Q2 2023 BlackBerry Ltd Earnings Call

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Yeah.

Good afternoon, and welcome to the Blackberry second quarter fiscal year 'twenty two 'twenty three results conference call. My name is Brent and I will be your conference moderator for today's call.

During the presentation all.

All participants will be in a listen only mode.

We will be facilitating a brief 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 today's call over to Mr. Tim <unk>, Vice President of Blackberry and Investor Relations. Sir. Please go ahead.

Thank you Greg.

Welcome to the Blackberry second quarter fiscal 2023 earnings conference call.

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

While I read our cautionary note regarding forward looking statements John will provide the patients update and Steve will review the financial results.

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

<unk> is available to the general public via two main numbers and by web com 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.

Pursuant to the safe Harbor provisions of applicable U S and Canadian Securities laws.

We'll indicate forward looking statements by using words, such as expect will.

Well shared model intend believe and similar expressions.

Forward looking statements are based on estimates and assumptions made by the company in line because its experience and its perception of historical trends current conditions and expected future developments.

Whether it'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.

Scott in the company's annual filings.

Ni.

You should not place undue reliance on the company's forward looking statements.

Any forward looking statements are made only as of today and the company has no intention and undertakes no obligation to update or revise any of them except as required by law.

As is customary during the call, Joe and Steve will reference non-GAAP numbers.

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 and SEDAR.

<unk> and Blackberry com websites and with that I will turn the call legacy Joey.

Thank you. Thank you Ken good afternoon, everyone and thanks for joining today's call.

This was a solid quarter for Blackberry delivering revenue in line with expectations and based on the earnings.

I'll start today's review of the Iot business unit.

This quarter Iot delivered a strong 28% year over year revenue growth.

The next design phase revenue remains the top performer.

That is revenue from developer development fees and professional services.

Q1 was the third consecutive quarter that we set an all time record in this category and this quarter, we almost had another.

When we win a new design. This revenue is the first to be recognized with royalties coming later when the vehicle enters into protection.

This strength in design phase revenue is expected to continue given the significant amount of professional services, we already have lined up and the pipeline of potential new design wins in the next few quarters.

On the production front, we saw an uptick in royalty revenue, but it remains below the pre pandemic level, mainly due to supply chain headwinds gross margin came in at 82%.

This strength of design wins was clearly illustrated by Volkswagen one of the worlds largest automobile selecting Blackberry Q&A accelerates, new EW Dot Hill last platform.

This platform will be deployed in all branch across the Volkswagen group when factories being entrusted to cloud a safety critical Adas.

And on hardware disk drive applications.

<unk> is currently the market leader.

This feels on design wins in recent quarters with BMW Volvo and a long list of electric vehicle players in China.

Veterinary continues to win market share in core safety critical domains. A couple of example included an ADR design win will hand Guy.

And a digital copy of design with one of the world's largest tier one supplier that utilize <unk> cyber advisors.

The hiring of Iceland will hold the safety critical instrument cluster, allowing non safety critical infotainment applications all under the same shape.

On the EV front, we won another eight outside of the Chinese automaker and Blackberry <unk> is not embedded in seven of the China 10 largest EV Oems.

In addition to our strong position in auto we have significant opportunities in the auto verticals to.

This quarter, we announced additional support for the aerospace and defense market with Q1, and actually achieving the latest technical standard known as the future of airborne capability environment all space.

Phase, it's a software standard giant development by government and industry that establish a common operating environment. It enabled us to re use of software components across different hardware, reducing developer friction and costs.

In addition to the aerospace and defense, we saw progress in our medical and industrial markets with wins that included surgical robotics, a retail distribution pick and pack robot as far as control for a nuclear power plant.

Overall in the quarter, we won 19, new designs with nine in auto and Candy the general embedded market.

We successfully added challenge of Iot team this quarter, despite the tight labor market here.

This investment is supported by the launch and growing scheduled professional services secured through the recent design wins and by adding head count will be able to do it.

Will enable additional revenue.

The macro environment for auto remains a mixed picture.

With varying dynamics across regions and Oems the Chinese market, where <unk> won a number of designs recently appears to be bouncing back to the end due to the end of some COVID-19 related shutdowns and the impact of robust stimulus measures.

In North America and in Europe . However, there appears to be a short term contraction.

And chase surprise constraining the ability of OEM to build inventory and meet demand.

Going forward the impact of rising interest rates on consumer financing together with economic uncertainty created by the possibility of creating.

Creating creates the possibility of future choppiness.

Despite this ongoing challenge, we're delivering we're delivering strong year over year growth and have a solid pipeline of potential new designs in the coming in the upcoming quarters.

Normally given a string of the Q&A <unk> business, we will adjust our revenue outlook upwards. However, given the macro headwinds we are being prudent and holding our outlook is.

We expect fiscal year 'twenty three revenue for the Iot business unit to still be in the range of the $200 million to $210 million as previously stated.

On the IP front, we made good progress on product development Roadmaps remains firmly on track Okay. Another new release in August that enabling support for a greater range of in vehicle hardware and software.

The release incorporates not only rolling out features that also valuable real time feedback that we're getting from the ongoing proof of concept trials.

You may recall that we are currently running a limited number of these trials, including the top OEM and tier ones and these are progressing well we continue to receive requests for additional trials and this ongoing demand remains a positive sign that the customer reception of the customer receptivity.

<unk>.

On the ecosystem side, we were excited to close another investment by the IV funded this quarter in a German startup named column per day.

One three gig uses AI to enable automakers had three providers, who utilize predictive maintenance I E. Using vehicles sensor data to get ahead of the maintenance issues.

The predictive maintenance use case.

Added to many others that IV is enabling including usage based insurance intelligent <unk>.

Battery management in vehicle payments and next generation 911, and emergency response, just to name a few.

Looking ahead, we expect our product our next product released in December and remained focus on IV design wins, which we currently expect to secure in calendar year 2023.

We are also planning to showcase more exciting capabilities and use cases at CES in January . So please stay tuned for more details on that in the coming months.

Moving on to the cyber security business unit revenue for the quarter was in line with expectations at $111 million. The business also delivered sequential building growth of 15% to $102 million.

<unk> for the first half of this fiscal year grew 6% year over year.

Gross margin was 55% came in at $321 million dollar based net retention rate was 85%.

In the quarter, we closed business with a wide range of customers, but saw particular strength in our core verticals are government and financial services.

In North America, we secured business with the department of Treasury, The Federal Trade Commission.

Appointment of energy.

Danielle.

Our stock exchange and the U S Mint.

We also won business with leading merger agency such as the U S. Army Corps of Engineers is U S. Central Command U S Marine Corps and other branches of department of Defense.

Internationally, we secured business with UK aid or <unk> I guess, we changed that now major see treasury. The UAE Ministry offload a presidential affairs, the New Zealand parliamentary services.

Australian Electoral commission and the Polish Ministry of Foreign Affairs, just to name a few.

In financial services, we won new logos as well as renewals and up sells with leading Bang in U S U K, Switzerland, Japan, Israel, Italy and more.

In addition to these core verticals, we recorded a strong quarter for new business in the middle market.

This is a large segment of the market dominated by legacy players offering legacy solutions and one way outside of its product portfolio is resonating well.

Blackberry is very well placed to grow in this market for a number of reasons.

The level of final rates for our mid market customer is high.

Australia research team identified Smbs cases upwards of 11 cyber attacks per device per day.

S&P also also and those are the lowest level of insurance against ransomware They match.

Now starting with the core growth insurance shown.

Meaning that they.

They have often halo affords a breach.

Customer in this segment, particularly like our lightweight agent and how effective our products at detecting threats.

Our AI engine the most mature in the market has seen billions of data points, both malicious and non malicious and use machine learning over several years to effectively distinguish between the two.

Further midmarket customers, among those who the fewest resources and expertise to establish a 24 by seven security operating center.

And customers like how our managed service offering silence guides help solve their issues for them.

Yeah.

As we described in previous quarter, there has been some headwinds with fiber.

However, we expect <unk> to return to growth early next fiscal year.

A lot of efficient and investment made in the past few quarters are starting to bear fruit and we see some data points that give us confidence in this outlook.

First we saw the total pipeline application opportunity for our <unk> product at the end of Q2 increased by 23% year over year and four new logos, specifically the increase was 73%.

Second significant progress have been made with the product portfolio in recent quarter and is continuing for example, I'll give you. An example, recent enhancement to our protect ETP products that positively impact our fourth positive rates as evidenced by trusted third party virus total.

Third on our go to market front, we are working to replicate the success, we've already had particularly with our mid market customer. We added a lot of cyber security industry experienced this year and we expect to see more traction at these new hires fully ramp up.

For this coming quarter, we're commencing a program to reduce strong relationship with key channel partners and distributors that are well established players in the cyber security market.

We are also we've seen a lot of positive feedback following the site silent product rebrand, including a significant increase in both website traffic and new leaf.

Turning to the overall demand environment for cyber security the rest of the FY 'twenty looks fairly solid.

As I mentioned earlier evaporated, a strong dominant footprint and demand in this vertical appears to still be robust.

Overall, we're now seeing customer coming back on the cyber security budgets EBIT in the middle market given how critical it is to maintain a cyber defense. Therefore, there are no change to the outlook that we have provided previously.

We continue to expect our cyber security business units revenue to be broadly in line with fiscal year 'twenty two.

Let me now turn to licensing revenue in the quarter came in at $6 million.

The sales process for the non core patent portfolio continues we.

We understand at a later time that is taken as frustrating with shareholders and we are equally as frustrated if not more as we work on it everyday.

However, we firmly believe that divesting the portfolio remains the best option for shareholder value. While the portfolio is still relatively fresh the IP. That's part of the deal in a business of monetizing it it is not related to our positions.

At the time, we were required to announced the deal we understand that getting the government approval could take up to 210 days, if not longer but we were pleased with the process were completed much sooner.

Chemical were working to conclude the financing in parallel to getting government approval.

Unfortunately, we believe the turmoil in the financial markets created unexpected challenges for the original financing syndicate.

However, there has been much interest from other parties wanting to establish to take their place and capital are currently working working to lock down their final syndicate.

In parallel to this we're actively working on alternatives, where the financing is not a contingency as well as finance final actualized finalizing a plan to restart the monetization engine ourselves should that be necessary.

We will of course keep shareholder posted until a final outcome is achieved.

Let me now hand over the call to Steve who will provide additional color on our financial results for the quarter.

Thank you John .

As usual my comments on our financial performance for the second quarter will be in non-GAAP terms unless otherwise noted.

Yes.

Total company revenue for the quarter was $168 million.

Total company gross margin was 64%.

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

Operating expenses for the second quarter were $129 million.

And these non-GAAP operating expenses exclude $22 million in amortization of acquired intangibles.

A $10 million fair value gain on the convertible debentures.

$5 million and stock compensation expense.

$4 million from the impairment of long term real estate lease assets and.

And $3 million of restructuring expense.

Yes.

The Blackberry continues to make carefully considered investments for topline growth.

Such as adding additional head count to the Iot team in response to a strong schedule a professional services from design wins as well as expanding our reach in the fiber market as John outlined earlier.

The non-GAAP operating loss for the second quarter was $22 million.

non-GAAP net loss was $29 million.

GAAP basic loss per share was <unk>.

On a non-GAAP loss per share was <unk>.

Adjusted EBITDA, excluding the non-GAAP adjustments previously mentioned was negative $16 million.

Now breaking down revenue in the quarter.

Iot revenue was $51 million in cyber security revenue was $111 million.

Software product revenue remains in the range of 80% to 85% of total revenue.

And professional services for them to balance.

As before approximately 80% of software product revenue was recurring.

Licensing and other revenue was $6 million.

Now turning to the balance sheet and cash flow.

Total cash cash equivalents and investments were $699 million at August 31, 2022.

Free cash flow was negative $26 million with cash used by operations of 23 million and capital expenditures of $3 million.

That concludes my comments I will now turn the call back to John .

Thank you Steve.

Before we open the lineup for Q&A, let me summarize the key points for the quarter.

Number one our Iot business unit delivered strong year over year revenue growth in large part driven by ongoing strength from design phase revenue.

<unk> remains firmly on track with proof of concept trials progressing well and the team is executing on the product development Roadmaps have a roadmap as planned.

Our cyber security business unit.

Revenue expectations, delivering strong sequential bookings growth and continue to implement a strategy to grow the business with AAR expect to return to growth early next fiscal year.

Despite the volatility in the macro market, we are maintaining our revenue outlook for both business units and continue to execute against our plan.

That concludes my remarks, and operator could you. Please open the line for Q&A.

We will now begin the question and answer session to ask a question. Please press star one on your telephone keypad. Please.

Please make sure also that your line is on mute. It again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Request that you limit yourself to one question and one follow up.

And your first question comes from the line of Mike Walkley with Canaccord Genuity. Your line is open.

Hi, Mike.

Hey, John .

Thanks for taking my question.

Delving, a little bit more activity.

Cyber security business the billings commentary.

Sounds sounds promising can you just update us maybe on the OEM side.

Where we are on.

That falling off.

And.

The confidence that gives you that AAR, who will start to grow next year.

Yeah.

So the OEM as you know.

It's a very price sensitive market on the mid and low end.

And in particular, the particularly dominated by one major player in the market.

<unk> and <unk> licenses sofa.

For the higher end markets.

Absolutely needed better security.

We tend to hold onto those business as well and in some cases expand on it.

We also have in addition to <unk>.

Secure communication and also a opportunity to upsell.

Our <unk> product to the finance product.

So.

On the whole for the OEM, we kind of expected I'll sell to holding a pretty flat.

And then we will have a way to grow the business next year by bundling some some more other stuff.

New products that come out and features the final point I'd like to make is you.

Microsoft for example that <unk> is really a a mobile application manager. This is really not a new yet so.

So the customers are beginning to recognize that the security side of the equation theyre not theyre not fulfilling the requirements. So I.

I think there might be a good strong argument for us to either.

Overcome their tax on Microsoft in June .

Or actually coexist with them in account that absolutely needed mission critical security.

So thats kind of our game plan and our current thinking and.

We feel reasonably good about what I, just said in terms of where the market validation has been essentially with the customer.

Okay.

As a follow up question how is pricing in the endpoint security market as you go head to head with both legacy and some of the other next generation vendors.

And then also with progress on your platform.

Carrying any metrics or give any rough color on how upsells billing and how maybe some of your new customers landing with more than just one product from silent.

I guess first I got the first part about the legacy.

What's the second Virals about platform and the ability to up sell is that right Mike.

Technologists.

Milling and any metrics on customers, taking more than one stylites module.

Oh I see.

Don't have that information handy with me.

So Idaho, we're going to have to follow up with you.

Okay.

Average check Cathy John <unk> on that on those on those inflammation.

And.

The legacy product lines, it's interesting we see actually the most progress we made against the legacy player, particularly in the mid market.

Were the mid market doesn't really have a T cell dependent of Fox.

What we offer.

Particularly guide.

The managed service.

That's very well resonate extremely well and we see a pretty big strong growth. The numbers are not huge in terms of the actual amount of dollars, but a number of accounts that were winning obese reasonably sizable.

Thanks for taking my questions I'll pass the line.

Thank you.

Your next question is from the line of Luke junk with Baird. Your line is open.

Hi, good afternoon.

Thank you for taking my questions first.

First question, maybe a little bit of a bigger question bigger picture question, John I'd be curious to get your updated perspective on the auto software competitive landscape. Congrats the Iot business in the last few months here, we've seen those companies that haven't traditionally played in auto looking to make inroads here and in some cases announcements this customers and some of the chip companies as well.

Looking at bigger game about auto software. It what are your thoughts on both the especially any comments do you build offer on your direct engagement with the chip companies and how that's evolved or incrementally ground recently thank you.

Okay.

Thats a good question.

So.

<unk> is probably the biggest player.

Auto.

And that is software space, particularly in the area of our operating system.

And so we by far.

Touchwood, when the mortgage of a big deal.

I will I will refer you to the last.

Two to three quarters, a big win in BMW and Volvo.

Volvo Volkswagen.

And a lot of the electric vehicle player and because we occupy a pretty unique position in the stack. Most people. When you talk about the company once again into auto software DSP tend to be more on the UI Si user interfaces.

On the infotainment side, but sell them on the core side of it.

After DAC.

Case in point is the announcement that we won VW dot.

Most wagon intended to build their own software stack.

<unk>, which is a few player.

And the trick level up.

And so we wanted to play it a pik as because of operating system.

Yes, Hi, your question, so we feel pretty good about where we focus and the more mission critical and safety certified components of our product.

And there'll be more of that will come out and we have just in case.

You don't remember this but we have the highest level of ISO certification in safety.

No.

No.

So we feel pretty good about our position as far as the question on chipset.

Probably the two or three biggest chip player that we work with them.

Im very committed to each other for a very long time our comp.

In particularly two of them are Qualcomm in India.

And as you know Qualcomm Nvidia are quite dominant in the auto auto space.

So we feel very comfortable in both our partnership and our position in our market and our position in the market that doesn't overlap.

So I think.

Hi.

Two is just being overly I don't want to jinx, it obviously, but we feel pretty good.

In addition to that.

Even players like Google.

I'll give you a quarter ago or two quarters ago as a doctor of hydro vessel.

Sure.

Google Android Autoplay.

So that will tell you something about the unique position, we occupy we're not really a contradiction to what they offer.

Okay. Thank you for that a lot of great color there and then staying within Iot you for my follow up you recently announced that use gain certification in the aerospace market and I was just hoping you can expand on the strategic approach to that market are there any parts of the market that youre focusing on initially how are you investing in resourcing.

Then initiatives and anything similar that would be worth adding thank you.

Yes. This is this is a little early for us, but we do have the intent.

So when we look at.

The success in our autos auto market.

Really all rely on the highest level of safety certification. So so we we then and we have a new product that comes out that focus on.

High level of scalability.

And so if you think about this.

We think about who else, which political exhibit the same requirements. So needed. The same requirements. So medical is one industrial it's one and we've been we've been doing reasonably well.

Called the gel market generated at general embedded market.

Which medical and industrial is in there but.

We are very interested in and the cycle of replacing some of the legacy <unk>.

Software and the aerospace.

Particularly aircraft area.

And so this is why we want to make sure that we are satisfied.

So that developer could we use the code.

And.

And we likely will work through large system integrators.

Likely raytheon in the world.

To the extent that I can share at this point.

Yes, I understand.

Helpful color, so just to understand where you're headed thank you.

Alright, thanks, Thank you.

Your next question comes from the line of Paul Treiber with RBC capital markets. Your line is open Paypal.

Hi, John Good afternoon.

John a follow up on your previous comments about auto softer.

What's changed in your mind in terms of the mentality of these auto Oems and even Google to adopt Q&A acts as a foundational layer.

Well it's a.

So first of all Q&A.

Operating system heavy in the business for over 30 years.

And you all remember that.

Some of it is I don't know.

Aam's Lasalle way back line I would say infotainment.

Company is accurately long to Harman.

Blackberry bought it before my time.

<unk> bought it and which kind of created an operating system with it so.

So the safety certification has always been the.

The claim to fame.

And if they want a lot of infotainment.

What we have done.

Since that time I arrived.

What we have done is to expand from infotainment into areas of more safety oriented end and unsecured area oriented.

Oriented applications as it related to a car and of course extend in parallel the world has started to move towards a software software defined vehicle.

So therefore, the Oems are taking more control of the design the stack the software stack, okay, and but they also know that they can just sit there and replicated in operating system and get it certified out some people try do you see auto grade Linux AGL.

And HL Couldnt get it certified and is in our open source also was at his own business challenges to it.

So so <unk> gradually all came back to Q&A.

And action.

And that's the reason why an NPA.

They are having over $200 million caused that uses our software today actively.

<unk>, a pretty sizable market for a lot of other players to ignore.

So.

Our players to be ignored. So so this is why.

Google where provides some qualcomm work is wireless and video work revise some ti work with us and on work with us and it's a long list.

Our players.

Does that all uses us as a foundational piece.

And then we will continue to expand applications of <unk>.

<unk> type of features in the foundation piece.

That's helpful.

Listen to my next question like how do we think about the economics within the foundational layer and what's the strategy to try to maximize economics over the long term.

<unk>.

Yes.

While our strategy is always to use more of our large more of our foundational modules in the stack.

And so.

That's a basic strategy and then if you have multiple copies and and then as we as we get deeper into the engine and deeper into the safety side of the equation of our core operation.

It will <unk> be able to demand.

In a little bit more.

Our approval.

Do you have more copies and higher value copies.

Hypervisor is have a higher value than infotainment for example, thats kind of move up the stack in our pool and broader necessarily multiple copy and of course. This is our is our strategy in general.

The business strategy side, and then don't forget IV.

Because <unk> is our next generation push into ash into ash to cloud.

And is not only provides security and privacy.

It also provide economics, because cloud only solution is too expensive and too much data being generated.

<unk>.

The operation of a car so so don't forget about that.

We feel that we have a pretty good one to three punches.

On the auto space or at least on the Iot side, and we're going to expand it beyond auto as I said.

Today, we're very focused on auto.

And then just if I can just squeeze in one more.

Just in regards to the patent portfolio I mean, I know it's.

You are limited in terms of what you can say, but how should we think about.

The timeframe that the clock is ticking in terms of the ability to monetize the patents.

As the time goes on does the value of the bonds decreased to you or to a potential buyer or is there a way to get back damages per se are back royalties and so at the time is less less critical.

Yes, so there are two <unk>.

Two data points you already answered one.

Sure.

Sure.

Those that needed our license.

We'll have to address that.

In the past deployment.

So it's not just <unk>.

Time ticking away and therefore, so so thats thats one of the answer.

Your question. The other one is a series of myths out there.

All the time.

There was an article published.

This is <unk>.

Actually and collect and factually correct slowly.

Throughout the entire article about a number of years flat, but our portfolio.

And then the value of that that is absolutely not true because they've added been true that you would have you wouldn't have the syndicate to wanted to make this thing happened so I.

We'll just leave it at that I don't want to do it.

A public debate with the writer, but im sorry, the writer is absolutely wrong.

Even though this article has been around for a little while and this was we print by a newspaper that would like to I guess sensationalized something that is not true.

And I'll leave it at that so yes, we could capture the path.

<unk> deployment.

And no it's not that showed a life.

Okay. Thank you for clarifying.

Absolutely.

Your next question is from the line of Todd Copeland with CIBC. Your line is open Hey, Todd.

Hey, there John Guinee.

Hey, there good evening.

I wanted to ask you about the cyber unit.

You indicated you still expect revenue to be roughly flat.

Year on year.

But implied in that comment is a seasonal uptick in the fourth quarter.

And I'm just wondering.

Is that also still expected in line with prior expectations and I. Just wanted you to close the logic on that point with growth expected.

Early in fiscal 2024.

Earlier in fiscal 2024.

You commented on AOR growth expect early next year of course of course, yes, yes, yes, yes, yes, yes of course of course so.

It's a little bit.

Complicated set of math, but I'll I'll focus on the kind of the high level of seller.

Yes, our Q4 pipeline.

Yes.

A lot more bigger than Q3.

And so.

So we believe that therefore.

My statement about.

Revenue relatively flat.

In line with the last fiscal year, it's appropriate there's a proper statement.

And then there will be some buildings growth because of that and then we also take a look at.

Whats ahead, where there were headwinds that if you look at all the headwinds from all the deals that we expected to either get a renew.

And ones that are being attacked especially at the mid market space. We believe that the major part of our headwind is behind us.

It will be behind us after Q4, sorry, I should say that because we we kind of look look through it on a quarterly basis. So therefore mixed fiscal year I don't know whether its Q1 of.

Definitely Q2.

We expect.

To have a year over year increase and we should continue that trend going forward.

And on that point.

Yes.

Oh, yes, that's clear and on that point, just remind us what you think the potential growth in cyber is.

Once you start to benefit from.

Improved product bundling and go to market.

It is.

You saw the three year plan that we put out three and five year plan further relief.

In fact.

<unk> recently presented to the board, we have not deviated from that with deviating from that at all so you could see that from a John <unk> groups, the cyber security group.

The company had compounded annual growth <unk> roughly about 10%.

So that that will be what we will focus on getting.

Okay. Thank you very much for the clarification.

Yes.

Your final question comes from the line of trip Chowdhry with Global Equities Research. Your line is Hey, Hi, Chris Hi.

Thank you very solid execution in a brutal environment.

Two questions first of all I had this with regarding your Volkswagen This is very.

Significant.

Can you give me some directional guidance and loosen that al.

This is like you won the design the design win.

Sure.

Are we thinking.

Terms of.

Production.

Revenues.

Vehicles Blender production, how should we think is the one that Stuart.

Rigs.

Our design win.

Revenues.

And usually more than design wins any color on that would be helpful. And then I have a follow up question.

Okay. Okay. So in general.

I'll speak to auto because.

Account number or based on the auto.

So in general.

You look at a cycle of a auto win somewhere between seven to 10 years.

So what we will see upfront is said probably on an overall, let's say, let's say a deal will bring US a million dollars I'm, making this up okay and total lifetime, obviously is a lot bigger than that but let's just start with $1 million. So I would say the 10% upfront.

Probably this.

This is something that we should expect that include expect on development seats.

And then probably some professional services revenue.

So I will put it again in a range of 5% to 10%.

The bulk of the production.

We will come in year.

Normally for 5678.

However, we see that compressing.

First of all the because were going electrified or electrification. The electric vehicle market terms turns a product cycle, a lot faster and particularly with the Chinese the Chinese was turning it around.

Our cycle of three to five years instead of seven to 10, so and everybody else will probably have to keep up now whether they will get to for your five years out who knows.

But it will shorten the seven to 10 years so.

We got a little bit of upfront.

<unk>.

Which is always nice.

We get some professional services.

And then we will get the <unk>.

Production production royalty.

No I was also wondering.

Do you have a very solid offering in terms of IV and so on.

You mentioned the hybrid approach that is in cloud and on device, which is the vehicles, which is I think very noteworthy.

Because.

You don't go on the OEM there'll be finalized.

Yes.

More data.

The whole objective is to put the data into the cloud you that does black what insurance or the Oems will be like you said about AWS, so I like that strategy.

But I was wondering if you.

Customer costs.

Volkswagen, which has already been done.

On OLED.

Are there any plans you may have.

Make migration or at least experimentation with IV.

Just mostly Kobe do we have anything like that in plan and Thats all.

Gotcha.

Yes.

Yes.

Yes.

That's a good question.

I don't want to turn this into a.

An announcement, but let me just say that it is logical it will be made to put it differently. It will be logical for Blackberry not going to take advantage of all the assets.

Sure.

And there is a good reason why.

Both the IV and Q&A X is in the same Iot group.

Very good.

Thanks, Thank you.

I would now like to turn the call back over to John Chen Executive Chair and CEO of Blackberry for closing remarks.

Thank you. Thank you operator.

Before we conclude today's call I'd like to remind everyone of our upcoming Blackberry Security Summit on October 27.

The SaaS the FSC keynote addresses with Blackberry executives customer lab case studies interactive talk on cyber security innovation and best practices from spec very resurgent intelligence team and more all virtual and on demand.

That's a good register for the event on the Investor page of our Blackberry Dot Com website.

I want to thank you all for joining our call and I am sorry. It is always late in the East coast.

And I truly appreciate it thank you and see what each time.

Okay.

This concludes today's call. Thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

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