zenith

3rd quarter update, After attending the Security Summit in New York, and the recent earnings call, with a slight beat on rev, mainly due to IP, i wanted to provide some color, as few on this board seem to be following this one. My expectation is that if and when QNX, gets to say 50% mkt share and an average of $15 to $20 per car with modules in ADAS, etc, and the SW and services and remaining revenue to total about 1.5B in the next 2 years. I believe the mkt is dramatically underestimating the advantage QNX has over LINUX specifically with respect to security, and stability. Furthermore, I think the market is not grasping the potential revenue stream from such vertical start ups like "project HALO" within Blackberry and potentially RADAR L for robotics, etc, and the potential revenue from this new business part of BTS, could surpass QNX and autonomous cars in the future, leading to a multi billion dollar a year revenue stream with the majority of that reoccurring and at margins north of 70%. The value of this would surpass my IV at $30 by a long shot, and I think we are beginning to see this play out with the stock hitting nearly 3 year highs. While it is still down over the past 5 years, the future value is compounding nicely on this company, and I still think the current price is attractive with a 2 to 3 year time frame.

2Q FY 2018 update, overall a good call, will speak with mgmt next week, so will provide an update after call. initial thoughts, slightly surprised by the bullish reaction, as I was wanting to hear a closed RADAR deal, such as FEDeX or Wal Mart, however the deals they announced with Delphi, etc were a positive and the LEVEL 4 autonomy and the revenue within a year vs. full autonomy in about 8 is a plus. Acquisition likely to be a private company due to valuations in public mkts. FYI, the Merrill analyst wrote a long 30+ page report going over in detail the various business of BBRY, while raising the tgt price to $8, as it was $6 several months ago, but maintaining a sell. However, that notwithstanding, he wrote in the report, while bearish on the name, a deal with FedEx or similar would be a "game changer" for the company. I believe a deal similar to this is what is needed to give the analyst community the ability to create some real revenue numbers for RADAR and now RADAR lite.

notes from Q1 FY 2018 here is my summary from the call. Most questions they got were around revenue, Margin and Opex. Regarding revenue, while it was down year over year, it was really non gaap vs. gaap, as they said on call, GAAP was 12% growth and NON GAAP was a decline and a fair amount of that decline was moving customers from former perpetual licensees on GOOD technology that had not yet been amortized to a recurring model because they like the suite of products. However, the billing was up double digit in Q4 and just below double digit in Q1, so that business is quite healthy. Regarding margins which were at (67%), they still believe they can get over 70% for the year, as the device revenue is going away and the SW margins at 80%. SAF has product cost with it, hence lower SAF means higher SW margins going forward. Regarding OPEX, analysts liked the decline quarter to quarter of 32M however the lower amount was 16M which was a swing from legal costs going from 14M to negative 2M in Q1 that just ended (not likely to continue), but there will be an uptick from here in the high 150M to 159M range, as they hire more and for related expenses. Negative cash flow of -72m this qtr as the payables were down 52m, clearing up some of the device pieces, and they did a better job of collecting revenue in the prior Q, hence the 27M they booked in professional services last quarter. In Q2, they see that number becoming smaller and moving into positive direction for the second half of the year, and they are still guiding for full year positive cash flow excluding the QCOM money of 940M Fedex: they expect to have the entire companies fleet (more than 20,000 trucks and related) by year end of 2017 or so, not just the http://customcritical.fedex.com/ part they landed which has about 1250 specialized trucks. They replaced internal products that Fedex was using. RADAR: additional deals are coming. Of the 4 or 5 they are testing they are moving to full customers and they are signing up more. However this is where they need additional sales support to get more deals. Share buyback: is essentially to placate shareholders, and from the call it seemed clear, that it will be a half-baked effort. They wouldn't clarify where the stock price would have to be to buy more or less shares. They gave a long winded answer to allocate capital where they can add value. We think the money will be spent towards an acquisition to drive returns, see below. QNX: they have sufficient resources and sales to grow, as well as EMM with acquisition of GOOD, as they have hired extensively there. With respect to RADAR, they have not. However this was due to following: - people (shareholders, etc.) have asked them if there really is enough of a market there? - the RADAR team is too small to do both recruiting and sales. Their goal is to be number one in the industry Type of potential acquisition: would be RADAR-related to help fuel growth as while the adoption rate is slow, this will move the needle in ways that hiring another dozen salespeople will not. We continue to speculate that it could be a company that has an installed customer base, like IDSY or similar, however this is a personal guess and nothing that has been confirmed or even discussed by anyone at BBRY. Royalties from HW: result from meeting minimum requirements, but moving forward in the 2nd half it could be a larger contributor as it will become earned royalty and thereafter will be significant. QNX having the ability to support telematics, ADAS, hypervisor related to security, Ford will make BBRY the dominant player in their vehicle lineup and they hope to have a European company (not German from what we have been able to infer). QNX: their presence in so many tier 1 will move the needle and allow them to capture and maintain #1 status. QNX: they will see growth this year followed by years of growth, and an uptick as well in the growth rate in 2nd year (FY 2020+), due to timing of 2 years to close these deals per John chen comments last quarter R&D: downtrend was a result of the consolidation of EMM historical acquisitions onto one platform, GOOD and BES onto one platform. Nothing to do with not investing in RADAR and QNX. An engineer by nature, John has always spent more on engineering expense as a percent of the revenue they get: "if you don't have product you don't have anything to do" M&A: can they get a good price on an acquisition today? If they bought something that added top line growth and contribution to move RADAR very quickly; they won't spend 7x revenue to get that though. Questions for me, let me know, my price tgt remains unchanged and i think the huge positive is that RADAR can be a major disruptor in the telematics space and with many verticals including RADAR lite, etc

Cant Blame you on point #2, the past 4 years have not been fun for shareholders. The HW debacle was the most disappointing part of it as the Keyone may actually be the device that has decent sales, and it should have been the first android phone they sold years ago. Now they will get some royalties from HW, but it really is a rounding error for the company. Today they have virtually no carrier support (at least in North America, especially verizon) and at best can sell maybe a few million a year. Looking back at it, Chen made some mistakes but he did it while de-risking the business, and not taking on billions of contractual obligations (similar to what NFLX has today with off balance sheet risk with content). Today you have a super lean company where the CSO David, just left to join Google as their CSO, proving they have the right talent, if they can hold on to them! With respect to RADAR, watch this video from Gus http://www.cbc.ca/player/play/953724995713 where briefly discusses one advantage with battery life. However, the advantages all discussed in my previous response to your post on march 17th. The answer simply is RADAR is a game changer, and I have spoken to nearly all of their competitors like ID Systems, which btw is mentioned in the 10K for BBRY as a competitor. Sandeep and his team has multiple patents he has created with it and it is 100% organic to BBRY. FED EX, UPS and many others are months if not weeks from deals being announced with RADAR. They have a similar offeringings (like RADAR lite, etc) that can open up many verticals as well. I would say the RADAR and related security type offerings will be a SAF type of revenue stream they once had with managing email and related on the old Blackberry devices. The difference is I believe the margins are actually higher with what they have now, as the NOC (very expensive to maintain) is not necessary with the security built in the actual device, similar in some ways to the advantage QNX has, and why they use the low cost Amazon cloud or AWS to manage it. They wont have the amount of revenues they had before as it is simply not possible without HW and the $250+ per device sales they once had (caveat is that RADAR will be about $200 - $300 per device, but I can forsee a model in which they integrate the price into the monthly subscription model, similar to cell phone providers), as well as the huge volume of devices they once sold, however the irony is it may actually be a more profitable company with hardly any inventory risk, and thus will command a larger premium. I, like Gus can envision a day when we see BBRY north of $40+ one day, and potentially much higher, albeit not without all cylinders firing perfectly.

Follow up to my last IV of north of $20, I a raising that to over $30 with additional litigation with Avaya as well as some other companies and the additional 980M (includes interest) they will get tax free from QCOM and this was an arbitration case and is binding unlike the lawsuit that Apple is engaged in. I expect them to do a share buyback and either offset dilution of the converts or at least attempt to mitigate the dilution as much as possible. I have spoken to quite a few of the top shareholders and their IV is in the same ballpark. the short interest is at the lowest level in over 4 years and the volume as picked up considerably as some additional institutions like Iridian (First Eagle) have bought quite a few shares the past several quarters

Some thoughts on today's earnings announcement. As I mentioned earlier QNX is about to experience some massive growth, from say $3 -$5 car to over $15 a car or more with more modules installed, and will have potential monthly recurring revenue to secure the cars, and OTA updates. In addition RADAR is on track with a 3 to 6 month window after trials to see a deal signed and increase penetration within the companies as they usually try several hundred trailers or related before signing thousands. Also John Chen is now willing to invest the 1.7B (including the 600M converts) in a combo of Acquisitions as well as R&D within the company, such as the autonomous center. That shows a higher level of confidence as he was previously not willing to go below 1B in NET cash. A good interview to watch are the Bloomberg and BNN ones posted below. He sees more deals akin to Ford (and the 400 employees transferred were part of the HW group, not QNX) I think now it is the execution, and this company in 2 years has multiple take out offers. The IV is north of 20 currently, and the discount to other SW companies will close later this or next year IMO. https://www.bloomberg.com/news/videos/2017-03-31/blackberry-s-chen-says-company-s-made-progress-video https://www.bloomberg.com/news/videos/2017-03-31/free-from-phones-blackberry-posts-profit-video http://www.bnn.ca/there-s-no-danger-john-chen-on-blackberry-s-turnaround-1.711522

FWIW, from Andrew Left of Citron in response to ValueAct https://www.bloomberg.com/news/articles/2017-03-17/the-anti-ackman-valeant-short-sellers-have-made-2-8-billion A Bloomberg dispatch to The Globe says that for short sellers, it has been nothing short of a boon. Traders who borrowed the stock in hopes that it would retreat made as much as $2.8-billion in profit since Valeant's peak in August, 2015. The drug maker's stock has carried an average short interest of about $800-million in that period. With the stock down 96 per cent from its record and Mr. Ackman no longer boosting the company, short sellers have come to a crossroads: bet the stock heads toward zero or get out of the way as high-profile backers such as ValueAct Capital add to long positions. For Andrew Left of Citron Research, one of the company's most vocal detractors, news that ValueAct added three million shares to its stake after Mr. Ackman's withdrawal this week is a warning for short sellers. "The bet on zero has changed with ValueAct buying more shares, because I trust them," Mr. Left told Bloomberg. "They know the company as well as anyone. If you're short the stock with ValueAct in it, make sure to think twice."

I'm not close enough to the situation to really speak intelligently, but be cautious with this management team and their expectations. I had a fairly sizable allocation since shortly after Chen/Watsa became involved and sold out a few months ago at a small loss. A few years back Chen promised $500M of software revenue, which got people excited. During the year they bought Good, which got them to the $500M. They achieved their target, even though to anyone paying attention they clearly missed it organically. Chen was also very positive on shipment numbers of the Priv. Again, I'm not saying it's a bad investment as I'm not close to it enough anymore, but I would be cautious investing solely based on guidance. I understand and the reality is so far it has not been a great investment, with the share price about where he JC took over. The SW revenue growth was not organic, but then neither is QNX which they acquired as well. I don't think anything other than perhaps RADAR can be considered true organic growth as they have been a serial acquirer with Secusmart, AtHoc, or the many other companies they bought. The bottom line is they will actually grow this year, and they still have a 1B net cash position after all acquisitions. Another company IDSY (which they were rumored to be buying a few years back for around $9) has had major issues with growth in the Veriwise product line with their TAM segment (Transportation Asset Management) that had a decline of 50% from 2015 to 2016 (3.4M to 1.7M). This is the segment that is a direct competitor to RADAR with respect to the trailers and shipping containers. While IDSY is more focused on the VMS segment (Vehicle Management Systems) today (with Avis an investor as well), and our conversation with them has expressed a willingness to not focus on the TAM business. I think that is a positive for RADAR, and not widely known. In addition, BBRY is testing a VMS type offering as well. They are also branching out into many more verticals as well with RADAR, and the opportunities are endless and the advantages over their competitors are many, including the security in which the device and server authenticate each other and the packets are encrypted with AES, and all the sensors built in vs, others requiring and endless number for additional measurements, the install time of several minutes allowing mass installation in the case of a Wal mart, etc with 10's of thousands of trailers, OTA updates and MILSTD 810F and IP 67 for difficult conditions. Also from a cost standpoint, since the real security of all of their devices, including HW, is from the Sw side, they use Amazon cloud and can reduce cost thus increasing the margins substantially. IDSY own reports indicate the huge mkt opportunity and lack of investment in this space (many billions) and not Apple like competition, although Verizon deal with Fleetmatics can be interesting, and a potential partner as well. Time will tell. This space will require patience due to the slow sales cycle, but one deal will cause analysts to up their revenue targets So if we take a step back and objectively look at the business today, we have a rapidly growing QNX business (also verified with speaking with several of the vendors) and a slowly growing but a stable EMM business (albeit not completely Organic) and several optionalities like RADAR, and the many verticals it provides. In addition they have many offerings with Blackberry Secure and potential IOT related offering in the healthcare and other spaces. Whether this is truly a gimmick, or can be a "Intel inside" as Marty Beard has said remains to be seen, but they are at least focused on the right market segment, rather than wasting time in HW with countless devices that have been one failure after the next (Z10, Passport, Priv, etc). One other factor, is the options market has not been pricing in any Armageddon scenarios, unlike in the past. The implied volatility is the lowest I have seen in some time as is the spectators in the options mkt, both bullish and bearish. Most of the trades I have seen are involving spread trades and mainly Bull Put spreads as well as outright put sales. While the traders are still in the name, namely hedge funds, if and when this breaks out of the wedge pattern it has been in the past several years, the shorts will cover in short order. The float is quite low with Prime Cap at 15% ownership alone.

Analyst day on Jan 24th at their US HQ in San Ramon. There were industry as well as financial analysts and a few of the top shareholders.The difference was they had actual customers demonstrating how they use BBRY products and services vs. the last meeting held several years ago. They had a demo of RADAR from Caravan group truckload LTL and several other actual customers to get a sense of how they actually use AtHoc, and other prodcuts. The entire team was there as well, including Sandeep (Watsa's right hand guy installed before JC was put into place) and in charge of RADAR development.

Update on value for BBRY. Based on some recent mgt commentary (analyst day), the revenues for QNX are likely to go from 140M to more than 400M - 460M in the next 1.5 to 2 years. the reason is the 30M or so cars globally and they get an average of about $4 to $5 per car, will increase to more than $12 to $15 and will grow at around 40 - 50% after that. On this alone I would value at about the current price of $7 a share. If RADAR, currently being tested in FEDEX, UPS, Walmart and others can be game changer if adapted vs. established competitors like ID Systems and others. They have modified the box that goes on the trailer trucks to a smaller unit for the actual fedex delivery trucks and the security is unmatched as is the easy interface. This business is worth about 2 to 3X sales. If we look at RADAR, they charge anywhere from $25 to $30 a month per trailer, plus an upfront fee of about $200 to $300 for the actual box, I assume in my numbers they can eat this upfront cost, and for larger customers, just charge the monthly subscription with a 5 year contract, as they will get this back in less than a year. For larger customers such as Walmart with over 70,000 trailers the contract size would be between 15 - 17M over the next as they ramp up, per year from one customer. if they land additional large customers, the numbers grow exponentially. Based on the Verizon deal where they acquired Fleetmatics for 2.4B last year, this space is ripe for M&A. While the EMM business has a similar valuation to say MOBL, the rest of the business deserves a nice premium as the growth is more than the 10- 15% in EMM. Overall, this company has many hedge funds currently short as they believe this is "dead money" and wont cover until they see actual revenue growth. That part may be coming in the next quarter or 2. The risk of Bk is extremely low as the contractual obligations for HW have been entirely offloaded to TCL, with only a hundred thousand or so units (mainly DTEK 50 and 60, as well as some PRIV, and legacy blackberry 10 devices remaining in inventory and they have been written down last quarter. The engineers that were shifted to Ford are largely duplicated positions and not the core QNX team as well as the lawsuit as really little to no merit. I think the value of this company is very misunderstood by most that follow the company, but the current price reflects all of that and provides a 2 to 3x return over the next 2 years as well

Shareholder letter from Pershing Square out. https://www.pershingsquareholdings.com/company-reports/letters-to-shareholders/

The stake in Nanthealth is small, but the apps they may create could potentially have value for Nanthealth. In addition, they are going to swap all of their 2020 6% converts (1.25B) into longer term debt that is at a much lower rate. They may swap out about 1B and buy back 250M outright as they will be close to the 2.5B the John Chen wants to maintain. I spoke to them and they confirmed that they are swapping the debt, I am assuming that they buy back the 250M add on that Prem took a few months after the initial 250M in November 2013. In related news it looks like Qatar and Brookfield sold out of their converts and Canso and Manulife bought them. So now Fairfax still has 500M and Canso has 369M, of the 1.25B The ytc must still be decent as they have to know they are going to call these. Canso, as a value shop in canada always takes these down as this is in their wheelhouse. Their track record is solid.

small position intitated by fairfax, 300K shares

Chou buys new stake in the company, about a 6% stake, hopefully he bought it after March 15th!

Their was a large block traded a few days ago, it was Steelhead selling more of their stake and Prem bought those shares.