Q3 2022 BlackBerry Ltd Earnings Call

December 21, 2021

Good afternoon, and welcome to the Blackberry third quarter fiscal year 2022 results conference call. My name is Charlie and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. There will be facilitating a question and answer session towards the end of the conference.

Should you 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 the call over to [inaudible]. BlackBerry Investor Relations. Please go ahead.

Barry Investor Relations. Please go ahead Sir.

Thank you, Charlie. Good afternoon, and welcome to Blackberry's third-quarter fiscal 2022 earnings conference call. With me on the call today are Executive [Chair] and Chief Executive Officer, John Chen and Chief Financial Officer, Steve Rai. 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.

With me on the call today, Alright sensitive Chan Chief Executive Officer, John Chen and Chief.

<unk> 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.

This call is available to the general public via call-in numbers and via webcast in the Investor Information section at Blackberry.com. 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 US and Canadian Securities laws. We'll indicate forward-looking statements by using words, such as expect will, should, model, intend, believe, and similar expressions.

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.

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 in light of his experience and its perception of historical trends, current conditions, and expected future development. As well as other factors that the company believes are relevant. Many 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.

Well, there's other factors that the company believes are relevant.

Many 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 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 is customary during 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 published earlier today, which is available on the Edgar SEDAR and Blackberry com websites. And with that, I'll turn the call over to John.

As is customary during the cool John and Steve will reference non-GAAP numbers and a summary of our quarterly results for.

For a reconciliation between our GAAP and non-GAAP numbers. Please see the earnings press release published earlier today, which is available on the Edgar SEDAR and Blackberry com websites.

And with that I'll turn the call over to Joe.

Thank you. Thank you Tim good afternoon, everybody. Thanks for joining the call today. I'm pleased to report that this quarter, we delivered solid sequential billings and revenue growth in both our IoT and cyber business unit and it beats expectations. I'm also pleased that despite all on our ongoing investment to grow the top line, EPS come in much better than expected.

I'm pleased to report that this quarter, we delivered solid sequential billings and revenue growth in both our Iot and cyber business unit and it beats expectations.

I'm also pleased that despite all on our ongoing investment to grow the top line EPS come in much better than expected.

Let me start my review with the IoT business unit. Revenue was $43 million, representing a 34% year over year growth, although noting that last year was heavily impacted by the pandemic. Gross margin was 81% and IoT ARR increased to $91 million. This is now the third consecutive in which ARR has increased.

Revenue was $43 million, representing a 34% free for.

34% year over year growth, although noting that last year was heavily impacted by the pandemic.

Gross margin was 81% and Iot, a our increased to $91 million.

This is now the third consecutive 48 hour has increased.

This was a very positive quarter for QNX driven by continued strength in design win activities. We achieved record quarterly revenue from development seat license as well as associated professional services. In fact, demand is so strong right now, but we're expanding our professional services team by hiring additional heads into QNX.

By hiring additional heads into Q N X.

In addition to the near term revenue benefit, these strong design wins serve as a positive leading indicator of the longer-term health of the QNX business overall. Once completed, obviously, these designs will move into production and generate royalty revenue in future quarters. In terms of production base royalties this quarter, we saw a modest increase compared to Q2. While we expect the auto industry supply chain issues to remain a meaningful headwind to vehicle production volumes through the end of this fiscal year and into 2022, we see the impact on QNX gradually lessening, including an improvement in Q4, which is Q3.

Once completed obviously these designs will move into production and generate royalty revenue in future quarters.

In terms of production base royalties this quarter, we saw a modest increase compared to Q2.

While we expect the auto industry supply chain issues to remain a meaningful headwind to vehicle production volumes through the end of this fiscal year and into 2022, we see the impact on QNX gradually lessening, including an improvement in Q4, which is Q3.

I will now provide additional color around the design wins in the quarter. The continuous strength, we are experiencing is further evidence of our leadership position in auto. We are certainly not taking dispensation for granted and continue to invest in all aspects of the business. In the quarter, we have a major win with BMW. BMW enter a multi-year agreement with us to develop new level too and to price autonomous drive system on QNX will makes and models across the entire BMW group. Autonomous drive is the clearest example of safety-critical software application in the car, which as you know its the most defensive attribute of QNX. BMW selected QNX because of our deep expertise and strong track records in safety reliability as well as security.

The continuous strength, we are experiencing is further evidence of our leadership position in auto we are certainly not taking dispensation for granted and continue to invest in all aspects of the business.

In the quarter, we have a major win with BMW.

<unk> enter a multiyear agreement with us to develop new level too and to price autonomous drive system on <unk> X will makes and models across the entire BMW group.

Autonomous drive is the clearest example of.

Safety critical software application in the car, which as you know its the most defensive attributes of <unk> X.

BMW selected <unk> because of our deep expertise and strong track records in safety reliability as well as security.

In addition to in licensing our technology, we will be providing a professional services team to support BMW into aggressive development timeline. Other auto wins included a major new design for all acoustic middleware. One of the Ohio ESP products. We also had a number of $8 advanced driver assistance sorry. Eight dos gateways, and digital cockpit design wins, with leading OEM and tier one. In Q3, we have a total of 11 new auto design wins and 13 wins in the general embedded market.

Other auto wins included a major new design for all acoustic middleware one of the Ohio ESP products. We also had a number of $8 advanced driver assistance sorry.

Eight dos gateways, and digital cockpit design wins, with leading OEM and tier one.

In Q3, we have 11, a total of 11, new auto design wins and 13 wins in the general embedded market.

Jan.

The general embedded market witnessed included a number of medical application such as a infectious disease diagnostic platform as well as a next-generation robotics surgical arm. Well, we also had wins in the industrial application as well as aviation, including an engine stimulator with a leading aerospace company. With any luck, we'll also be able to share details. So further significant auto design wins with you all at the CES in January. A word on product development.

Well, we also had wins in industrial application as well as aviation, including an engine stimulator with a leading aerospace company.

With any luck, we'll also be able to share details. So further significant auto design wins with you all at the CES in January.

A word on product development.

During the quarter, Google, Qualcomm and Blackberry, three of the leaders in the autonomous digital cockpit, announced a collaboration to build a chipset that allows Blackberry's hypervisor to seamlessly integrate with Android automotive. We are already seeing the results securing the first design wins for this technology with a major European OEM in the quarter.

We are already seeing the results securing the first design wins for this technology with a major European OEM in the quarter.

Previously to develop a digital cockpit with an Android automotive infotainment system running alongside safety-critical application on a single chip will require hundreds of hours of extra development time for building custom integrations. This collaboration takes care of this for the customers. Saving them both cost and time to market as far as delivering a higher quality product.

This collaboration takes care of this photo customers saving them, both cost and time to market as far as delivering a higher quality product.

The auto industry continues to move towards consolidation, particularly consolidating digital copies with these consolidated visual puppets. With disposition, QNX will be even more strong in that space given the safety requirements. This provides the potential to win additional designs that will include both a hypervisor and our QNX operating system.

With disposition <unk> been strong maybe.

You'd be even more strong in that space given the safety requirements.

This provides the potential to win additional designs that will include both a hypervisor and I'll I'll toss out QR next operating system.

Turning to the Q4 outlook for the IoT business. The strength we have seen in design activities is expected to continue into Q4. And we anticipate a slight easing in supply chain headwinds. As a result, our outlook is for further sequential revenue growth and for Q4 revenue to be in the range of $50 million to $55 million returning to the pre-pandemic run rate. We feel very good about the IoT business right now and investors should keep in mind that the auto industry production headwinds.

Strength, we have seen in design activities is expected to continue into Q4, and we anticipate a slight easing in supply chain headwinds.

As a result, our outlook is for a further sequential revenue growth and for Q4 revenue to be in the range of $50 million to $55 million returning to the pre pandemic run rate.

We feel very good about the Iot business right now and investors should keep in mind that the auto industry production headwinds.

I will now provide a brief update on the IVY. We released the early access version of IVY in October as we have previously targeted. This promotion has been reached to a small number of ecosystem partners and will form the basis of a product demonstration at CES in January. This quarter, our co-development partner AWS announced the launch of the complementary product for Ivy call AWS IoT freeways.

We released the early access version of Ivy in October as we have previously targeted.

This promotion has been reached to a small number of ecosystem partners and will form the basis of a product demonstration at CES in January.

This quarter, our co development partner AWS announced the launch of the complementary Prato for Ivy call AWS Iot freeways.

While IVY is [inaudible] and can work with any major cloud provider AWS IoT fleet wise is a microservice that allows the IVY insights to be efficiently and intelligently uploaded to the AWS cloud, where they could support cloud applications. And then there's a significant development for IVY is Bosch, the world's largest auto tier-one supplier announced that their new copper integration platform will support IVY. This platform is built on QNX auto and Hypervisor. Showing the potential for upselling IVY and future design to the large and growing install base.

And then there's a significant development for Ivy is the bar is Bosch, the world's largest auto tier one supplier announced that their new copper integration platform will support Ivy.

This platform is built on <unk>.

And Hypervisor.

Showing the potential for Upselling, Ivy and future design to the large and growing install base.

Our main focus of IVY right now still is unsecured POC proof of concepts. And we are hopeful that we can announce something in the near future. Overall, we are pleased with the progress being made. Let me, let me now move to the cyber side of the business. This quarter, we delivered sequential billings and revenue growth for the second consecutive quarter. Revenue was 128 million. Gross margin was 59%. ARR was 358 million. Dollar base net retention was 95%. We saw continuous growth in pipeline for our unified endpoint security products in particularly our managed service offering guard.

And we are hopeful that we can announce something in the near future.

All we are pleased with the progress being made.

Let me, let me now move to the cyber side of the business. This quarter, we delivered sequential billings and revenue growth for the second consecutive quarter.

Revenue was 128 million gross margin was 59%.

ARR was 358 million. Dollar base net retention was 95%. We saw continuous growth in pipeline for our unified endpoint security products in particularly our managed service offering guard.

We're excited we're very excited about how our products with farm in head to head bake off against other Nextgen competitor this quarter. When we got to a POC, our technology performs well as illustrated by competitive wins again cloud straight and centered on one as far as other oldest signature base players like Microsoft Mcafee and Symantec. Among these wins was another top 10 global automaker. Building on the win with a top 10 OEM, we told you about last quarter. Other notable competitive wins include an international banking group, a leading European financial services firm and a global marketing agency. In addition to success with larger companies, we're seeing a lot of interest from small and medium-sized business too. And this will continue to be an area of focus for us as the market opportunity is large. Our automated protect and guard managed service offerings really resonate with small and medium-sized company that don't have a large security infrastructure.

Our technology performs well as illustrated by competitive wins again cloud straight and centered on one as far as other oldest nature based players like Microsoft Mcafee and Symantec.

Among these wins was another top 10 global automaker.

Building on the win with a top 10 OEM, we told you about last quarter.

Other notable competitive wins include an international banking group, a leading European financial services firm and a global marketing agency. In addition to success with larger companies, we're seeing a lot of interest from small and medium-sized business too. And this will continue to be an area of focus for us as the market opportunity is large. Our automated protect and guard managed service offerings really resonate with small and medium-sized company that don't have a large security infrastructure.

In addition to success with large larger companies, we're seeing a lot of interest from small and medium sized business too and this will continue to be an area of focus for us as the market opportunity is large.

Our automated protect and guard managed service offerings really resonate with small and medium sized company that don't have a large security infrastructure.

POC often involved customers performing vigorous testing of our product against the competitive one and the success we are having in illustrating our competitive advantage. Let me highlight a few of those key ones. The first is that it is a focus on prevention with customer testing demonstrating that we stop threats pre-execution. This contrast to the EDR approach that aims to remediate threats after the fact. The second is artificial intelligence, whereas for other AI is relatively new and even an optional feature outside as AI engine is central to our technology. It is the most mature in the market having learned from the analysis of trillions of files and literally identify over 20 billions characteristics. [The first event the third advantage] we have is our ETP works, both offline and online our protection. Endpoints are protected 24/7 and don't rely on cloud connection, which is of course cloud connection to be very expensive. Fourth, we protect mobile. Nobody in this space knows mobile is better than Blackberry. I hope you agree with that and it is rapidly becoming one of the largest spread surfaces.

The first is that it is a focus on prevention with customer testing demonstrating that we stop threats pre execution. This contrast to the edr approach that aims to remediate threats. After the fact.

The second is artificial intelligence, whereas for other AI strategy at the new and even an optional feature outside as AI engine is central to our technology.

It is the most mature in the market having learned from the analysis analysis of trillions of files and literally identify over 20 billions characteristics.

[The first event the third advantage] we have is our ETP works, both offline and online our protection. Endpoints are protected 24/7 and don't rely on cloud connection, which is of course cloud connection to be very expensive. Fourth, we protect mobile. Nobody in this space knows mobile is better than Blackberry. I hope you agree with that and it is rapidly becoming one of the largest spread surfaces.

Endpoints are protected 24, seven and don't rely don't rely on cloud connection, which is of course cargo and there shouldn't be could be very expensive.

Fourth we protect mobile.

Nobody in this space know mobile is better than Blackberry I hope you agree with that and it is rapidly becoming one of the largest spread surfaces.

These four attributes differentiate Blackberry security offerings from the competitor. I'm sure you all heard about the major security incidents known as locked for shell. Which CSR has classified at the maximum level of Tan with severity. This relates to measure on our abilities in the Apache lawful Java library extensively used by the industry. Let me provide you an update from a Blackberry perspective. This is obviously a rapidly evolving situation and unlike many software companies who are still struggling to understand the impact, we track and categorize our product portfolio open-source software content. This means that we're able to very quickly identify which of our product users as library and create mitigation and release patches and so spreads evolve.

Hum.

I'm sure you all heard about the major security incidents known as locked for shell.

Which CSR has classified at the maximum level of Tan with severity.

This relates to measure on our abilities in the Apache Apache lawful Java library extensively used by the industry.

Let me provide you an update from a Blackberry perspective.

This is obviously a rapidly evolving situation and unlike many software companies who are still struggling to understand the impact, we track and categorize our product portfolio open-source software content. This means that we're able to very quickly identify which of our product users as library and create mitigation and release patches and so spreads evolve.

This means that we're able to very quickly identify which of our product users as library and create mitigation and release patches and so spreads evolve.

We can confirm that none of our coal products, namely Protect, Optics, UEM, QNX, AtHoc and Hypervisor, none of those products are negatively impacted by these vulnerabilities. Furthermore, our suite of cyber products, particularly our protect ETP and guard managed service can help customer prevents malware and ransomware that bad actors could try to execute using diesel novelties.

In Q N X are taught us and hypervisor none of those products are negatively impacted by these vulnerabilities.

Furthermore, our suite of cyber products, particularly our protect ETP and guard managed service can help customer prevents malware and ransomware that bad actors could try to execute using diesel novelties.

Now for a brief update on key partnerships. In recent quarters, we have released a number of new products and announced a partnership to expand our extended detection and response offering or XDR. In the quarter, we were excited to announce a partnership with Okta and main pass as far as cyber Astellas cyber and XM cyber. And then a significant XDR partnership it was extra beam, the leading Nextgen Sim provider. This partnership allows us to greatly improve both contacts and visibility of threats by adding telemetry data from hundreds of network integration to our guard manage XDR surface. [Manage XDR] is a strong market opportunity given the complexity of managing threats across the network.

In recent quarters, we have released a number of new products and announced a partnership to expand our extended detection and response offering or X D. R.

In the quarter, we were excited to announce a partnership with Okta and main pass as far as as far as cyber Astellas cyber.

And X M cyber.

And then a significant xdr partnership it was extra beam, the leading Nextgen Sim provider.

This partnership allows us to greatly improve both contacts and visibility of threats by adding telemetry data from hundreds of network integration to our guard manage XDR surface. [Manage XDR] is a strong market opportunity given the complexity of managing threats across the network.

<unk> is a strong market opportunity given the complexity of managing threats across the network.

Yeah.

Finally, we are pleased that during the quarter [SCE] labs, a leading independent cyber security research firm ranked Blackberry as the best new endpoint protection solution of 2021. A few words on customer wins. Across the business units are key vertical this quarter with government banking and insurance.

Yeah.

A few works on customer wins.

Our cost of business units I'll key vertical this quarter with government banking and insurance.

In government, we closed versus what some of the world's leading governments and government agencies, including the US Navy who became a new secure voice customer. The department of Homeland Security, the Dutch government, the US Department of education, which was happened to be a new logo wins, while at half the spacing of key competitors as well as the Scottish government, US Central command the Federal Aviation Authority FAA, and the IRS. Just to name a few.

The department of Homeland Security.

Dutch government the U S Department of education, which was happened to be a new logo wins, while at half the spacing of key competitors as well as Scottish government U S. Central command the Federal Aviation Authority F. A a N D. I R. S. Just to name a few.

Moving to the outlook for the cyber business. We expect continued sequential billing growth in Q4 and for Q4 revenue to be in the range of $125 million to $135 million. As previously indicated, I think I said it last quarter. Closing certain large government deal in Q4 will be important. Moving onto licensing. As you know, we have been in negotiations regarding the sale of our non-core portion of our IP patent portfolio. This process or taking much longer than we had hoped and trust me I share the frustration about the timeline. Negotiation or very close to a conclusion and we are literally down to a last few important items now.

As previously indicated I think I said it last quarter.

<unk> certain large government deal in Q4, it will be important.

Moving onto licensing as you know we have been in negotiations regarding the sale of our noncore portion of our IP patent portfolio this process or taking much longer than we had hoped and trust me I share the frustration about the timeline.

Negotiation or very close to a conclusion and we are literally down to a last few important items now.

Both parties are working hard to get this finished and we expect to reach a definitive agreement very soon. We will provide shareholders an update on progress in January. In the quarter licensing revenue was $13 million and gross margin was 54%. This piece of expectation for the quarter. Should the sales reach a definitive agreement in January, we will suspend monetization activity and therefore, we expect Q4 revenue to be close to zero. However, it's not, that we will continue to expect revenue to be around the 10 million mark for the quarter. I'll now hand it over to Steve to provide additional colors on the financial.

We will provide shareholders an update on progress in January.

In the quarter licensing revenue was $13 million and gross margin was 54%.

This piece of expectation for the quarter.

Should the sales reached a definitive agreement in January we will suspend monetization activity and therefore, we expect Q4 revenue to be close to zero.

However, it's not, that we will continue to expect revenue to be around the 10 million mark for the quarter. I'll now hand it over to Steve to provide additional colors on the financial.

I'll now hand over to Steve to provide additional colors on the financial.

Thank you, John. My comments on our financial performance for the third quarter will be in non-GAAP terms unless otherwise noted. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details. We delivered third-quarter total company revenue of $184 million. Third-quarter total company gross margin was 64%. Our non-GAAP gross margin excludes stock compensation expense of $1 million. Third-quarter operating expenses were $142 million. Our non-GAAP operating expenses exclude 29 million in amortization of acquired intangibles, 5 million in stock compensation expense, and $110 million fair value gain on the convertible debentures.

My comments on our financial performance for the third quarter will be in non-GAAP terms unless otherwise noted.

Please refer to the supplemental table in the press release for the GAAP and non-GAAP details.

We delivered third quarter total company revenue of $184 million.

Third quarter total company gross margin was 64%.

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

Third quarter operating expenses were $142 million.

Our non-GAAP operating expenses exclude 29 million and amortization of acquired intangibles.

5 million and stock compensation expense.

A $110 million fair value gain on the convertible debentures.

Given our ongoing investment towards driving top line growth in our core IoT and cyber businesses. The third-quarter non-GAAP operating loss was $24 million. And the third-quarter non-GAAP net loss was $1 million. We recorded a non-operating gain of $25 million as a result of gains realized in two legacy venture investment funds that make up the majority of the long term investment balance on our balance sheet. Related to this gain, the investments underlying these funds. Represent a passive interest we had which were sold and we received a cash distribution of approximately $35 million during the quarter. Non-GAAP earnings per share was breakeven in the quarter. Our adjusted EBITDA was negative $8 million this quarter, excluding the non-GAAP adjustments previously mentioned.

Third quarter non-GAAP operating loss was $24 million.

Third quarter non-GAAP net loss was $1 million.

We recorded a non operating gain of $25 million as a result of gains realized in two legacy venture investment funds that make up the majority of the long term investment balance on our balance sheet.

Related to this gain, the investments underlying these funds. Represent a passive interest we had which were sold and we received a cash distribution of approximately $35 million during the quarter. Non-GAAP earnings per share was breakeven in the quarter. Our adjusted EBITDA was negative $8 million this quarter, excluding the non-GAAP adjustments previously mentioned.

Represent a passive interest we had which were sold and we received a distribution cash distributions of approximately $35 million during the quarter.

Non-GAAP earnings per share was breakeven in the quarter.

Our adjusted EBITDA was negative $8 million 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 $128 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 the balance. The recurring portion of software product revenue remained at approximately 80%. Licensing and other revenue was $13 million. Given the limitations to our monetization activities. Due to the potential IP portfolio sale.

Cyber security revenue was $128 million in.

And Iot revenue was $43 million.

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

The recurring portion of software product revenue remained at approximately 80%.

Licensing and other revenue was $13 million.

Given the limitations to our monetization activities.

Due to the potential IP portfolio sale.

Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were $772 million at November 30th, 2021. Remaining consistent during the quarter. Our net cash position remained at $407 million. Again, given our investment in our core software businesses, third-quarter free cash flow was negative $21 million. Cash used by operations was $19 million. And capital expenditures were $2 million. That concludes my comments and I'll now turn it back to John.

Total cash cash equivalents and investments were $772 million.

At November 32021.

Remaining consistent during the quarter.

Our net cash position remained at $407 million.

Again, given our investment in our core software businesses third quarter free cash flow was negative $21 million.

Cash used by operations was $19 million.

And capital expenditures were $2 million.

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

Thanks, Steve. Before I move to the Q&A. Let me summarize the key points for the quarter. We're pleased with how the new organization structure is executing right now. We saw strength of design activities for our QNX business, achieving a record quarter for design-related revenue it looks like it will continue. Macro supply chain headwinds are still impacting vehicle production, but we see an improvement picture heading into Q4.

Let me summarize the key points for the quarter.

We're pleased with how the new organization structure is executing right now.

We saw strength of design activities for our <unk> business, achieving a record quarter for design related revenue it looks like it will continue.

Macro supply chain headwinds are still impacting vehicle production, but we see an improvement picture heading into Q4.

We made good progress of IVY, including releasing to early access version of the product. On the cyber side, we against seek with sequential growth in billings and revenue, including more head to head wins against all key competitors. The ongoing lawful show incident is a great example of the huge cyber market opportunity and also showcase our capabilities. While others are struggling to identify the impact on their products from open source coal, we are responding rapidly and effectively. Overall, Blackberry delivered solid progress. We delivered solid progress, beating both revenue and earnings expectations for the quarter. So Charlie. Please start the process of Q&A.

On the cyber side, we against seek with sequential growth in billings and revenue, including more head to head wins against all key competitors.

The ongoing lawful show incident is a great example of the huge cyber cyber.

opportunity and also showcase our capabilities. While others are struggling to identify the impact on their products from open source coal, we are responding rapidly and effectively.

Overall, Blackberry delivered solid progress. We delivered solid progress, beating both revenue and earnings expectations for the quarter. So Charlie. Please start the process of Q&A.

So Charlie.

Please start the process of Q&A.

No problem, sir. And we will now begin the question and answer session. To ask a question you may press star one on your telephone keypad. If you're using a speakerphone, please make sure your line is unmuted. Again press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for a question. And we request that you limit yourself for one question and one follow up. Our first question from today will be from Daniel Chan with TD Securities. Please go ahead.

And one follow up.

Our first question from today will be from Daniel Chan with TD Securities. Please go ahead.

Hi, Dan. Hi, guys. Hi, John. Can you provide any color on their cyber security [AR]? It looks like it declined to $358 million from 364 quarter over quarter, just wondering if there's any churn in which products may have been affected and maybe if any process showing outsized strength. Yes, we have a positive surprise with a higher revenue came in more than we expected from [Secchi] smart product. So that principally drove to the numbers that you saw.

Can you provide any color on their cyber security or it looks like it declined to $358 million from 364 quarter over quarter, just wondering if theres any churn in which products may have been affected in may.

And maybe if any process showing outsized strength, yes.

Yes, we have a.

Positive surprise.

With a higher revenue came in more than we expected from from Secchi smart product.

So that that has that is principally drove to the numbers that useful.

Okay.

Okay. And then the guidance that you provided for next quarter, what are the puts and takes in that guidance? Thank you. Yeah, so let me break it into two pieces, IoT versus cyber. In the IoT Si, you know touch wood I think we're all feeling pretty good about it. As I've said, we're going to get back to pre-pandemic level. Design wins are good. That brings, we have a good pipeline for professionals with a backlog of professional services to help the customers to deploy our technology as well as to develop a seat. And as I've said earlier the [ROT], we expect to uptick a little bit from Q3, so that kind of compose the math for the guidance between 50% to 55 million. Feel okay about that. I don't want to jinx, it but it looks okay. On the cyber side. It relies on a number of deals that are quite big from the government side, from a revenue perspective. Because of the fact that we expect these to close a little later in the quarter. So the revenue contribution would not be as big. Obviously in the beginning of the quarter, but the buildings will look fine.

And then the guidance that you provided for next quarter, what are the puts and takes in that guidance. Thank you.

Yeah, So let me.

Break it into two pieces of Iot versus cyber.

In the Iot Si.

You know touch wood I think we're all feeling pretty good about it.

As I've said, we're going to get back to pre pre pandemic level design.

Design wins are good.

That brings.

We have a good pipeline for professional with a backlog of professional services to help the customers to deploy our technology as well as to develop a seat and as I've said earlier the royalty, we expect to uptick a little bit from Q3, so that kind of compose the math for the for the guidance between 50% to 55 million.

Few okay about that.

I don't want to jinx, it but it looks okay. On the cyber side. It relies on a number of deals that are quite big from the government side, from a revenue perspective. Because of the fact that we expect these to close a little later in the quarter. So the revenue contribution would not be as big. Obviously in the beginning of the quarter, but the buildings will look fine.

On the cyber side.

Relies on.

A number of deals that are quite big from the from the government side from a revenue perspective because of the fact that we expect these to close a little later in the quarter.

So the revenue contribution would not be.

<unk>.

Obviously in the beginning of the quarter, but the buildings will look fine.

Thanks, John and happy holidays. Sure, Dan. Your next question comes from the line of [inaudible] Chowdhry with Global Equities Research. Please go ahead. Hi. Hello, thank you. Very good execution on the quarter. A few things I would be interested is related to IVY platform. You had the early access program almost two months. Any specific data point to like to hear maybe in terms of download applications or partners. Any reaction? Yeah. Okay. So. Yeah, we, of course, [released it] the application partners and a handful of OEMs. [inaudible] The feedback was very positive.

Dan.

Your next question comes from the line of trip Chowdhry with Global Equities Research. Please go ahead Hello, Hi.

Hello, Thank you very good execution.

On the quarter, a few things I would be interested in selected to Ivy platform.

You had the early access program almost two months.

Specific.

No data point to like to hear maybe in terms of download applications.

Partners and need reaction and then yeah.

Okay.

So.

Yeah, we of course, we Liza two the application partners and a handful of Oems.

Comment in fact Youre.

The feedback was very positive.

As I said earlier, we're going to use that as a basis of our demonstration and I'll talk at CES at our booth and we're also going to digitize and stream those sessions. I'll talk a little bit about that later. So positive response. Lots to do. A lot of activities going on. The application, as you know, we have announced a few applications. I hope, I can't promise every single one of them you will see at our booth. We have the battery management systems, we have the cars, the wallet. We have other rideshare applications. So I don't know where every single one of them will make it to our booth, but I expect quite a number of them will. And you will also see a carpet you also see a cockpit by the way sorry. You'llI also see a carpet that we collaborate with Amazon. Amazon or AWS. And also if we look at the new generation EV players and also the old guard for automobile players, they seem to be now getting on the bandwagon over the air updates. I was wondering does your platforms, whether is IVY or QNX provide any updates just out of the box? Yes, QNX has an option on [OTA]. Of course, IVY has to have the OTA.

At CES at our Booth and we also have another digit digitize and streamed at that those sessions.

Talk a little bit about that later.

So positive response.

Lots to do a lot of activities going on the application.

No we have announced a few application I hope I can't promise every single one of them you will see at our booth.

We have the battery management systems, we have the cars the wallet.

We have other.

Right sure.

Applications so.

So I don't know where every single one of them will make it to our booth, but I expect quite a number of them will. And you will also see a carpet you also see a cockpit by the way sorry. You'llI also see a carpet that we collaborate with Amazon. Amazon or AWS. And also if we look at the new generation EV players and also the old guard for automobile players, they seem to be now getting on the bandwagon over the air updates. I was wondering does your platforms, whether is IVY or QNX provide

And you will also see a carpet you also see a cockpit by the way sorry trip you always I also want to see a carpet that we collaborate with Amazon.

Amazon or AWS.

Ws.

Uniform then also.

Look at the new generation EV players and also the old guard for automobile knows they seem to be now getting on the bandwagon.

Over the air updates.

Wondering does your platform.

On Q&A.

any updates just out of the box? Yes, QNX has an option on [OTA]. Of course, IVY has to have the OTA.

Any updates.

Just out of the box.

Yes <unk>.

<unk> has an option on <unk> of course, Ivy have stopped the O T a.

The physical link is a simple thing and we do have it. And the more important thing that I talked about earlier about the new AWS are a bit. The new Amazon releases call Streetwise allow a logical link between the edge of the [inaudible]. We're taking advantage of that micro surface. So yes, we do both it's obviously both ways from the cloud to the car and vice versa. So so from data and code, we do have OTA capabilities already, already existing. Very good so looking forward to seeing your announcements at the CES show.

And we do have it and.

The more important thing that I talked about earlier about.

The new AWS are a bit.

The new Amazon releases call Streetwise.

Allow a logical link.

Between the edge of the Cogs to the cloud.

We're taking advantage of that micro surface. So so yes, we do we do both it's obviously bolt waste from the cloud to the car and vice versa. So so from data and code, we do have hotelier capabilities already already existed.

Very good so looking forward to seeing you announcements at the CES show.

Great. Thank you. Thank you. Your next question comes from the line of Mike Walkley with Canaccord. Please go ahead. Hey, Mike. Alright. These drugs are good afternoon. This is actually Andrew on for Mike. Thanks for taking my questions. So just so you know drawn a gearbox here with Jordan. Your cyber security unit last quarter, just wanted to see how the productivity of your investments in your quota-carrying sales reps are trending in this area of your business. And how should we think about maybe some of the sustained investments as we move into '23?

Thank you. Your next question comes from the line of Mike Walkley with Canaccord. Please go ahead, Hey, Matt.

Alright.

These drugs are good afternoon. This is actually Andrew on for Marty Thanks for taking my questions.

So just so you know.

Drawn a gearbox here with Jordan.

Security unit last quarter, just wanted to see how the productivity of your <unk>.

<unk> in your quota carrying sales reps or trend in this area of your business and how should we think about maybe some of the sustained investments as we move into 'twenty three.

Hmm.

Good question. John joined us in the exciting part of that is that John has enormous experience in the cyber security market. He ran a $3 billion business as a President or CRO of Mcafee before. And so he is very relevant and he brings in a lot of relationships. And particularly with customers and partners. So that's very good and he knows how to make salespeople successful in the cyber world. So I don't know how to describe productivity, but I could tell you one data point. That today, we have 10% more quota carrier, what we call it, we call the direct quota carrier. We have 10% more direct quota carrier than a year ago. At the beginning of the year sorry at the beginning of the year. We did the math that way so and their productivity, we will start seeing that and so a lot of them are new because we recently hired them. We would see those coming in the next few quarters.

John joined Us in the exciting part of that is that John has enormous experience in the cyber security market.

He ran a $3 billion business as a precedent of CRO of Mcafee before.

And so he is very relevant and he brings in a lot of relationship.

And particularly with customers and partners.

Very good and he knows how to make salespeople who are successful in the cyber world.

So I I don't know how to describe productivity, but I could tell you one data point.

That today, we have 10% more.

Quota carrier, what we call it we call the direct quota carrier, we have 10% more direct quota carrier.

Then a year ago.

At the beginning of the year sorry at the beginning of the year, we did the math that way so and their productivity.

We will start seeing that and so a lot of them are new because we recently hired them.

We would see those coming in the next few quarters.

If you think about it sales cycle, let's say two maybe three quarters call it three. I should be seeing some results in the second quarter or the third quarter next year. Okay, great. Thanks for the details, John. Just as a follow up. So as you noted yourself further pipeline growth within cyber security. You also expect sequential sequential billings growth in Q4. When should we expect this to start showing up in ARR? Next year, I hope. So I feel pretty good about mathematically that we're looking for good ARR growth next year.

I should be seeing some results.

Uh huh.

I did a second quarter over the third quarter next year.

Okay, great. Thanks for the details John.

Yes.

Follow up on them. So as you noted yourself further pipeline growth within cyber security you also expect sequential sequential billings growth in Q4.

When should we expect this to start showing up in the air or.

Oh Wow next year I hope.

So I.

I feel pretty good about mathematically that we're looking for a good growth next year.

Okay, great. Thanks for the details. Sure. Thank you and as a reminder to ask a question you will need to press star one on your telephone keypad. Your next question comes from the line of Paul Treiber with RBC capital markets. Please go ahead. Hey, Paul. Hey, John. Within IoT I mean, it seems like a great upbeat on the design win related revenue like developer seats and professional services. What's the typical gap, like in duration between professional services work and when it goes into production? And then also is there a ratio like for every dollar of professional services in design as a developer seats to ultimate the royalty revenue that you may see? No, there is no. There's really no direct ratio. It's really some OEM once a very aggressive development schedules.

Thank you and as a reminder to ask a question you will need to press star one on your telephone keypad. Your next question comes from the line of Paul Treiber with RBC capital markets. Please go Hey, Paul.

Hey, John Hey, patterning.

Good afternoon.

Within Iot I mean, it seems like a great.

Upbeat on the design win related revenue like developer seats and professional services, what's the typical gap.

They can duration between professional services work and when it goes into production and then also is there a ratio.

But like for every dollar of professional services in design as a developer seats to ultimate the royalty revenue that you may see.

No there is no.

There's really no direct ratio its really.

You know some some OEM.

a very aggressive development schedules.

So they used to in that case, they will ask us to provide some expertise. And of course, under the professional services program. And then they will typically buy a higher number of developer seats. Because they have they wanted to put more engineers on it in parallel. Some ways to do it a little bit more sequentially. I would tell you that if you ask our folks. That we're seeing the former the people are more aggressive with time timeline and not because whether you're an autonomous vehicle design or whether you're in an electric vehicle design or the combination of both, competition is heating up in the auto industry as you all know.

And of course, we under the professional yourself this program.

And then they will typically buy a.

Higher number of developer seats.

Because they have they wanted to put more engineers on it in parallel.

<unk> wants to do it a little bit more sequentially.

I would tell you that if you ask that with folks.

That we seeing the former the people are more aggressive with time timeline and not because whether you're whether you're an autonomous vehicle design or whether you're in an electric vehicle design of the combination of both our competition is heating up in the auto industry as you all know.

So time to market is important to them. Unlike the kind of the old rule of thumb that a new module will come out of the last 10 years. And usually, it takes five to seven years to get the new model out from conception to protection. I think those are very much collapsed, partly because by players like Tesla at the World and there are a lot of the Chinese player. They're the volatile and cycle and sales cycles are a lot shorter manufacturing cycle. There isn't really a, you buy more develop a seat and definitely you have long pick up a bigger production royalty. I don't think there's a real content factor or relationship there.

And usually it takes five to seven years.

To get the new motor oil from conception to protection.

I think those are very much collapsed, partly because by.

Players like Tesla at the World and there are a lot of the Chinese player. There so they're the volatile and cycle and sales cycles are a lot shorter manufacturing cycle.

There isn't really a E. You buy more develop a seat and definitely you have long pick up a bigger production royalty I don't think theres, a real real content.

Constant factor.

Our relationship there now.

And typically as I said, we see a developer a [win]. And then a developer of seat licenses as well as a professional service, usually you add about three years now you start seeing production. Nowadays, I have seen numbers that [inaudible] plans. I shouldn't say numbers. Plans that are a little bit more aggressive than that. But a typical cycle will be three to five years from when to seeing the royalty stopped [inaudible]. And once the royalty stopped [inaudible] usually last the excess of seven years.

We see it we see a developer.

And then a developer of seat licenses as well as.

Professional service, usually you add about three years now you start seeing production.

Nowadays I have seen numbers that ILUVIEN, all plans I shouldnt say numbers plans, a little bit more aggressive than that.

But.

A typical cycle will be three to five years from when to seeing the royalty stopped drilling.

And once the royalty you stopped rolling usually loss.

The excess of seven years.

Okay. Thank you. That's helpful. Just one follow up question on sales and marketing. I was under the impression that you are planning to ramp it up more significantly as being flat this past quarter, how should we think about sales and marketing spending from here? Yeah. Sales and marketing will well definitely ramp up. I could tell you, John [inaudible] on cyber side. We don't do as much of marketing in QNX and IoT. Because you know, especially in the auto space and some of the jam vertical. We are already a reasonable you know no name and no entity. So we don't need to do as much. On cyber, as you know, we need to do quite a bit. And John Chen is very focused on it so we, you will see that going. And going up quite a bit in fact.

As being flattish.

Flat this past quarter, how should we think about sales and marketing spending from here.

Yeah.

And marketing will well definitely ramp up.

I could tell you John John <unk> cyber side.

We don't do as much of marketing.

In.

Q1 actual Iot.

Because you know, especially in the auto space and some of the jam vertical.

We are already a reasonable you know no name and no entity. So we don't need to do as much. On cyber, as you know, we need to do quite a bit. And John Chen is very focused on it so we, you will see that going. And going up quite a bit in fact.

So we don't we don't need to do as much on cyber as you know we need to do quite a bit.

And John You said, John Chi is very focused on it so we.

You will see that going.

And going up quite a bit in.

In fact.

Okay. Thank you for taking my questions. Sure. And we have no further questions at this time. I would like to turn the call back over to John Chen, Executive Chairman and CEO of Blackberry for closing remarks. Thank you.

And we have no further question at this time I would like to turn the call back over to John Chen Executive Chairman and CEO of back pay me for closing remarks. Thank.

Thank you Sean.

Okay. Thank you, everybody. And as we mentioned we're participating at CES in Las Vegas in January. The focus will be on IoT business and how it addresses the benefit from the key trend in edge computing. A key highlight will be the demonstration of our IVY technology, including illustrating how IVY use edge computing to create insight for sensor data both hardware and software-defined sensor. We will be hosting a hybrid in-person and live stream demonstration of the IVY technology, followed by an Investor Q&A session with Mattias Eriksson, the President of the battery IoT group at 8 AM Pacific on Thursday, January 6. We'll be releasing more details about this shortly. I'd like to wrap up by wishing all of you. Thank you for joining us and wish you all you and the investors and everyone on the call here happy holidays, and a safe and successful new year. Thank you very much.

The focus will be on Iot business and how it address the benefit from the key trend in edge computing.

A key highlight will be the demonstration of our Ivy technology, including the illustrating how ivy use edge computing to create insight for a sensor data both hardware and software defined sensor will.

We will be hosting a hybrid in person and livestream demonstration of the Ivy technology, followed by Investor Q&A session with materials Ericsson.

The precedent of the battery Iot group at eight a M Pacific on Thursday January to six we'll be releasing more details about this shortly.

I'd like to wrap up by wishing all of you.

Thank you for joining us and wish you all you and the investors and everyone on the call here, a happy holidays, and a safe and successful new year. Thank you very much.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

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