BlackBerry Limited Canaccord Genuity's 46th Annual Growth Conference
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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 nine years, and you raised the full-year guide. You've described this as a transition from a turnaround to profitable growth. Just what's working now that maybe wasn't working two years ago?
Yeah. 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 two specific areas of the business. I think when we made our transition 10 years ago off of devices and into software and services, 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 Comms on the Secure Comms 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 two 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 two parts of the business, I think that's helped us with sustainable execution and where we are today.
When you look at how the stock is traded, it kind of oscillates between, well, in the past, it's been more of this value, sum-of-the-parts debate.
Then it becomes this much broader growth narrative. How do you manage the business through that kind of transition internally, and then how do you manage your investor expectations? Maybe you might both have something to say.
Yeah. 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'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. If 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've nothing more to add to that. Yeah, exactly. Focus on the fundamentals, and we're delivering.
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?
Yeah. 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. 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. 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. One of the questions I get is, how robust is that backlog number? We monitor churn on an ongoing basis, and the churn is pretty low, relatively low. Single-digit percentage churn. 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. If one is winning and one's losing, we kind of ride the waves with that. 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. If we take that number as it is today, what we see is sequential growth every year for the first four years. In that first four years, we're converting more than half of that backlog into the P&L. 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.
How about 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. How should we think about those serving as a leading indicator, and then just the timeline for that to translate?
That's a great question. When we think about QNX, there's always a lifetime to every design that we get built into. 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. It's really an SDK, a software development kit, for developing software on top of QNX. We take most of that revenue up front at that point. Then over a period of somewhere between one year and three 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.
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