BB - BlackBerry

[zenith]

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.

[JayGatsby]

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.

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.

[zenith]

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 products. 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.

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.

[zenith]

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

[fareastwarriors]

BlackBerry awarded $815 million in arbitration case against Qualcomm

 

http://www.cnbc.com/2017/04/12/blackberry-awarded-815-million-in-arbitration-case-against-qualcomm.html

[zenith]

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

 

 

 

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

[JayGatsby]

What's your assumptions to get to a value on Radar? The reason I ask is I'm invested in a microcap called Pointer Telocation that I think isn't too dissimilar, has 230,000 subscribers (defined as devices/units), does ~$80M run-rate of sales, ~$12M run-rate of EBITDA, and has a valuation of ~$90M. You could argue Pointer's undervalued, but what's the revenue per device that BBRY is getting? Pointer typically stays away from North America as they say it's an extremely competitive. I think the Pointer product can do most of what the Radar can do: https://www.cellocator.com/products/cellotrack-nano/

 

Admittedly I have a negative bias on BBRY. I was hopeful of Chen, spent two years waiting for them to come out with a Blackberry Classic looking device running Android only for them to make a series of bombs, pullout of the market, license their brand, and have their licensee immediately turn around and make basically the exact device I was hoping for. Trying not to let that impact my judgement but I know it is.

[zenith]

What's your assumptions to get to a value on Radar? The reason I ask is I'm invested in a microcap called Pointer Telocation that I think isn't too dissimilar, has 230,000 subscribers (defined as devices/units), does ~$80M run-rate of sales, ~$12M run-rate of EBITDA, and has a valuation of ~$90M. You could argue Pointer's undervalued, but what's the revenue per device that BBRY is getting? Pointer typically stays away from North America as they say it's an extremely competitive. I think the Pointer product can do most of what the Radar can do: https://www.cellocator.com/products/cellotrack-nano/

 

Admittedly I have a negative bias on BBRY. I was hopeful of Chen, spent two years waiting for them to come out with a Blackberry Classic looking device running Android only for them to make a series of bombs, pullout of the market, license their brand, and have their licensee immediately turn around and make basically the exact device I was hoping for. Trying not to let that impact my judgement but I know it is.

 

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.

 

[zenith]

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

[zenith]

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.

[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.

[stahleyp]

zenith,

 

thanks for the thoughtful updates on this. I'm sure other folks have seen this but here it is:

 

https://seekingalpha.com/article/4135398-blackberry-second-baidu-apollo-os-qnx

[petec]

Is anyone still following this? I don't know it well and would love to know if anyone is really up to date. 

[eclecticvalue]

I think it has turned around the corner. The topline is starting to grow again and according to management guidance they are on track to do over a billion in revenue. Also they are looking to have positive EPS and FCF. It all comes down to the execution and whether the recent acquisition and integration of Cylance pans out.

[mwtorock]

https://finance.yahoo.com/news/blackberry-reports-fiscal-2020-second-110000307.html

 

CEO's words are very positive, but the market does not seem to like the results...

[TwoCitiesCapital]

While it's a total speculation on my part, generally the market has rewarded buying after at this price, and after a down move on earnings.

 

Just like it has typically rewarded those who sold after good earnings to repurchase at a later date.

 

Small position established today simply banking that this will, once again, prove to have been an attractive entrance price to sell when things are a bit less pessimistic.

[Dazel]

 

BlackBerry needs to go on the block...it is worth a lot to someone else who gets a multiple...Salesforce,VMware-Dell, shopify, Aws, Microsoft and the other start ups that trade for 20x revenue.

 

Fairfax needs to end this debacle...it’s trading for the value of the IP. I am wondering whether or not Chen and Prem have gone into a coma...Time to wake up....get creative. Hire someone young and change the name to Cylance...do a joint venture on the spark offering with someone big share the cost and gain more access or just sell it....

 

I am buying here...Fairfax or Chen or both have to go...Fairfax is letting Chen do a half assed job (being nice) a strategic shareholder would not let this happen they are too old and don’t seem to care this is a young entrepreneurs game or giant. Share price is below when Chen took over in 2013...time for change or a sale.

 

Maybe after this latest massive drop Blackberry will get the activist they need buying in...it is worth a lot of money to them if that is the case. Fairfax nice strategy has not worked here...need an operator other companies in this space values are flying!

 

Crowdstrike $14b...

[Dazel]

 

 

I admit I thought Fairfax and Chen were doing the right thing here great clean up etc...now that they built a software company their share price is trading like a lumber company....an activist could liquidate for a large profit...Fairfax “needs” someone to take control of some of their investments their passive strategy has not worked for many years... I am sad to say. As Fairfax sharholder it is disheartening...can’t imagine being a long term Blackberry shareholder. How is Chen still there?

 

Private equity, ackman, Loeb, Einhorn....anyone feel like an easy multi billion profit in short period of time? Why doesn’t Fairfax make it?!

 

Dazel

[jfan]

A friend and I were chatting over dinner about his Blackberry investment. It seems that the market is left this company for dead despite the possibility of some green shoots developing. We are no experts in this space, but the market seems to have aside almost zero value to Cylance and Blackberry technology services. By our napkin based math, all Blackberry needs to do is to achieve 6% FCF growth in this massive growth market to provide investors with an acceptable return.

 

Does anybody have a sense about management's effectiveness in motivating employees, views on risk taking and innovation, and thoughts on team organization to maximize execution velocity?

 

 

[Spekulatius]

A friend and I were chatting over dinner about his Blackberry investment. It seems that the market is left this company for dead despite the possibility of some green shoots developing. We are no experts in this space, but the market seems to have aside almost zero value to Cylance and Blackberry technology services. By our napkin based math, all Blackberry needs to do is to achieve 6% FCF growth in this massive growth market to provide investors with an acceptable return.

 

Does anybody have a sense about management's effectiveness in motivating employees, views on risk taking and innovation, and thoughts on team organization to maximize execution velocity?

 

It’s left for dead, because there doesn’t seem to be any organic growth. They acquired Cylance is where all they’re neue growth is coming from, but with this new business are increased expenses. Their IoT business is actually down YoY. I don’t claim to be an expert, but a well managed software company should have positive operating leverage and with BB that is not the case. They need to show organic growth and positive operating leverage.

 

Then, last not least, another thing I noticed is that their long term operating income target of 20-25% is low for a software company. I have no idea why this is the case, perhaps their business is inherently less profitable,or they set the target low.

[TwoCitiesCapital]

While it's a total speculation on my part, generally the market has rewarded buying after at this price, and after a down move on earnings.

 

Just like it has typically rewarded those who sold after good earnings to repurchase at a later date.

 

Small position established today simply banking that this will, once again, prove to have been an attractive entrance price to sell when things are a bit less pessimistic.

 

It took some time, bit this appears to be coming around as expected.

 

Picked up a few additional shares afterwards in the low 5s to further average my cost basis down, so has been a nice trade all in all.

 

Will probably hold off until January to sell just to see if there's an additional pop after tax-loss season is over.

[Xerxes]

Hopefully some positive development for Blackberry and the like of it

 

https://www.itworldcanada.com/article/covid-19-blackberry-citrix-among-firms-seeing-leap-in-remote-access-solution-sales/428544

 

 

unrelated, I recall folks were talking about when the convertible becomes due:

This is from back in 2016

 

"BlackBerry also announced that it has entered into an agreement pursuant to which Fairfax Financial Holdings Limited (“Fairfax”) and other institutional investors will subscribe for 3.75% unsecured convertible debentures of BlackBerry (the “3.75% Debentures”) on a private placement basis for an aggregate subscription price of USD$605 million. The transaction is expected to be completed on September 2, 2016. The 3.75% Debentures will be convertible into common shares of BlackBerry at a price of USD$10.00 per Common Share and will be due on November 13, 2020. Based on the number of Common Shares currently outstanding, if all of the USD$605 million of 3.75% Debentures were converted, the Common Shares issued upon conversion would represent approximately 11.57% of the Common Shares outstanding after giving effect to the conversion. The other terms of the 3.75% Debentures are substantially identical to those of the 6% Debentures, except that the 3.75% Debentures are not redeemable prior to maturity."

 

[alertmeipp]

Wonder if anyone is holding this one (directly, not through Fairfax).

Seems very cheap in tech standards.

 

CEO seems to hint 2021 will be the year for BB in recent interviews.

 

 

[TwoCitiesCapital]

Wonder if anyone is holding this one (directly, not through Fairfax).

Seems very cheap in tech standards.

 

CEO seems to hint 2021 will be the year for BB in recent interviews.

 

How is this different from every other year they've hinted and been cheap?

 

Maybe someday it'll happen, but you'll have to excuse our skepticism

[alertmeipp]

I just think

 

1) the couple high profile partnerships will help bring awareness to the brand.

2) they have finally good chunk of integration in their product line.

3) the tech valuation is thru the roof, even a little taste of it, will bring lots of upside.