BlackBerry Limited (BB) Presents at KeyBanc Capital Markets 2024 Technology Leadership Forum (Transcript)

BlackBerry Restricted (NYSE:BB) KeyBanc Capital Markets 2024 Know-how Management Discussion board August 6, 2024 12:30 PM ET

Firm Individuals

Tim Foote – Chief Monetary Officer
Nathan Jenniges – SVP & Normal Supervisor, Cybersecurity Merchandise

Convention Name Individuals

Eric Heath – KeyBanc Capital

Eric Heath

All proper, Half primary. RKD and QBEX software program analysis staff overlaying safety and knowledge. I am happy to be joined by the newly appointed CFO of Blackberry division, [inaudible] after which Nathan Jen as properly, from Blackberry and Cybersecurity Heart.

The safety analyst spent a while speaking about safety, however we do have the broader Blackberry Firm, and so I am going to allow you to discuss that as properly, however we’ll begin to discuss safety, and I am going to inform you then. Really I’m not that nice.

So with none extra blabbing from me, I am going to allow you to guys introduce yourselves, and provides us a background there Tim and I’ll shut.

Tim Foote

Yeah, positive. Nicely, firstly, thanks Eric and all of the staff for having us right here. It is nice to be right here in stunning Colorado. So my title’s Tim Foote, for these of you who do not know me. Up till pretty not too long ago, I used to be the Head of Investor Relations, then moved in to be CFO of the Cybersecurity division, after which final week grew to become the CFO of the corporate. So very proud to be on this position. Wanting ahead to getting caught in, and shifting the ball down the sphere considerably, and we’ll get into that in additional element. Nate?

Nathan Jenniges

Nathan Jen, I suppose I am the Senior VP and Normal Supervisor of our cybersecurity merchandise. I joined Blackberry 2.5 years in the past in a Technique Product Administration position, after which final September was requested to take over all the product engineering group. Earlier than this I labored at McAfee, and I additionally labored at Motorola, so I do know the historical past of RIM Blackberry as properly.

Query-and-Reply Session

Q – Eric Heath

All proper, so just a bit arrange for everybody. Once more, Balckberry is an enormous firm. It was only a massive [Inaudible]. So discuss in regards to the Blackberry and what, you can begin there.

Tim Foote

Yeah, okay. So we – like I say, two divisions. So the primary one’s referred to as IoT, Web of Issues, and the biggest element by far in there’s our QNX enterprise. And QNX is the chief in foundational software program, notably on the protection licensed aspect in automotive. However not simply automotive, it is in some adjoining industries as properly, like rail, medical, industrial.

Successfully, the important thing differentiator, and offers it fairly a defensive moat in its aggressive area, is the truth that it is on the intersection of security certification, which is definitely a very onerous factor to do, and in addition excessive efficiency. So it is actually only a few individuals who can do each, and we’re main it on that aspect of issues.

So there is a truthful likelihood that everybody on this room has Blackberry software program of their automobile, consider it or not, powering issues like ADAS performance, digital cockpit. So we’re very enthusiastic about that aspect of the enterprise. It is in a very great spot. It is received loads of secular tailwinds which might be propelling that enterprise ahead over the following few years. In order that’s in a very wholesome state.

On the opposite aspect, we have got our cybersecurity enterprise, which is admittedly underneath the hood, and Nate can communicate to this a lot better than I can, however underneath the hood, we have got 4 key merchandise in there. So the one that you just’re extra aware of Eric is Cylance on the endpoint safety aspect, however we even have a big endpoint administration product as properly, a UEM. After which we even have a product within the crucial occasions administration area referred to as AtHoc, after which some NSA-level cryptographic voice merchandise referred to as Secusmart.

So there’s lots occurring. We’ll get extra into a number of the financials, however successfully, the corporate within the final six months has come a good distance. We’re taking place the trail of separating these two divisions. In order you may think about, totally different buyer base, totally different gross sales cycle, it is simply essentially fairly totally different companies. So we’re far down the trail of that, and while we’re doing it, we’re getting our price structured proper.

So received to see that present up, that progress present up within the inventory worth, which is one in all my key targets, however proper now, that is the place we’re at.

Eric Heath

So one week into the C, what are the elements that [inaudible].What is the market plan on each?

Tim Foote

So the excellent news is I have been with the enterprise for fairly a while, so none of that is new to me. However shareholder worth is one thing that individuals would throw round rather a lot, however that is my precedence primary. In order I discussed, since we have had the brand new CEO six months in the past, we have taken loads of prices out of this enterprise. So it is a high line, round about $600 million enterprise. We have taken out round about $125 million within the area of six months, so vital achievement to do this.

And on the identical time, paradoxically, a number of the fundamentals of the enterprise are literally bettering, and that is actually a operate of the truth that we have been compelled to focus in on areas the place we notably win, and it is displaying up in issues like ARR, which has been churning for a while, final two quarters sequentially growing. Greenback-based internet retention is the same pattern.

So, I need to get the enterprise to money stream optimistic, as does the CEO, John Giamatteo, as shortly as we probably can. So meaning there’s extra focus has to come back on getting the fee construction proper, however we will be very type of forensic and ensure it would not harm the factor of the enterprise.

Eric Heath

So I need to slim it to the safety aspect, that’s the place the [inaudible]. So discuss in regards to the evolution of Blackberry after which stroll by safety. I feel loads of safety buyers know that the CCC had been [inaudible] . So every three took totally different paths, however discuss in regards to the historical past of BlackBerry, how issues have modified. You guys introduced Cylance on, and many others. We’ll begin across the historical past then do the [inaudible].

Nathan Jenniges

Yeah, I feel from a historical past perspective, I used to be truly at a competitor to the three C’s on the time, so I used to be fairly happy after I noticed them get acquired at the moment. I feel on the time available in the market, Cylance had the perfect AI and ML. We nonetheless do. We really feel we have put much more funding into that, particularly within the final six to 12 months, and evolving type of what we do with AI, however we had been behind on EDR, and we’re continuously attempting to atone for that, and whereas we had been doing that, different issues began evolving across the finish level that we weren’t taking part in in.

However what we have seen inside our buyer base and what we have pivoted to this 12 months strategically is what had been we being requested for probably the most, what had been we seeing prospects doing probably the most? It was including on MDR, and MDR companies.

So we have pivoted closely on the Cylance aspect of the portfolio to deal with MDR. We have launched loads of new merchandise this 12 months. We launched an MDR on-demand service for all of our present Cylance prospects to shortly add on an assisted help functionality, and we have simply launched an MDR Professional that does the complete XDR capabilities as properly.

Eric Heath

Yeah, after which simply perhaps assist roughly scale the totally different companies in safety, the MDM half, the Cylance half, the crucial occasion administration, simply tough.

Nathan Jenniges

You are taking a look at me. Yeah, so we’ve not provided that diploma of [Multiple Speakers].

Tim Foote

Yeah, the 2 largest are the UEM and the Cylance, after which the opposite two type of make up the steadiness. However we’re very excited in regards to the Secusuite, as a result of it has some potential to it, to develop fairly sturdy.

Eric Heath

After which Nathan, I feel since your becoming a member of, you helped narrowed the deal with the safety aspect of issues. So perhaps discuss a number of the efforts you’ve got carried out to slim the main target, and value takeout appeared like an enormous factor, an initiative for the corporate generally. In order you slim the main target, what had been a number of the issues that you just had been in a position to save price on?

Nathan Jenniges

Yeah, loads of the…

Q – Eric Heath

It is truly extra pointed in just like the merchandise you’re delivering, to deal with that aspect.

Nathan Jenniges

Yeah, an enormous a part of the fee shift for us was a start-up would not essentially construct issues effectively within the cloud, so loads of issues had been type of half constructed and cobbled collectively. We had been – after I joined, we had been attempting to construct our personal knowledge platform and our personal XDR platform, and that is one of many ones the place we scaled that again and we partnered with Databricks as a number one knowledge platform.

We rebuilt your complete Cylance backend knowledge ecosystem and AI round a Databricks mannequin. That offloaded loads of price, of complexity on AWS that we had been constructing, and loads of engineers needed to go construct stuff that we weren’t consultants in. And I wished to focus our R&D assets on what we’re actually good at, which is the information science and the AI.

So lots went in there, plus we had been engaged on attempting to department into different areas. We had been engaged on – at one level, we had been engaged on a DLP product. So we shut down loads of the issues that labored the place we weren’t at a spot to get to the size we would have liked.

Eric Heath

Yeah, yeah. After which on the MDR aspect, I imply, it appears it is extremely complimentary and it simply appears that is the place the world goes, simply the flexibility of shoppers cannot deal with endpoint themselves, cannot deal with safety generally themselves, and are searching for third-party assist. So discuss to me about type of perhaps whenever you added MDR, what you’re seeing from prospects seeking to undertake that product, and what simply will get you excited? We will attempt to – subsequent my follow-up will likely be in regards to the XDR aspect of issues.

Nathan Jenniges

Yeah, yeah. I actually benefit from the MDR area. That is one other one which we reworked after I joined. It was utterly outsourced to a 3rd occasion. We introduced that complete enterprise in. We have scaled our personal analysts, proper. It is one thing that takes a bit to get to scale in a enterprise like that. And we have got it, it is nonetheless small, nevertheless it’s the place that is rising within the portfolio.

And I prefer it probably the most, as a result of we’re actually engaged with these prospects. We’re concerned with them each single day, in contrast to a number of the endpoint transactions the place it is like they purchase it, you stroll away for a 12 months, and also you come again. And so we see lots greater retention price on a per-customer foundation as properly.

Eric Heath

Yeah. After which, is your view that first occasion, type of MDR is the way in which that individuals need to undertake MDR companies? I imply, as a result of there’s loads of third occasion MDR suppliers on the market.

A – Nathan Jenniges

Yeah, we’re seeing growing want for that, simply because if you’re the primary occasion, you truly perceive the know-how that is deployed, means in additional depth. One of many issues that we satisfaction ourselves on with every of our MDR prospects is we onboard them. We put loads of time and diligence into understanding their enterprise and getting the configuration arrange in a means that we all know goes to be efficient for them.

Eric Heath

Yeah. And Tim, financially, what does this imply for you? Is it a big uplift for patrons so as to add that value-added managed service on high of this?

A – Tim Foote

Oh, completely. And I imply, if we’re taking a look at dollar-based internet retention, and essentially this can be a restful enterprise. So we have to construct the regular base of ARR. The uplift from simply pure endpoint software program to managed service, full 24×7 managed service, that is a big uplift, and even larger should you have a look at XDR.

However we do even have a very modern product which type of bridges the hole. It is our on-demand product, Eric, which if you cannot afford to make that massive a step to full 24×7, you may truly simply press a button and get entry to our staff to help you with a problem as and when it comes up. So that may be a small uplift, and we’re hoping that that encourages a few of these prospects to really understand simply how useful that’s, after which take the complete step. So yeah, by way of upsell, that was in all probability our key push, definitely within the silo.

A – Nathan Jenniges

We launched that on the finish of Might, and it is like 15% uplift on their endpoint license. It is a very easy step up, and we have seen a very good pipeline during the last couple of months. We have already transformed a number of dozen prospects and had individuals already clicking the button, and we helped them, proper.

Eric Heath

Yeah, after which XDR takes it a step additional, proper? MDR is endpoint, XDR is extra complete than that. So discuss like, what the worth is you’re delivering on the managed XDR, and I feel you are calling it Professional XDR.

Nathan Jenniges

Yeah, on the MDR Professional, which we simply launched final month, that expands our stuff. Our present MDR choices required Cylance know-how to be on the endpoints. MDR Professional truly opens us up. We have got connectors for all the main endpoint gamers, plus your whole community and id. It is 300 plus issues that we will then herald.

It may unlock a special set of alternatives for us, as a result of now we do not have to simply go to the present buyer base, proper, or we do not have to go to a buyer and say, ‘hey, earlier than you will get our MDR service, you bought to tear and change your whole endpoint.’ And so hopefully that’ll give us an finish free level into loads of buyer accounts.

Eric Heath

And that is – like we noticed the endpoint distributors purchase log administration corporations. So that is the concept, you’re ingesting logs from all the opposite sources of telemetry, dumping into like a knowledge lake or lake home.

Nathan Jenniges

The Databricks is a knowledge lake home, sure.

Eric Heath

After which does this permit you – so I feel you type of alluded to it, nevertheless it permits you to handle endpoints that are not Cylanced endpoints, is that proper?

A – Nathan Jenniges

Appropriate.

Eric Heath

So do you might have partnerships at this level, or like strategic distributors you’re aligning to? Is it Microsoft or CrowdStrike?

Nathan Jenniges

No, I feel simply looking on the market, loads of Microsoft and CrowdStrike endpoints. That may be a massive alternative on the market for us.

Eric Heath

Yeah, and something you want to spotlight on the opposite aspect of the safety portfolio by way of the place you’re targeted, unified endpoint administration, crucial?

Nathan Jenniges

Yeah, I am actually enthusiastic about loads of the alternatives throughout the portfolio as properly, and the unified endpoint administration, it has been a very long time product for us. There may be nonetheless a large buyer base. It is a worthwhile enterprise for us, and we’re nonetheless seeing loads of alternative around the globe, particularly in Japanese Europe, Center East, Southeast Asia, the place nations by no means actually deployed all these cellular safety options, had nothing.

You may be shocked what number of governments, the highest officers use WhatsApp. And our capacity to herald each our unified endpoint administration to lock down the units, to be sure that our apps and knowledge keep safe, however then we will herald our Secusuite, proper. NSA stage encryption that is utilized by a number of the high governments and militaries around the globe, and convey that into the suite.

After which on our advert hoc merchandise, we proceed to search out simply super alternatives. We have had a stronghold in U.S. authorities. 90% of the U.S. authorities makes use of advert hoc. It was truly closely used in the course of the CrowdStrike incident by our prospects, as a result of loads of the programs to speak had been down, proper. Whether or not it is an IT concern like that, or a cyberattack, if you cannot get to your groups or your electronic mail and talk, you want a fast and quick strategy to talk.

So closely makes use of in that. Closely utilized in different current public occasions as properly. And we’re discovering loads of alternatives to convey that into police and ambulance and another adjoining sectors from the place our sturdy factors are.

Eric Heath

You talked about CrowdStrike. On the outage, do you might have a technological opinion on this matter by way of like what went improper and perhaps how you concentrate on like, the way in which that the deployments or the kernel entry. Do you might have a view to you do issues in another way, equally? Do you suppose it was a improper method, right method, only a mishap on a QA concern?

Nathan Jenniges

Having been within the business for some time, I feel loads of merchandise are – we’re deep, we’re deep within the kernel, proper. Of all sorts of software program, we’re all of the deepest on this, the kernel area within the Home windows ecosystem and there is loads of issues that may go improper. I do not know all the main points of what precisely went improper of their course of.

I can inform you in our merchandise, in Cylance, due to our machine studying first method, proper, as quickly as our product kicks off, the very first thing it’s doing is simply checking towards the machine studying fashions. So there is no such thing as a deep, underlying stuff that we received to maintain updating and we satisfaction ourselves on these fashions that do not have to be up to date, proper. We nonetheless have fashions which might be operating on Home windows XP machines from six years in the past and blocking trendy threats, proper, so yeah.

Eric Heath

Attention-grabbing. Yeah, how have you ever maintained tempo on the AI ML aspect of issues? As a result of I feel, I clearly bear in mind again when Cylance was a standalone firm, they had been the chief in AI ML and the following gen antivirus aspect of issues. So what have you ever been doing on the funding aspect to keep up that power and management in AI?

Nathan Jenniges

Yeah, I feel for just a few years put up acquisition, it received misplaced within the Blackberry shuffle. I’ve refocused that staff. We have added some extra expertise that we had throughout the group and simply targeted ourselves on fixing a number of the issues. We hadn’t truly carried out any mannequin updates for some time, however we’re now, we have already filed 4 extra patents this 12 months on ML matters. So I am actually beginning to roll and now making use of that into broader areas just like the XDR area as properly.

Eric Heath

Aggressive atmosphere. It is a extremely aggressive atmosphere, the markets consolidate. What do you see competitively? The place are you discovering the alternatives to select your spots, have a aggressive edge? Whether or not its verticals, geos, and many others., the place do you discover your benefit?

Nathan Jenniges

I feel that is been a part of our shift and the way we received to a number of the price construction financial savings as properly.

Eric Heath

Yeah.

A – Nathan Jenniges

It’s actually, I spent loads of time simply learning what segments of the market, what verticals, the place did we see probably the most attraction to our product, understanding why. So we proceed to see loads of alternatives in locations the place I would say they nonetheless have loads of older legacy units. Due to our capacity to convey machine studying again to all the way in which to Home windows XP and Linux variants from again then.

Eric Heath

And do it on the endpoint versus doing it within the cloud, primarily.

A – Nathan Jenniges

Yeah. On the endpoint and do it offline. Many of those units aren’t linked to the cloud. And we have carried out repeated checks displaying that our efficacy, like barely differs whenever you log on or offline. That is as a result of the foundational piece of Cylance was that the ML mannequin they constructed was for the endpoint first. So many different corporations constructed it within the cloud first and it was so massive that they needed to construct smaller variations for the endpoint. We constructed one which labored on the endpoint, so it is the identical one which runs within the cloud.

Eric Heath

Any questions earlier than I hold going? On the go-to-market aspect perhaps for each, you each, what are you doing on that go-to-market aspect to drive extra consciousness of Cylance? To me, after I was strolling the RSA flooring, I noticed that Cylance model decide again up, so. However massive image, what are you doing on the go-to-market aspect to drive that ARR development that you’re beginning to see?

A – Tim Foote

Yeah, so I am going to begin. Successfully, like I stated, we targeted. So the variety of gross sales performs, we have type of slimmed that down considerably. So managed companies, MDR, that is without doubt one of the key focus areas. It is someplace small, nevertheless it’s rising quick. So we’re attempting to get our direct gross sales pressure and in addition oblique to deal with that chance.

Then on the different finish of the size, predominantly the MDR may be very a lot center market, so that they have some knowledge, I feel. The opposite finish of the size, we had nice success final 12 months with massive authorities deployments, together with the federal government of Malaysia who purchased all 4 components of our portfolio. So we’re seeking to replicate that with massive governments as properly. In order that’s a special kind of gross sales movement. And we have got a staff of people who find themselves going round specializing in that kind of factor as properly. So I would say it is narrowed and it is lots clearer.

Previously, we tried to do an terrible lot of issues, many extra gross sales performs, and we have allowed our gross sales staff to promote all 4 elements of the cyber portfolio. So should you’re within the buyer, you are having a significant dialog, you may introduce all the opposite totally different angles. In order that’s type of, that’s the important thing focus. Something so as to add, Nate?

Nathan Jenniges

No, I would say simply to make clear, that previous to this 12 months we had like particular person groups promoting totally different elements of it, totally different segments. And we had been attempting to cowl each section of the market on all of the merchandise and we simply whittled it down. And once more, we appeared on the knowledge, noticed the place we had been the strongest and stated, have we tapped out that market but? No, properly, let’s go focus, focus our advertising, focus our gross sales individuals.

Eric Heath

Yeah, after which the oblique aspect, I imply the channels massive in safety. So what’s your presence within the channel or funding on that aspect of issues?

Nathan Jenniges

Yeah, I feel channel is one the place we introduced in a brand new chief at the beginning of the 12 months to run our channel. And he is been rebuilding loads of the packages once more in the identical vein of focus. What are the companions we’d like for every of the totally different merchandise within the totally different verticals and routes to market that we’re going? And we have been constructing that momentum all year long to date.

Eric Heath

Yeah, a few minutes left. From a macro perspective, I imply, cyber is at all times the beneficiary of being resilient. We had some conversations on the convention this week, our IT management and a few channel people that like simply the cyber funds is at all times resilient. What are you seeing from that perspective on cyber budgets and perhaps just a little bit extra holistically on macro?

Tim Foote

So it is one of many final issues to be minimize, which is an efficient place to be. Nobody needs to be the CEO who’s having to report back to their buyer base. All their knowledge has been exfiltrated after which shared on the darkish net. So it is sturdy, however I would say the important thing dynamic for us, Eric, has been an elongation within the gross sales cycle. One thing that not solely us, however just about all the friends have been saying for a while now. It simply takes longer to get to a deal.

Eric Heath

However steady, like by way of the place we have been?

Tim Foote

It is steady, however yeah, once more, the offers are taking longer. Typically the shopper needs an additional 90 days, proper, as a result of they could not fairly make the choice.

Eric Heath

And the previous couple of, a minutes right here or so, the rest you guys wish to share in regards to the story that perhaps buyers aren’t appreciating or as you are attempting to resurface, perhaps the safety aspect of the home and as you’ve got segmented the enterprise. And I do not know, you stated loads of shareholder worth to be unlocked in there.

A – Tim Foote

Oh, 100%. I imply, if we have a look at the inventory worth proper now and everybody take their very own view on it, however definitely after I have a look at it, I see there’s an terrible lot of worth available. The corporate may be very underappreciated proper now. We have got a really sturdy enterprise on the QNX aspect, and arguably that’s the market cap in itself, if no more.

After which the cyber enterprise has been missed, and to an extent we will perceive it. The metrics haven’t been performing as strongly, however we have seen some progress there. And simply directionally, slash the burn. The money burn year-on-year is a big distinction, and I do not suppose the markets but appreciated the change that we have gone by.

So my job and the staff’s job is clearly to get that message on the market and to proceed to enhance the underlying fundamentals of the enterprise.

Eric Heath

Yeah, so it has been sturdy progress. So look ahead to seeing it. All proper, thanks Tim. Thanks Nathan.

Tim Foote

Thanks.

Nathan Jenniges

Thanks.