Q1 2022 BlackBerry Ltd Earnings Call

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Good afternoon, and welcome to the Blackberry first quarter in fiscal year 'twenty 'twenty 2 results conference call. My name is Jesse and I'll be your conference moderator for today's call.

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I would now like to turn today's call over to Jim Foote, Blackberry Investor Relations. Sir. Please go ahead.

Thank you Jessie good afternoon, and welcome to Blackberry first quarter fiscal 2022 earnings conference call.

With me on the call today are executive Chair and Chief Executive Officer, John Chen.

Chief Financial Officer, Steve right.

After I read our cautionary note regarding forward looking statements John will provide a business update from Steve will review the financial results.

We will then open the call for a brief Q&A session.

This call is available to the general public via told of numbers of them via webcast.

Of the Investor information section at Blackberry don't call.

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.

We will 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, maybe part of the company in light of his experience and ease of perception of historical trends current conditions and expected future developments. That's why there's other 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 MD&A, including the COVID-19 pandemic.

You should not place undue reliance from 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.

As is customary joined the call 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 SEDAR and Blackberry com websites.

And with that I'll turn the call waiver to John.

Thank you. Thank you Tim good afternoon, everybody and thank you all for joining us today.

The main headline for this quarter is that we have organized our software and services business around our 2 biggest market opportunities, namely Iot and cyber security.

In the past few years, we've done a good job in product development line.

Last year, we launch of 59, new products and a year before over 30.

Later I'll discuss about more about the xdr product that we have launched this quarter and I will provide you an update on Blackberry IV.

Yeah.

As you all know at the same time of we are delivering our products. Many of you know that we've been investing in our go to market as well.

We have been a number of last number of years, especially the last few quarters, we of turn up the noise of our marketing expanded our channel partnerships and investing more feet on the street.

Now we are pivoting the organization more heavily towards the market like creating too. This is units cyber security and Iot.

By aligning to cyber security and Iot business unit to the main market opportunities, we would drive more focus and accountability. We will also improve all of the agility being able to react in a fast changing needs of the market and needless to say both.

Both of those be use of their own business dynamics.

In order to accomplish this we have recruited a number of new talents.

Especially with deep Iot experience.

This includes Mathias Erickson, who joined US from here of technologies as the president of the Iot business unit.

The tears brings over 2 decades of relevant industry experience and we focus on strategy operation and driving growth in the Iot business.

Blackberry, President and Chief operating Officer Atomic Obasi will focus on leading the cyber security business unit.

Tom has deep enterprise software experience and this is a perfect person to engineer the growth of this new with this business.

From a financial reported reporting perspective, beginning this quarter, we will provide revenue and gross margin by business unit as well as other selected metrics.

We believe that this additional color well, how we invest to gain better understanding of the underlying performance of the business units ultimately driving showed of value.

So let me start by reviewing with you the Iot business unit. This business, which is primarily <unk>, but also includes IV set of calm Jarvis and radar.

Had a good strong quarter.

Revenue came in at 43 million whichever of you send it increasing 48% year over year of.

Of course, a year ago it was the pandemic.

Hard headquarter gross margin was 84%.

I O T. A R was $86 million.

This growth in both revenue and a R was achieved despite the fact that we have bobo chip shortage. The shortage continues to be of significant significant factor in the auto market in the near term and it's no doubt currently impacting the production driven revenue of Q N X.

The scale of the impact varies by region and by OEM the impact of looks to be greatest in North America and less so in Europe and Asia.

1 of our largest customers in North America has indicated that production in Q2 will be impacted or may be impacted by up to 50%, but others are less severe.

Generally speaking Q2 of appears to be the low point with QP Q3, improving in Q4 further still.

The impact also looks to be smaller than that of the pandemic lots of years.

So currently we don't see a need to change of our revenue outlook for the year, but we will continue to assess the impact with our customer and we'll update you again next quarter.

Just as a reminder of Iot revenue outlook remains at 180 to 200 million for the fiscal year.

In contrast to the production base royalties, however revenue from design activities I E. The developers the develop of seats and professional services is strong.

Unlike Q1 of last fiscal year, when Covid, what's becoming a major issue of confidence from our OEM appears high and we've seen a lot of design activities in progress.

We are particularly particularly pleased with 2 design wins this quarter first well first the first 1 was with Volvo group.

Who selected Q&A, it's our choice and hybrid devices that standard for real time operating system sorry, guys.

Hypervisor on a whole truck basis, meaning that our technology will power multiple you see use for all of the truck.

Second we further strengthen our position in the EV market with a design win with the Shanghai based <unk> and modal the.

The <unk> OS.

Our task.

The Q&A, so S and Hypervisor will power their all electric W of 6 SUV vehicle.

In total this quarter, we had 28, new design wins with 17 in auto and 11 and Jim The General General embedded market.

In auto a lot of those we just mentioned notable design wins also includes Bosch and Visteon.

These design wins spanned hypervisor digital cockpits multiple of socket 8 dos.

Platform and high definition maps.

On the GM front.

<unk> range of application won in the quarter includes surgical robotic arm industrial free the printers as well as nuclear proud of station.

So of design wins, such as the Bogo demonstrate to key secular trends that <unk> business benefits from.

The first 1 is the consolidation of lower compute power you see us towards a number of fewer numbers higher powered chipset such as the armed version V 8 and the X 80.664 bit chipsets.

It is on these higher powered chips that <unk> operates and is this consolidation continues it gives <unk> ever more opportunity in the car.

Secondarily, there is a of the second point.

Second trend it is theres, a trend of increasing software content per vehicle.

Particularly in safety critical system, such as <unk> Gateway and digital cockpits.

This is of course, where <unk> shine with the highest level of safety of certification and has a stronger competitive strongest competitive advantage.

Our strategy to focus on safety critical system.

Which we put in place in a number of years ago, and it's allowed the business to benefit from these trends I want similarly, leading to a higher average revenue per car.

This strategy is delivering higher value of design wins and with it the royalty revenue of backlog.

The backlog metrics is calculated using contracted price.

And future production volume estimates provided by the customer when the designers of water.

It's important to note that this is of customers estimate.

The backlog increased from 450 million lots of Q1 to $490 million.

The first quarter.

This is of 9% increase year on year despite of pressure that the pressure on new auto designs over the last 12 months.

Strategy analytics, a leading independent research firm recently published at <unk> software is now embedded in over 195 million vehicles that is up from 175 million confirmed the year before.

Now for a brief update on progress with IV.

Driving the idea of maturity forward remains 1 of our key priorities and we're working closely with AWS to achieve this.

Product development remains on track and in line with the roadmap we remain on target for the early access version to be available in October.

And for the production versions to start shipping next February.

Customer discussion of workshops of continuing and we remain positive about how things are progressing.

This quarter, an additional 5 automakers engaged to explore IV.

This means that we're now engaged with most almost all of our major <unk> customers.

We recently announced the launch of the IV Advisory Council.

Industry leaders from a number of key verticals of sign up income.

<unk> tell us telecommunications 1 of the big 3 telephone company in Canada, Geico insurance, you see a lot of on television commercial here maps and severance which is the voice recognition auto business.

Development of relevant and exciting new use cases for IV platform remains a key priority.

And we believe that the council of greatly assist us with this.

The living rather than maps and experience brought by a higher engagement model with both of the consumer that's where I see enterprise.

Last quarter, we launched the IV innovation fund established to invest in startup adopting the idea of.

Platform soon.

<unk> had great response from the market and we have review over 200 perspective customers.

We recently announced our first investment in exciting startup called Electra vehicle.

Like most other startups in the battery management space.

Aim to not only analyze activity, but you also actively manage the battery operation using artificial intelligence.

Vehicles of sensor data from IV will feed their AI driven platform dynamically determining factors such as driving behavior, and then environmental condition to optimize battery performance.

In summary, I V is progressing well and we remain very focused on the various element to a need to make this a strong growth business and so sad.

Now, let me move to our cyber security business units. This business unit includes out spark endpoint security.

Endpoint management products you yeah.

As well as AD hoc clearly critical event management software and <unk> smart secure voice and text product.

GAAP revenue for the quarter was $107 million.

As mentioned during our last earnings call, we now switch to GAAP revenue GAAP base revenue only.

Gross margin was 57%.

With $364 million and dollar based net retention was from 494% 94.

Over the last couple of years and prevailing the prevailing narrative narrative has been that detection and remediation of the most important part of cyber security.

However.

The founding principle of silence in 1 of our main reasons that we acquired is to prevention is far better than cure and.

And Thats why we are a market leader of E. P. P.

Stopping threats before they execute.

And start doing harm is clearly a better strategy and trying to shut them down afterwards.

This quarter, we demonstrate this strategy of clearly with our next generation <unk> product named protect rocking the dockside read somewhere.

The lead to actually the cost of the colonial pipeline cyber incidents.

In fact.

The 2015 version of protect also blocked most of the very end of the same ransomware.

Obviously 6 years ahead of his time.

We do have the most mature AI engine in this space and the ability to block <unk> ransomware of years ahead of time without the need for update.

Net connectivity this show the power of our prevention for our strategy.

<unk> was also shown to prevent other high profile of threats, such as the candy ransomware nobelium rebel and others.

In addition to large enterprise customers. This AI driven automated protection also resonate with small and medium sized customers that don't have the resources to a saturation of socks, meaning of security operation centers.

We see strong sequential growth in SMB, new business pipeline of around 18%.

In the quarter, we announced 2 significant new products, both of which are part of the extended detection and response or <unk> of our strategy kind of of the latest <unk>.

Market from E D R.

The first product is back very gateway.

With employee base remotely and non MD office, as well as mobile becoming more prevalent.

Traditional moat and capsule model of network assets is no longer efficient or effective in fact VPN uses once authenticated often has access to the entire network, including on Prem and all of those SaaS application for the length of their assertion.

Blackberry Gateway, it's a zero trust network access part of that use of some finance AI to continuously authenticate network of activity.

The cloud AI and valley over 30 risk factor or we name it factors.

Such as downloading behavior of DNS scary time of day et cetera to determine unusual activity.

The second product releases quarters uptick 3 point out is our latest version of our endpoint detection and response.

Market.

Namely E D R.

With this new version the <unk>.

AI driven engine remains at both the edge and in the cloud.

Allowing near real time responses, both offline and online.

This continues to be a differentiator for us.

However, importantly, this new cloud enabled product will allow event data that we store centrally in a cloud based state of Lake.

This together with a new search engine and a query language allowed threat hunters to gain greater visibility.

Switching to satisfy.

<unk> revenue in Q1 was down year over year in part due to work from home ramp up.

That we have sold last year, but didn't repeat.

Let me reassure you that the <unk> remains a important part of our type of business and we remain fully committed to it.

In the quarter, we continue to secure business of a highly regulated customers.

Let me start with financial services and financial services included Mitsubishi U F J Bank.

Bank of China Bank of France, and a union bank of India.

And the government of healthcare sector, we conduct business with the government of Canada, The U K NHS health services.

University Health Network, Canada, the United States Department of Energy and Department of Commerce.

The Netherlands Ministry of General Affairs.

The Australian Department of Environmental and energy also of the White House Communication Agency U S Department of State Department of Treasury, and the United States Department of Defense.

Also in government in the United States Federal government, we have increased the number of AD hoc cloud fat Ram users by 6% sequentially.

From a market perspective this quarter, we gained new business from a partnership we recently announced with Verizon.

With Verizon and Vodafone as well as Telus.

With Microsoft we have integrated our critical event management product alert with Microsoft teams.

Further as we've communicated in the past our cyber suite.

Outside of that suite, our U S platform is on target to integrated into and out of your end of August.

This quarter, we significantly step up of our sales hiring.

The market for high quality talent as competitive and he has taken a low longer to increase our head count.

But we currently expect to end Q2 with around 23% more sales reps than at the start of the year.

This expanded reach will help blackberry to being more competitive bake offs, where our product stands up well.

With the recent increase of sales hiring many of which started during Q2 billings call is slightly to be more heavily weighted to the back half of the year. Therefore.

Revenue is likely to be at the low end of our 495 to $5.15 million range that we gave last quarter.

Moving onto licenses revenue for the quarter was $24 million, which is better than expected because some business came in early.

Gross margin was 75%.

The negotiation for the sale of a large portion of that of patent portfolio are ongoing and good progress is being made in fact, we have started negotiating the definitive agreement.

Revenue for Q2 is slightly to be in the range of 10 to 15 million for the IP as stated last quarter. So this has not changed this is due to the monetization activities being limited by the ongoing negotiations.

In terms of of full year outlook for the licensing business shifted sales not complete we expect revenue to be around $100 million.

Let me now headed.

The call over to Steve.

Thanks, John.

So 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 in the press release from the GAAP and non-GAAP details.

As John mentioned earlier, starting this quarter, we are no longer adjusting GAAP revenue for deferred revenue acquired.

It means the GAAP and non-GAAP revenue will be the same going forward and comparatively have been conformed accordingly.

We delivered first quarter total company revenue of $174 million.

First quarter total company gross margin was 66%.

Our non-GAAP gross margin excludes stock compensation expenses of $1 million.

First quarter operating expenses were $138 million.

Our non-GAAP operating expenses exclude 32 million of amortization of acquired intangibles 6 million and stock compensation expense and a 4 million of fair value adjustment on the convertible debentures, which is a noncash accounting adjustment largely driven by market conditions.

First quarter non-GAAP operating loss was $23 million.

In the first quarter non-GAAP net loss was $27 million.

Non-GAAP earnings per share was of 5 cent loss in the quarter.

And our adjusted EBITDA was negative 6 million of this quarter, excluding the non-GAAP adjustments previously mentioned.

I will now provide a breakdown of our revenue in the quarter.

Cyber security revenue was $107 million and Iot revenue was $43 million.

Software product revenue remained in the range of 80% to 85% of the total with professional services comprising of balanced.

The recurring portion of software product revenue was approximately 90%.

Licensing and other revenue as John mentioned was $24 million. This is a little higher than expected as deals came in early.

The monetization activity remains limited while negotiations for the potential IP sales continue.

Now moving to our balance sheet and cash flow performance.

Total cash cash equivalents and investments were $769 million at May 31, 2021 a.

A decrease of $35 million during the quarter.

Our net cash position decreased to $404 million at the end of the quarter.

First quarter free cash flow was negative $35 million.

Cash generated from operations was negative 33 million and capital expenditures were $2 million.

Bear in mind, the first quarter of our fiscal year typically has a higher cash requirement due to payment of annual bonuses and other demands at this time.

That concludes my comments and I'll now turn the call back to John.

I think of Ste.

Before the Q&A.

I'd like to update everybody on a few things, although we have organized along of the go to market lines.

There are a number of your future of hydro opportunity you've set out Blackberry lap is working on that actually of harnessed the power of both of entire of technology portfolio.

The first of supplying of our AI ml engine in Iot.

1. Good example is this is using silencing of car.

May or may not remember as he adds a couple of years ago. We demonstrated an early version of how Abu Sano of technology that identified as an appropriate assets from the use of behaviors can be of probably 2 drivers of automobile of vehicles.

We also demonstrated how protected <unk> can be useful protect of connected cars from cyber threats.

They are just 2 of the number of potential use cases that we are currently looking at.

The second is our data lake drawing.

Drawing data for an ever increasing number of sources allows for greater visibility and determination of the real level of risk across an organization.

Essentially this is obviously essential to zero trust applications.

This of price not only to xdr, but also the increasing sensor rich auto environment Autonomous drive and smart cities.

This centralization of data and insights through our data lake can enable a whole new business model in the future.

The third of areas related to the recent U S. S bonds central of software Bill of materials, the executive orders that aimed to a secured of software supply chain.

This comes in light of the recent incidents, including solar wind and of colonial pipeline threat.

<unk> combining products from our Iot products, including our <unk> code scanning twos of <unk> embedded operating system and our southern comfort otology.

With our prevention first AI, driven cyber security product and services means spec very offers a comprehensive approach to this issue.

We have begun working closely with various government incentives setting bodies.

So before we open the line for Q&A I'd like to summarize the key messages again.

We have organized our software and services business around our key market opportunity strengthen now strengthening our management team and our partners.

<unk> made solid progress this year this quarter sorry, we appreciate of strong design activities in the pipeline of new design wins that saw royalty revenue backlog increased year over year.

We continue to demonstrate real progress of IV with tangible step forward such as the launch of the Advisory Council and then as far as the first investment by the innovation funnel.

We launched 2 new important products as part of our <unk> strategy and the AI driven prevention of first approach continues to be I'll focus.

We're also increasing head count sales headcounts and pipeline is growing particularly for our new UES products.

Our main focus is on growing the top line and therefore, we continue to increase investment in both of our software business unit as we see double digit billings growth this year.

Finally, we remain optimistic about a successful conclusion to the negotiation of the of patent portfolio sale.

And with that I would like to ask Jesse to open the line for Q&A. Please.

Yeah.

Thank you speakers participants we will now begin the question and answer session.

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Again, Chris.

Press Star 1 to ask a question.

We'll pause for just a moment to allow everyone an opportunity to signal for questions.

Once that you limit yourself to 1 question and 1 follow up.

Speakers from first question is from the line of Daniel Chen of TD Securities. Your line is now open.

Hi, good evening.

David John.

So you stated that your Q and ex royalty revenue backlog increased to $4.90 from $4.50 last year over what period of time do you expect that backlog to be recognized over.

Typically.

The highest.

Usually it's full of 7 years.

And typically at its peak it fall.

And then it.

Moving down towards the end of the lifecycle.

Lifecycle of a car.

Sometime it extended well beyond that.

Okay. That's helpful. Thanks, and then you also talked about the IV Advisory Council can you talk about the level of commitment partners have agreed to as part of this council on whether you plan to include major Oems on it.

Yeah.

Great question, but before I answer that question let.

Let me make 1 more comment of backlog because I have also gotten some feedback regarding that outback low numbers very conservative I would tell you that it is 1 of the conservative side.

And we get it from directly from the OEM are when we win the design win and they gave us the estimate.

We also have not included professional services backlog and develop of seatback law. So in the future of when we have a very solid methodology.

So that we just don't kind of do much of of guessing and we got a very grounded set of math.

You will see that back that number to go up and we will tell you all of that we're going to include that but thats may take a couple of quarters.

And go back to answer your question.

Regarding the Advisory Council.

They are they are there to help us to define use cases, particularly in the vertical that they operate in that the IV could be of great help.

Hum.

I I don't want to exclude any OEM, but I don't think OEM, we want to do that day Saturday tend to do it 1 on 1 with us directly because this is.

Obviously value adds that you don't want to.

They don't always share so all of them.

Proprietary to themselves I hope that makes sense.

It does thank you.

Sure.

Next question is from the line of Mike Walkley of Canaccord. Your line is now open.

Hi, Mike.

Hey, John.

My question I was hoping you could update us on Blackberry Juliet strategy.

I know, there's some tough comps because of the pandemic from last year, but can you just update us on the strategy. There is still a large piece of your cyber security business unit.

Yeah Yeah.

That's a very that's a good question so.

Let's see our spot power of phones is composed of OEM and you, yes and <unk>.

<unk> is very strategic to us because it is our gateway to a lot of our major customers who.

Completely rely on us on security.

So.

So.

<unk> strategy is continuing to expand out of footprint in the regulated industry.

And we're on the more price sensitive and.

Kind of a nonregulated industries.

We wanted to make sure that all your EPS platform, which is all of endpoint security platform also connect to run on it and obviously 1 of the largest installed base outside of my my space outside of regulated.

It's Microsoft insulin. So this is why.

That you know are we excited about effect that will have into unreleased connect.

Connected to the interim relief.

The end of August I believe yes.

August so.

So basically the strategy is continuing to expand the footprint that we have in the vertical like financial health care and government, that's very important to us.

<unk> with its roadmap the roadmap is highly geared towards.

Security and.

Institute, instead of vacations and compliance and so forth.

And then and then the and then the bring your own device B Y O D environment.

And that's still kind of at a roadmap of <unk> focus on and then of you yes of course expanding onto all of the other cyber security.

Anti virus stuff. So that's a major that's out of the strategy of how we approach of market.

Great now that's very helpful and just my follow up question just on the gross margin by division. Thanks for the updated business metrics.

How should we think about gross margin trends for the business over time, particularly on the cyber security business, where could those gross margins get to over time as the business ramps and you know any reason why it might have fallen a bit sequentially.

Yeah Yeah.

I think the best way to answer that question is that especially of cyber security well, we're trying to go to the enterprise software.

Our timeless model.

So we have not.

Deviated from that.

So the gross margin ought to be maybe python competitive, but they've got the high volume growth somewhere between 75% to 80%.

I think that will be of very good target to shoot for.

For the type of business.

Okay.

And what needs to happen to maybe get there from where you are today with what would be that timeframe you think.

Oh of timeframe.

I think.

Probably a year out.

You want me to get Stat on how do I base that on because if you recall, we actually have a lot of.

Increase of head count.

Feet on the street.

This quarter.

In fact, our quarter ends in August.

Some of them have had some kind of as committed to sign on and is yet to start.

And with that you know if I gave them the time for 9 to 12 months of 6 to 9 months getting up to speed.

And at the same time.

Cultivating the of the.

The pipeline.

It will make the sales cycle work.

I think about a year out I should see some.

Good results from this.

This class of.

Incoming.

The team members here.

Great No. That's helpful. Thanks for taking my questions John.

John.

Yes.

Next question is from the line of Paul Treiber of RBC capital markets. Your line Hey, John.

Hi.

Thanks, and good afternoon.

Just a question on sales, but you mentioned.

Let's start of the prepared remarks that you expect bookings doubled.

Double digit bookings growth from the year, how should we think about the ramp or the trajectory over the year.

Alright.

No.

I actually didn't get Paul I missed from both of your words.

But just do you mind walking bookings.

Bookings growth, how should we think about bookings growth of over this coming year.

How should we think about the ramp over the year relative to where we are now.

Yeah.

Said earlier also.

We just recently.

A lot of increase of head count in sales.

The booking is most likely to be back ended this year and then continue on for next year, obviously, so I don't know whether that's the question you're asking.

And in the rate of growth there like and you know we're in.

Okay, where do you expect it to go to yeah, Yeah, we do on bookings, we do expected of towards the end of the year, we do expect it to double digit.

Percentage growth.

Okay. That's helpful.

Cyber security revenue.

For this quarter based on the numbers of historical numbers on GAAP numbers.

It did take a step down I think you mentioned <unk> can you just elaborate on what you saw customers doing any of the I imagine they purchased last year did they churn off the day can you just elaborate on what happened there.

No I think it's quite.

In general is quite steady and stable.

We didn't see the growth that we're hoping for but it will be forthcoming because.

You know, we just released the Edr products when we talk about cloud cloud the cloud version of the latest uptick 3 point of no. We just released all of these new product a couple of quarter ago actually of course.

So.

So we're seeing that pipeline being built up and.

And it's looking for them to do.

Come into being billing San business. So.

We don't I don't I don't see any major movement, 1 way or the other.

But people are interested.

In Edr.

I believe that they should be interested.

More and protect our that's our job to a mixture of that that message come across and the benefit of that could be demonstrated and I definitely could demonstrate you know 1 thing you can look at.

You know the Blackberry of Blackberry silence product combo.

None of these major.

Viruses, yes, none of these major of via what it says it actually hits our use of base touch wood.

And so anyway that shows you the power of our product.

Okay. Thank you I'll pass the line.

John.

Next question is from the line of trip Chowdhry from Global Equities Research. Your line is now open.

Hi, John Thank you very good execution on the product front.

First.

Regarding the battery management system.

Wondering if this is definitely an incremental market for you.

There are 2 parts of the business model that we had looked at that could be of design win there could be of production part of it and the software and there could also be of subscription part of the software that is running and managing the batteries.

Among these sweet thing is at all the components or is it only the software and subscription regarding the battery management software that you are in excess of running.

Yeah.

Thank you trip.

So first of all.

It's a little early for me to answer the question I have a preference.

The preference is a usage base revenue all of a monthly subscription type revenue that will be my preference.

Of course that will have to.

That would have to be in agreement with the OEM.

So demonstrating that an IV.

It's an IV use cases was 1 of the most.

Most important thing that we need to do in the next.

Free to 6 months, there is a demo being put together.

And it would not be available until probably the end of this calendar year.

As we as full engineering team just started working on it.

So and need of meantime, we'll try to figure out of the question. The Institute of question that you posed a again I have your eye of a strong preference for this to be either usage base or monthly recurring base.

Wonderful the second question of highest regarding the your exceptional our machine learning models do you have and definitely currently your silence machine learning AI models work with only your product.

Are you exploring or do you think its mix of business sense to open up your machine learning models to see other Oems are 2 other Isps and then John.

Poor connection of charge.

For like an EPS because your product mix of getaway security I think that is very normal and again, that's another incremental revenue opportunity you can.

Tal a period of time.

Just thinking since you have the best screening models available.

Licensing them or any of the business model that can get more revenues for you.

Thoughts on backward, but really appreciate it and again very good execution on the product line.

Well, we haven't thought about licensing those models to other application, maybe I'll say to however, we are licensing that.

Well of licensing is a wrong word sorry.

We are of embedding.

The lightweight agent and Iot devices.

Including.

Like medical equipment and industrial equipment.

So and some of those other technology, we have with like the mobile threat detection.

And prevention also uses of motto. So it's being used in a different way from a business perspective, we didn't think about doing licensing I'm glad we could explore that but we're more focused on doing embedding and endpoints.

Very good. Thank you very much John showed you. Thank you.

Next question is from the line of Paul steep from Scotia Capital. Your line is now open.

Hi, Paul.

John can you maybe either this 1 maybe for both you and Steve and I will just make it 1.1 question you can parse it up as you like here can you give us some context around the cost base of obviously you disclosed last quarter that you had 3497 employees globally and then earlier in this call you.

<unk> talked about increasing the number of reps by 23% at the end of Q2. So I'm just trying to square up how we'd want to think about your cost base, maybe going forward and whether you've just incrementally shifted resources or is this like net new adds that we should all be thinking that are.

Temporarily gonna get added and then come to productivity as you pointed out earlier.

We have not.

Done any major.

Or even minor reduction in force, we have move some resources around more of a functional.

Net investment reasons, not not for reduction of people. So.

It's probably best for you to think about it as incremental.

That's helpful.

Maybe just the last 1 as well.

In terms of new cyber security products. Obviously, you are talking about given the team time to ramp up but maybe talk to us a little bit about what youre seeing from inbound client interest because you've launched.

Significant of a number of products have been on a bit of a role here in terms of new product launches that's it. Thanks.

Are you assuming you were talking about the fiber side, yes, sorry, sorry, okay right.

Probably most of the conversation.

Center around.

The protect product.

I would say of I think about the larger.

Opportunities.

And sites that we have.

1.

The key winning product it is to protect so this is why you heard me said.

A number of times some of this call today.

And we're gonna of a child of double down on the protect side because it is a differentiator for us and in addition to that.

The AI ml model that we have could be embedded in it could embed it without having to be updated its been valid for a very long time. So.

So that's probably the largest opportunities when you think about large installation.

And now what we're trying to do is to is to position. The xdr product, we talk about the new 1 called gateway and and.

Provided zero Trust architecture, so enterprise, especially like government of its extremely interest in that.

So those 2 areas.

Thank you.

Sure. Thank you.

Thank you participants I'll now turn the call back over to John Chen Executive Chair and CEO of of Blackberry for closing remarks.

Thank you Jesse.

Thanks, everybody for joining us I know, it's late in the East coast.

No.

So I wanted to just.

Hopefully you all you are doing well and think some of you who are.

Attended our annual shareholder meeting yesterday, and I'm looking forward to speaking with you folks soon have a great evening.

Okay.

Thank you speakers that concludes today's conference call. Thank you all for joining you may now disconnect.

Okay.

And of course.

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