Executive Summary / Key Takeaways

• BlackBerry has undergone a significant strategic transformation, divesting the Cylance business and implementing substantial cost reductions, resulting in a pivot to profitability and improved financial health.
• The QNX division continues to demonstrate strong underlying momentum, with growing royalty backlog and expanding pipeline for next-generation platforms like SDP 8.0, particularly in the burgeoning General Embedded Market (GEM) alongside automotive.
• The Secure Communications division provides a stable foundation of revenue and adjusted EBITDA, leveraging its mission-critical software and on-premise niche to secure key government and regulated industry contracts.
• BlackBerry exceeded expectations in Q1 FY26, beating guidance across revenue, adjusted EBITDA, and non-GAAP EPS, leading to a modest raise in full-year FY26 revenue and adjusted EBITDA guidance, signaling confidence despite macro uncertainties.
• The company is focused on generating positive operating cash flow in the second half of FY26 and is utilizing its strengthened balance sheet for capital allocation optionality, including a share buyback program.

A Transformed Entity: Setting the Scene

BlackBerry Limited, founded in 1984, has evolved dramatically from its origins as a mobile device pioneer to a provider of intelligent software and services focused on mission-critical applications for enterprises, governments, and leading OEMs. This evolution has culminated in a significant strategic pivot over the past year, reshaping the company into a more focused and financially resilient entity. The core of the "New BlackBerry" rests on two primary pillars: the QNX division, a leader in embedded software, and the Secure Communications division, providing highly secure solutions for critical communications and event management. A third, smaller division manages the company's intellectual property portfolio.

This transformation was punctuated by the divestiture of the Cylance endpoint security business, completed in February 2025. This move addressed the financial challenges Cylance presented, streamlining the company's operations and strengthening its balance sheet through cash tranches and retained assets, including pioneering AI/ML endpoint security patents and valuable US tax losses. Concurrent with this divestiture, BlackBerry undertook extensive restructuring programs, exceeding its target of removing over $150 million in annual costs by streamlining operations and reducing headcount. These actions have fundamentally altered BlackBerry's financial profile, positioning it as a profitable and cash-flow-positive company heading into fiscal year 2026.

The company operates within dynamic and competitive markets. In embedded software, QNX competes by leveraging its deep expertise and safety certifications against a backdrop of increasing software complexity in vehicles and industrial systems. The Secure Communications segment navigates a competitive cybersecurity landscape, particularly in endpoint management, by focusing on specific niches where its heritage of security and data sovereignty provides a distinct advantage.

The Technological Foundation: QNX and Secure Communications Moats

At the heart of BlackBerry's investment thesis lies its differentiated technology, particularly within the QNX division. QNX is a foundational embedded software platform renowned for its high performance, safety, and reliability, critical attributes for systems where failure is not an option.

The QNX Real-Time Operating System (RTOS) and QNX Hypervisor are core components, enabling complex systems to run multiple applications with varying criticality levels on a single chip without sacrificing safety or security. The QNX Hypervisor for Safety, for instance, is designed to prevent malfunctions in non-safety-critical systems from impacting safety-critical functions, a crucial capability in modern software-defined vehicles (SDVs). This technology is deeply embedded, powering over 255 million vehicles globally and present in all top 10 automotive OEMs, top 7 Tier 1 suppliers, 24 of the 25 top EV OEMs, and 9 of the 10 top medical OEMs. This pervasive adoption is a testament to its technical superiority and the high barrier to entry its safety certifications and decades of development represent.

New technological developments aim to extend this lead. The QNX Software Development Platform (SDP) 8.0 offers a step-change increase in performance while maintaining functional safety standards. Management highlights that SDP 8.0 is gaining traction not just in automotive but also in the General Embedded Market (GEM), where it represents 43% of the overall pipeline, which grew 55% in Q1 FY26. This indicates the core technology's adaptability to new high-growth verticals like robotics and industrial automation, leveraging an almost identical code base. The QNX vehicle platform, currently in development with partners like Vector and TTTech Auto, aims to provide pre-integrated middleware solutions, simplifying development for OEMs and potentially offering a significant uplift to royalty Average Selling Prices (ASPs) per vehicle by capturing a larger share of the software stack. The QNX Cabin solution allows cloud-based digital cockpit development, speeding time to market. While specific quantifiable performance improvements for all these new platforms are not detailed, the strategic intent is clear: enhance performance, simplify development, and increase content per vehicle/device, driving future revenue and margin expansion.

In Secure Communications, the technological edge lies in the focus on data sovereignty and mission-critical reliability. BlackBerry UEM maintains a niche in on-premise deployments, strategically enhanced as other providers exit this space. BlackBerry AtHoc, the critical event management platform, recently achieved FedRAMP High authorization, the highest level for US federal government data, becoming the first CEM platform to do so. This achievement significantly strengthens its competitive moat, potentially locking out rivals and expanding the addressable market by demonstrating an unparalleled commitment to security and process. While direct quantifiable performance metrics against all competitors are not provided, the high renewal rates for AtHoc (near 100%) speak to its sticky, integrated nature in critical government operations.

Performance Reflecting Strategy and Operational Discipline

BlackBerry's recent financial performance provides tangible evidence of the impact of its strategic transformation and operational focus. For the first quarter of fiscal year 2026, the company reported total revenue of $121.7 million, exceeding the top end of its guidance range ($107M-$115M). This was driven by better-than-expected performance in both core segments.

The QNX division posted revenue of $57.5 million, an 8% increase year-over-year and above its guidance ($51M-$55M). This growth was primarily fueled by increases in development seat revenue ($3.4M) and royalty revenue ($1.7M), partially offset by a decrease in professional services. QNX maintained a strong gross margin of 81.0%, contributing significantly to the consolidated gross margin increase. Adjusted EBITDA for QNX was $12.7 million, exceeding expectations and reflecting the revenue upside and benefits from SIF claims.

The Secure Communications division delivered revenue of $59.5 million, surpassing its guidance ($50M-$54M), primarily due to stronger-than-expected SecuSmart product revenue from large deals with the German government closing earlier than anticipated. Although down 7.3% year-over-year due to a tough prior-year comparison, the segment showed sequential strength. Gross margin for Secure Communications improved to 70.0% from 66.0% year-over-year, driven by a favorable mix shift towards higher-margin SecuSmart software licenses. Adjusted EBITDA for the segment was $9.6 million, also exceeding expectations, benefiting from the revenue beat and decreased salaries and benefits expense. The segment's Annual Recurring Revenue (ARR) remained stable at $209 million, and Dollar-Based Net Retention Rate (DBNRR) was 92%, indicating resilience in its core customer base.

The Licensing division contributed $4.7 million in revenue, slightly below expectations, primarily from existing arrangements. Its adjusted EBITDA was $3.8 million.

Consolidated gross margin increased slightly to $90.3 million (74.2% margin) in Q1 FY26 from $90.0 million (72.9% margin) in Q1 FY25, primarily due to the improved mix contribution from QNX. Operating expenses saw a significant decrease, falling by $14.6 million year-over-year to $88.3 million. This reduction reflects the impact of restructuring costs, lower impairment charges, and benefits from SIF claims and the Cylance transition service agreement. Adjusted operating expenses also decreased year-over-year by $6.4 million to $78.4 million.

The culmination of top-line beats and operational efficiency improvements resulted in net income of $1.9 million in Q1 FY26, a significant improvement from a net loss of $41.4 million in Q1 FY25. Adjusted net income was $12.3 million, or $0.02 per share, beating expectations. Adjusted EBITDA for the total company was $16.4 million, exceeding the guidance range of breakeven to $7 million.

From a liquidity perspective, cash, cash equivalents, and investments stood at $381.9 million as of May 31, 2025. While operating cash usage was $18.0 million in Q1 FY26, this was better than the expected range ($20M-$30M) and a significant improvement from prior periods, reflecting the improved profitability. The decrease in cash from the prior quarter was primarily due to changes in working capital, including a decrease in accounts receivable driven by collections and lower revenue, partially offset by increases in other current assets and cash.

The company also commenced its Normal Course Issuer Bid (NCIB), repurchasing $10.0 million of common shares in the quarter. Management believes its current financial resources, combined with expected future operating cash generation and ongoing cost management, are sufficient to meet its financial commitments and provide necessary capacity for the foreseeable future, although the illiquid nature of the Arctic Wolf shares ($24.6M estimated fair value) presents a constraint on a portion of its investments.

Competitive Landscape and Positioning

BlackBerry operates in markets with formidable competitors, but its strategic focus and technological heritage provide distinct positioning.

In the embedded software space, QNX is a recognized leader, particularly in safety-critical systems. Its deep integration into automotive platforms and decades of certification experience create a significant barrier to entry that competitors cannot easily replicate. While large technology companies may offer alternative operating systems or software components, QNX's specialized focus on functional safety and real-time performance for embedded systems gives it an edge in demanding applications like ADAS, digital cockpits, and industrial automation. The expansion into GEM leverages this core strength, targeting niches where safety and reliability are paramount, potentially opening up a market larger than automotive.

In Secure Communications, BlackBerry faces intense competition from broad cybersecurity players like Palo Alto Networks (PANW), CrowdStrike (CRWD), and Fortinet (FTNT). These competitors often offer broader security platforms spanning network, cloud, and endpoint security. Quantitatively, these rivals typically exhibit higher gross and operating margins (e.g., PANW and FTNT often in the 70-80% gross margin range, CRWD similar, compared to Secure Comms' 70% in Q1 FY26), reflecting scale and potentially different business models. Their growth rates, particularly for cloud-native players like CRWD, have also been higher historically.

However, BlackBerry strategically positions its Secure Communications offerings in specific niches where its strengths resonate most strongly. BlackBerry UEM focuses on the on-premise market, particularly for government and regulated industries that prioritize data sovereignty. As some competitors reduce investment in their on-premise solutions, BlackBerry continues targeted enhancements to deepen its "moat" in this segment. AtHoc's FedRAMP High authorization is a prime example of creating a competitive advantage through rigorous certification and focus on mission-critical government needs, differentiating it from broader CEM solutions. SecuSUITE leverages BlackBerry's heritage in secure voice and data, finding traction in defense and government sectors globally. While BlackBerry's overall scale and profitability metrics in cybersecurity may trail larger competitors, its focused approach and deep relationships in specific high-security verticals provide resilience and a stable revenue base. The company's retention of AI/ML patents post-Cylance sale also provides potential leverage for future innovation and competitive positioning.

Outlook and Risks

BlackBerry's outlook for fiscal year 2026 reflects a blend of confidence in its strategic direction and acknowledgment of external uncertainties. For the second quarter of FY26, the company expects total revenue between $115 million and $125 million. QNX revenue is guided at $55 million to $60 million, and Secure Communications revenue at $54 million to $59 million. Licensing revenue is expected to be approximately $6 million. Adjusted EBITDA is projected between $8 million and $14 million, with non-GAAP EPS between breakeven and $0.01. Operating cash usage is expected to be lower sequentially, in the range of $5 million to $15 million.

For the full fiscal year 2026, BlackBerry raised its guidance. Total revenue is now expected between $508 million and $538 million (up from $504M-$534M), and total adjusted EBITDA is guided between $72 million and $87 million (up from $69M-$84M). This upward revision is primarily driven by the stronger-than-expected performance and increased pipeline in the Secure Communications division. QNX full-year revenue guidance remains at $250 million to $270 million, and Licensing at $24 million. Full-year non-GAAP EPS is reiterated at $0.08 to $0.10. Crucially, the company expects to generate positive operating cash flow in the second half of the fiscal year, anticipating approximately $35 million for the full year, in addition to the second tranche of cash from the Cylance sale.

The guidance incorporates assumptions about ongoing market dynamics. For QNX, management is taking a prudent stance for Q2, acknowledging potential impacts on royalty revenue from any slowdown in Q1 automotive production volumes due to tariff changes and elongated buying decisions for new products like QNX Cabin. While not seeing direct tariff impacts, indirect effects on customers' supply chains and macroeconomic demand are being monitored. For Secure Communications, while optimistic about the pipeline, the guidance reflects potential disruption from government elections and administration changes globally, although the mission-critical nature of the software is expected to provide resilience.

Key risks to the outlook include the unpredictable nature of macroeconomic conditions, particularly within the automotive sector and government spending cycles. Litigation remains an ongoing risk, although the company has assessed no material probable and estimable losses beyond a specific settlement. Foreign exchange fluctuations, interest rate risk, and credit risk (including the illiquid Arctic Wolf shares and potential delays in customer payments) also pose potential challenges. The competitive intensity in both core markets requires continuous investment and execution to maintain market position and drive growth.

Conclusion

BlackBerry has successfully executed a significant strategic pivot, shedding a challenging business unit and implementing deep cost controls to emerge as a more focused and profitable company. The QNX division, with its deeply embedded safety-critical technology and growing pipeline in automotive and GEM, represents the primary engine for future growth, supported by a robust royalty backlog. The Secure Communications division provides a stable and increasingly profitable foundation, leveraging its niche expertise and strong government relationships.

The better-than-expected Q1 FY26 results and raised full-year guidance underscore the positive momentum from this transformation. While macro uncertainties and competitive pressures persist, BlackBerry's strengthened financial position, focused strategy, and differentiated technology in key markets position it to capitalize on long-term trends like the software-defined vehicle and increasing demand for secure, on-premise solutions. Investors should monitor the conversion of the QNX backlog into revenue, the expansion into GEM, the resilience of the Secure Communications business amidst government dynamics, and the company's progress towards consistent positive operating cash flow generation. The narrative for BlackBerry has shifted from one of struggle to one of strategic execution and potential, driven by its core software strengths and a disciplined operational approach.