Q4 2021 BlackBerry Ltd Earnings Call
Good afternoon, and welcome to the Blackberry fourth quarter and fiscal year 'twenty 'twenty. One results conference call. My name is Sadie and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen only mode.
We will be facilitating a brief question and answer session Silversea and of decline range.
You should need assistance during the call. Please signal a conference specialist by pressing Star Zero. As a reminder, this conference is being recorded for replay purposes, I would now like to turn today's call over to Jim Flynn.
That Mary Investor Relations. Please go ahead.
But in Q siding and good afternoon, and welcome to Blackberry <unk> fourth quarter fiscal 2021 earnings conference call.
With me on the call today are executive Chair, and Chief Executive Officer, John Chen and Chief Financial Officer, Steve right.
After I read our cautionary note regarding forward looking statements John will provide a business update and Steve will review the financial results.
We will then open the call for a brief Q&A session.
It's cool with available to the general public alright, cool and numbers and so.
And I webcast and Investor information section.
Brito and column.
A replay will also be available on the Blackberry Com website.
Some of the statements, we'll be making today constitute forward looking statements and are made pursuant to the safe Harbor provisions of applicable U S and Canadian Securities laws.
We'll indicate forward looking statements by using words, such as expect will should model intend believe and similar expressions.
Forward looking statements are based on estimates and assumptions made by the company and lights of his experience and <unk>.
Perception of historical trends current conditions and expected future developments as well.
Well as all of the factors that the company believes are relevant.
Any factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward looking statements.
These factors include the risk factors discussed in the company's annual filings and and DNI, including the COVID-19 pandemic.
You should not place undue reliance on the company's forward looking statements. The company has no intention and undertakes no obligation to update or revise any forward looking statements.
Except as required by law.
As customary drew and the cool John and Steve will reference non-GAAP numbers and a summary of our quarterly results for.
A reconciliation between our GAAP and non-GAAP numbers. Please see the earnings press release and supplement published earlier today, which are available on the Edgar and SEDAR and Blackberry Dot com websites and.
And with that I'll turn the call over to John.
Thanks, Jim and team.
Tim Sorry, sorry, Hi, it's Tim.
Good afternoon, everybody and thank you for joining us today I'll begin with three headlines for the quarter.
The first headline is licensing.
This quarter, we entered into and exclusive negotiation of a north American party for the sale of a portion of the company's patent portfolio primarily related to mobile devices.
<unk> and wireless networking.
Blackberry will retain rights to use these patents and.
Patents associated of company's strategic software and services business, including spark to annex IV secure communication.
And critical event management and will continue to be owned and managed by Blackberry.
The company has not yet reached a definitive binding agreement and negotiations are ongoing.
The company Ltd licensing activities and the quarter due to the negotiations and because of accounting rules, which Steve will explain later this results and licensing revenue and being lower than expected.
The second how long of software and services. This quarter, we saw a slight sequential revenue improvement from spark.
And it continues continuing recovery from Pts.
Cts had a good quarter despite of vehicle protection and headwinds from the global chip shortage.
And the operating surface as billings grew strongly and are now back to the level of a year ago.
The third headline is Blackberry IV.
Discussion of automotive more automakers and tier ones are progressing well and I'll touch on some of the exciting developments later.
Now, let me get into more details.
Blackberry reported total company revenue of $215 million to one five.
Software and services revenue was 165, one and six five licensing and others was $50 million.
<unk> zero gross margin was 73% earnings per share was positive free cash.
Cash generated from operations came in at $51 million.
Total ending cash and investment.
And as of February 28 was $804 million.
I'll now turn to our business commentary, starting with software and surfaces.
Our ongoing strategy is to safeguard the internet of things with intelligence and security.
We achieved this by combining our 30 years plus I'll take expertise of <unk>.
Security expertise with newly acquired technologies, such as site and AI and machine learning.
We currently serve the market in two different ways. The first is to provide cyber security for enterprise, particularly large highly regulated verticals such as such as government financial services and healthcare.
Here, we protect endpoint networks and communications with our Zero Trust architecture.
The second issue and pack technology to provide safety and security Judy and point here. Our focus is currently largely and automotive again.
Gain of very large fast growing market.
Starting from a Q and actually installed base of over 175 million cars on the road today, Q&A and IV and <unk>.
Partnership with AWS and have significant growth opportunities.
Over time these two paths that I mentioned will intersect.
And provide tremendous opportunity for Blackberry investment and smart mobility, and smart city infrastructure will help drive this convergence.
But obviously the market is still early.
We recognize the need to be louder, when communicating our strategy and who back there is today.
This month, we launched a major new digital radio and print and print branding campaign across North America, and the U K to get the message our powerful into the marketplace.
From a financial reporting perspective, starting this Q1, which is this quarter when we intend to report software and services at two separate revenue lines, namely cyber security and Bts.
The cyber security line addressed in crude and address the cyber security endpoint management and critical event management markets.
Our main competitors, including our leading next generation endpoint security providers and as far as notable and vendors.
We address this market with our AI driven spark.
Fully integrated <unk> and <unk>.
And platform, along with AD hoc and second smart.
Bts addresses the and embedded software and vehicle data analytics markets.
Notable competitors, including auto grade of Linux, Android and proprietary operating systems.
Our Q and X product all of the highest level of embedded functional safety and security of Blackberry IV will provide we provide and end to end solution for harnessing data and a car.
We believe that this change will have invested to gain greater insight.
And to the performance and opportunity of these businesses going forward.
Moving on to the software and services metrics.
<unk> was approximately $468 million slightly down from last quarter.
Primarily due as expected to the pandemic related impact on Dts.
Dollar based net retention rate improved sequentially from 90% last quarter to 91% this past quarter net.
Net customer churn remained low at around 1%.
Now moving onto Bts as a reminder, Q and access by far the largest component of Etfs and.
As we anticipated during last quarter earnings call, we saw improvement in both Q and X design win design phase revenue.
And production base royalties.
This improvement continue despite the challenges from the global ships chip shortage and its impacted and its impact on auto supply chain.
It's not fully clear what the impact will be on production volumes at least not on all of it is how long of Alas. However.
However, we continue to expect improvement from Bts and the upcoming fiscal year, our plan of returning to a pre pandemic normal revenue run rate of around $50 million per quarter by physical by mid fiscal year assumes that the new challenges are overcome by that point.
Looking beyond the short term headwinds so strategy analytics, a leading research firm estimate that there will be a large expansion and a number of embedded system.
And of car by 2027.
The estimated this growth will be mainly driven by a das which is advanced driver assist systems.
And as well as state of gateways.
These system, we acquired our highest level of safety certification and I increasingly deploy and chips with higher compute power.
And all factors play to Cuba, and ex strength and recent wins, some of which I will mention Lou shortly.
Give real data point that support this trend this validates our strategy of focusing on safety critical application and points to an increasing asps per car.
During the quarter of Q&A strengthening its leadership position and of safety critical software.
We announced and enhancement to our Hypervisor, which by the way is the only wanted of market certify to the highest level of functional safety. We also announced a number of design wins include debt, including our motion now.
A joint venture between Hyundai and <unk> will be using <unk> Black channel communication technology and its next generation driverless vehicles.
Also baidu announced that their machine maps and <unk>.
Critical component of autonomous driving will also be built on Cuba, and acts and designed into the new energy ion and our models from GAC, which happened to be a leading Chinese electrical vehicle automaker.
These some of these announcements demonstrate of Q&A X is at the heart of latest vehicle technology developments.
<unk> the business well for future revenue growth.
You must also confirm at CES debt Q and X has been selected by Sony and the latest only new vision eschar.
Furthermore, Scania.
Select of Q&A assets primary operating system for of heavy truck heavy duty trucks.
Overall in the quarter of Q and excess of 25 design wins with nine and auto and 16 and general embedded market or jam.
The auto wins were predominantly eight oz and digital instrument cluster of designs and <unk>.
From wins include a mail processing control system for UBS or you don't.
And also not force USPS, sorry, United States Postal service.
Ah connected manufacturing plant system from GE and.
And and next generation of ice surgery equipment and from a leading medical device company.
We are delighted to report that now that now we have win win design wins and so have design wins, sorry, with 23 of the World Top 25, electrical vehicles electric vehicle Oems, who together represent 68% of the global EV production.
And this is an increase by the way from 19 of the top 25 last quarter with recent wins, including Toyota and Honda.
And the reason newport's deploy estimate that the CAGR compound annual growth rate for global EV growth sales will be around 29% over the next 10 years and <unk> is well positioned to banded force.
On this growth.
Let me now provide you with an update on IV since the announcement of December the response from Oems has been very positive.
We have had many discussions many workshops of a number of leading automakers and are pleased and how these discussions have progressed so far.
Many use cases has already been discussed showing the potential of this platform once creative App developers are able to bill on it.
Most of these use cases of being developed under NDA and can be share right. Now. However, why do we can share is the right to repair initiatives.
And her.
And the leading analyst has identified Blackberry IV and the potential solution to the problem of safety and securely sharing centralized vehicle data with repair shops without compromising either vehicle safety or the Oems IP.
To support the development of the App ecosystems. This quarter, we made an investment to grow the IV R&D team.
This includes starting and ecosystem development group led by our new executive joining us shortly from a major OEM.
We recently announced the creation of of IV innovation and fun.
And finally, we'll drive use case of innovation and a drop of IV adoption of IV by startups and we intend is to start with a $50 million investment dollar of it $50 million investment and define portfolio company by the way. We will also have access to up to a $100000 in AWS credits as well as in <unk>.
And guidance through the AWS activate program a program that has already helped develop hundreds and thousands of early stage startups.
We're also soon to unveil and IV Advisory Council designed to shape and advise the IV development community focus on defining vertical specific use cases.
Amount of the first name to have already signed up a leading insurance company technology company as well as telcos and telcos.
Their input will complement the auto industry expertise provided by the top Oems and tier one.
Following our IV announcement major players, such as Ford and Google and as well as Bosch, and Microsoft and announced commitments of the vehicle data market.
Because of IV as hardware operating system and cloud agnostic, we do not see these announcements of competitive competition.
Oh as competition, but router opportunity for IV to partner and adds value.
The vehicle data analytics market is both large and growing mckinsey and they're monetizing data card data reported estimate that the Tam. The total available market will be in the region of $450 billion to $750 billion per year by 2030.
We recognize that this market is going to be competitive, but we feel very well positioned.
While we are already working with OEM in October we expect to release the early at saturation of IV. We also expect to ship, we should start shipping the product in February of next year.
Now moving onto spark and some of them.
<unk>, we launched our newest box suites, and May and a cyber suites and October.
Pipeline for our spark suites grew strongly sequentially the.
And the typical sales cycles excuse me nine months. So we're expecting a good second half of the fiscal 'twenty true.
We continue to us of SaaS and upgrading our <unk> installed base to spark.
Adding unified endpoint security or you yes.
This year, we will start focusing on new logos, who of cyber story.
Our cost spark, we start to see strength and both renewal and upsell and all key verticals, let me share some names with you some wins.
This included of Q4 businesses with IRS.
The United States Department of Commerce debt.
Qatar development Bank.
The Scottish government as well of the Scottish police.
The London Metro Police services.
And of U S marine comps as well as Bell Canada.
Just your name of field.
On the service front.
You mentioned that none of our guard MD, our managed service customer were negatively impact by the recent solar wind screech.
While I'm on that subject to have new year's.
Day sponsor attack on Microsoft Exchange server.
Identify early this month was an example of threat actors leveraging patch vulnerabilities.
The script control of our ETP products protect.
Has demonstrated we can safeguard customer from this threat.
Optics, our Edr product provides additional protection.
<unk> of about two upcoming product that will launch date of launch and they will launch and are important and part of our extended detection and response or R. E well I'll ask D. Our strategy.
The first of all our cloud base Edr product uptick Street pointed out.
Debt due to be released this coming quarter, and we expand data query and provide richer content for alert triage and threat hunting.
The second is our Blackberry gateway product that will be the first of all of a zero Trust network assets to both SaaS environment as well as on Prem applications.
While enabling silence AI for faster detection and response.
We will provide more detail at our virtual analyst day next month.
Finally, a brief word about <unk> of net hub, we have been pleased of the progress made by <unk> Smart this fiscal year.
<unk> technology is now used by 18 governments worldwide all of the offering the highest level of security for voice and text communication.
AD hoc had a strong position and federal government around the world, including protecting.
Over 70% of U S Federal government employees.
We see a significant opportunity for AD hoc, Indiana price and falling the quarter and John.
And most recently that as.
We announced a new Blackberry alert product alert.
Feeling and our critical event management expertise and the public sector, but with additional features tailored to the needs of the enterprise.
Such as integration with Microsoft teams and service now.
While it's much earlier in the stage of our sale, we have already recorded enterprise win including Fujitsu.
I'll now turn the call over to Steve to provide more details about our financial performance Steve.
Thank you John.
My comments on our financial performance for the fiscal quarter will be of non-GAAP terms unless otherwise noted.
Please refer to the supplemental table and the press release from.
For the GAAP and non-GAAP details.
Please note that starting in the first quarter of our new fiscal year, we will no longer adjusted GAAP revenue for deferred revenue acquired this.
This means that GAAP and non-GAAP revenue will be the same going forward and comparative will be confirmed accordingly.
We delivered fourth quarter non-GAAP total company revenue of $215 million and GAAP total company revenue of $210 million.
Fourth quarter total company gross margin was 73%.
Our non-GAAP gross margin and include software and deferred revenue acquired but not recognized of $5 million and excludes stock compensation expense of $1 million.
Fourth quarter operating expenses were $140 million.
Our non-GAAP operating expenses exclude.
32 million and amortization of acquired intangibles.
$22 million and impairment of long term assets, primarily due to rationalization of real estate due to the transition to remote working model.
16 million and stock compensation expense.
$3 million for software deferred commissions expense acquired.
And $258 million fair value adjustment on the convertible debentures, which is a non cash accounting adjustment largely driven by market conditions.
Needless to say this this is due to the exceptionally high volatility and trading volume and the Companys shares during the fourth quarter.
Fourth quarter non-GAAP operating income was $18 million and fourth quarter non-GAAP net income was $16 million.
Non-GAAP earnings per share was <unk> <unk> and the quarter.
Our adjusted EBITDA was $35 million this quarter, excluding the non-GAAP adjustments previously mentioned.
I will now provide a breakdown of our revenue and the quarter.
Software and services revenue was $165 million.
Software product revenue remained in the range of 80% to 85% of the total with professional services comprising the balance.
The recurring proportion of software product revenue was approximately 19%.
As John mentioned earlier for the new fiscal year, we intend to report software and services revenue and two lines.
Cyber security and Dts.
Licensing and other revenue was $50 million and the fourth quarter.
Further to John's comments regarding negotiations relating to a potential sale licensing activities have been limited not only due to the ongoing negotiations, but also because revenue from additional transactions that could have been completed and the quarter would have been treated as contingent revenue and deferred to future periods.
Therefore had negotiations not been and progress we believe licensing revenue would have been higher.
Now moving to our balance sheet and cash flow performance.
Total cash cash equivalents and investments were $804 million at February 28, 2021 and.
And increase of $47 million during the quarter.
Our net cash position increased to $439 million at the end of the quarter.
Fourth quarter free cash flow was $48 million.
And cash generated from operations was $51 million and capital expenditures of four 3 million.
That concludes my comments I'll now turn the call back to John.
Thank you Steve.
For this coming upcoming fiscal year, our primary focus is for software and surface is on software and services growth.
I mentioned as mentioned earlier, we will not be making any non-GAAP adjustment of revenue starting this fiscal year. Therefore, any revenue outlook of my comments I will make today and Steve will make today will be on a GAAP basis.
Because of the ongoing negotiation regarding the patent portfolio that we discussed we are unable to provide a full year licensing revenue outlook at this time, but I will give you some color.
And so that we have some plants, but it's still moving a lot of moving parts on that.
So first we anticipate double digit billings growth of both cyber security and Dts for the fiscal year 'twenty two.
<unk> in total software and services GAAP revenue in the range of.
Oh, sorry, I got my.
Yes.
And she was from you guys and my notes of jumbled up.
And yeah, we're starting and total software and services revenue in the range of $675 million to $715 million 675 to seven one and five.
This represents a growth rate of between 9% to 15% from fiscal year 'twenty one.
Cyber security, which will include <unk> AD hoc and second smart is expected to have full year GAAP revenue in the range of 495 to $5 15, 495% to 515.
Many of millions of course.
Sorry.
<unk> is expected to of full year GAAP revenue in the range of $180 million to $200 million.
For both cyber security and Bts, we anticipate revenue in the second half of the fiscal year to be stronger than the first half.
And because of the ongoing negotiation regarding the patent portfolio that were discussed there is uncertainty around the licensing revenue outlook.
However, appreciate and that it will be useful to you of an outlook for modeling purpose.
The most conservative scenario in which sales we model that sales does not happen.
And our complete full year licensing revenue will be in the region of $100 million.
And this scenario, we assume that negotiation and regulatory review continue for the first half and therefore, we expect revenue to be Ltd, and the range of.
And maybe $10 million to $15 million per quarter.
However, we believe that the completion of the transaction will be beneficial to our shareholders.
We will of course update you on any of the major developments.
This has been and unusual and challenging years to navigate.
Despite the challenges we had a strong year executing our technology roadmap, bringing 59, new products to market. That's up from 30 last year in particular, the spark and cyber suite as make significant step forward.
<unk> made significant progress with strategic partnership both of them of technology as far as the go to market perspective.
IV partnership with AWS, and obviously have obviously been a particular standouts.
I would like now to open the call for Q&A, operator could you please help us.
And now we will begin the question and answer session to answer a question you May press star one on your telephone keypad.
Yes.
From Cowen Please make sure your mute function it's true.
Off to allow your take notes from each of Ray Quinlan.
And again from Star one to ask a question.
Loss from just a moment to allow everyone and opportunity to signal for question.
And the question that you limit yourself to one question and one follow up.
Our first question, we have Mike Walkley from Canaccord and Mike Your line is open.
Good afternoon.
And John Congrats and all the announcements and.
Busy busy year for you guys I.
I guess the first question from me just trying to understand the licensing negotiations a little better.
Should you complete the sale and just the vast majority of your portfolio and you won't have any licensing revenue going forward is it really the whole portfolio or is it just a portion of that just trying to gauge that.
Well, it's a major portion of our portfolio as I said, we cover of three major area of cellular wireless communications and networking.
No.
Things to add.
It's relevant but it's not useful to us today, and our strategic software part of the business and we retained.
All of the embedded and all of the finance and audit of encryption and security technology patent.
Okay, Great and then.
My follow up question, just just on the guidance and I think it would be great to break out the two divisions.
And on the 9% to 15% growth is.
Can you maybe help us think about the two areas of which one you think of growth stronger I'm, assuming it's bts, given the recovery and idled, but any color on how the two different divisions cyber security and Pts micro yes.
I think I think.
Because of this revenue first of all let me clarify one thing billings, we expect double digit growth and both spot and Etfs.
From a revenue standpoint, because it's subscription based revenue, we expect single digit percentage growth and spark.
And we expect double digit percentage grow and BTL. So you are right and expecting VTS jobs of strong growth because of the recovery.
You have of double digit billings and both would be great. Okay. Thank you.
Absolutely.
Okay.
For our next question, we have Daniel Chen from TD Securities. Your line is open hey.
Daniel Hi, Hi, Jay.
Just a question about how you are hoping to structure the deal for the patent sale should we expect ongoing.
Royalties that come from.
Maybe you get a portion of of.
And the licensing fees that you are did the buyer will take or is this more of a onetime deal.
And there is a majority.
Of the deal will come in one.
And one time early but there is a tail that goes on.
And I can't give you the details of this for multiple number of years.
Okay.
Yes.
Now you mentioned in the past that.
And you've had offers for the entire portfolio. So what's different now that's making you consider selling it.
Two reasons number one is I really think of the wrong thing to sell the entire portfolio because theres so much of.
We have and ongoing business, and cyber security and and ongoing business and <unk> and Dts.
Which of course includes IBM and <unk>.
Selling those portfolio will be extremely and Weiss.
For the company and for the shareholders.
I.
I think the team were able to.
Debt connected with.
And with parties that are willing to address.
The address day portfolio pie that is not being used by us today. So it just worked out from a business friendly point of view.
Okay, and just one more if I may.
If this deal does go through any thoughts and how you'll deploy that capital.
And we're going to invest in.
Moving to invest and both cyber and we have and ambition and cyber and I know we have lost sight of couple of years because of our integrations.
And we have a product of all caught up.
So you will see us being more aggressive in fact, we ran an AD today intelligence and security everywhere and add two day I just saw it on the New York Times, and so we're just going to step up and both people and spending and resources.
To go after the market and it's a huge as you know very well it is a huge market and.
No no no.
No clear winner at this point and and the barrier of entry so not not that high so we should be able to do.
To capture some new businesses.
So we're going to invest and that and then of course where to invest heavily on IV.
And vehicle data platform.
It's very important to every Oems, whether they build them. So you work with somebody else and work.
And with somebody like US is all very important and so our relationship with AWS and this case is.
It's a big plus so those those are the two business that we're going to invest in.
Great. Thank you John.
Absolutely.
For our next question, we have true Chowdhry from global equity.
Hi, there.
How long of installation.
Sure.
Although very challenging year.
Good execution Jan of.
Two good questions I have.
If I reflect upon the popularity of Apple iOS and it also started with our innovation fund that Apple created and.
But the differences.
Just apple, but they also got two three bunch of cap rates along with it and.
And we know something which is called <unk> economy, which is a multi billion dollar market and Apple as a prime beneficiary and.
I actually look.
Ivy platform that you have it is spectacular.
And really at the speed of light and.
In October the product will be launched and I mean part of.
And the developers for the dwell per preview next year and it will be and the market and you have the innovation fund exactly $50 worth of seed money Apple put in but I'm wondering do you have or have you thought about also bringing in venture capitalists also and jumpstart of sub app economy automobile.
<unk> economy, or something along those lines and you put on those and also do you think you could provide which would be very very solid differentiation for your company is if you could just provide the money like what Apple did but also provide.
Intellectual property patent protection.
And every company that creates products and applications on your platform and data and equity stake and each one of those startups that would make your company.
Completely.
Speculative, but it could be a much better strategy that Apple iOS.
And I owe it.
Platform and your thoughts you may have been out of a follow up question.
Great. Thank you so Ah.
And we only.
Initially, we put up $50 million of this fun and.
And the objective so everybody. The objective is to make sure that we could build application and we believe that although we could build a very solid data in vehicle data analytics platform.
Doubt without good applications and use cases.
It would not be sticky.
It will not be adopted you know I think there are a lot of company that can build data platform, maybe Alex more secure xyz, and so forth and not having having a partner like AWS.
But at the same time.
And you won't get the stickiness. So why didn't want of I didn't wanted to learn the experience learned the lesson twice. So this is important and that early on a startup date and <unk>.
<unk> group debt that go out of their applications.
And that we build some ourselves, but the majority of you're going to have to be encourage startups and and and even at <unk>.
Average company that is interested and working with AWS cloud and and working with our Blackberry QA and acts and and all the other technology that we provide.
And buildup application on the IV and also added.
We are going to.
Start a advisory council, which are vertical people vertical industry people as I said and they will then bring and some ideas that this is how I would see.
IV help out and my business case going forward two to answer your questions with the Ltd fund debt, we have to establish initially $50 million, we will have to work with other bdcs.
And so now I haven't gone through the steps of tried to pull them in and being a cofounder and.
We will have to work through that pipeline.
And and and identify.
A target company that could be benefit from both of the debt what AWS offer like which $100000 worth of free cloud usage, so that they can run their debt tasks and the development.
And AWS also of a lot of tools and a lot of.
And I know, how and navigates called of navigate to their help them. We of course provide them of testbed and and and the technology support and out.
As far as IP is concerned I don't think were going to.
Other people its IP.
And unless that we see.
So you.
You know owning part of it.
We're going to let that company owned debt at the company that we invest in.
So so I don't I don't know, whether I could I could help you protect them, but they obviously, we could help them do a salary of IP filing and we know we have a lot of people that knows how to do this very well.
Very good John as you know per day intellectual property and patent and the new cold.
And I think I had volume.
And regarding the intellectual property portfolio you have.
The last time I counted it was more than 30000 patents.
And 38 30 of 38000 to be exact.
Wow that's amazing.
I know, it's very difficult to.
The details of your ongoing negotiations, but ballpark figure and we talked.
And talking about the.
<unk> holds and patent which will be sold of 15000.
Just a ballpark.
Sure.
And that's not too bad.
Sorry to do this to provide the answer of sorry about that because.
It's part of our negotiation.
And.
And so the category I would put out.
And what's probably the best you could get the police for now.
Categories, obviously, our cellular network King.
And and she is I'm missing one cellular and networking.
Income and messaging and messaging and messaging Saturday of networking and messaging and then you know.
And <unk> security.
I V <unk> nx or separate from this.
And not include it.
Thanks, Helane I think I had my question and answer all of the best and I'm looking for thank you.
2022.
Thank you true.
For our next question we have.
Treiber from RBC capital markets. Paul Your line is open.
On paper and so much and good afternoon, good afternoon Jim.
On the patent sale of the 100 million in patent license revenue that you expect for this year.
If the sale goes through and does it does the 100 million go away.
And all of the patent licensing revenue goes with the sale and.
And Conversely, if hypothetically speaking of the sale doesn't happen at all.
Should we think of patent licensing revenue being and that continued at that I think $250 million and passes what you said and yes. It's good good debt.
And that's a good question. So this is an unusual year. So let's talk about it as of patent license go through and <unk>.
Sell goes through we will have we will record a.
A one time gain.
A reasonably big number of followed by a tale of.
A tale of up to seven years.
So it will not go away to zero or there are some recurring some of.
And most of them will not be with us, but and so so it would not be zero, but.
And it will be quite small.
And sales go through with one day.
Year in this fiscal year 2022.
If the patent sale does not go through there and the first couple of quarters will be low because it's.
And that's the patent sale is being negotiated right now I actually.
Are unable to do more other negotiation going on so the pipeline basically of frozen, but it won't go away.
So if the patent sale does not go through I may have to suffer a little bit for the first couple of two or three quarters and then we will then we assume the target $2 50 of year pattern licensing.
Did I answer your question yes.
Very helpful and I assume that the cash flow would be similarly aligned with those revenue numbers.
And unfortunately, yes, the cash flow will be similarly aligned.
Okay. That's very helpful. And then the second one is.
And.
Big picture of like with the with the stock having having gone through the rally that has gone through finance theory would say and <unk>.
Cost of capital and your cost of equity is lower and so the question is no.
We have seen and sort of newfound enthusiasm and lower cost of capital and how have you contemplated issuing equity.
At these levels and seeing how it could enhance the strategy of having more equity and more cash yes.
Yeah.
And that's a good question.
It's been a constant conversation with various bankers.
And from a strategic planning growth and our M&A.
<unk> group.
<unk> two day are not working on any specific thing, but well.
We are open.
We're not there's no.
There is no principle that we won't do the only thing that we won't do is we won't.
Intentionally.
Dilute our shareholders.
Just to keep some money and the banks on the on and the balance sheets.
I'd like to make sure that we have at least some idea of the use of chiller and people come to me and say by the way you could raise of converted zero zero present.
And and a premium of X percent of 40.
And 40%, 50% of let's say aye.
And I see that very attractive, but but then I keep asking my people. So okay. Once you get the money what are you going to do with it.
Because you'll have you'll have a dilution hanging over your head.
And so I don't know whether I answered your question I guess kind of.
Just kind of explain how I think about it.
And again said I know theres very attractive terms out there.
And at this level of equity.
So, but I wanted to make sure that we have of targeted use that could help the business first.
And maybe.
Another way to ask and question is for your strategic plan you don't.
Require.
A significant acquisition of our deployment of capital to execute on that debt current plan that you have no. We do plan I gave you.
9% to 15% growth does not assume any acquisition.
Okay. Thank you.
Sure.
For our next question, we have Paul and Steve from Toshack kept some market Paul you Lidar.
Hey, John John kind of keep.
Recognizing it's challenging with situation with licensing, but I guess with the proceeds if we assume this proceeds.
How would we think about deploying that capital I know you answered it earlier, but I guess the point being.
Is it and vision that you would look to do like some type of of strategic or transformative M&A to materially accelerate growth from the business I think it becomes a question and I.
Do you have a quick follow up it's somewhat yes.
It really is part of it is really somehow depending on the target out there. The answer to your question is I I will always love to do that I really do and and so you know and there's also a question of affordability.
But.
Especially in the auto space and the auto Tech space I think you know with our position with Q&A acts and stuff we're doing on IV.
With.
<unk> technology that could go into a car I think we are well positioned in terms of what we could put in and there might be some some acquisition and we need to make to.
To further our growth rate of our revenue.
That will be of target you know of.
And interesting target.
And and and.
Today there.
And there is no specific target I had in mind you know my people always have a lesser names that they take a look at but I don't have any specific thing but to answer. Your question is the usage of those will be of a priority of usage for us.
Okay, and then maybe related let's set aside whatever is going to occur with the patent sale will transpire or not that's the case might be.
Dialing back to your comments earlier and the call can you talk to us about how we should think about the level of spend I know youre, not guiding EBITDA and free cash flow and I respect why but maybe just help us put it in context I think you talked about accelerating increased growth, but then when I look at the spend and I know.
Maybe Q4 isn't the best spot to look.
Sales and marketing was up 10 year on year, 10% and I know, it's got stock based comp and there, but R&D actually offset it so.
Should we think net debt youre actually dipping in and weak might go negative a little bit or no.
No that's.
And that's not that's not our intent and.
We have.
A reasonably large number of hires.
And mostly in sales and marketing sales and field marketing.
And our plan that I just provided you I mean, I know you're right.
I'm unable to give you the EPS guidance.
And cash flow guidance, only because I havent.
The licensing part is shifting so much.
No.
So we didn't want to we didn't want to go there at this point.
And.
So the answer to your question it was not intended to reduce spending however.
We are taking.
A reduction in Q and a.
G&A.
We are also going to take reduction and.
And real estate.
If you noticed that.
Steve had mentioned.
We have of impairment charge of 22 million and then.
A lot of them are related to real estate.
It's because we decided to cut down our real estate footprint by maybe up to 25 per cent.
And this way and we will have after the pandemic.
We will have roughly about 20% to 25% of all of our team members that will be working remotely on a lot of Burnham permanent basis, we will provide some hotels offices and I think <unk> see that in many company, especially and kind of a software Tech company.
And we decided we don't want to go off of 100% because we want to maintain a level of creativity and.
And personality involvement, but so so we're going to save some money from infrastructures.
Moving to save some money from it.
And some of the consolidation work over there and then we will then fun engineering.
And most of the fund.
Go to market.
Great I'll just ask one last quick clarifying one.
Can you just comment net risk.
And respect that its difficult but like.
Obviously, we had the situation and Japan relating chips and Automotives mhm, what's sort of the broader mood John in terms of the base. Obviously these decisions don't get made and the vacuum or overnight, but.
Is there overall, maybe a bit of a pause going on or people are still moving forward with <unk>.
Projects and I'll pass the line. So so far with of 25 design win we have and a quarter with some really big name wins, you know Toyota Honda and EV Scania in trucks and Sweden.
You know and other things are there other wins that we have so far the auto space are still very vibrant from a design win standpoint.
And eventually it will hit us.
I'm following what GM and Ford has said publicly there.
GM I would say that the second half of this year the chip shortage issues will be overcome.
And and and and.
And they assume reduction of the free shut down factories right now.
So so that's why we said when we do our planning today and we assume that we'll continue to win design wins, and Cuba and ex debt. We will then.
Have develop a license.
And its revenue and hoping that we will do some more professional and surfaces.
And then the production obviously kicked in and in the future.
It does affect us and immediately a little bit but since we're in a recovering Moe I think its being absorbed and somewhat.
And so all of our guidance.
Guidance of 180 to 200 million for the year assume that that this problem shortage problem of the plant shutdown and problem.
And and mid year.
Now.
That's just a stake in the ground and we have to model. It somehow some somewhere if that was that prolonged then that will prolong a recovery.
But I'm, hoping to minimize that especially as we can not every plants are shut down by the way obviously you know that.
Yes that debt.
Thanks, guys.
Sure.
Next we have Steven Li from Raymond James and Steven Your line came from.
Hey, John.
And how profitable the licensing revenues is the gross margin for example, higher than your corporate average.
Yeah.
Yes, which is which is painful for us and the first couple of quarters, because we expect one way or the other he is gonna be of low revenue low level, but the the answer of your guess is higher than the corporate number.
Bye bye significant percentage.
Okay. So John is the patent sale goes true could your EBITDA negative for example.
Yeah, it could be and I'm moving to EBITDA.
EBITDA EBITDA go negative.
I Didnt calculate EBITDA go negative and the EPS will go negative.
But I am I am hoping that we will start registering and from growth in software and services to offset it.
Alright got it thanks.
Absolutely.
We don't have any further questions at this time I would now like cash.
And I hand, the call back over to John Cheng.
Chair and CEO of Blackberry for closing remarks.
Thank you. Thank you very much I only of any remarks.
And thank you all for your interest and the company.
We will have a very interesting year ahead of us here.
We believe our software services and <unk>.
Especially.
When we separate out of the two lines.
And we already know the Sparks will do some global growth and billings and.
Revenue growth will come in mostly from Bts and licensing it could go either way and we will keep you posted and so I'm sorry, as being late in the evening and the in AR and the East coast.
Thank you all very much for attending today's call and have a great evening.
This concludes today's call. Thank you for your participation you may now disconnect.
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