BlackBerry Limited (BB) Earnings Call Transcript & Summary

Good afternoon, and welcome to the BlackBerry Annual General Meeting 2024. [Operator Instructions] I would now like to turn today's call over to Mr. Richard Lynch, Chair of BlackBerry's Board of Directors.

Okay. Thank you very much, all, everyone. I am Dick Lynch, Chair of the BlackBerry Limited Board of Directors. On behalf of the Board and Management, I'd like to welcome you to the company's Annual and Special Meeting of Shareholders. As we've done in recent years, we are hosting this meeting in a virtual-only format through a live audio webcast. We found that the virtual format is more inclusive and that 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 who 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. With that said, it's now my pleasure to introduce my colleagues on the company's Board of Directors who are with me today. Phil Brace, Mike Daniels, Lisa Disbrow and Wayne Wouters. I'm also joined by Blackberry Director and Chief Executive Officer, John Giamatteo; and by Director Nominee, Lori O'Neill. In addition to the Board, we are also joined by Phil Kurtz, Corporate Secretary and Chief Legal Officer of the company. I will serve as Chair of today's meeting, and Phil will act as Secretary. Following the formal business meeting, John Giamatteo and as well as Mike Daniels, who is the Chair of our Comp Committee will address questions submitted by shareholders. But before we turn to the formal section of the meeting, I'd like to make a few comments regarding the significant progress that BlackBerry has made since our last annual meeting just a year ago. As you know, late last summer, we explored a number of strategic alternatives and none were considered to be optimal for shareholders. But one point became quite clear to us, regardless of future alternatives or directions, we need now to establish the foundation of the future to be too individually profitable cash flow positive standalone divisions, one for IoT and one for Cybersecurity. We believe that this strategy will catalyze the greatest opportunities for maximizing shareholder value. We've already made significant progress in terms of execution. In the first 2 quarters under our new CEO, John Giamatteo, we have taken decisive steps that have resulted in dramatic improvements in our OpEx run rate and work is continuing to identify even more opportunities. Management has been thoughtful in their approach to optimizing our operations. And as a result, 3 months ago, we forecast being both cash flow and EBITDA positive later this fiscal year. In addition to the actions taken on costs, we have made substantial progress with operational separation of the 2 divisions. We have appointed management teams for both IoT and Cybersecurity. We've delegated substantially all operational decision-making authority to these teams. We have done this while commensurately focusing on reducing our common corporate structure and systems tool [ minimum. ] All of these actions have driven to a much leaner, more keenly focused businesses, and we've seen early signs of this translating into improved performance. To illustrate this, we closed this past fiscal year with a solid quarter. Our Cybersecurity divisions are a small but important shift towards stabilization of ARR, even recording some modest growth. Our IoT division recorded its strongest ever quarter for revenue and its key QNX backlog metric grew by 27% year-on-year to approximately $815 million. At the Board level, this year, we've seen a lot of change as well. We've added industry relevant experience and are actively working on adding more. Phil Brace, who was recently CEO of Sierra Wireless brings significant IoT operational and strategic experience as a new blackberry director. Lori O'Neill, the Director of both Constellation Software and Calian, and who has, in the past, led Deloitte's Canadian technology as [ Audit Partner ] will further strengthen your Board should she be elected today. As previously indicated, Dr. Laurie Smaldone Alsup has chosen not to stand for reelection. The rest of the Board, and I would like to take this opportunity to thank Laurie for her years of dedication to BlackBerry during those periods of significant change. We've greatly benefited from her support and insights. To wrap up, the Board and I would like to thank BlackBerry shareholders for their patience. We are very aware of the company's challenges. We are at least as impatient as you for the change, which will again position BlackBerry as a healthy and growing enterprise. We feel confident that today, we have the right strategy in place and are taking significant steps necessary to succeed. I would now like to call this meeting to order and ask Phil to go over the procedures and items for business for this 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 can be submitted by any shareholder or proxy holder who logged in with a control number or user name using the messaging feature of the virtual interface. If you locked into the meeting as guest without a control number, you will not be able to submit questions. Questions will not be displayed but will be read or summarized as appropriate. Generally, questions will be addressed only during the Q&A session after the formal part of the meeting, however, questions regarding procedural matters that are directly related to an item of business may be addressed earlier. Voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each item of the business only after the presentation of all the business items. In order to expedite the formal business of today's meeting, I will make all motions on voting matters. When you're asked to vote, you'll receive a message on the virtual interface requesting you to register your votes. You will only have a certain amount of time to do so when the polls are open. 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 it 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'm in receipt of the scrutineer's preliminary report stating that a quorum of shareholders is in attendance. The scrutineers' report shows that there are shareholders or proxy holders represented on this live webcast today holding 338,123,105 common shares of the company, representing approximately 57.3% 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 29, 2024. These include the consolidated balance sheets as of February 29, 2024, and February 28, 2023, and the related consolidated statements of shareholders' equity, operations, 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. 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 7. Information with respect to each of the individuals nominated for the position of Director of the company as set forth in the management proxy circular, and each of the nominees has agreed to serve as a director of elected. As we have done at previous meetings, we will be nominating and approving individual directors and not a slate of directors. By-Law No. A-4 of the company sets out of procedure requiring shareholders to provide advanced notice if they wish to nominate any person for election as a director. The company has not received notice in accordance with By-Law from any shareholder intending to propose a nominee for election at this meeting. So since there are no other nominations, I move to elect the directors named in our proxy circular. Again, I remind you that voting on all matters to be acted upon at the meeting will take place electronically after the presentation of all business items. 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 an amendment and restatement of our equity incentive plan to increase the number of common shares of the company issuable under the plan by 15 million shares to remove the fungible share ratio for stock option grants and to make certain updates on housekeeping nature. The company's ability to successfully execute its strategies is largely dependent on its continuing ability to attract, motivate and retain skilled employees, including through our compensation program. The equity incentive plan is an important part of this program and helps the company to compete for talent against its peers in the industry. The plan is also a valuable tool for aligning the interest of management with your interest as shareholders. The principal purpose of the proposed amendment is to ensure that sufficient shares remain available to enable the company to continue its practice of granting equity awards to its officers and employees. I move that the resolution to approve the amended equity plan as set out in the circular be adopted. The final item of business is the approval of our annual nonbinding advisory 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 will be adopted. That concludes all items to be voted on at this meeting. We'll now move to electronic voting on the items of business presented. As mentioned earlier, voting today will be conducted by electronic ballot. I'll now take a moment to ask the balloting be open to registered holders and appointed proxy holders. The polls are now open. And at this point, all registered holders and proxy holders who have properly logged in with their control number or user name, and wish to vote will be able to see on the screen brought forward at this meeting. Please register your votes by accessing the voting page and by selecting For or Withhold button next to the name of each proposed 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 the amended equity incentive plan and the advisory vote on executive compensation. We will provide registered shareholders and proxy holders another brief moment to complete the electronic ballots. Once the balloting closes, the voting page will disappear and your votes will be submitted automatically. [Voting]

The scrutineers have provided me with a preliminary report of the ballots. On the election of directors, all 7 nominees have been elected as directors of the company to hold office until the next annual meeting of the company in June 2025 or until their respective successors are elected or appointed. The motion to reappoint the auditors is also carried and PricewaterhouseCoopers LLP has been reappointed as the independent auditors of the company. The motion to approve the amended equity plan is carried as well. Finally, the say-on-pay resolution was also approved by a majority of the votes cast. Nevertheless, the level of support for the motion was well below our expectations. During the past year, Boards Compensation, Nomination and Governance Committee worked closely with a leading external adviser, both to develop an incentive package for John Giamatteo who is our new CEO and to structure other elements of our performance-based compensation plans that are in line with our industry peers. The company believes that the compensation decisions made during the past year were appropriate and necessary to attract and retain leadership to execute on the company's strategy. With this said, and while the resolution is advisory only, the Board and the Committee will continue to review its approach to compensation disclosure and to engage with shareholders to better understand their perspectives on the company's programs. As noted earlier, detailed voting results from today will be published on SEDAR+ and EDGAR and on our website after the conclusion of the meeting. It's now my pleasure to turn the meeting back over to Dick, to John to respond to questions from shareholders. Please note that the Q&A session 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're 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 through which we refer you for additional details concerning the risks, uncertainties and assumptions relating to our forward-looking statements. Now Dick will conclude the formal part of the meeting.

Okay. Thank you, Phil. As there is no further business come before the meeting, I declare the formal part of the meeting to be concluded. Before we address questions from shareholders, Tim Foote, Chief Financial Officer for our Cybersecurity division and our Head of Investor Relations, will provide details of the protocols for the question period.

Thank you, Dave. We will now address questions submitted by shareholders and their proxies who are in attendance on this webcast for approximately 15 minutes. Shareholders and proxy holders have had the opportunity to submit questions in advance and also have the opportunity to do so now using the Instant Messaging function on the portal. As a reminder, we are unable to receive questions from guests who have not logged in with a control number or use the name. We will now give attendees a moment to submit their questions. We will answer as many questions as time permits. And before answering, we will 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. Also, questions relating to our Q1 fiscal year '25 financial results will not be addressed. Instead, we will refer to the earnings conference call scheduled for tomorrow. Please limit your questions to topics relating to today's meeting and please keep your questions brief so that we can address a variety of questions in the time available.

Okay. So we have a few questions here. First one for you, John. The shareholder would like to know -- well says, thank you for your hard work in these difficult times. What are you doing to address the share price?

So the share price, obviously, we're concerned about it. It's something we're not happy about. And I can assure you, it's something we think about every single day. It's a tough market with some of the small cap technology needs, so there's some volatility associated with that. But what I would tell you, the things that we're focused on most is execution and improving the overall fundamentals of the business. To me, that's the only thing we can do is really execute and get this business back to profitability, get this business back to generating cash. We'll continue to provide you updates like we will tomorrow on our earnings call, on our progress in that regard and getting our fundamentals back to where they need to be, we believe, is what will get recognition and get our stock price moving in the right direction.

Thank you, John. This one is quite specific. It's asking, with the increasing needs for secure communication and BlackBerry's legacy in instant messaging, why John, have we decided to end BlackBerry Messenger enterprise for personal use [indiscernible] first.

Yes. So we still offer a secure messaging to our large enterprise customers. We also have a special encrypted messaging capability to our Secusmart portfolio. But the personal use implementation was something that was subscale. It's a business at some point, you look at the overall cost of delivering business to so few customers and we arrived at the decision at the best financial interest of the business because of the lack of scale in that particular use case is the reason we decided to end of life that particular product. So hopefully, that helps with some of the reasoning of how we made that decision.

Yes. Thank you again. Staying with you, John. Any color or high-level analysis you can provide on BlackBerry IVY?

BlackBerry IVY is something that we are still -- we're continued excited about the opportunity there. We think that's a next-generation set of capabilities and value that we can bring to the industry. So that's something -- with that said, I would tell you that the software development programs in the OEM space, they just tend to be a little bit slower than we have anticipated. So it hasn't scaled to the levels that we had hoped but it's something we remain committed to. It's something we're continuing to invest in. It's just taking a little bit longer to get scale in that particular initiative.

Thank you very much. Just pause just for a moment and see if there are any further questions. Okay. There are no further questions at this time. So with that, I'll turn the call back over to Dick.

Okay, Tim, thank you very much. And I would like to thank everyone who has been on the call here today and thank John and Mike and Phil, and even you too. We do look forward to welcome you again next year, and I'm very hopeful and optimistic and the Board is fully committed along with management that next year, you will be looking at a business, which you will be proud to own. So thank you very much. And with this, the meeting is ended.

This concludes the BlackBerry Annual General Meeting 2024. You may now disconnect.