Earnings call: BlackBerry outlines separation plan, aiming for cash flow positivity


BlackBerry Limited (BB) reported third-quarter fiscal 2024 earnings, detailing a strategic overhaul and financial performance. The company is set to fully separate its Internet of Things (IoT) and Cybersecurity units, supported by a strong quarter for both divisions.


The IoT business unit saw revenue increase 12%, primarily driven by growth in the automotive sector, while the Cybersecurity unit's revenue increased 44% sequentially. BlackBerry is also implementing cost-cutting measures to streamline operations and achieve positive cash flow and profitability.



Main attractions

BlackBerry's total third-quarter revenue reached $175 million, with significant contributions from its IoT and Cybersecurity units.




The company is planning to separate its IoT and Cyber businesses into independent divisions by 2023.

BlackBerry is actively pursuing cost reduction strategies to improve cash flow and align investment levels with industry targets.




Although total cash and investments decreased, BlackBerry paid down a significant portion of its debt.




The company is optimistic about the growth trajectory of its cybersecurity business and plans to leverage AI investments.




BlackBerry acknowledges delays in some EV projects but maintains a strong backlog and design wins in the IoT sector.

Management did not

provide specifics on the cost of the cash restructuring or the exact timeline for achieving cash flow positivity.

Company outlook




BlackBerry aims to return to profitability and positive cash flow by reducing costs and optimizing shareholder value.

The company is exploring long-term financial options to ensure liquidity during the separation of business units.

BlackBerry expects to see stability and potential growth in Annual Recurring Revenue (ARR) in the coming year.




Bearish highlights

The company's total cash, cash equivalents and investments decreased, mainly due to debt repayment.

A decline in ARR was seen, due to churn from smaller UES customers and some UEM churn.

Bullish highlights

BlackBerry reported a 73% improvement in gross margin, boosted by the Malaysia deal.

The cybersecurity business is experiencing growth, with increased market share and a strong product portfolio.




Miss

No specific details have been provided about the positive cash flow roadmap and cash restructuring costs.

Challenges in the auto industry, including delayed EV projects, could impact the IoT business unit's near-term performance.

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Q&A Highlights

BlackBerry is confident in its backlog and winning designs in the IoT space, despite some project delays.




The company sees AI as a key differentiator in cybersecurity and continues to invest in this area.

BlackBerry made no mention of selling assets but is looking at cutting organic costs to achieve profitability.




In short, BlackBerry is navigating a significant restructuring with a clear focus on its IoT and Cybersecurity divisions. The company is confident in its strategic direction and is taking steps to ensure financial stability and growth. Investors and stakeholders can expect more detailed updates in the coming quarter, especially regarding the cybersecurity division's aggressive path.




Detailed information about InvestingPro

BlackBerry Limited (BB) has demonstrated its commitment to evolving its business strategy, emphasizing its potential in the IoT and Cybersecurity segments. So let's dive into some details about InvestingPro that can provide more context to the company's financial landscape and future prospects.




InvestingPro Data highlights a market capitalization of $2.11 billion, showing the scale at which BlackBerry operates. Despite facing challenges, the company achieved revenue growth of 20.43% over the past twelve months to Q3 2024, suggesting that the company's strategic initiatives may be achieving attraction. However, it's important to note that the company's P/E ratio stands at -3.70, reflecting investor concerns about profitability.




Two InvestingPro tips that may be particularly telling about BlackBerry's situation are the fact that analysts have revised their earnings downward for the upcoming period and the observation that the stock has taken a significant hit over the past week. These insights imply that the market is reacting to immediate pressure and future uncertainties surrounding the company's earnings potential.




For investors wanting to dig deeper into BlackBerry's financial performance and prospects, InvestingPro offers additional tips that can prove invaluable. There are now 6 additional InvestingPro tips available, providing more comprehensive analysis for those interested in the finer details of BlackBerry's market position.




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