10-Q: BlackBerry Revisits Cybersecurity Strategy, Sells Cylance Assets to Arctic Wolf in $160 Million Deal

BlackBerry announces the sale of its Cylance endpoint security assets to Arctic Wolf for $160 million in cash and 5.5 million shares, while also reporting mixed Q3 results with a net loss of $11 million.

Summary

• BlackBerry has agreed to sell its Cylance endpoint security assets to Arctic Wolf for $160 million in cash and 5.5 million shares.
• The company reported a net loss of $11 million for the third quarter of fiscal year 2025, compared to a net loss of $21 million in the same quarter last year.
• Revenue for the quarter was $143 million, down from $152 million in the prior year.
• The company's Secure Communications segment saw a revenue decrease of $17 million, while the IoT segment increased by $7 million.
• BlackBerry's total cash, cash equivalents, and investments were $266 million as of November 30, 2024.
• The company expects total revenue from continuing operations to be between $517 million and $526 million for fiscal year 2025.
• The company expects IoT revenue to be in the range of $230 million to $235 million in fiscal 2025.
• The company expects IoT revenue to be in the range of $260 million to $270 million in fiscal 2026 and to be in the range of $295 million to $305 million in fiscal 2027.
• The company expects Licensing revenue of $16 million in each of fiscal 2026 and fiscal 2027.
• The company expects total Company adjusted EBITDA from continuing operations to be in the range of $60 million to $70 million in fiscal 2025 and total Company adjusted EBITDA from continuing operations to be in the range of $10 million to $20 million in the fourth quarter of fiscal 2025.
• The company expects non-GAAP EPS to be in the range of ($0.02) to breakeven for fiscal 2025.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there are positive aspects like the sale of Cylance and improved net loss, the revenue decline and retracted guidance create uncertainty. The strategic shift is a positive, but the financial results are not strong.

Positives

• The net loss of $11 million in Q3 2025 is an improvement compared to the $21 million loss in Q3 2024.
• The IoT segment experienced a revenue increase of $7 million in Q3 2025.
• The company expects IoT revenue to be in the range of $230 million to $235 million in fiscal 2025.
• The company expects IoT revenue to be in the range of $260 million to $270 million in fiscal 2026 and to be in the range of $295 million to $305 million in fiscal 2027.
• The company expects Licensing revenue of $16 million in each of fiscal 2026 and fiscal 2027.
• The company expects total Company adjusted EBITDA from continuing operations to be in the range of $60 million to $70 million in fiscal 2025 and total Company adjusted EBITDA from continuing operations to be in the range of $10 million to $20 million in the fourth quarter of fiscal 2025.
• The company expects non-GAAP EPS to be in the range of ($0.02) to breakeven for fiscal 2025.

Negatives

• Revenue for the quarter was $143 million, down from $152 million in the prior year.
• The Secure Communications segment experienced a $17 million revenue decrease in Q3 2025.
• The company reported a net loss of $11 million in Q3 2025.

Risks

• The sale of Cylance assets may impact future revenue streams.
• The company's Secure Communications segment is experiencing a revenue decline.
• The company is still operating at a net loss, although improved from the previous year.
• The company is retracting previous guidance due to the sale of Cylance.

Future Outlook

The company expects total revenue from continuing operations to be between $517 million and $526 million for fiscal year 2025. The company expects IoT revenue to be in the range of $230 million to $235 million in fiscal 2025. The company expects IoT revenue to be in the range of $260 million to $270 million in fiscal 2026 and to be in the range of $295 million to $305 million in fiscal 2027. The company expects Licensing revenue of $16 million in each of fiscal 2026 and fiscal 2027. The company expects total Company adjusted EBITDA from continuing operations to be in the range of $60 million to $70 million in fiscal 2025 and total Company adjusted EBITDA from continuing operations to be in the range of $10 million to $20 million in the fourth quarter of fiscal 2025. The company expects non-GAAP EPS to be in the range of ($0.02) to breakeven for fiscal 2025.

Management Comments

• The Company previously stated that it expected Cybersecurity revenue to be in the range of $86 million to $90 million in the third quarter of fiscal 2025. Cybersecurity revenue (consisting of Secure Communications plus Cylance) was $93 million in the third quarter of fiscal 2025, higher than expected due to strong Secusmart revenue.
• The Company expects Secure Communications revenue to be in the range of $62 million to $66 million in the fourth quarter of fiscal 2025.
• The Company previously stated that it expected Cybersecurity revenue to be in the range of $345 million to $365 million in each of fiscal years 2026 and 2027. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance.
• The Company previously stated that it expected IoT revenue to be in the range of $56 million to $60 million in the third quarter of fiscal 2025. IoT revenue was $62 million due to stronger than expected BlackBerry QNX royalty revenue.
• The Company expects IoT revenue to be in the range of $60 million to $65 million in the fourth quarter of fiscal 2025.
• The Company previously stated that it expected IoT revenue to be in the range of $225 million to $235 million in fiscal 2025. The Company now expects IoT revenue to be in the range of $230 million to $235 million in fiscal 2025 due to stronger than expected BlackBerry QNX revenue in the first nine months of fiscal 2025.
• The Company expects IoT revenue to be in the range of $260 million to $270 million in fiscal 2026 and to be in the range of $295 million to $305 million in fiscal 2027.
• The Company previously stated that it expected revenue from intellectual property licensing to be approximately $4 million in each of the four quarters of fiscal 2025. Intellectual property licensing revenue was $7 million in the third quarter of fiscal 2025.
• The Company expects Licensing revenue of $16 million in each of fiscal 2026 and fiscal 2027.
• The Company previously stated that it expected total BlackBerry revenue to be in the range of $146 million to $154 million in the third quarter of fiscal 2025. Total BlackBerry revenue from both continuing and discontinued operations was $162 million in the third quarter of fiscal 2025, better than expected due to the reasons noted above.
• The Company expects total BlackBerry revenue from continuing operations to be in the range of $126 million to $135 million in the fourth quarter of fiscal 2025.
• The Company previously stated that it expected total BlackBerry revenue to be in the range of $591 million to $616 million in fiscal 2025, to be in the range of $620 million to $650 million in fiscal 2026 and to be in the range of $655 million to $685 million in fiscal 2027. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance, and expects total BlackBerry revenue from continuing operations to be in the range of $517 million and $526 million for fiscal 2025 as a whole.
• The Company previously stated that it expected consolidated gross margin percentage to be 71% in fiscal 2025, 73% in fiscal 2026 and 74% in fiscal 2027. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance.
• The Company expects Secure Communications EBITDA to be approximately $52 million for fiscal 2025 as a whole.
• The Company previously stated that Cybersecurity segment EBITDA was expected to be $0 in fiscal 2025 as a whole, in the range of $25 million to $35 million in fiscal 2026 and in the range of $30 million to $40 million in fiscal 2027. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance.
• The Company previously stated that Cybersecurity segment gross margin was expected to be 62% in fiscal 2025, 65% in fiscal 2026 and 66% in fiscal 2027. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance.
• The Company expects IoT EBITDA to be in the range of $40 million to $45 million in fiscal 2025, $55 million to $65 million in fiscal 2026, and $75 million to $80 million in fiscal 2027.
• The Company expects IoT EBITDA margin percentage to be approximately 18% in fiscal 2025, 22% in fiscal 2026 and 26% in fiscal 2027.
• The Company expects Licensing EBITDA margin percentage to be approximately 65% in each of fiscal 2025, fiscal 2026 and fiscal 2027.
• The Company previously stated that it expected its average quarterly non-GAAP operating expense run rate to be approximately $110 million in fiscal 2025. Non-GAAP operating expense was $101 million in the third quarter of fiscal 2025. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance.
• The Company previously stated that it expected a sequential improvement in operating cash flow in the third quarter of fiscal 2025. Operating cash flow usage was $3 million in the third quarter of fiscal 2025 and improved sequentially compared to the second quarter of fiscal 2025.
• The Company previously stated that it expected non-GAAP EPS to be in the range of ($0.01) to $0.01, adjusted EBITDA to be in the range of breakeven to $10 million and adjusted EBITDA to improve sequentially in the third quarter of fiscal 2025. Non-GAAP EPS was $0.02 and adjusted EBITDA was $23 million in the third quarter of fiscal 2025 due to strong revenue and lower-than-expected operating costs and improved sequentially in the third quarter of fiscal 2025.
• The Company previously stated it expected adjusted EBITDA to be in the range of $0 million to $10 million in fiscal 2025, to be in the range of $50 million to $65 million in fiscal 2026 and to be in the range of $80 million to $95 million in fiscal 2027. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance.
• The Company now expects total Company adjusted EBITDA from continuing operations to be in the range of $60 million to $70 million in fiscal 2025 and total Company adjusted EBITDA from continuing operations to be in the range of $10 million to $20 million in the fourth quarter of fiscal 2025.
• The Company previously stated it expected adjusted EBITDA margin percentage to be 2% in fiscal 2025, 10% in fiscal 2026 and 14% in fiscal 2027. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance.
• The Company expects the impact to adjusted EBITDA from its Corporate functions to be approximately $48 million in fiscal 2025, $40 million in fiscal 2026, and $35 million in fiscal 2027.
• The Company expects non-GAAP EPS to be in the range of ($0.01) and $0.01 in the fourth quarter of fiscal 2025.
• The Company previously stated that it expected non-GAAP EPS to be in the range of ($0.05) to ($0.02) for fiscal 2025 as a whole. Due to the reporting of the Cylance business as a discontinued operation, the Company is retracting this guidance and now expects non-GAAP EPS to be in the range of ($0.02) to breakeven for fiscal 2025.

Industry Context

The sale of Cylance assets reflects a strategic shift in BlackBerry's focus, moving away from direct competition in the crowded cybersecurity market and towards its core strengths in secure communications and IoT. This move aligns with a broader industry trend of companies streamlining operations and focusing on core competencies.

Comparison to Industry Standards

• BlackBerry's revenue decline in the Secure Communications segment contrasts with the growth seen in many cybersecurity firms, such as CrowdStrike and Palo Alto Networks, which have reported strong growth in recent quarters.
• The IoT segment's growth aligns with the increasing demand for embedded software solutions in the automotive and medical industries, where companies like NXP Semiconductors and Infineon Technologies are also seeing strong performance.
• The sale of Cylance assets is a significant strategic move, similar to other companies divesting non-core assets to focus on core business areas. For example, IBM's divestiture of its managed infrastructure services business to Kyndryl.
• BlackBerry's adjusted EBITDA guidance for fiscal 2025 is significantly lower than the EBITDA margins of many established software companies, indicating a need for further operational improvements.

Management Changes

Legal Proceedings

• Between October and December 2013, several purported class action lawsuits and one individual lawsuit were filed against the Company and certain of its former officers in various jurisdictions in the U.S. and Canada alleging that the Company and certain of its officers made materially false and misleading statements regarding the Companys financial condition and business prospects and that certain of the Companys financial statements contain material misstatements.
• On March 17, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice (Parker v. BlackBerry Limited).

Related Party Transactions

• Fairfax, a related party under U.S. GAAP due to its beneficial ownership of common shares in the Company after taking into account potential conversion of the Extension Debentures and the 2020 Debentures, respectively, owned the full principal amount of the Extension Debentures and $330 million principal amount of the 2020 Debentures. As such, the payment of interest on the Prior Debentures, and their repayment, to Fairfax represented related party transactions.

Stakeholder Impact

• Shareholders may experience short-term volatility due to the strategic shift and sale of Cylance.
• Employees in the Cylance division may be affected by the sale to Arctic Wolf.
• Customers of Cylance will transition to Arctic Wolf.
• Customers of BlackBerry's Secure Communications and IoT segments may see increased focus and investment in those areas.
• Suppliers and creditors may be impacted by the changes in BlackBerry's business strategy.

Next Steps

• The company will complete the sale of Cylance assets to Arctic Wolf.
• The company will focus on growing its Secure Communications and IoT segments.
• The company will continue to manage its working capital and liquidity.

Key Dates

Keywords

BlackBerry, Cylance, Arctic Wolf, cybersecurity, IoT, revenue, net loss, EBITDA, software, licensing