Executive Summary / Key Takeaways

• BlackBerry ($BB) has undergone a significant transformation, divesting non-core assets like Cylance and aggressively reducing costs, successfully pivoting to profitability and positive cash flow ahead of schedule.
• The core investment thesis now centers on the QNX embedded software business, a market leader with a growing royalty backlog and strategic expansion into adjacent General Embedded Markets (GEM), leveraging its safety-certified technology.
• The Secure Communications division, refocused post-Cylance sale, provides stable, profitable revenue from mission-critical solutions for government and regulated industries, differentiated by high security certifications and sticky customer relationships.
• Despite macroeconomic headwinds, particularly in automotive tariffs and government procurement uncertainty, management forecasts continued profitability and positive operating cash flow in fiscal year 2026, supported by cost controls and core business performance.
• Key factors to watch include the pace of QNX royalty backlog conversion, success in expanding GEM opportunities, the impact of government procurement cycles on Secure Communications, and the execution of ongoing cost efficiency initiatives.

Setting the Scene: BlackBerry's Strategic Rebirth

BlackBerry Limited ($BB), a company with a deep heritage rooted in secure communications and mobile innovation dating back to 1984, has undergone a profound strategic transformation. Shedding its legacy hardware business and recently divesting its Cylance endpoint security assets, BlackBerry is now sharply focused on two core pillars: QNX, its market-leading embedded software platform, and Secure Communications, a suite of highly certified solutions for enterprise and government. This pivot is not merely a restructuring; it represents a fundamental shift towards becoming a focused software and services company aiming for sustainable profitability and cash flow generation in high-growth, mission-critical markets.

The industry landscape BlackBerry operates within is characterized by intense competition and rapid technological evolution. In embedded software, particularly automotive, the race is on to power the increasingly complex software-defined vehicles (SDVs). In cybersecurity, the threat landscape is constantly evolving, driving demand for robust, certified solutions, especially in regulated sectors. BlackBerry's strategy leverages its historical strengths in security, reliability, and embedded systems expertise to carve out defensible niches and capitalize on secular growth trends like the proliferation of the intelligent edge and the increasing need for trusted, safety-certified software.

Central to BlackBerry's competitive positioning is its differentiated technology. The QNX platform, built over 45 years, is renowned for its real-time operating system (RTOS) and hypervisor, critical for safety-certified embedded systems. This technology offers tangible benefits: it is pre-certified to stringent safety standards like ISO 26262 ASIL D, reducing development time and risk for OEMs. Its microkernel architecture provides superior reliability and security compared to monolithic alternatives like some Linux distributions. In Secure Communications, the company's solutions are built on a foundation of strong encryption and have earned high-level certifications (NIAP, NATO, FedRAMP High), providing a critical layer of trust and compliance required by demanding government and financial services customers. These technological differentiators form the bedrock of BlackBerry's competitive moat, enabling it to command a premium and secure design wins in markets where safety, security, and reliability are paramount.

A History of Adaptation: From Handsets to High-Assurance Software

BlackBerry's journey from a dominant force in mobile communication to its current software-centric identity is a testament to its capacity for adaptation, albeit one marked by significant challenges. The company's early success was built on its secure, integrated mobile platform. However, the rapid evolution of the consumer smartphone market necessitated a strategic pivot. Over the past decade, BlackBerry has systematically divested non-core assets and focused on leveraging its core competencies in security and embedded systems.

This strategic shift gained significant momentum in recent fiscal years. Fiscal year 2023 saw substantial non-cash charges related to goodwill and asset impairments, highlighting the need for decisive action. Fiscal year 2024 marked the beginning of aggressive cost reduction programs, targeting over $150 million in annualized savings, alongside the monetization of certain legacy intellectual property through the Malikie patent sale.

The most recent fiscal year, 2025, proved to be truly transformative. The sale of the Cylance endpoint security business to Arctic Wolf, which closed in February 2025, was a pivotal event. This divestiture was strategically undertaken to address the financial drag presented by Cylance and to strengthen the balance sheet, bringing in approximately $80 million in initial cash proceeds and 5.5 million Arctic Wolf shares, while retaining valuable AI/ML patents and US tax losses. This move allowed BlackBerry to streamline its operations, exceed its initial cost reduction target (achieving approximately $125 million in savings from actions taken through Q1 FY25, with further incremental savings expected), and sharpen its focus on its core, profitable businesses. This period of intense restructuring culminated in a significant milestone: achieving positive adjusted EBITDA and non-GAAP EPS, as well as positive operating and free cash flow, in the latter half of fiscal year 2025, positioning the company on a much stronger financial footing.

Segment Performance: Engines of Growth and Stability

BlackBerry's business is now primarily driven by two distinct, yet complementary, segments: QNX and Secure Communications.

QNX (formerly IoT): The Growth Engine

QNX is the undisputed leader in embedded operating systems for the automotive industry, powering over 255 million vehicles. Its technology is foundational to the software-defined vehicle revolution, enabling critical systems like digital cockpits and Advanced Driver Assistance Systems (ADAS). QNX's competitive moat is deep, built on decades of safety certification expertise and strong relationships with virtually all major automotive OEMs and Tier 1 suppliers globally.

In fiscal year 2025, QNX demonstrated solid performance despite a challenging automotive backdrop marked by delays in OEM software development programs. The segment generated $236.0 million in revenue, a 9.6% increase from $215.4 million in fiscal year 2024. This growth was primarily fueled by a $22.1 million increase in BlackBerry QNX royalty revenue and a $6.3 million increase in BlackBerry Radar revenue, partially offset by a decrease in development seat revenue. The strength in royalties reflects the conversion of prior design wins into production vehicles.

Profitability in QNX is robust. The segment delivered $59.1 million in adjusted EBITDA in fiscal year 2025, a significant jump from $33.5 million in fiscal year 2024, resulting in a 25% adjusted EBITDA margin. This improvement was driven by revenue growth, lower operating costs (facilities, consulting), and benefits from Strategic Innovation Fund (SIF) claims.

A key indicator of future QNX revenue is the royalty backlog, which represents estimated future royalties from design wins. This backlog continued to grow, reaching approximately $865 million at the end of fiscal year 2025, up from $815 million the prior year. This growth demonstrates QNX's continued success in securing new designs, outpacing the rate of current revenue recognition and signaling future potential.

Beyond automotive, QNX is strategically expanding into the General Embedded Market (GEM), including medical, industrial automation, and robotics. The core QNX technology is highly portable to these verticals, allowing BlackBerry to leverage its R&D investments across a broader addressable market. Recent design wins in medical equipment, rail, and aerospace/defense highlight the early traction in this expansion.

Secure Communications: The Stability Provider

The Secure Communications division, comprising BlackBerry UEM, SecuSUITE, and AtHoc, provides mission-critical software and services focused on operational resiliency and secure communication. This segment serves a core customer base in government and regulated industries where security and compliance are paramount.

In fiscal year 2025, Secure Communications generated $272.6 million in revenue, a 4.0% decrease from $283.8 million in fiscal year 2024. This decline was primarily due to the absence of a large upfront revenue component from the Malaysian government deal recognized in fiscal year 2024 and a decrease in BlackBerry UEM product revenue. However, this was partially offset by increases in SecuSUITE product revenue, professional services, and AtHoc revenue.

Despite the slight revenue decline, the segment significantly improved its profitability. Secure Communications delivered $52.3 million in adjusted EBITDA in fiscal year 2025, up from $46.0 million in fiscal year 2024, achieving a 19% adjusted EBITDA margin. This improvement was driven by decreases in salaries and benefits expenses and lower cost of sales due to product mix, offsetting the revenue impact.

Key metrics for this segment show underlying stability. Annual Recurring Revenue (ARR) for Secure Communications was approximately $208 million at the end of fiscal year 2025, a 3% increase year-over-year. The Dollar-Based Net Retention Rate (DBNRR) for the segment was 93% in Q4 FY25, up from 91% the prior year. AtHoc, in particular, maintains a DBNRR north of 100%, demonstrating strong customer retention and expansion. The segment's strength lies in its sticky, long-term contracts with government agencies and large enterprises, where the certified security and reliability of BlackBerry's solutions are critical. AtHoc's recent FedRAMP High authorization further strengthens its competitive position in the lucrative US federal market, where it protects over 75% of US government personnel.

Licensing: Monetizing IP

The Licensing division manages BlackBerry's extensive patent portfolio. Revenue in this segment can be volatile, often driven by the timing of new licensing deals or settlements. In fiscal year 2025, Licensing revenue was $26.3 million, a significant decrease from $259.9 million in fiscal year 2024, which included a large one-time patent sale. The segment generated $15.8 million in adjusted EBITDA in fiscal year 2025. While not a core growth driver, the patent portfolio provides potential upside and competitive leverage.

Technological Edge: The Foundation of the Moat

BlackBerry's investment thesis is deeply rooted in its differentiated, high-assurance software technology, which provides a critical competitive moat in its target markets.

In the QNX segment, the core technology is the QNX Real-Time Operating System (RTOS) and QNX Hypervisor. These are not general-purpose operating systems; they are purpose-built for safety-critical, real-time applications.

• Quantifiable Benefits: QNX OS for Safety is pre-certified to the highest functional safety standard, ISO 26262 ASIL D. This pre-certification significantly reduces the burden and time-to-market for OEMs and Tier 1 suppliers building safety-critical systems, a process that can otherwise take years and cost millions. The QNX Hypervisor for Safety prevents interference between safety-critical and non-safety-critical systems running on the same hardware, crucial for consolidating multiple functions onto a single chip in SDVs without compromising safety.
• R&D and New Technologies: BlackBerry continues to innovate on the QNX platform. The next-generation QNX SDP 8.0 offers enhanced performance and scalability. QNX Cabin is a pre-integrated digital cockpit software reference implementation designed to accelerate development and reduce costs through a cloud-first approach. QNX Sound is a software-defined acoustics platform enabling bill of material savings by replacing hardware and creating new potential revenue streams from custom audio experiences. QNX Containers provide a standards-based environment for deploying container technology on QNX devices while maintaining safety and security. These developments aim to increase BlackBerry's content per vehicle and expand its addressable market in GEM.
• "So What" for Investors: QNX's safety certifications and performance are key differentiators against competitors like Linux, which lacks inherent safety certifications and requires extensive, costly validation. This allows QNX to maintain a dominant market share in automotive and penetrate other safety-critical GEM verticals. The growing royalty backlog and new product traction indicate the potential for sustained revenue growth and high-margin profitability as SDVs become more prevalent and GEM adoption increases.

In the Secure Communications segment, the technological differentiation lies in the high-assurance security architecture and certifications.

• Quantifiable Benefits: BlackBerry UEM's containerized approach and security features have earned NIAP certification and approval for use on US Department of Defense networks, enabling secure management of diverse devices in highly sensitive environments. SecuSUITE provides NSA-certified end-to-end encrypted voice and text, meeting the highest security standards required by governments and military organizations globally. AtHoc's platform has achieved FedRAMP High authorization, a stringent security standard required for handling sensitive unclassified information in US federal government cloud deployments, protecting over 75% of US government personnel.
• R&D and New Technologies: Recent enhancements include new alert approval workflows and native applications for AtHoc, as well as a new geofencing feature. The focus is on enhancing the existing portfolio's capabilities and certifications to maintain its competitive edge in niche, high-security markets.
• "So What" for Investors: These certifications and security features are significant barriers to entry for competitors and create sticky customer relationships in government and regulated industries. They allow BlackBerry to compete effectively against larger, more general cybersecurity players by offering specialized, highly trusted solutions for mission-critical use cases, contributing to stable recurring revenue and solid profitability in this segment.

Competitive Landscape: Navigating a Fierce Market

BlackBerry operates within highly competitive markets, facing both large, diversified technology companies and specialized niche players.

In QNX, the primary competition comes from other embedded software providers, notably those offering Linux-based solutions. While Linux is open-source and can be lower cost initially, it lacks the inherent safety certifications and real-time performance guarantees of QNX. Achieving functional safety certification with Linux requires significant, costly, and time-consuming development and validation efforts by the OEM or Tier 1. QNX's pre-certified components offer a substantial time-to-market advantage. While some OEMs are pursuing internal software development, BlackBerry's deep expertise and established ecosystem make it a preferred partner, often being asked by OEMs to do more of the "software plumbing." QNX's market leadership is evidenced by its presence in virtually all top automotive OEMs and its outsized share of advanced SDV and ADAS design wins.

In Secure Communications, BlackBerry competes with a broad range of cybersecurity vendors. For UEM, rivals include larger players like Microsoft (MSFT) and VMware, as well as specialized MDM/UEM providers. BlackBerry's strength lies in its focus on high-security, on-premise deployments favored by government and financial services, a niche where its certifications and security features provide a competitive advantage as some competitors shift focus to cloud-only solutions. In secure voice/messaging (SecuSUITE) and critical event management (AtHoc), competitors include specialized providers. BlackBerry's key differentiators are its high-level government certifications (NSA, FedRAMP High) and its integrated, network-centric platform, which are difficult and costly for competitors to replicate. AtHoc's near 100% retention rate in the US federal market underscores its strong competitive position.

Comparing BlackBerry's overall financial performance to larger cybersecurity peers like Palo Alto Networks (PANW), Fortinet (FTNT), SentinelOne (S), and CrowdStrike (CRWD) highlights its smaller scale and different growth trajectory. While these competitors often exhibit higher revenue growth rates (e.g., PANW's 25% 5-year CAGR, FTNT's 22%, S's 40%, CRWD's 35%) and often higher operating margins (e.g., PANW 15%, FTNT 28%, CRWD 20%), BlackBerry's recent transformation is focused on establishing a foundation for profitable growth from a lower base. BlackBerry's TTM Gross Profit Margin of 68.75% is competitive, but its TTM Operating Profit Margin of -6.28% and Net Profit Margin of -13.72% reflect the impact of past restructuring and the ongoing investment phase, though these are improving significantly as seen in the segment-level adjusted EBITDA margins (QNX 25%, Secure Comms 19%). BlackBerry's valuation metrics, such as P/S and EV/EBITDA, are generally lower than these high-growth peers, reflecting its different stage and historical performance challenges, but management believes the pivot to profitability and positive cash flow should provide a floor for valuation.

Financial Health and Trends: A Turnaround in Progress

BlackBerry's financial health has seen a significant improvement following the strategic transformation and cost reduction efforts. As of February 28, 2025, the company held approximately $410.3 million in cash, cash equivalents, and investments, a substantial increase from $298.2 million a year prior. This increase was primarily driven by the cash proceeds from the Cylance sale and improved operating cash flow. The company now boasts a solid net cash position exceeding $200 million.

Working capital also saw a significant increase, rising by $96.6 million to $247.2 million at the end of fiscal 2025, reflecting the improved cash position and management of current assets and liabilities.

From an operating perspective, fiscal year 2025 saw total revenue of $534.9 million, a decrease from $759.1 million in fiscal 2024, primarily due to the non-recurrence of the large patent sale. However, revenue from continuing operations (QNX, Secure Communications, Licensing excluding patent sale impact) showed resilience. Consolidated gross margin was $394.9 million, with the gross margin percentage improving to 73.8% in fiscal 2025 from 64.6% in fiscal 2024, driven by a favorable shift in revenue mix towards higher-margin software.

Operating expenses decreased significantly, falling by $85.6 million to $394.1 million in fiscal 2025. This reduction was a direct result of the aggressive cost-cutting initiatives, impacting salaries, facilities, consulting, and other areas, alongside lower impairment charges. Adjusted operating expenses, which exclude certain non-cash and one-time items, also decreased by $41.9 million to $330.4 million.

The net loss for fiscal year 2025 was $79.0 million, an improvement from a loss of $130.2 million in fiscal 2024. More importantly, the company achieved positive adjusted EBITDA from continuing operations of $84.2 million in fiscal year 2025, significantly exceeding prior expectations and demonstrating the impact of cost controls on the core businesses. Adjusted net income from continuing operations was $57.6 million.

Cash flow generation showed a marked improvement. Net cash provided by operating activities was $16.5 million in fiscal year 2025, a significant turnaround from usage of $3.5 million in fiscal 2024. Free cash flow usage also improved to $13.4 million from $10.6 million usage in fiscal 2024 (excluding the impact of the legal settlement payment in FY23). The company achieved positive operating and free cash flow in the latter half of fiscal year 2025, a key milestone.

The company's debt structure includes $200 million aggregate principal amount of 3% Senior Convertible Notes maturing in 2029. As of February 28, 2025, the carrying value was $195.3 million. The company also has $13.5 million in collateralized letters of credit. The strengthened balance sheet and improved cash flow profile provide increased financial flexibility.

Outlook and Guidance: Building on a Profitable Foundation

BlackBerry's management has provided guidance for fiscal year 2026 that reflects cautious optimism, building on the profitability achieved in fiscal 2025 while acknowledging ongoing market uncertainties.

For the full fiscal year 2026, the company expects total revenue in the range of $504 million to $534 million. This forecast incorporates segment-level expectations:

• QNX: Revenue is projected between $250 million and $270 million, representing approximately 10% growth at the midpoint compared to FY25. This range was slightly broadened at the lower end due to the uncertain impact of new US tariffs and global retaliatory tariffs on automotive customers, although management currently sees no direct impact on their products.
• Secure Communications: Revenue is expected between $230 million and $240 million. This reflects a prudent view given uncertainty in core government markets due to potential changes in administrations globally, despite the segment's high recurring revenue base (ARR of $208 million).
• Licensing: Revenue is expected to be approximately $6 million per quarter, totaling around $24 million for the year, an increase from prior expectations.

In terms of profitability, BlackBerry forecasts full fiscal year 2026 adjusted EBITDA between $69 million and $84 million. This implies a continued focus on operational efficiency and leverage from the cost reduction programs. Adjusted corporate general and administrative costs are expected to be approximately $40 million for the full year.

Non-GAAP EPS for fiscal year 2026 is projected between $0.08 and $0.10.

From a cash flow perspective, the company expects to deliver positive operating cash flow of approximately $35 million for the full fiscal year 2026. This includes an estimated $20 million impact from one-time factors such as accrued European tax payments, costs for exited facilities, and severance payments. The company anticipates sequential improvement in operating cash flow throughout the year, with Q1 FY26 expected to be a seasonal low with operating cash usage in the range of $20 million to $30 million. Additionally, the second tranche of cash from the Cylance sale, approximately $40 million, is expected to be received in fiscal 2026, further strengthening the balance sheet.

The company also announced a Normal Course Issuer Bid (NCIB) share buyback program in May 2025, authorizing the repurchase of up to 27.86 million shares, representing approximately 4.7% of the public float, signaling confidence and a potential avenue for capital return.

Risks and Challenges: Navigating Uncertainty

Despite the significant progress, BlackBerry faces several key risks and challenges that could impact its ability to execute on its strategy and achieve its financial targets.

• Market Headwinds: The automotive industry continues to experience delays in software development programs, which can impact QNX development seat revenue and potentially delay royalty conversion. Geopolitical factors, including new tariffs and trade policies, introduce uncertainty regarding their indirect impact on automotive supply chains and demand.
• Government Procurement Cycles: The Secure Communications business is heavily reliant on government customers. Changes in administrations or budget priorities in key markets (US, Canada, Germany) could lead to delays or changes in procurement, impacting revenue and growth in this segment.
• Competition: BlackBerry operates in highly competitive markets. Larger, better-resourced competitors could intensify pricing pressure or out-innovate BlackBerry, particularly in broader enterprise cybersecurity markets. Maintaining the competitive moat in QNX against open-source alternatives and internal OEM development requires continuous innovation and strong execution.
• Technology Execution: Successfully developing and achieving market adoption for new products like QNX SDP 8.0, QNX Cabin, and expanding into GEM requires continued R&D investment and effective go-to-market execution. Delays or failure to meet performance expectations could hinder growth.
• IP Monetization Uncertainty: While the patent portfolio offers potential upside, the timing and amount of future revenue from licensing arrangements, particularly the variable consideration from the Malikie transaction, remain uncertain and dependent on third-party success and market conditions.
• Operational Execution: Sustaining the achieved cost reductions and realizing further efficiencies from IT system separation and streamlining is critical for maintaining profitability and cash flow generation.
• Liquidity and Financial Risk: While the balance sheet has strengthened, risks remain, including potential non-payment of the deferred cash consideration from Arctic Wolf and the illiquidity of the Arctic Wolf shares received. The company's debt obligations require ongoing interest payments.
• Cybersecurity and Data Privacy: As a cybersecurity company, BlackBerry is a prime target for cyberattacks. A successful breach of its own systems or those of its customers using its products could severely damage its reputation and lead to significant liabilities. Evolving global data privacy regulations also require continuous adaptation and compliance efforts.

Management acknowledges these uncertainties, particularly regarding tariffs and government markets, and has factored them into the guidance ranges, emphasizing the focus on cost control and leveraging the inherent resilience and mission-critical nature of its core offerings.

Conclusion

BlackBerry has successfully executed a significant strategic pivot, transforming itself from a complex, loss-making entity burdened by legacy issues into a more focused, profitable, and cash-flow-positive software and services company. The divestiture of Cylance and aggressive cost reduction initiatives have fundamentally improved the financial profile, positioning BlackBerry to build on a stronger foundation.

The core of the investment thesis now rests firmly on the QNX business, a market leader in embedded software for the high-growth automotive and emerging GEM sectors, supported by a growing royalty backlog and continuous technological innovation. The Secure Communications division provides a valuable layer of stability and profitability through its highly certified, mission-critical solutions for demanding government and enterprise customers. While macroeconomic uncertainties and competitive pressures persist, BlackBerry's differentiated technology, established market positions, and disciplined cost management provide a credible path towards sustained profitability and cash flow generation in fiscal year 2026 and beyond. The focus for investors should be on the company's ability to convert its QNX backlog, expand successfully into GEM, and maintain stability and profitability in Secure Communications amidst volatile market and political landscapes.