BlackBerry Limited (BB) Earnings Call Transcript & Summary

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.