BlackBerry Limited Form 10-Q Summary
Business context and reporting period
BlackBerry Limited, a Canadian software company, reported unaudited results for the three and six months ended August 31, 2026, its second quarter and first half of fiscal 2027. The company operates through QNX, Secure Communications, and Licensing. Its common shares trade on the NYSE and TSX under “BB.”
Key financial metrics
| Metric | Three months ended August 31, 2026 | Three months ended August 31, 2025 | Six months ended August 31, 2026 | Six months ended August 31, 2025 |
|---|---|---|---|---|
| Revenue | $163.3 million | $129.6 million | $316.2 million | $251.3 million |
| Gross margin | $127.1 million; 77.8% | $96.6 million; 74.5% | $246.8 million; 78.1% | $186.9 million; 74.4% |
| Operating income | $33.6 million | $11.5 million | $48.9 million | $13.5 million |
| Net income | $33.9 million | $13.3 million | $42.4 million | $15.2 million |
| Diluted EPS | $0.05 | $0.02 | $0.07 | $0.03 |
| Operating cash flow | $29.3 million | $3.4 million | $33.9 million | $(14.1) million |
| Free cash flow | $28.1 million | $2.6 million | $29.8 million | $(15.8) million |
| Adjusted EBITDA | $47.0 million | $25.9 million | $83.3 million | $40.8 million |
Second-quarter revenue increased 26.0% year over year, while net income increased $20.6 million. First-half revenue increased 25.8%, and net income increased $27.2 million. Adjusted EBITDA margin was 29% in the second quarter and 26% for the first half, compared with 20% and 16%, respectively, in the prior-year periods.
- QNX: Second-quarter revenue was $80.3 million, up $17.2 million; adjusted EBITDA was $29.0 million. First-half revenue was $152.6 million, up $32.0 million.
- Secure Communications: Second-quarter revenue was $60.9 million, up $1.0 million; adjusted EBITDA was $8.0 million. Secure Communications ARR was approximately $221 million, while dollar-based net retention was 91%.
- Licensing: Second-quarter revenue was $22.1 million, up $15.5 million, primarily from a new intellectual property licensing arrangement; adjusted EBITDA was $20.0 million.
Liquidity, debt, and balance sheet
- Cash, cash equivalents, and investments totaled $447.1 million at August 31, 2026, compared with $432.4 million at February 28, 2026. This included $266.2 million of cash and cash equivalents, $111.3 million of short-term investments, $55.5 million of long-term investments, and $14.1 million of restricted cash equivalents.
- Working capital was $325.4 million, compared with $300.1 million at February 28, 2026.
- Long-term notes had a carrying value of $197.1 million and consist of $200 million principal amount of 3.00% senior convertible unsecured notes due February 2029. The notes are convertible into approximately 51.5 million shares at the initial conversion price of $3.88 per share, subject to the indenture’s conditions.
- The notes were eligible for conversion during July 1 through September 30, 2026, and remained eligible from October 1 through December 31, 2026 after the conversion condition was satisfied again on September 16, 2026. No holders converted during the quarter.
- Contractual and other obligations totaled $309.0 million, including $215.0 million of debt interest and principal payments, $55.1 million of purchase obligations and commitments, and $38.9 million of operating lease obligations.
- The company repurchased 2.6 million shares for $10.0 million during the first six months under the prior NCIB. The renewed 2026 NCIB authorizes repurchases of up to 26.8 million shares through May 11, 2027; no shares were repurchased under that program during the quarter.
Material changes versus the prior comparable period
- Revenue growth was led by higher QNX royalty and development license revenue and substantially higher Licensing revenue.
- Gross margin percentage improved because of a greater contribution from QNX and Licensing, partly offset by lower-margin Secure Communications hardware revenue.
- Operating expenses increased 9.9% in the quarter and 14.1% year to date. Drivers included higher research and development spending, legal costs, variable incentive costs, and the absence of prior-year Strategic Innovation Fund claim benefits.
- Operating cash flow improved from a $14.1 million use in the prior-year first half to $33.9 million provided in the current period.
- Non-GAAP adjusted net income was $43.2 million in the quarter and $68.6 million year to date, compared with $24.2 million and $35.0 million, respectively, in the prior-year periods.
- The diluted share count increased materially because the convertible notes were included using the if-converted method: 649.7 million shares in the quarter and 647.5 million year to date, versus 597.4 million and 598.7 million, respectively, in the prior-year periods.
Guidance, outlook, risks, and unusual items
Management raised fiscal 2027 expectations following stronger first-half results:
| Measure | Third-quarter fiscal 2027 outlook | Full-year fiscal 2027 outlook |
|---|---|---|
| Total revenue | $143 million–$154 million | $616 million–$636 million |
| QNX revenue | $82 million–$88 million | $315 million–$325 million |
| Secure Communications revenue | $55 million–$60 million | $260 million–$270 million |
| Licensing revenue | Approximately $6 million | Approximately $41 million |
| Adjusted EBITDA | $28 million–$37 million | $141 million–$158 million |
| Non-GAAP EPS | $0.04–$0.05 | $0.19–$0.22 |
| Operating cash flow | $20 million–$30 million | Approximately $115 million |
- Management cited strong QNX royalty revenue, design-win momentum, and higher-than-expected Licensing revenue. A subsequent Alloy Kore design win with Coretura added more than $100 million to QNX royalty backlog.
- Secure Communications guidance was reduced for the full year because of a more cautious outlook for certain government opportunities.
- Licensing revenue remains volatile because the timing and amount of larger transactions can vary significantly by quarter.
- The company recorded $3.0 million of restructuring charges for the first six months and $0.8 million of long-lived asset impairment charges. It also recognized a $0.5 million impairment on a private-company investment during the first half.
- The company maintains a $1,512.8 million valuation allowance against deferred tax assets. A future release could produce a material non-cash tax benefit, but the timing and amount are uncertain.
- QNX has recognized $28.6 million of Strategic Innovation Fund claim proceeds that could become repayable if specified conditions are not met, although repayment is not currently considered probable.
- The company faces ordinary-course litigation, including a certified Canadian shareholder class action scheduled for trial beginning January 11, 2027. No material litigation accrual was recorded because no material claim was assessed as both probable and reasonably estimable.
- Key risks include foreign exchange exposure, customer and accounts receivable concentration, illiquid private-company investments, intellectual-property litigation, competitive technology markets, and potential dilution from the convertible notes and equity awards.
Investor verification checklist
- Verify whether QNX royalty growth and the Alloy Kore backlog translate into recurring revenue and cash flow.
- Assess the sustainability and timing of Licensing revenue, including the new intellectual property arrangement.
- Monitor Secure Communications ARR, the 91% dollar-based net retention rate, and government contract activity.
- Evaluate the potential dilution and settlement alternatives associated with the $200 million convertible notes.
- Review operating cash flow conversion, working-capital movements, and the company’s $115 million fiscal 2027 operating cash flow outlook.
- Assess the impact of restructuring, legal costs, DSU revaluation adjustments, investment impairments, and other excluded items on GAAP results.
- Track the deferred tax asset valuation allowance, Strategic Innovation Fund repayment conditions, and the pending shareholder litigation.