All of those values that go into how we support the auto industry, we think give us an edge up on some of these use cases and categories in the GEM space. We always try to be really focused and disciplined on particular categories. Chasing every sector, it's a big market out there. In GEM, we've been really clear
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robotics, medical instrumentation, industrial automation. Those are probably the three most significant categories that the values of what we provide in auto really adjust well to those sectors of GEM. As a result, the pipeline is the strongest it's ever been. We're seeing some really good opportunities across robotics and industrial automation in particular. Watch this space. We'll report more wins as they come. We think that our institutional knowledge and experience from auto really adapts well to where the market is going from a GEM perspective. Suthan Sukumar Great. Appreciate all the feedback, John, Tim. I'll pass the line. Thank you. Tim Foote Thanks, Suthan. John Giamatteo Thanks, Suthan. Operator Thank you. The next question comes from Todd Coupland with CIBC. Please go ahead. Todd Coupland Good morning, everyone. Tim Foote Hey, Todd. Todd Coupland I wanted to ask about Secure Comm as well. Could you just characterize the pipeline in the context of that wider win you had with the Canadian government? Is that a trend you're seeing in other NATO countries? I guess part of my question along these lines is, the net dollar retention has kind of been in the low 90s for a little while here. Where do you expect that to trend, if in fact this business is truly stabilizing to growing consistently? Thanks a lot. John Giamatteo Great questions, Todd. Thank you. I think really that's fundamental to our strategy on the government side is, to plant the flag with one of our digital sovereignty products and solutions and then expand it with other parts of the portfolio. I think that worked really well with us with Shared Services Canada. We built a strong pipeline, particularly across EMEA and Asia Pacific, as far as some of these digital sovereignty types of solutions. The encrypted data, voice, and video solution, Secusmart, is really getting a tremendous amount of traction based on some of the geopolitical realities. I think governments are starting to realize, "Maybe I shouldn't do top-secret communications on WhatsApp and Signal and Telegram, and go to a much more secure and reliable communication." All of those trends we think are generating a really healthy pipeline for us across the business. Hopefully that gives you a little bit more color on that one. DBNRR, we'd love for it to be higher. We're doing everything we can in terms of execution in the business and customer support to make it higher. I think long term, we expect that to tick up higher from 92%, and our goal is to try to get it closer to 100%. We do have some inherent headwinds on some parts of the portfolio that drag that down a little bit. We are confident we're moving in the right direction, and we're targeting something closer to 100% as kind of our long-term goal. The fact that ARR ticked up 5% year-over-year and DBNRR is kind of holding while we handle this transformation and execute upon it, we think those are good early signs. Todd Coupland Great. Thanks for that. My second question is on margins, clearly strong in the quarter. What's a good segment range to be expecting in QNX and Secure Comm? Thanks a lot. Tim Foote Yeah, great question, Todd. As I kind of mentioned in the prepared remarks, there's significant operating leverage in this model. I think on the QNX side, as we see a rotation more towards royalties, which come in at pretty much 100% margin, you're going to see potentially some further expansion. In a quarter like this past quarter where we did see strength in royalties, you see that in action. We delivered 86%. I think there is potential for that to grow. I think on the Secure Comm side, really to echo what John said, there's 80-ish% of the business is ARR, and then you get these kind of from time to time these big deals which drive in-quarter revenue. When you get a quarter with big in-quarter revenue, if the mix is predominantly towards software, which it certainly was this case in this quarter, then you can see some pretty significant expansion. I think what we've done is we've set up the business with this stable platform for Secure Comms that as we go and hunt these big deals, you can see some real expansion. It's going to be a little bit of volatility from quarter to quarter. I think it's going to be a broader range on Secure Comms, whereas QNX should more or less start to trickle up as we see more of these bigger programs come online. Todd Coupland Great. Thanks very much. Operator The next question comes from John Shao with TD Cowen. Please go ahead. John Shao Hey, good morning, guys. Thanks for taking my question. Could you discuss your partnership strategy with NVIDIA given this physical AI opportunity? How do the economics work? I know it's still early, but could you describe the pipeline opportunity at this point? John Giamatteo Our relationship with NVIDIA has really evolved over time. We started working together on the automotive sector with their Thor platform and them basically standardizing their architecture on QNX. That relationship worked. It got closer and closer, and as they started thinking about physical AI and their whole Halos safety stack, which is going to power that, I think their natural inclination was to partner with a company that has the capabilities, that has the proof points, that has the partnership that we have in the auto space. I think we were the natural choice for them to, again, now their entire physical AI safety stack that they're going to be rolling out is standardizing on QNX. Like any relationship, I think you establish it, you have some wins together, you build on that trust and those capabilities, and you take it to the next level when the new market opportunity presents itself. I think it has been an evolving relationship and one that we're proud to be a part of. John Shao That totally makes sense. John, you mentioned geopolitical risk earlier. Just want to ask a question on that front. Right now, China seems to be manufacturing the most robotics at the moment, and you have a design win with an OEM in that market. How should we think about the geopolitical risk and maybe some mitigations to reduce that risk? John Giamatteo From China specifically, John? John Shao Yes, just exposure to China. John Giamatteo Yeah. We've got a deep presence in China. In fact, I was in Shanghai meeting with our team and customers and partners and government officials. We're very close to what's going on there. We've got strong partnerships. I think as they continue to look to export some of their technology and their solutions outside of China, the need for safety certification and some of the unique capabilities that we provide, I think are a really hand-in-glove type of fit. I don't think we'll be able to just naturally serve everything in China in every category and every opportunity. I think there's going to be pockets where our technology and QNX and everything that we stand for in terms of certifications and safety and real-time determinism, all of those values are a really, really good fit for a country that wants to export more of their technology to the rest of the world. We think we can help them do that, and we work closely with them and the Canadian government to facilitate it. Obviously, geopolitics, it's an evolving thing, and it's something we stay really close with, but we think our capabilities and the nature of what we provide can help them as they think about expanding beyond China into other markets around the world. John Shao Thank you. I'll pass the line. Tim Foote Thanks, John. Operator The next question comes from Steven Li with Raymond James. Please go ahead. Steven Li Hey, John, Tim. Appreciate the color on Alloy Kore potential wins. In terms of GEM's potential wins, could they be comparable in size to Alloy Kore, or are much smaller at this point? John Giamatteo I think just the nature of it, Steven, it'll probably be more in volume, in terms of the number of wins, and a little bit smaller originally in terms of the actual dollar value itself, just because with cars, you're talking tens of millions, you're talking models. They take a very long-term, 10-year outlook. Just by the nature of the two industries and how they operate, I think auto will tend to be a little bit higher. That being said, we got some interesting opportunities that are brewing in the GEM space that we're looking forward to sharing with you all later on in the year that we expect is going to continue to move the business forward. Definitely a little bit more in auto, but I would tell you, GEM is our fastest-growing segment inside of QNX right now, and we see a lot of tremendous opportunities across the categories that we talked about. Steven Li Great. John, given your comments just now, timing-wise, should we expect a meaningful GEM contract award this year, or is this a more longer-term opportunity? John Giamatteo If I'm honest, I'd be disappointed if we didn't have a couple of big GEM wins to share with you. We're really pleased with the pipeline on GEM and the pipeline on Alloy Kore. The uptake on SDP8 has been tremendous, Steven. The fact that QNX now is really a more diverse platform of capabilities, from cabin to sound to their base operating system to Alloy Kore. The depth and breadth of what we have to offer our customers has never been stronger. Two of those segments we're feeling really, really good about. Steven Li Just one more for me, John. I think in your prepared remarks, you mentioned developers licenses is the highest it's been in Q1. What is the mix, auto versus GEM in that? Tim Foote We don't typically break that out, but it's kind of fairly representative of what you'd expect from the business, that 80/20 mix. Steven Li 80/20? Tim Foote Yeah. Steven Li Okay. Tim Foote Kind of the mix. Steven Li Yeah. Okay, perfect. Thank you. Operator The next question comes from Paul Treiber with RBC Capital Markets. Please go ahead. Paul Treiber Good morning, and congrats on the quarter. The long-term growth opportunity for QNX, you put some context around it. I was just looking at the 2027 guidance was almost exactly in line with the long-term outlook that you gave at the Investor Day in 2024, which is calling for 14% CAGR. Just based on the backlog and pipeline at this point, is mid-teens growth what you see as a reasonable long-term outlook for QNX, like what you saw back at the Investor Day, or do you see the potential for stronger growth over the long term? Tim Foote Hi, Paul. We're not going to give long-term guidance on this call today. I think we'll save that for our Investor Day that we've got coming up in the near future. What I will say, though, is we've never been as excited by the opportunities we've got here. I think the GEM opportunity has the potential to be absolutely huge. You're going to see that showing up in our backlog. It's going to translate into revenue. Then adding on top the potential from Alloy Kore, which could really be transformative for this business. With, like John mentioned, multiples ASP. Both of those things have a real opportunity to greatly accelerate revenue growth over the midterm for this business. Yeah, we're not going to pin down to a number, but I think we feel incredibly confident about the trajectory of this business and our ability to execute against that. Paul Treiber Just for additional context in terms of the magnitude of growth of both businesses, I think you've been calling it that 80/20 mix. Historically, as GEM's been growing, you mentioned it's growing faster, but how much faster has it been growing versus automotive? Tim Foote Materially. Materially faster. Obviously, it was a smaller base, so in terms of absolute dollars. This is how I look at it, is that, yeah, GEM's growing great, but auto's growing as well. It's not like that mix shift is necessarily going to happen rapidly because you've got two parts of the business that are both growing, and you add in the potential here for Alloy Kore to really move the needle. That could really accelerate auto growth. I see that as a really good problem to have, if it's a problem at all, to have two really strong growth opportunities. I don't see success for GEM to be that the mix shifts to 50/50. I just see success for GEM is that we deliver solid growth over multiple years into the future. Paul Treiber Okay. Thanks for taking the question. Operator I would like to turn the call back over to John Giamatteo for closing remarks. John Giamatteo Terrific. Hey, thank you everybody for joining us on today's call. We look forward to providing you a good comprehensive update next quarter, and we'll see you next time. Thanks, everybody. Operator This concludes today's call. Thank you for your participation. You may now disconnect.