BlackBerry (BB 0.49%)
Q3 2023 Earnings Call
Dec 20, 2022, 5:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon and welcome to the BlackBerry third-quarter fiscal year 2023 results conference call. My name is Matt, 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 Tim Foote, vice president of BlackBerry investor relations.
Please go ahead.
Tim Foote — Vice President, Investor Relations
Thank you, Matt. Good afternoon and welcome to BlackBerry’s third-quarter fiscal 2023 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer John Chen and Chief Financial Officer Steve Rai. After I read our cautionary note regarding forward-looking statements, John will provide a business update and Steve 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 and are made pursuant to the Safe Harbor provisions of applicable U.S.
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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 Steve will reference non-GAAP numbers in our summary of our quarterly results.
For 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 on the blackberry.com websites. And with that, I’ll turn the call over to John.
John Chen — Executive Chairman and Chief Executive Officer
Thanks, Tim. Good afternoon, everyone, and thanks for joining the call today. This was a quarter where BlackBerry made good progress based on leading indicators for both the IoT and the cyber businesses. BlackBerry beat expectation for both total company revenue and earnings per share.
On the IoT side, we saw the business performing very strongly, setting yet another record for design-phase revenues. The strategic decision made over five years ago to position QNX as the trusted foundation for high-performance Edge compute, especially in auto, is really bearing fruit. On the cyber side, in light of what we said last quarter, we saw an improvement in the level of churn that we experienced recently. The investment being made in product and go-to-market continue to drive sequential billings growth in our cyber business.
Let me start my review with the IoT business unit. As mentioned, it was another strong quarter. Revenue was 51 million, a 19% year-over-year increase. Gross margin was 80%.
Preproduction revenue, that is revenue from developers’ seat — development seats and professional services set another record. This strength is being driven by significant new design wins. In fact, in the first six months of this fiscal year, BlackBerry added more new royalty backlog than in any prior 12 months period. And then, momentum continued this past quarter with wins in a number of verticals, but particularly in the safety-critical auto ADAS, advanced driver assist, and digital content domain where we are significantly gaining market share.
The largest win in the quarter includes a win with Aptiv to use the QNX hypervisor and RTOS to power a digital cockpit for European OEM. Other auto wins include a design with Daimler Truck and instrument cluster design win with Tier 1 supplier Marelli for a leading Japanese automaker, and a design with a leading Chinese Tier 1 supplier for an ADAS driver-assist module. In the quarter, we secured a total of 24 new design wins with nine in auto and 15 in the general embedded market, or GEM. In GEM, we secured design wins with medical, industrial, as well as defense and aerospace.
Among the use cases was an autopilot flight control system, a naval combat system, and a retinal surgery robotics, to name just a few. Looking forward, we continue to see a very strong pipeline of upcoming new designs. We believe that we’re strong — we’re in a strong position to convert this opportunity into wins given our recent success rate, our very strong reputation in the market, and of course, the strength of our technology. Though industrywide macro backdrop for auto remains mixed, we see strength in China and India, both significant markets for QNX.
On the flip side, we see some tightening in North America and Europe, primarily due to ongoing supply chain and some demand challenges. However, it is important to give this some context. While production volume is an important factor in QNX total revenue, the auto industry’s significant shift to the software-defined vehicle and the development program that drives this has enabled us to deliver a double-digit revenue growth. This quarter, was made — we made a major product announcement for QNX in the cloud.
At the Amazon re:Invent conference, AWS announced that QNX will be made available to system supply developers via their cloud-native virtual engineering workbench. Being able to access QNX in a cloud greatly reduced the time to market for developers and provides significant additional market reach for BlackBerry. QNX will be accessible by AWS’ large and growing community of over 1 million developers across multiple verticals, not just auto. We had very positive feedback from both this demonstration and early access product made available to selected OEMs and Tier 1s.
We expect to provide more details on the general availability at CES. Moving now to a new and exciting use cases for our Certicom technology. In the quarter, we deliver a electric vehicle charging station PKI, public key infrastructure, solution for a leading North America automotive OEM. The solution enables the vehicle and EV charging stations to identify and establish trusted connectivity, as well as allowing OEM to meet the new international standard for secure vehicle-to-grid interfaces.
These capabilities opens a significant opportunity for BlackBerry to secure critical smart city infrastructure in the future. Given the strength of the IoT business, going into Q4, we expect revenue to come in at the high end of the range we provided previously. We, therefore, now expected our full-year revenue outlook to be in a range of 205 million to 210 million, which translate to 15% to 18% year-on-year growth. Let me now move to IVY.
Proof-of-concept trials for customer continue to progress well. Product development also remain on track with the latest version released last week as planned. We have some significant product demonstration of IVy this past quarter. Last month, at the Bosch ConnectedWorld in Berlin, the IVY platform was running in a Peugeot car and enabling predictive maintenance in-car payments and Amazon Alexa virtual assistant applications.
IVY was also shown operating in a cloud at AWS re:Invent conference in Las Vegas, and a developer workshop held there were well attended by OEM and Tier 1s. Feedback from both events was very positive. We also added a new application from Roadside Telematics to the IVY ecosystem this quarter. Roadside Telematics is a California-based start-up aiming to use sensor data from BlackBerry IVY to provide automatic notification to 911 emergency service in the event of a crash.
Let me now turn to our cybersecurity business. Revenue for the quarter was 106 million. On the sequential basis, billing increase for the second consecutive quarter to 103 million. Gross margin was a was 57%.
ARR was 313 million. The dollar-based net retention rate was 84%. In line with our comment last quarter, we see signs that the investment in product and people are starting to pay off. The rate of churn seen recently has improved this quarter with an uptick in renewal rates and, with it, an improved quarter-over-quarter change in ARR.
Turning now a bit to the macro environment. We’ve seen the same, as many other software companies, including those in cybersecurity, in noticing some elongation of sales cycles during the past quarters. Therefore, it is likely that the macro environment will be a headwind for the business in the near term, although we’re likely to fare better than most given our heavy skewed toward regulated customers, particularly government. Furthermore, cybersecurity still remains a essential purchase.
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