BlackBerry Limited (BB) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. My name is Tim Foote, Vice President of Investor Relations here at BlackBerry. I'd like to welcome everyone here in the room here in New York as part of the BlackBerry Summit Event that's ongoing today, and also to everyone who's tuning in online. So today's investor briefing aims to provide some additional color and answer some of your questions relating to the Project Imperium, as we call it, update that we provided on October 4th. So with that in mind, I'd like to draw everyone's attention to the safe harbor statement as usual. So the format for today is going to be that John Chen, who's joining me here, the Executive Chair and Chief Executive Officer of BlackBerry; and Steve Rai, Chief Financial Officer will be answering questions. After John makes some initial comments, we'll open up the platform for your questions. So, anyone here in the room, please raise your hand and we'll get a microphone to you. And anyone online, hopefully you can see the Q&A box on the platform. So, without further ado, I'm going to hand over to John for John's prepared remarks.

Thank you. I don't really have a lot of prepared remarks. But maybe, we'll just go back to the beginning of Imperium and talk about the reasons behind it. We have every year, obviously, we have a 3-year operating plan. And the board has approved a 3-year operating plan on it, usually in the month of June. And we got together as a board and decided to take a look at whether there are any other opportunities for the shareholders to improve the value of the company by balancing that against the risks of the operating plan. So we then hired a bunch of professionals, 2 bankers, particularly Morgan Stanley and Perella Weinberg, as well as a law firm to help the board to go through that process carefully and in actually in a pretty aggressive manner. So, we've gone through the -- all the common thing that you think the banker will do, and have finally decided as a board unanimously, I may say that, the best thing to do is to continue the operation. However, we hear enough from the shareholders that, many of the shareholders are very interested in our IoT story and the IoT business. So we figured that what is the way to not lose the strategy as you could hear, or change the strategy as you heard this morning on the convergence, and at the same time, being able to enhance the value and showcase the value of the company. Of course, we have a plan for the cyber also. And so we decided that the best way to do is to sub-IPO the IoT organizations or the business and continue to work on growing the cyber business profitably. So that's we believe mathematically confirmed by all the calculations that the bankers care to do, that mathematically, that in a medium-term, not even on a long-term, in a medium and a long-term, it's better for the shareholder in terms of the share prices. So that's kind of the backdrop of it. It worked very hard on it. I myself worked quite hard on it. And we have a program office that does that. And where we are today, we are already, Steve and team already started to separate the financials of the 2 organizations. And we will need to have the auditors to audit the financials back in a couple of years. We have people working on drafting the S1, for example. And I hope, according to the bankers, that I think you folks probably know this a little better than I do. It takes about 9 months on a compressed process in order to get to the IPO. So that put us in about the June time frame next year. I hope to avoid the summer if I could. So hopefully, we'll get it by June. If not, then September. September, it's a bad month for the stock market. I mean, usually when people come back from holidays, they -- they have a different set of minds. And so therefore, market conditions allowed. But we're pushing June. Anything more that you folks want to add? Any questions? Maybe it's best for me to answer what you wanted to talk about, rather than me going through what we do every day.

Yes. So Dan, first question.

Hey, John, thanks for doing this. You talked about many investors owning BlackBerry because of QNX. So can you talk about how you weighed the decision to IPO a piece of that business unit rather than give shares to the existing shareholders?

Yes, first of all, I think the shareholder and their markets would tell us after we IPO'd it and depending on the value and also depending on the status of the cyber, and also depending on the reality of the convergence of the market. So, I think you should look at it as not a promise, but as a first step. And I would be the first to tell you, I wouldn't say no, for no sake. But today, it seems to make sense for us to preserve our strategy of convergence, which you heard hopefully this morning, that we align with people like Siemens and McKinsey and Amazon and GE and other people that we -- too many of them, to be able to bring to the stage. So this convergence market is very real, and there are very few company that have both technology in terms of playing in the IoT world in a very deep embedded world, as well as playing in the cybersecurity world. Now, let's talk a little bit about cybersecurity. I think one thing the thing that's bad for us is that we haven't been able to grow it. That as you all know, it's our intention to continue to push for growing it. The good thing's for us is our cybersecurity is really from a much broad base, not like a product like CrowdStrike s or a product like SentinelOne. We have 4 components on the cybersecurity. We have the endpoint management, which we bring into the edge. We have endpoint security, which you all know about Cylance usually AI technology for threat hunting and prevention and the managed service behind it. We have AtHoc, which 70% of the United States government employee uses this as emergency crisis management software. It's now integrated with the UEM as well as the UES. And we have secure voice and text, soon to be secure browsing and file management. So we have all these technologies that provide an environment where endpoints talk to each other. So maybe the whole word cybersecurity has shortchanged us a little bit. But at the end of the day, we need to make money and we need to grow the business. So we're working hard on it. We want to make a priority of making money first now.

Okay, next question, Paul, here in the front.

Thanks for doing this. Just on your point about preserve the strategy of convergence, how do you intend to do that with the split of the company? Like, will you still have control? Will you only float a portion of it? Like, how do you maintain the collaboration between the 2 units for split?

Well, hoping that the 2 operating unit will have an alignment in terms of the product roadmap, as well as the strategy. Now, that's not when you have 2 boards, 2 management team, that may or may not happen. But if that's not the case, I thought that through. Maybe it's a little naive. But that means that the -- I, so first of all, I believe the convergence is unavoidable in the market. It's not avoidable. So therefore, whether IoT is standalone or otherwise, they will have to work on some form of cybersecurity products and portfolio. Usually it's through a partners. So that's that. So that put both of our business in a more Switzerland mode. For example, Cyberpeople obviously could put Cylance on QNX, but we could also put Cylance on Linux. We could also put Cylance on other operating systems. So that also will maybe open up the aperture of potentials. So I think the more important thing that as we -- Steve and I talk about is that both operating unit needs to be financially viable and stand alone. That's the #1 goal that we have. With that, we have plenty of opportunities and plenty of possibility. Without that, of course, it's a different point of view, there's a situation I'll go to.

A question online, if I may, and John or Steve. This is a really kind of basic point, but a lot of BlackBerry shareholders want to know that following this IPO, do they end up with shares in both companies or just in 1? So, just a very practical point just to explain what this is for those less familiar with the process.

Sure. I'll address that. So on the sale by the company of a portion of the IoT businesses, hence, the sub-IPO, that portion that is sold, obviously, those will be shares of IoT Discreet. The proceeds generated from that portion that sold come into the existing BlackBerry consolidated, and then we'll decide depending on the amounts raised what to do with that.

Okay. Todd?

Todd Coupland from CIBC. Nice to see you guys. John, what's the sequence of your plans now with, your contract coming up and this Project now on a path to split the company.

The true answer is I don't know. And the reason I don't know is because, like you said, it was very important for me not to touch that point, before we made a decision. The board is able to make a decision. Now that the board made a decision, it's now time for me and the board to sit together and say, what value would I add? Or had I ever had any value, but what value I add going forward. So, it will be soon. Well, the good news is I think, none of us, the board or myself, have any desire to rush to anything. I'm not, running out here, no other board wants me to go. So there is a conversation there, and we'll probably have to resolve that soon.

And if I could follow-up on Cyber. It seems like the asset sale path interest was somewhat limited, or it's the interest was unacceptable. And it needs to improve its financial performance before you can realize value. So how should we think about, possible sale of cyber? It seems like it's at least delayed for a while and, maybe comes back on the table, but just talk about how we should think about that?

Okay. That's a good question. Good question. So as a public company, any piece of assets, at any time, including the entire company, let's open up for any strategic actions. It is a matter of a price that is the board determined that it's worth, risk adjusted, worth the return to the shareholders. So we, as a public company officers, that's the fourth, first and foremost. I mean, it can I -- I'd be stupid to tell you that, oh, no, there was never -- we would never sell it. I mean, it's not an emotional game. It's a mathematical game. All right. So that's #1. #2, you're absolutely right. Today's cyber is not growing and is losing money. Until we turn that around, we should never expect a valuation that is not being global or bottom fish, so we are the best person to turn it around. So I think for the shareholders, rather than sell it at low and bottom price, you would want the management to say fix it, then it has certain values. And maybe at that time, it's not worth selling because it's growing and making money and generating cash. So but so it's really a matter of determining who fix it or you just want to get rid of it. And so we cannot just get rid of it. Here's the reason why. Our customers are who's who is in the government around the world. Our customers are who's who is in the banks around the world. It is a disaster for many for us to walk away, if even this walk away able. So it's best for us to fix it for the reputational, for the business to sell and for the value of the future.

Question there, Paul? One second, you need a microphone.

Will IoT stakeholders be offered any ownership interest in the IoT division either before the IPO or at the IPO? Maybe the key stakeholders. Meaning OEMs, Tier 1s, partners, et cetera. It's like compared to, like, the Arm IPO some something along those lines. I think it would be an opportunity to for your stakeholders?

Yes. Very good question. I don't know the answer to your question, and here's why. One of the value of QNX and Ivy is the Swissman nature. We work with, for example, the chips company. NVIDIA pushes us, Qualcomm pushes us, TI, Broadcom, and so forth. If -- it would take a lot of money on that valuation. I'll make it up. It's one of those people invested in the -- the stakeholders invested in the company, will that turn people off, turn the other chip company off? So that's question #1. And similarly, an OEM is the same way. And so our power is that, we work with every auto model auto company. And if one of them own a partnership only a percentage of QNX or IoT, would that prevent. So others from using it. So we don't know the answer. From a banking point of view, that's the highest value because it anchor the dollars on the -- the value of the IPO, I got that from a mathematical point of view, but I need to worry about the strategic implication to the business.

John, following on from that question online, what proportion or what portion of the IoT business is -- are you considering actually selling? And would you be open through the IPO? So would it be 10% up to 50%? Or would you even consider a full spin of the IoT business?

Oh, as I said earlier, I think Dan asked a question. So what I think I -- so initially, we're talking more like a 20%, 30% like a mobile like a Intel-Mobileye like model. But, as the market responds, I wouldn't be standing here and tell you that there's no way that it cannot be spent. Does that make sense?

Yep.

All right. So but that's not our initial plan. Our initial plan is the Intel-Mobileye model.

Todd Coupland, CIBC again. I had a financial question. So, I guess there's pro forma cash if you pay the debenture back of roughly, a $150 million, I think, is what you called out on the last quarter. If you think about the current burn rate, some investors have projected that out and not projected improvement, in the business. And then they're saying, well, it's more or less a year of cash. Could you just talk about your thoughts on the balance sheet, whether that's the right way to think about the cash position, the burn rate, et cetera?

I'll take that. So I think projecting out at the current, burn rate and level of OpEx on the back of some of the comments that John made, particularly with respect to cyber, doesn't make sense. So we're working on the profile of that P&L, and part of this comes from the fact that we've been very clear. The last few years have been heavy from an investment standpoint in terms of getting the product, up to the state where it needed to be, competitively, which we believe is in a great position now. So we've been overinvested, and that never was, contemplated to be a long term strategy. It was to get it to a stage, and we should be able to back off, from that, to get come in line more with just, high level benchmarks for investment.

Yep.

John, you talked about, restructuring the cybersecurity business to get it back to growth and profitability. Any thoughts on potential asset sales to help you get to that goal faster?

Not being discussed today, we have a plant that we work with John Giamatteo, on the cyber unit to greatly reduce the loss. In a short period of time, and just like Steve mentioned earlier, a lot of them has to be focusing on reducing more streamlining more R&D activities, which we needed when we integrate Cylance into the UEM family. So now that's behind us. We're done with that, something that we need to address. So that should reduce a lot of the cash use, and in a short period of time. So, but I haven't contemplated on asset sales. However, we do have some ability to monetize the remaining part, which now nobody ever talk about which is our IP. So there are some opportunities over there, and that's being explored right now.

Okay. Further question, clarification, I know you touched on this already, John, but just they're asking when will we see the stand alone financials for the first time? Maybe it's a question for you, Steve.

Yes. So that would be typically not like John mentioned the separate financial statements, the carve-out financial statements for IoT need to be audited. The historical periods need to be audited. So this is all kind of information that would end up in the S1 filing?