last couple of years, the OEMs have been very ambitious in terms of trying to write all the code from the OS up to the application layer and really found that to be quite a challenge.

So in terms of cost savings, having us do it much more efficiently and actually being able to produce a product that they can get into market is a big advantage for them. We're taking off their hands off their plate, a load of software integration. But currently, they have a heck of a lot of internal resource working on. So they can divert that resource to the application layer, which is where they're really going to differentiate their brand from other players.

So yes, we're doing a lot of heavy lifting for them. And like I say, this is a pull. They've come to us and say, "Can you do this for us?" In terms of the economics, we're not going to give like the absolute details here, but clearly, a portion of the pie is coming from Vector. A significant portion, I should add, is coming from us, and there will be a split. Now we are going to be the billing entities, so we will take the revenue and the vector portion would obviously be passed on through cost of sales.

And the second question is just on the Canadian federal government. The budget was out in November, and there's a number of new investment initiatives. Can you just remind us again of the size of your secure comms business for the Canadian government? And then what do you see as the opportunity and what's the strategy to try to expand further with the Canadian government?

Yes. Yes. Great question, Paul. It's a lot of -- actually great momentum that we have right now with the Canadian government, especially their by Canada kind of solution, looking to do more with Canadian providers. We do have a comprehensive relationship with them today around UEM. They use that widely throughout the organization. And we're having really good productive discussions with them about Secusmart and AtHoc and other parts of the portfolio as well. So stay tuned. We've got a lot of activity going on. We've got a multiyear agreement with them today that's very UEM-centric and as we look to try to expand into Secusmart, SecuSUITE product and the AtHoc portfolio, we're finding some really good discussions with them right now, particularly as they ramp up their spending on defense.

So critical events management is something that is widely deployed in the entire U.S. government. We're hoping we could bring that same value proposition to the Canadian government as they ramp up their defense spending over the next few years. So we'll keep you posted on it. But be rest assured, there's a lot of activity going on right now with the Canadian government.

This will conclude our question-and-answer session. I would like to turn the call back over to John Giamatteo, CEO of BlackBerry, for closing remarks.

Terrific. Thanks, Nick. Before we end the call, I just wanted to flag that we'll be starting off the new year at CES in Las Vegas. We'll be hosting an investor briefing on January 7 at 11:00 a.m. Pacific Time to discuss some of the highlights from the show. You can access the live webcast in the Investor Information section at blackberry.com. And if you're at the event, please stop by to see some of the exciting new exhibits that our QNX team will have on show. So thanks, everyone, for joining the call today, and I'd like to wish all of you a happy and safe holiday season. See you next time.

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

Up here, we have with us BlackBerry. And I think what's going to be really interesting about this, I know you guys aren't sort of the typical sort of like auto, auto run, but I think what's interesting is QNX is actually very central to auto and the software-defined vehicle. So very pleased to have with us Tim Foote, the company's CFO; Grant Courville, in product Strategy; and Justin Moon in product engineering. So team is going to go through a series of slides, and then we'll open up for questions and then great.

Sounds great. Hello, everyone. Thank you for joining today. So yes, to Dan's point, like BlackBerry, and auto conference, that kind of doesn't really make a lot of sense. But BlackBerry has been under a big transformation over recent years. And we find ourselves today as a software company and particularly for the context of today, we're a very dominant position in foundational software in the car, in particular.

I'll just quickly click through the safe harbor statement. So around about half of our revenue comes from QNX. So QNX, predominantly automotive. We're powering 255 million-plus cars around the world. We're dominant in domains such as the digital cockpit, ADAS and other things like body and chassis. And what we're seeing here is that we've got a strong moat around our business, where we're focused on safety critical very reliable, highly certified product, but also a combination with high performance as well, which leaves us in a very strong position to capitalize on some of the secular trends that you're seeing happening in software in the car.

We have a very strong backlog, which unlike a lot of software companies, gives us a long line of sight into revenue coming into the future. Our backlog for estimated future royalties currently sits at $865 million, and that's been growing at a CAGR of north of 20% over the last few years, which actually exceeds our revenue growth over the same period, which means that over time, we expect that to start to come together and we see an inflection point in revenue. It's a very profitable business.

Last quarter, we achieved a Rule of 40 and we're very excited about where this business can go from here. So to talk to you more about what the product actually does and its applications and why we're really excited about the future. We have Grant Courville here, who will walk us through some of the applications and the trends that are relevant.

So hi, I'm Grant Courville. I'm responsible for product and strategy at QNX, and thank you all for coming. Really appreciate it. I'm truly excited to share what we're doing and some of the trends that we're seeing, and Tim touched on a number of them. So if you think about what we do, we've been in business for decades. And what we've provided since day 1 is foundational software. So foundational software for advanced edge compute. We're going to talk about what we're doing today.

If we think about foundational software, the easiest way to probably visualize that is think about the hardware that you might have, so the CPU and whatnot. Then there's the foundational software. Some people will call it the operating system or virtualization, whatnot, but it's the layer between the hardware and the applications and the higher-level middleware. That's the way to think about it. So you won't see our software necessarily interacting with the end user. However, will be that core software that has to work all the time reliably. And that's what we've been focused on for, quite frankly, decades.

In terms of advanced edge compute, what we're all seeing in the industry now is more compute power, more intelligence at the edge, more software at the edge, more criticality at the edge. And when I say edge, it's devices that have a certain level of criticality, whether that's in a vehicle or as you can see below, whether it's in the energy sector, transportation, medical, think of surgical robotics and whatnot, think of patient monitoring, whether it's smart agriculture, heavy machinery and whatnot, all of those markets share a common thread, which is a degree of criticality and the need for more compute and intelligence at the edge. So again, we provide that layer of software.

Tim mentioned it earlier in terms of Rule of 40, you've probably seen the statistic. We're well over 255 million vehicles on the road, and that's something we're very proud of, and that number has been growing over time. About 5 years ago, we invested in our latest product, QNX 8.0. It was released a couple of years ago. And the big focus there was all about performance, scalability and real time and real time, so be able to provide levels of determinism, make sure things happen when they're supposed to and all the time. And that was the thing that we needed to do to secure our software for the future, for the needs of the future as the compute power will grow. And we're very proud to be able to say we can now scale with the number of cores in a processor. So as you have more processing, more cores, our operating system will scale linearly with that. That's quite the accomplishment without sacrificing the architecture we have.

Our architecture is absolutely the most secure architecture on the planet. It's called the microkernel architecture. You can see some of the stats below with respect to OEMs and number of EVs. So we're seeing tremendous success. Obviously, we're seeing growth in our revenue as well. So this is maybe a picture you've seen before, but it is a fundamental trend we're seeing in automotive. If you think about vehicles tended to be dozens and hundreds of systems. They call them ECUs, but systems in the car. And that traditionally was how these cars were designed and built and whatnot. And now there's a trend to start to consolidate, bring some of those together. So this is where you're bringing more compute into a single system in the car. And the easiest system to point to would be the dash of your car. It's called a digital cockpit, for instance. And that's where I'm bringing my instrument cluster and my infotainment system and maybe other functionality into one, system and you're in the dash of your car.

Again, you won't see that as the user of your car or as a consumer. But behind that dash instead of having 2, 3 or more systems now, you've got 1. So the level of criticality has gone up. So that's the first place you're seeing it in the car. And this is where you start to move over from that distributed system, of which many of those systems we could not run on. They're smaller microcontrollers, if you like. Now they're moving to more high-performance compute systems. And the minute you do that, then that opens the door to our software and to the value that we provide from our software in those systems. So digital cockpit is the first shift we've seen. We're just starting to see that now in safety systems.

And you've heard of ADAS or advanced driver assist systems. So safety systems are going that way. And ultimately, you'll reach what they call central compute. The time frames for this evolution, they're up for debate, but the evolution is clear, and it is happening. It's already happening. So as the compute level goes up, the complexity goes up. As the complexity goes up, we provide more value. We say complexity is our friend. And building on that, our operating system is safety certified multiple functional safety standards as well as security certified, incredibly important in any connected device, let alone automotive systems.

So I think -- yes. I mean what we're talking about here is the cross-section from the solution space in terms of mission criticality and high-performance compute. They talked previous to us. It was all -- there was discussions around safety and the necessity of certain things. Really, what we're saying is as we increase those core counts or those -- the performance of these systems, it becomes even more clear that safety and security is of the most importance in the market. And our latest products and even our previous products actually handle that level of complexity and make it easier to build those systems moving forward.

And one other point to build on that, as these systems consolidate, that's an opportunity for us to run in more of the systems in the car, but also increase the software that we provide in the car, again, at that foundational layer. So you might hear us say more sockets, more layers, but that's really what it means, more systems in the car and more IP, intellectual property, more software in that core layer, which is, again, another opportunity for us and for our customers to build on.

So to finish off, I think this might be the last slide. This is sort of showing you some numbers from industry analysts that are showing you the growth from the distributed architecture that I talked about earlier, which is a mixture of microcontrollers or small systems that we would not be able to run on to those much more, say, consolidated systems. And you could see the growth over time through 2030, and that will continue. Again, you're seeing a bit of a shift for a number of reasons, but the trend is obvious. There are many reasons for the automakers to pursue this path. And again, it's something that they rely on us to underpin with our QNX operating system, our virtualization technology and our foundational software.

And about not quite a year ago, we also announced our vehicle software platform. And maybe we'll get a chance to talk a little bit about -- a little bit more about that because that plays into this trend quite well, and it's something that customers have been asking us for, which is fantastic.

So Tim, I don't know if you wanted to comment at all on the backlog.

The only thing I'd like to mention is looking at the stacked bar chart here, the important thing, as Grant was mentioning, the gray portion, which is the distributed portion is the percentage of the market that we don't currently address, which roughly speaking, in 2025 is about 75%. So we're addressing 25% of the market, and we are dominant in that space. You see within 5 years, S&P Global estimate that, that 25% goes to 75%. So that's a tripling of our addressable market within the space of 5 years. So that's a very significant growth. And to be honest, this is not a growth story that's dependent on increasing vehicle production. In actual fact, even if vehicle production were to decline over that period, our addressable market would be so much bigger than it currently is today.

Okay. So late in the day, I want just to be more organic -- my coffee here. But actually, I just want to start -- and I'd like to sort of go high level, but there was something interesting on that last slide. Just go back a slide. Just help us understand on backlog because you're -- that last bar there, you're saying you're at nearly 4x your '25 revenue. Backlog means different things to different people. And I think we -- in auto, we've become a little skeptical on what backlog actually means. And what does that number mean?

Sure. Okay. Let me have a run at that. So we look at individual design wins. So I don't know, for illustration only, Ford is going to make a new FM 50, and it's going to have an x amount of QNX content in it. Over the life cycle of that design, we're going to get revenue that comes in 3 buckets, Dan. So right at the very beginning, the customer will buy effectively a software development kit. We call it a development seat license, which enables them to build software on top of QNX effectively.

Roughly speaking, and it varies from design to design, that's about 20% of the revenue we'll get from the life cycle of that design. Then over the next 2 to 3 years, whilst they're designing the vehicle, they're going to consume professional services from us. So it's going to help with things like integration, safety certification, all these kinds of things. That's another 20% of the revenue. Then the vehicle moves into production. And when it's shipped, we'll get a onetime revenue -- royalty payment from them for the amount of content -- QNX content in that vehicle. This number here represents the royalty piece only, so the 60%, and it's the estimated future royalties from all the design wins we already have in the bag. So price, it's -- obviously, it's a P times Q, price times quantity. Price is contractual.

We agreed that with the customer in writing. The quantity is the estimate piece, right? So clearly, some of the larger, more established OEMs have probably a better line of sight to what their future volumes are going to be. Maybe some of the newer entrants, maybe there's a little bit more volatility in there. But what we do is we take a prudent view, we will haircut accordingly to the level of risk, and we'll estimate price times quantity. So the $865 million represents vehicles that are going to come off the production line and the amount we expect to get from revenue. And generally speaking, Dan, we're pretty close to the pin. Obviously, you get some kind of black swan events like COVID, chip shortages and stuff, which can delay timing. But generally speaking, you don't see too much volatility.

And one of the beauties of QNX is we're so pervasive across the industry that we work with so many different OEMs that if one is not doing as well, it generally means another probably is. And therefore, we can win on the upside.

Okay. That's helpful. All right. So maybe just a high level, and I think you've sort of frame this. But I think what's always helpful for folks in auto is we hear a lot about software in the vehicles. Can you just maybe conceptually, and I think -- I don't know if it was this deck, but maybe it was on the deck, lay out sort of the layers in an automotive software stack, where you sit, which is more of the OS level and why that level -- that layer of the stack is sort of secure and there's really a more limited base of competition.

Sure. I'll start and then Justin...

Absolutely.

So to your point, we're that foundational layer of software. So we sit below the applications and whatnot that the automakers will develop or Tier 1s will develop. The personality of the car, the brand of the car, the personalization of the services and features in the car. Our software essentially has to work predictably all the time. And we do really tight integration with the silicon vendors. So think of the Qualcomms and NVIDIAs and others. So we have very, very close relationships with those silicon vendors by the nature of our product and obviously, the success that we're seeing. So we're that layer in between hardware and call it the applications and some of the middleware and whatnot.

Case in point, if you were to look at a digital cockpit that I brought up earlier, many of them run Android today, from Google or from other suppliers. That environment is very complementary to what we do. We provide that software happens to be our virtualization software that allows, for instance, for an Android infotainment environment to run side by side with the digital instrument cluster. So we guarantee the separation between those such that neither one can affect the functionality or the safety of the other. So again, that layer below what you would see in the dash of your car being infotainment and digital instrument cluster.

And Justin, you might want to add to that as well.

Sure. I mean as we -- if we look at history as to what a software stack look like in a vehicle, it was some form of operating environment, a layer of middleware that performed things like signal management and things like that. And above that, the OEMs would provide their value add to their customers in terms of application. And by application, I don't necessarily mean an app like an app on your phone, but an ADAS, it could be a perception engine or lane keep or something like that as that's more higher layer from an application perspective. What you saw in those stacks is a lot of code from activating something to actually doing something on a piece of hardware, ton of layers.

Grant mentioned the complexity and the cross-section between high-performance compute and safety. It's an extremely complicated environment. In fact, one of the most complex environments from a software perspective. What we're looking at doing with -- and Grant hinted at the vehicle platform, what we're looking at doing is kind of changing the mindset from integration from an abstraction perspective to integration from -- to a performance perspective. The idea is to integrate appropriately, reimagine what does it mean to build that stack with like-minded companies, with like-minded individuals to truly get everything out that you can from the hardware that the OEMs are paying a lot of money for, right? I mean it's the single largest item on the bill of materials would be the hardware.

So what we're establishing with QNX 8.0, our latest product line as well as that foundational vehicle software platform, it's a reimagining of what does it mean to build that entire foundational stack, working with very like-minded companies. It's public knowledge that we are building a vehicle platform with Vector, not a small company. And it's not about just gluing technology together. It's about fundamentally understanding what that integration should look like from a performance, a latency management as well as safety and security perspective. So what we want to do is make it less complex as opposed to more complex when we start talking about the system designs.

And when we say foundation, we mean truly foundational software that needs to be in just about every ECU. So it's a solid operating environment. It's diagnostics, it's logging. It's all of those things. We don't want to compete with the value add from an OEM. We want to say, here are the things that you consider undifferentiated list. I think they're very important because that's what we do. But from a differentiation perspective, it's not a differentiator for the OEMs. The OEMs differentiate the high-value applications and features at that level. So we want to make it easier from a base layer perspective to do a more performance integration. And that's kind of where our head is at from a focus perspective moving forward. I hope that helps answer the question.

And the customer base. So I think we've known that there's -- you're talking about being embedded in ECUs. There is the OEM itself, but then you also have Tier 1s, many Tier 1s that are responsible for the ECUs. How do you look at the customer base?

Good question. And that has, as we've all seen, I think, has undergone some changes over the last few years where traditionally, an OEM would outsource the development of that ECU of that system to a Tier 1, hardware, software, the complete environment. What we're seeing now, obviously, is the OEMs are now -- they see more value and opportunity in taking on the software. So they're starting to take ownership of that software. And as Justin mentioned, they're looking for a platform to build on. So traditionally, our -- from a supplier perspective, we would be supplying to the Tier 1. We'd also have incredibly strong relationships with the OEMs, but the OEMs weren't taking on the level of software development that they're taking on today.

What has now changed is the OEMs are taking on much more, I'll say, ownership of the software, ownership of the architecture, ownership of the systems that go into the vehicle. And the Tier 1s are now being asked in some cases to say, only provide the software, sometimes only provide the hardware and the integration is falling to the OEMs. There's also the traditional model as well where the Tier 1s are taking on the entire hardware and software as well. So it's gone through a change. And from a QNX perspective, we continue to work incredibly closely with the Tier 1s and the OEMs. It really depends on the vehicle and specifically the program and the system that we're in, whether it's a digital cockpit or I didn't talk earlier about smart cameras, but the number of systems in that vehicle is growing, smart cameras, smart sensors and whatnot.

So again, some of those are built by the Tier 1, I'll say, in the more traditional fashion and others, it's a combination of, say, the OEM doing the software, Tier 1 maybe doing the hardware, another Tier 1 doing the software integration and whatnot. So the good news is we've been in this business for 28 years, Justin. 28 years in automotive. And so we work with all of them, again, at that foundational level and allow each of them to provide their value add and differentiate.

So I mean the value statement in my -- and you can keep me honest on this one. The value statement when we're looking at a Tier 1 versus an OEM is virtually identical. We're providing an undifferentiating software from their perspective. There are higher value things that the Tier 1s want to provide to the OEMs. The OEMs want to provide higher value things to the vehicle owners. So again, to Grant's point, we work very closely with the entire ecosystem. Tim likes to say that we're the Switzerland of working with the tier -- the multiple tiers, whether it's 1, 2 or directly with the OEMs. I don't know if there's anything...

And the OEM customer base, because you've seen your list, your legacy OEMs, same with Rivian, right? And I think we've seen efforts really vary by OEM, right? Like a company like Rivian is really taking much more ownership of the underlying -- so how do the efforts vary across those automakers?

Good question. And you're right. You said it perfectly. It does vary across the automakers. Some automakers are looking to develop the complete stack, as Justin mentioned earlier. Others have tried to do that, and we're, I'll just say, unsuccessful at doing that. And that's where it's been interesting because many of them have come to us and said, listen, we would like you -- we build on your operating system and software today. We would like you to build a more complete software foundation. And Justin talked about that earlier, the foundational vehicle software platform we announced earlier. So it really does vary by OEM.

The key is we -- again, we provide that core software that's nondifferentiating. And I think many of the OEMs are realizing, yes, it truly is nondifferentiating. It's absolutely critical. It must work. And they'd like to use it across multiple ECUs. You can't scale and really smartly invest, I'll say, if you're always, say, redesigning and starting over. And that's been one of the challenges and almost a little bit from a mindset historically in automotive is to redevelop start over almost every time. And you won't achieve that scale, you won't achieve that abstraction, if you like, between the hardware and the software and the vehicle and truly be able to differentiate and provide value if you're always restarting and rebuilding the software stack from the ground up. So today, it really does vary.

To your point, you mentioned a few OEMs. There's others, like I say, that take a different view where they absolutely want to build on what we have today and what we're building in the future for a vehicle software platform. So it's been very interesting and very much in transition. Like I said, some have felt the pain. Others are still attempting to build that complete stack. We're happily supplying and working with, quite frankly, all of them.

The dividing line isn't new entrants versus companies that have been in the industry for a long time. There are many very established OEMs that are very capable of building out that entire stack as well. It isn't just the new entrants that are trying to do things.

Maybe you could just flip back a couple of slides. I want to sort of unpack more of these trends here. Go forward one. Okay. So -- and then I think you also had an uptake slide saying you're not playing distributed, but these too centralized. Okay. So we've heard of all of this before, right? Like -- and this has been every automaker that we look at says they want to have a network architecture. They want to have ECU consolidation going to domain controllers to centralized compute to zone controllers. But at the same time, we know that like Ford literally scrapped, they had FNV4. They scrapped that. Others have tried to do these fully network architecture and they've failed. There's questions around what happens of VW, Rivian, does that succeed or not?

Maybe just zoom out, where are we on the uptake of the software-defined vehicle? And why do you think this hasn't maybe played out as advertised, is it related to EVs? Was all of this linked to EVs? Maybe just help paint picture or am I wrong? Is it actually playing out?

How much time do you have? Anyways, it's comp...

That is why we had you. There's a lot of interesting things here.

No. I mean, I'll say a little bit of optimism, I'll say, but the trend is clear. It's absolutely moving -- if we look at this slide from left to right, it is absolutely moving to more consolidation and ultimately to high-performance compute centered around a few domains, and you'll hear zonal controllers and whatnot. And you're absolutely right. This slide, we could have shown it, others could have shown this many years ago. I think the only thing that's changed really is the velocity at which this is happening. And to your point, it's incredibly complex to do this. You're bringing together disparate systems that we're communicating over a network and now you're bringing them together onto one system on chip, one system in the car and now you need to make use of, say, virtualization, for instance.

And there's the technology piece of it, I'll say. Then there's the operational piece of it within -- if you think of the OEMs and whatnot, I would have a digital instrument cluster team and I have an infotainment team, let's just say, well, now I have to bring them together to work on a consolidated system. You also have the introduction of system-on-chip or an SOC is the term you'll hear and the number of cores are increasing. So again, in many of these systems in the past, it'd be 4 core, well, now you're starting to see 8 core and beyond. So you have a lot more opportunity to do the integration. Where the challenge has occurred, and I think was the big realization, I'll say, is the challenge and complexity involved around the integration. That's where we've seen so many problems, so many challenges. It's just the integration from a software perspective in these systems.

And again, we work really closely with our customers and varying levels of success. And as I mentioned earlier, the first real tangible example of consolidation has been that digital cockpit. We've won a number of programs already related to ADAS, where they're taking lane keep assist and lane departure warning and automatic emergency braking and many of the safety features that we all enjoy in our vehicles, and they're bringing those together into a consolidated system as well. So we won those programs. You'll see them in vehicles in a few years from a consolidation perspective. Again, from a consumer, you won't know whether it's consolidated or not because, again, it's varied in the system.

I don't know Justin, do you want to talk more?

Where we are on the software definition journey. We all know there's a ton of software in vehicles today. So from a software definition perspective, we are well down the path. Pick whatever definition you want for SDV. What we're looking at now, and I've mentioned it kind of previously, original integrations were all around abstraction and choice. Any one company has done a lot of things that they can -- and just about everything they can do in the industry today. Really where we need to go to next is how do we partner appropriately to solve the actual industry challenges.

In the coming years, I truly and fundamentally believe that partnerships are the next superpower. How do we actually work together as an ecosystem to really satisfy and solve the industry challenges that exist from a software complexity perspective. And that's where our foundational vehicle software platform, part of the value of that is that starting point for commercial companies to come together to ultimately solve industry challenges, like-minded companies, culture is a big thing, making sure that we're all focused on the same industry challenges, solving them in the appropriate way, not trying to outcompete one another and all of those types of things, but really truly understand what the industry challenges are.

And I get that there are plenty of ecosystems that have occurred and plenty of consortia have been tried in the industry today. There's lots of room for lots of them. But the idea here is truly having commercially backed companies focused on solving those industry challenges at the most fundamental level gives us that starting point to solve the much more value-add things moving forward. So where are we on the software definition journey? Very far along as far as I'm concerned. But at the end of the day, it's going to come down to how do we do appropriate integration from a performance and safety management perspective with like-minded companies or partnerships...

If I can add, Justin mentioned ecosystem, and that's really important. We need to build out more talent around the systems that are going in vehicles. And I'll say around embedded systems in general. And what we've done just in the last year, we've announced a program called QNX Everywhere, where we're making our software available for free for noncommercial use.

So the research institutions, the post-secondary institutions and whatnot, they can now get access to our software and start to build out embedded systems, critical embedded systems and build that talent of developers that can then feed into automotive and general embedded and the market segments I mentioned earlier, where they're ultimately going to be building their systems on QNX, but we need to help build that talent base so that early on, they can gain the experience with QNX and that the talent will feed into the ecosystem. The ecosystem will help accelerate what you see here in terms of the evolution of vehicle architectures.

Seeding an ecosystem now is easy. You get some like-minded people together and they figure out a problem. What we want to try to do is really see the future, the far future. We want to make sure that we're building a legacy ecosystem here. And I don't mean legacy old, I mean a tangible ecosystem that can thrive for the foreseeable future. So making sure that we're working with those top research institutions and universities, not necessarily just in North America, but globally to ensure that, that next generation of automotive software engineer is available, knows everything there is to know about QNX and our technologies and the integrations there. And I think that's just as important as the tech.

Can you help us differentiate 2 areas of why your customer base is or is not this set of partners? A, Tesla. What is Tesla doing that sits so unique, which as I understand, Tesla is not a customer? And B, where are you in China, where I think people sort of cast China as the leader in -- the global leader in uptake of software-defined vehicle, just a very different set of dynamics and maybe not having the same set of challenges that we've seen in the West.

Good question. I mean I'll talk about China, maybe you want to talk about Tesla. From a China perspective, we've seen success in China. We're in digital cockpits and safety systems in China. We recently won a program for smart camera in China as well. To your point, they want to move fast. They are moving fast from a software development perspective. Where things are changing is you're seeing China obviously export more vehicles today globally. And when that starts to occur, then all of a sudden, some of the safety certifications that we have and specifically in automotive, there's something called ISO 26262. It's a functional safety standard in automotive.

That's something that we've certified our products to that no matter where you're developing your vehicle, including China, that's something you want to adhere to not at a software level, but also at a system level. So all of a sudden, that comes into play. And now more recently, there's a security standard that you have to adhere to as well called WP.29. And we've precertified our operating system and our software to one of the ISO 21434. I won't go into too many numbers, but these standards and regulations come into play now the minute you want to export. So we're winning business in China for the domestic market.

And then the companies that are looking to export that's when they leverage our technology, our safety certifications, our security certifications, our services that we talked about earlier to allow them to build on, quite frankly, a proven and trusted software platform that they can make use of globally. Do you want to talk about Tesla...

I mean, Tesla was considered the North Star from a software definition perspective a while ago. And I had mentioned previously, it's not just new entrants that are actually pushing the envelope in terms of software. It is even the very much entrenched industry big players are competing almost at a level playing field when it comes to a software perspective. So let's not discount them.

This is actually what they tell me when I -- maybe when I -- maybe I know we're like near time here, but I want to maybe squeeze in one more. And it's just a question of SOC providers. So you talked about NVIDIA, Qualcomm strategic partners. How does SOC provider play a role at all, if at all, in sort of your uptake in vehicles?

I mean it's the biggest item on the bill of materials. So a lot of the decisions actually start with the SOC. And we -- because we have such close relationships out of the box, QNX is the default choice. So NVIDIA DriveOS is actually built on QNX those like the default position. Qualcomm, RideOS, similar. So with these people like Qualcomm is dominant in the digital cockpit and leads with QNX. So it's a really important channel for us. Anything you want to add to that?

I mean there are very significant silicon companies that aren't Qualcomm and NVIDIA as well that we work very closely with. I mean, NXP is a very large company, and they have a very large footprint in the industry. TI, another, very, very deep ties with all of them. At the end of the day, we're an operating system. We abstracted the hardware. So we have to have those deep ties. We have to make sure that our software is as performant as it possibly can so that everybody north of us have all of the CPU cycles they need to accomplish all of the features of the system generally. So extremely important from a pull-through perspective.

With many silicon vendors, and that's part of the work that we take on, that really tight integration and that road map alignment. So that when their new silicon appears, our software is there, ready to go. And what we're doing as well in working with the silicon vendors, but also the cloud vendors. In other words -- yes, so what we've adopted is a cloud-first approach to what we do because our customers want to, again, accelerate development. So they want to start development with our software even in the absence of silicon or in the absence of hardware.

So we put our software on Azure, on AWS, it's used in private cloud and whatnot. So again -- and working with the silicon vendors who are providing that parity in the cloud as well. So they can start developing there, then move it on to the "real hardware" and again, get that head start in development. So silicon vendors through all everything we're saying are absolutely critical to what we do.

Okay. Great. We'll leave it there. Thank you.

Thanks. Appreciate it.

Thanks a lot. Appreciate it.

All right. There's -- if folks want to continue, we can, beverages down there.

So thanks, everyone, for joining us. My name is Paul Treiber for anyone who doesn't know me. I cover Canadian technology stocks at RBC. So I'm really pleased to be hosting our next session with BlackBerry.

From BlackBerry, we have CEO, John Giamatteo; and then CFO, Tim Foote. So thanks for joining us.

The -- just to kick off, could you provide an overview of BlackBerry? I mean BlackBerry has obviously done a number of things over the years. Where is the company right now? Where do you see it in the next several years?

Yes. No, that's -- it's something we spend a lot of time on just kind of redefining what BlackBerry is today. And that's exactly, Paul -- basically, 2 years ago, we pivoted towards a focus around 2 fundamentally autonomous divisions inside the company, one around QNX and the foundational embedded software business that we drive, which I know we'll talk about.

Then secure communications. It was a more broader cybersecurity portfolio, and we narrowed that back to our heritage around secure communications and the work that we do around the world with governments and securing mission-critical communications.

And then the third piece is our IP portfolio. We've amassed a massive amount of IP over the course of the 40 years of the company. So those really today make up the 3 driving forces and kind of divisions that generate revenue, profit and value for our customers.

The -- I wanted to dig into -- I think eventually, we'll get to all 3, but I want to first start with the QNX business and specifically around automakers and the value proposition for QNX within automotive. How do you see that value proposition evolve over the last several years?

Yes. It's one of the businesses we're most excited about, fastest-growing business inside of BlackBerry today. We power well over 255 million cars around the world today are being powered by QNX around the world.

The foundational -- the value proposition that we provide for foundational software in safety, security, high performance, the applications that we power like digital cockpit, ADAS, autonomous drive, these are all kind of the sweet spot of QNX.

And I think it's one of the reasons why we established a really strong position with 10 out of the 10 largest OEMs, basically all of the Tier 1s, 24 out of the top 25 EV makers. So I think we've established a really strong position to the point where I would tell you a lot of our customers now are asking us, can you do more for us? You're providing that base level operating system level.

We can see -- we see opportunities now going up the stack, providing middleware, working with partners like Vector and TTTech on delivering a more comprehensive holistic car solution. So that's one of the businesses we're most excited about from a growth perspective.

And what have you seen with automakers? I think there's a view or concern that automakers are trying to build all the software themselves from the bottom of the stack all the way up. Your feedback from automakers, maybe some have tried it, some didn't. But what do they encounter or some of them encounter trying to do that? And you may have seen some of them come back to BlackBerry. What else -- can you give us a sense of those discussions there?

Yes. Yes. No, we've seen that a lot. I mean we really are supportive to our customers in any which way. One, when they take a position of, hey, we're going to do it ourselves, we lend a hand and help them in any way that we can. But more times than not, we see them come back to us and say, integrating the plumbing of the software of the car from the operating system all the way up the stack, that's not our core competency.

Like maybe building applications, building value on top of the stack, we see them more gravitating their attention to, and they're leaning in with us and some of our other partners on how we can really -- that's kind of what QNX does best.

We've got an amazing team that delivers a comprehensive set of capabilities. So we find more times than not them coming back to us and saying, can you do more for us at those kind of base levels of the software stack.

In terms of the economics, and maybe this is a question for Tim. The revenue per vehicle and the opportunity, can you speak to maybe the history there? And then where -- the feedback you're getting from automakers in terms of like the additional modules, I think sockets and layer opportunity for BlackBerry over the next couple of years?

Yes, great question. So this is something we're really excited about. It's the opportunity to grow our ASP or ARPU, however you want to call it. We've seen over a period of time, QNX has increased its penetration.

So John mentioned 255 million cars on the road today running QNX. That number has grown significantly over recent years. So that's more cars that we're addressing. But then within each of those cars, we're offering more. So we've been offering the real-time operating system, the foundation for a lot of these safety critical software stack. So think digital cockpit, think ADAS stack. This is where QNX really shines. We're seeing more opportunities as more software becomes available in the car, particularly running on high-performance computes, the next generation of chips.

So every time you see that consolidation of compute into a single chip, that's another chance for QNX to be deployed in the car. And what we're seeing this year is actually a potential for a step change in ASP. So there's a couple of things. So we -- around about a year ago, we launched our next-generation operating system called SDP 8. This really is to embrace the next generation of chips, really high-performance chips. Think of 8 calls, 16 calls, beyond. So we built this new generation of operating system to be able to cope with that change and scale with the investment that OEMs are putting in.

Now clearly, if you're getting that much extra performance, you're going to have to pay for it, right? So we see step change opportunity. We've already started to secure some of these design wins. We're still in the early innings, but we're already securing design wins with a significantly higher ASP as a result. And then John mentioned the fact that we're going up the stack.

So with Vector, we're co-developing the software development platform, effectively taking the plumbing job, the software integration job off the hands of the OEMs. And that is another opportunity to significantly increase our ASP. So very optimistic about where that can go.

Can you give us a sense in terms of like the economic discussion with automakers? Because on the one hand, automakers are known for being -- having very strong procurement departments and just trying to push down pricing. But then the flip side is the software is developed -- delivering a lot of value and it's replacing effectively a lot of fixed costs like in terms of software developers. How do -- the automakers -- I'm sure there's different stages that automakers are at. But how do they -- what's the feedback you've been hearing from automakers in terms of the economics of using BlackBerry?

Yes. So it absolutely has to be a value sale. If we go in there and just try to crank up the price, that lasts only for so long. So it would prompt the OEMs to look for alternatives. At the moment, we enjoy a very strong market position with a very deep competitive moat. But that would only last so long if we have used that position.

So things like SDP is a great way of saying, hey, we can give you this extra value. We can future-proof your designs to run on the next generation of chips for the foreseeable future. So if you invest with us and lock in with us, then we're going to help you. But the other flip side to that, the ASP is going to go up.

And similarly, with something like the software platform, it's a lot of effort for an OEM to try to stitch together a lot of third-party software, have huge teams have to pay for all this third-party software and actually find it's not as good a result as maybe they would hope to come to us, it gives us a chance to go significantly up the stack and charge a lot more...

This year, because of tariffs and macro uncertainty, it's probably been bumpy, I think, for the automakers. The -- you've seen bookings rebound significantly. What has been the sort of the net impact of that macro uncertainty in terms of either overall interest in terms of deployment plans from automakers for next-generation vehicles?

Yes. That's a great question, Paul. We -- it's interesting. I think we were doing our earnings report when on Liberation Day, if I'm not mistaken. So that was, as you can imagine, a pretty volatile couple of weeks. But I'll tell you, it's been definitely a rocky start where we kind of had to navigate the landscape.

But in the first half of the year. But certainly, to your point, seeing really good signs of of the industry really kind of moving forward, thinking about growth, thinking about new technology. S&P came out with their global light vehicle forecast that's going to increase. That's helpful to us.

When you -- signs that we see, when we see our OEM customers holding their guidance or in some cases, increasing their guidance, that's another kind of positive sign that people are starting to lean in. And I can tell you a little bit of inside baseball as we talk to them, the discussions are now more around multiyear projects, bigger -- the day -- back in April, I think everybody was in a little bit of a pause and a standstill is where is this thing going.

Now we could see them leaning into these next-generation vehicles, these next-generation software capabilities. And as a result, our pipeline as we go into the next couple of quarters, the strongest it's been in a long time. So there's definitely a bit of a rocky start to the year with a lot of the kind of global macro uncertainties, but we've certainly seen that shore up. And if anything, we're seeing our OEM customers and partners lean in with us now on planning for an optimistic future.

Can you speak to EVs versus ICE? Is it -- are you agnostic between the 2? And also speaking about like software-defined vehicles? I guess is a software-defined vehicle synonymous with EV? Or is it regardless to the powertrain technology?

Tim, why don't you take this?

Okay. Yes. So we are largely agnostic, Paul. Ultimately, you're going to -- you sit in an EV, you're going to have a digital cockpit, you're going to have ADAS features. and they're probably going to be powered by QNX. Similarly, you get into an ICE vehicle, you're going to have the same.

So one of the benefits we saw in the early stages of EV was that some of the start-up EV OEMs would start with a blank sheet of paper and they would just put everything in there, all the different features. So maybe you could get more deployments of QNX, whereas the ICE vehicle OEMs tend to evolve over time, takes a little bit more time.

But largely, the content is the same. So one of the great things about QNX is that we're so pervasive across the market, be that geography, be that OEM, be that powertrain, we kind of -- we don't really care that much. We kind of go with the flow. The tide is going up for ICE, well, we'll ride that tide. And obviously, we won't get quite so much on the EV side.

Can you speak to the QNX backlog? You reported annually. The -- in terms of -- can you speak to like what drives the backlog and then the conversion of that backlog to revenue? Do you tend to find variances in terms of timing or delays or acceleration versus your -- the expectations of backlog?

Great question. So backlog is one of the things we're most excited about. Unlike a lot of software businesses, we have a line of sight to a long way into the future. So when you get a design win, you're probably going to be locked into that design being produced for anywhere from like 5 to 10 years.

So it's one of the great things about the QNX business is the line of sight. And it gives us a lot of confidence about where we're going as a business. So just to level set, that piece, the $865 million that we reported at the end of last fiscal is the royalty portion. So we've got 3 components to revenue. We've got development seat licenses, which is effectively a software development kit. That's broadly about 20% of the pie.

Then we've got professional services, our teams helping integration, safety certification, that type of thing. That's another 20% of the pie. And then when the vehicle is ready and starting to be produced, we get these royalties, and that's the remaining 60%. So that $65 it's very high margin. Think of it nearly 100% margin. It's really nothing for us to do at this point. That represents the future estimated royalties we're going to get from all the design wins we've got in the bank so far. And that number has been growing very strongly.

So at the end of FY '22, our fiscal year '22, that number was about $460 million. At the end of FY '25, it nearly doubled to $865 million. So the CAGR on that, I think, is around about 23% per year, which is obviously very strong and it's actually higher than our revenue that we've been reporting. So over time, we expect to see some kind of convergence there with those. But yes, it's a great asset for the business and shows the momentum that we're really -- we're driving.

And in terms of conversion into the P&L, there's kind of a bell curve shape to it, Paul, but 2/3 of that number should come within the first 5 years. That's an estimate. Obviously, the price is contractual, but the volumes is the unknown. So we take a relatively prudent approach. I'll say some of the bigger OEMs, their numbers tend to be very solid.

They've been doing this for a long time. But some of the newer entrants, maybe we have to haircut some of those estimates. But generally speaking, we tend to come out more or less in line with where we thought we were going to be.

We spent a lot of time on automotive. Just want to shift gears. So within QNX, there's another segment, it's called GEMS, or general embedded market. What do you see as the largest growth opportunities for QNX within GEMS and the value proposition of QNX? Is it similar to automotive? Is it different within GEMS?

Yes. It's a great question. And it's an area, Paul, that we couldn't be more excited about. We made a conscious decision over the course of the last 18 months to really lean in and invest, particularly from a go-to-market perspective into the GEM space.

And our value proposition there is any time there's that kind of intersection between safety critical and high-performance -- that's QNX. I mean that's the sweet spot for us as a company. And those verticals tend to be places like medical instrumentation. We've had some nice robotics wins over the course of the last -- of the first half of the year, industrial automation with some of our big customers there. 9 out of the 10 largest medical device companies utilize QNX to power a lot of their medical devices.

So this is an area we're super excited about. We've got a real established beachhead. I will say we're being pretty focused. The GEM space is a very vast. There's a lot of different verticals, a lot of different use cases. So we're narrowing in on places where we think we've got some good competitive differentiation.

And as a result, it's kind of diversifying our business. We love the auto business and the position that we have in it. But at the same time, it's always good to have a more diversified set of revenue coming from different segments, and that's an area that we have been investing heavily over the past 18 months.

You mentioned robotics. One of the areas that's seen a lot of investor interest over the last probably couple of years or so is human robotics. Can you speak to -- is that an opportunity where BlackBerry is looking to play? Do you have design wins there? Anything that you could share in terms of the momentum there?

Yes. I think it's early days with that segment, but we think it's -- it represents a significant TAM for us going forward. The work that we're doing with a number of our existing robotics customers leveraging SDP 8, a high-performance operating system that really helps that kind of the intersection between compute and safety and performance, robotics and humanoid robotics in particular, is just a kind of sweet spot for us.

So that's something that we think we've got a good position today in the work that we're doing with robotics. And I think we're really well positioned as the humanoid robotics segment takes off to another level that I think we're in a really good position to capture more than our fair share of that.

And within GEMS, could you speak to the economic model? And you think you're selling an operating system effectively. Is the pricing different depending on if you're an automaker producing millions of vehicles a year versus MRI machines, which are probably a couple of thousand per year?

Yes. Pricing is definitely different when you're talking about the volumes, millions of cars versus maybe hundreds of thousands of devices. So definitely, the commercial kind of economics are a little bit different. But the overall fundamental structure that Tim described around the software kits as the development kits is the first part of the revenue generation and then 40% -- 60% on the royalties and the other 20% on services. I think that framework applies to the same thing that we do in the GEM space, but the volumes and the economics around it tend to be a little bit different.

The within QNX, you announced yesterday a leadership change. John Wall has been a long time at QNX is taking the reins there. Can you just speak to what drove the change? What you see with John as a leader?

Yes, super excited about John assuming the role of President of the QNX division. He's got over 30 years' experience in this space and in so many ways, the kind of the visionary of the industry and all the contributions that he's made to the company and to the industry more general.

So I couldn't be more excited. is the right person to be leading our QNX business at this time across all the different dynamics that we're talking about. There's no stronger authority in the industry than John. And we just felt it was the right time to make that move.

We spent a lot of time on QNX. Just wanted to shift to some of the other segments. So on Secure Comms, you've stabilized that business. How do you see that business fitting within BlackBerry? I mean, obviously, you sold a piece of it with -- or a large piece of it with Silent. What do you see as the strategic outlook for that business going forward?

Yes. It's -- that business has been, as you said, Paul, has went through a lot of transformation over the course of the last 18 months. And now it's really a rock solid, stable source of revenue, profit and cash for the company. You think of our ARR, it's completely stabilized.

Our DBNRR has actually increased a little bit. We went from it being a business that was losing money 18 months ago, first half of the year generated 16% EBITDA margins. So generating cash, generating profit, very, very, I think, differentiated set of solutions around mission-critical communications. We power 9 out of the 10 G10 countries around the world use our software and our secure communications capability.

So when we think about it, it's a rock-solid engine of revenue, profit and cash that can help us feed and invest into more of the growth on QNX and to take that business to the next level. So they're complementary from the perspective of one is kind of slow, steady, Eddy, profitable generating cash. And the other part of our business at QNX really on a growth trajectory, and we need to continue to feed and invest that accordingly.

And you've been investing in QNX, you mentioned like the go-to-market investments for GEMS -- how do you look at the balance between growth and profitability at QNX when you're evaluating investments, what return metrics, what's sort of the framework that you're using for those to evaluate those decisions?

I'll start, but Tim can chip in on this. We've been investing from a product perspective. We launched SDP 8. That's being widely deployed. That's generating more of the ARPU increases that Tim was talking about on a per vehicle basis. So that's a lot of investment that we made on the product and the engineering side.

The last 18 months, we've been investing a lot in sales and marketing to get the QNX brand out there and really kind of drive the GEM space so we can get alternate sources of revenue and growth. And even during these investments on the engineering and the go-to-market, last quarter, we hit Rule of 40.

And actually, we see a good solid path to continually hitting Rule of 40 as we look into the future years. So I think the leverage that we have in the business model right now, I think the investment is pretty much at right where we want it to be. And as we start to generate incremental revenue based on those investments, we think there's a lot of leverage, a lot of profit, a lot of cash that's going to be generated as we kind of take that business to the next level.

The question for you. Tim, obviously, the company has come a long way in terms of improving profitability. Do you see on the corporate overhead side, still opportunity to tighten things up and improve margins further?

Yes, we've done an amazing job in terms of taking cost out over $150 million at a cost run rate for a company of our size has been very significant. And to John's point, actually what we're left with is actually a more stable focused business. So almost counterintuitive if you take cost out and actually you left with a better business. But yes, I'd say the heavy lifting has kind of been done.

I'd say there's still some tightening to be done. we think our corporate overhead will be around about $40 million this year, and we've said we're targeting that to go down to like $35 million and then maybe to $30 million. So there's a little bit of tightening to be done. But really, what makes this interesting will be the growth story.

So as John mentioned, the leverage from that growth, get that top line growth, particularly in the QNX business, which we're really excited about, see that drop to the bottom line. That's how we see a lot of value creation.

I just want to open up to the audience if there's any questions. I'll keep going. The -- you mentioned -- you talked about the 3 segments and patent portfolio was one of them. Can you walk through the arrangement that you have when you -- the monetization arrangement on the patent portfolio and how you would see that flow through the financial statements? And if there's any disclosures in terms of either bookings or anything that you can give to indicate how that is proceeding?

Do you want me to say that? Yes, fine. So obviously, we -- BlackBerry, pioneer in many different fields, the OG of the smartphone and lots of networking and all the rest of it. We had a portfolio of 40,000 patents, one of the biggest portfolios in the world. And just over a year ago, we sold the majority of the noncore assets to a third party called Mali, and we have a profit share with Malay.

So as they start to make money, we'll make money. And it's kind of a ratchet effect that towards the back end, we start to get a much larger share of the profit. So I think it's no secret you can see out there that Mali are out exerting the rights over those assets. We'll have to see how successful or not they are. But as they start to make money, then it will start to show up in our P&L.

And the other thing that's interesting from a balance sheet point of view is the -- when you divested Cylance, you have shares in Arctic Wolf. Can you just speak to the balance sheet position, how they're valued on the balance sheet?

Yes. So we've taken a very prudent view, we think, in terms of -- it's more like -- it's like a book value approach to the shares on the balance sheet. So that's a fairly modest amount. We hope there's going to be some pretty material upside if Arctic Wolf either IPO or some kind of transaction.

So we'll see how that goes. But one of the other things that's great is that we've got some guaranteed cash coming in. So this year, we mentioned all the cost takeout. There's been a huge transformation in our cash flow profile. So last quarter was Q2. If you go back to Q2 fiscal '24, we were burning $57 million of cash in that quarter alone. This past quarter, we're cash flow positive, $60 million swing.

This fiscal year, we expect to make somewhere between $35 million and $40 million of operating cash flow positive. And then in addition, we're getting around about $38 million of cash from Arctic Wolf. So for this year, we're going to be generating -- or we should be generating more than $70 million of cash to strengthen what's already a solid balance sheet where we've got $363 million of gross cash and $163 million of net cash.

So we see ourselves very solid from a cash flow performance, also profitability, return to positive GAAP profitability. And yes, the future looks pretty solid for BlackBerry right now.

And then just basically out of time, but just on capital allocation, the -- you have -- you're generating cash. What are the top priorities for cash at the moment?

So to feed the growth engine that is QNX. So as John mentioned, focused investment in R&D. We've already brought a number of products to market, but now we're investing in the next generation of products, so that software platform we spoke about, other aspects like the go-to-market for the GEM opportunity.

But then in addition, we -- in May, we set up a share buyback program and to the end of Q2, we bought back $30 million of stock, reflecting the fact that we think the stock is undervalued. And then going forward, well, there's potential for some tuck-in M&A. If it's really accretive to the story and maybe can fast track some of the growth in these opportunities we have for QNX, we're open to it. But it's fair to say, John, that the bar will be relatively high, and it's going to have to really resonate with the story for us to do anything.

Okay. I think we're out of time, so we should wrap up there. But thanks so much for joining.

Thank you, Paul.

Thanks, Paul.