Paul Carpino - IR Thorsten Gerhard Heins - CEO Brian Bidulka - Chief Financial Officer.

Gus Papageorgiou - Scotia Bank Maynard Um - Wells Fargo Peter Misek - Jefferies Todd Coupland - CIBC World Markets Simona Jankowski - Goldman Sachs Richard Kramer - Arete Research Ehud Gelblum - Morgan Stanley Amitabh Passi - UBS Rod Hall - JPMorgan Kulbinder Garcha - Credit Suisse Richard Tse - Cormark Securities Jim Suva - Citigroup Ben Bollin - Cleveland Research.

Good morning ladies and gentlemen, and thank you for standing by. Welcome to the BlackBerry first quarter 2014 results conference call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the presentation over to Paul Carpino, vice president of investor relations. Please go ahead, sir..

Thank you, operator. Welcome to BlackBerry’s 2014 first quarter results conference call. With me on the call today are Thorsten Heins, our chief executive officer; and Brian Bidulka, our chief financial officer.

After I read our cautionary note regarding forward-looking statements, Thorsten will provide a business update, and Brian will then review the fourth quarter results. We will then open up the call for questions. This call is available to the general public via call-in numbers and via webcast in the Investor Relations section of blackberry.com.

The webcast can be accessed through your BlackBerry 10 smartphone, your personal computer, or your BlackBerry PlayBook. A replay of the webcast will also be available on the blackberry.com website. We plan to wrap up the call around 9:00 a.m. Eastern this evening.

In order to let as many people as possible ask questions, please limit yourself to one question. Some of the statements we will be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws.

These include statements about our plans, strategies, objectives, and expectations, and the anticipated opportunities and challenges in 2014; our plans and expectations relating the BlackBerry 10 platform including BES 10 and its impact on our business; our vision regarding the new world of mobile computing; our product development sales and marketing initiatives, including other investments in the BlackBerry 10 platform; our plans regarding new service offerings and strategy, including with respect to [CBM and BBM] channels and assumptions regarding our new service revenue model; our assumptions regarding future revenue recognition for services in Venezuela; our plans regarding Playbook; our anticipated financial results for Q2; our anticipated cash position and sufficiency of financial resources; and other statements regarding our plans, objectives, and expectations.

We will indicate forward-looking statements by using words such as expect, plan, anticipate, estimate, may, will, should, forecast, intend, believe, continue, and similar expressions. All forward-looking statements reflect our current views with respect to future events and are subject to risks and uncertainties and assumptions we have made.

Many factors could cause our actual results, performance, or achievements to be materially different from those expressed or implied by our forward-looking statements, including our ability to enhance our current products and develop new products and services; risks related to the anticipated decline in our service fees and our ability to generate service revenues through new offerings; risks related to intense competition; our reliance on carrier partners and distributors; risks relating to network disruptions and other business interruptions; our ability to realize the benefits of our core program and similar strategies; risks related to our international operations, including in Venezuela; our ability to maintain or increase our cash balance; security risks; our ability to retain and attract key personnel; intellectual property risks; difficulties in forecasting financial results given the rapid technological changes, evolving industry standards, intense competition, and short product lifecycles that characterize our industry; and other factors set forth in the Risk Factors and MD&A sections in BlackBerry's filings with the SEC and Canadian securities regulators.

We base our forward-looking statements on information currently available to us, and we do not assume any obligation to update them except as required by law. I will now turn the call over to Thorsten..

Thank you, Paul. During the first quarter, BlackBerry continued to move forward with its transition, and I’m encouraged that three of our four regions returned to sequential revenue growth as BlackBerry 10 continues its rollout.

I will let Brian take you through the quarter details shortly, but I would like to focus my remarks on how we are positioning the company in fiscal 2014. BlackBerry 10 is still in the early stages of its transition. In fact, we’re only five months into what is the launch of an entirely new mobile computing platform.

We are five months into our platform transformation that we anticipate will drive future smartphone devices, greater enterprise efficiencies, and new mobile computing opportunities for many years to come. We’ve never been a device-only company, as we are also running a global secure data network and services business.

And we don’t plan to run the company with a short term device-only strategy. What is exciting about BlackBerry today is that we are getting very comfortable with who we are as a company, and where we will fit in the market. Embracing our heritage of mobility first is very important as we build our culture and go through this transition.

We don’t have to be all things to all people and all markets, and embracing this focus allows us to drive efficiency, be flexible and agile, and to ultimately drive best-in-class innovations.

We’re continuing to focus on improving all areas of the business, as we work towards our near term objective of making BlackBerry a leading ecosystem and the number one in enterprise.

Specifically, let me discuss the company in terms of our hardware business, enterprise mobility services, BBM platform, and finally our strong financial position and our continued commitment to driving efficiency and reducing costs. The BlackBerry 10 smartphone portfolio is just starting to fill out.

We’re only five months in, and have since achieved significant numbers of technical acceptances globally. The current and upcoming products in our portfolio will also allow us to address different market tiers. Our goal with our smartphone portfolio is to have no more than six new devices in the market at any given time.

This targeted approach to devices will allow us to efficiently establish and differentiate BlackBerry 10 based on features such as [unintelligible] interface, our iconic QWERTY keyboard, and our secure enterprise productivity strength. The BlackBerry 10 is now available across 147 countries, including the United States.

The BlackBerry Z10 has been an effective launch product to showcase the renewed and reengineered BlackBerry 10 experience to both consumers and enterprises. Our BlackBerry 10 QWERTY device started to grow a lot later in the first quarter, and this month, with over 320 carrier acceptances completed to date.

The Q10 is now available in 96 countries, including the U.S., with 50 more countries expected to launch within Q2. At BlackBerry Live, we announced the BlackBerry Q5, our latest QWERTY device running on BlackBerry 10 and specifically designed and build for select markets.

The Q5, available in red, black, and white variations, premiered in Dubai last week, and we now already have 149 carrier technical acceptances completed, with 106 carriers in 59 countries expected to launch this exciting product in the second quarter.

While eventually all products will move to BlackBerry 10, our existing BlackBerry 7 customer base remains an important market to us. Many emerging markets continue to purchase BlackBerry 7 smartphones based on its effective cost point and features such as BBM.

Enterprise customers continue to leverage the security and cost-effectiveness of the platform with products such as the Bold 9900, which continues to be the most productivity focused and secure smartphone in the world today.

Our customer base is just starting its transition from the BlackBerry 7 operating system to BlackBerry 10, but we still intend to launch one additional product this year to support the BlackBerry 7 segment as well.

The second area I want to discuss is enterprise mobility services, which includes both our traditional enterprise business and new mobile computing opportunities in vertical markets such as automotive.

In our traditional enterprise base, we have a strong leadership position, and our clear objective is to remain number one in the segment and grow revenues with our BES 10 solution. BES 10 is the most comprehensive enterprise mobility solution in the market today, offering cross-platform flexibility, cost-effectiveness, security, and scalability.

It’s the ultimate mobile platform for business. Enhancements and new capabilities continue to be rolled out on BES 10, including Secure Work Space, which was officially released this week.

Secure Work Space offers an ideal BYOD mobile security solution, providing organizations the flexibility to embrace BYOD on multiple platforms without sacrificing security.

Since announcing BlackBerry Enterprise Services 10, service has been installed by customers around the world, and Secure Work Space for iOS and Android has been tried globally with BlackBerry customers. At the time of BlackBerry Live in May, we had 12,000 companies that had either ordered, downloaded, or installed BES 10.

Today, this base has grown to 18,000, a clear indication of the strong enterprise interest in the BlackBerry platform. While the enterprise environment requires a longer sales cycle than consumer-only-focused devices, the successful adoption of BES 10 remains an important driver for future unit sales and service revenue opportunities.

Sixty percent of BlackBerry’s Fortune 500 customers have already ordered, downloaded, or installed BES 10. And another way we look at the strong interest in BES 10 is by vertical markets, which demonstrates the broad enterprise appeal of our platform.

Based on third-party sources ranking size of companies by industry, BES 10 has already been ordered, downloaded, or installed by three of the top 10 companies in leisure and hospitality, four of the top 10 companies in retail, five of the top 10 financial institutions, three of the top 10 companies in construction, four of the top 10 companies in communications, and six of the top 10 companies in healthcare.

And some of these names include Whirlpool, Met Life, L.A. County Sherriff Department, 20th Century Fox, and the Keane Group, just to name a few, as well as piloting with major government departments. We have a great opportunity with BES 10 in the enterprise.

Not only does BES 10 provide IT managers with leading security when paired with BlackBerry 10 smartphones, but it also gives us the opportunity to leverage our product capabilities and revenue opportunities across competing platforms. Also included in our enterprise mobility efforts is a focus on mobile computing related opportunities.

While it is still very early this new market, we have the opportunity to leverage BlackBerry's existing global and secure infrastructure to capitalize on this new market. Earlier this month, we announced and previewed a new solution for auto makers that allows them the ability to manage and deliver over the air software updates to vehicles.

This software update management for automotive service facilitates machine-to-machine communication directly between the auto maker and the vehicle.

It allows the auto maker to easily provide software updates to vehicles in the field using our infrastructure that today already reliably delivers software updates to millions of BlackBerry devices around the world.

This solution is just another proof point as to how BlackBerry is adapting to the next shift in how enterprises are using mobile computing to communicate and interact with their users, anywhere, easily and securely.

The third area I want to discuss is our services strategy, and some of the revenue opportunities we have to mitigate the decline in our service revenue.

In addition to the new services we are offering to the enterprise with BES 10, we’re also piloting new services in consumer, starting with leveraging BlackBerry Messenger as announced at BlackBerry Live.

BlackBerry Messenger remains the preeminent mobile messaging platform, with a hyperengaged user base, using BBM for an average of 19 minutes per user per day.

This type of engagement is truly exceptional in comparison with other traditional social networks, which people utilize on mobile at a rate of only just over 400 minutes per month, based on recent reports. The BBM user base provides the company with a great opportunity to offer additional value-added services to our global installed base.

Our first offering for BBM users is BBM Channels, which was launched into beta on May 14. We now have over 60,000 active users engaged in this beta. Those users have already created a vibrant ecosystem of over 20,000 channels across more than 160 countries, including our own BlackBerry channel.

We will be continually updating the BBM Channels experience throughout the beta, as we continue to execute towards an expected global rollout of BBM Channels across all of our markets in August.

We’ve also begun to work with key brands and agency partners to establish a set of business practices to enable users to discover and engage with businesses that are most relevant to them via Channels.

And at BlackBerry Live, we also announced our plan to bring the much-loved BBM service for free to iOS and Android, responding to our users’ number one desire to be able to connect to all of their friends and family, irrespective of which smartphone they carry.

This announcement was met with tremendous reception, and anticipation has been building in the market ever since. We remain on track to launch the core BBM experience for these platforms, including chat and BBM groups, before the end of the summer.

Our approach to growing BBM cross-platform is an example of the new service revenue opportunities we can capitalize upon with our technology and innovation. Our goal is to support and [unintelligible] the new and exciting BBM initiative as needed, in order to allow us to be as focused and as agile as other social networking competitors.

This is a very exciting period in the mobile messaging and social networking industry, and we have a great opportunity to more fully participate in this growth market with our BlackBerry Messenger platform. The fourth piece I want to discuss is financial strength, which remains a key asset during our transition year.

Strong products alone are not good enough to ensure solid long term turnaround, so we have been intensely focused on maintaining a strong balance sheet and delivering efficiency. We generated cash flow from operations of $630 million this quarter, and we ended Q1 with $3.1 billion in cash, our highest cash position in three years.

We will continue to focus on our financial strength and believe we are well-positioned to continue to invest in our platform and compete in a highly competitive market. In terms of our outlook, this is an exciting and important transition year for the company.

We are still early in our launch cycle, and have yet to see all BlackBerry 10 products and full deployment of BES 10 contribute to revenue.

As we work towards our products and service launches throughout this year, I view fiscal 14 as our year of investment, where we will look to position ourselves appropriately for sustained growth in fiscal year 15.

The decisions we make are particularly important to us this year, given that the changes in investment we implement will be the foundation for innovation, quality, cost base, and growth of BlackBerry 10 in the coming years.

The industry remains highly competitive, so we are responding with additional sales and marketing investment this year to establish the BlackBerry 10 platform and to provide BES 10 with the appropriate support to drive broad-based deployment and future unit growth and service revenue opportunities.

We expect our increased investment during this transition, combined with a more competitive environment, will generate operating losses in the second quarter, but we believe our strong financial position allows us to make these investments.

And in addition to our investment initiatives, we are very focused on looking at ways to continue to drive greater efficiency to offset these investments. Our product portfolio decisions based on BlackBerry 10 require much fewer resources to support them compared to previous systems.

And we’ve been investing in internal programs and evaluating the efficiency of all process and all costs throughout the organization. Benefits from programs like these enable us to reduce spending in some areas, and deploy the savings in other value-creating opportunities. Let me also make some comments on Playbook.

Our teams have spent a great deal of time and energy looking at solutions that could move the BlackBerry 10 experience to Playbook. But unfortunately, I am not satisfied with the level of performance and user experience, and I made the difficult decision to stop these efforts and focus on our core hardware portfolio.

We will, however, support Playbook on the existing software platforms and configurations. BlackBerry has made a lot of steady progress in the past year. Just one year ago, the world was totally different, not only for BlackBerry, but for the whole smartphone industry.

Things change quickly in our industry, and we have embraced the concept of change and agility, and this has allowed us to move forward quite dramatically. One year ago, we made the tough decision to delay the launch of BlackBerry 10, and I can tell you it was unbelievably difficult for us to say we had to delay the platform.

In fact, I remember the [calls] very well, as the volume was pretty loud and we were told the company was finished. But we knew the tough decisions we made would generate value for shareholders.

Today, if you look at BlackBerry, we are a leaner, more efficient company that has brought BlackBerry 10, BES 10, cross-platform BBM, and mobile computing products like software update management for automotive to the market.

Let’s remember, one year ago none of these products existed, and today they are just launching, and have been well-received, because of the performance and quality of BlackBerry 10. It has been very exciting and challenging for our teams, and we are looking forward to the next stage of our transition this year.

With strong and steady execution, we will be able to capitalize on what we have created over the past year. We are one year smarter, one year tougher, and one year more successful than we were at this call last year. And we are confident in the ongoing success of our transformation in the coming year.

We are doing the right thing, and importantly, doing what we said we would this quarter. And this is key, because a transition takes time. I will now turn the call over to Brian to provide more detail on the quarter..

a $72 million decline in service revenues earned from Venezuelan carriers that could be not recognized for U.S. GAAP due to foreign currency restrictions in the region and the challenges for carriers to remit U.S.

dollars to BlackBerry for payment; mix shift to low-tiered service plans in our customer base; and the lower number of subscribers this quarter. As to the currency controls in Venezuela, no cash was received in the quarter relating to service revenue, which did not allow us to meet the necessary revenue recognition criteria under U.S. GAAP.

While we were not able to recognize the revenue in the quarter, it is important to note that we have been doing business in Venezuela for more than eight years. We have strong relationships in the region, and are working to improve the cash flows in this government controlled process.

Accounts receivable exposure from service revenue in this region is approximately 5% of our Q1 consolidated accounts receivable balance, and subsequent to the quarter end, we did receive some funds from our Venezuelan customers.

As a result of the uncertainty on the timing of future cash receipts relating to service revenue from this region, Venezuela service fee revenues are excluded from our base assumptions going forward. We will provide updates on Venezuela as appropriate.

Excluding the impact of Venezuela, service revenue declines of approximately 9% are in line with our previously provided outlook of a single-digit percentage decline quarter on quarter.

Hardware revenue in Venezuela is not specifically impacted by the currency restrictions as BlackBerry deals with third-party distributors for the hardware sale and distribution of smartphones in this country. In the first quarter, our subscriber number was approximately 72 million.

The decline of approximately 4 million from the previous quarter reflects decreases in the Latin America, EMEA, and North American regions, offset by increases in Asia-Pacific. This number also includes our Venezuelan customers.

There continues to be a high level of churn in our users, based on the transition to BlackBerry 10 and the highly competitive environment for smartphone devices in all regions. With our transition to BlackBerry 10, our historical subscriber reference does not share the same service revenue dynamic as previous BlackBerry devices.

Starting with Q2, we will not be provide this nonfinancial metric. As new service revenue is generated, we will look to provide additional information associated with these services and any other relevant details around service revenue trends.

GAAP gross margin and adjusted gross margin were both 34% in the quarter, reflecting the higher mix of hardware revenue in the first quarter compared to the fourth quarter. This compared to GAAP gross margin of approximately 40% in Q4.

Gross margins were also negatively impacted by 2% in the first quarter, as a result of service revenue from Venezuela.

GAAP operating expenses increased by $124 million, or 11.4%, to $1.2 billion compared to the fourth quarter, which was primarily attributable to an increase in marketing and advertising expenses incurred to support the global launch of BlackBerry 10. Operating expenses also included approximately $26 million of core related charges in SG&A and R&D.

The GAAP operating loss in the first quarter was $164 million compared to an operating loss of $18 million in the fourth quarter.

The operating loss reflects the sequential increase of $124 million in marketing expense, $26 million in charges related to core restructuring activities, and the impact associated with revenue from Venezuela partially offset by a sequential increase in hardware revenues.

The income tax recovery was $80 million, resulting in an effective income tax recovery range of approximately 49%, which includes R&D tax benefits. GAAP net loss for the first quarter was $84 million, or $0.16 per share, compared to an earnings of $94 million, or $0.18 per share in the fourth quarter.

The adjusted net loss was $67 million, or $0.13 per share compared to an adjusted earnings of $114 million, or $0.22 per share in the fourth quarter. During this transitional period, our balance sheet remains very strong.

Cash increased by $196 million to $3.1 billion from $2.9 billion in the fourth quarter, primarily due to positive operating cash flows. This increase was generated from changes in working capital, which reflect the receipt of corporate tax refunds.

This was partially offset by increases in inventory to support the global launch of BlackBerry 10, as well as the increase in accounts receivable reflecting the sequential increase in revenue.

Inventories increased by $284 million to $887 million, compared to the fourth quarter, primarily to support the continued launch of the BlackBerry 10 smartphone.

Accounts receivable were $2.5 billion, or an increase of $183 million from Q4, and days sales outstanding declined to 75 days in the first quarter compared to 80 days at the end of the fourth quarter. Capex in the quarter was $83 million, in line with our previous run rates.

Intangible asset purchases were $335 million in the quarter, which consist primarily of payments related to amended or renewed licensing agreements. This quarter included certain additional prepaid license agreements with several IP providers. However, we anticipate returning to our approximate $240 million run rate in the next quarter.

In terms of our outlook for the second quarter, results are very difficult to estimate during this transition, and what remains a highly competitive smartphone environment. We intend to leverage our strong cash position to efficiently invest in the launches of the BlackBerry 10 smartphone.

Our investments will also focus on the role of the BES 10 in order to drive adoption and unit volumes to further penetrate the BlackBerry 10 platform in the market.

We will be investing resources to evolve BlackBerry Messenger into a leading cross-platform application, and launch other revenue initiatives associated with new services in emerging mobile computing opportunities. We anticipate an operating loss in the second quarter.

However, we will continue to implement cost savings initiatives in order to drive greater efficiencies throughout the company and redirect capital from these savings to investments that we would expect to drive future revenue. That concludes my comments. We will now take your questions..

[Operator instructions.] Your first question today comes from Gus Papageorgiou with Scotia Bank. Please go ahead..

Fundamentally, part of your success in the near term depends on demand for BlackBerry 10 devices. I’m just wondering if you can characterize how demand has been versus your expectations.

And with the launch of the Q5, and lower tiers, do you expect to see your sales improve in the developing world, where you’ve been clearly losing some subscribers?.

If you look at where we’re at today with the BlackBerry 10 product launches, as I said in my report, we’re five months in. The BES 10 launch, the Q10 launch, just came to the U.S. in the last week. Q5is just launching in Dubai. We’re in the middle of launching all of these products in all of our various markets in the region.

Certainly the Q5 is geared to those selected markets in Asia-Pacific. And it’s too early to say how it will be doing, but we see strong demand, we see a good reception of the device, and we’ll see how it does in those selected markets where we’re pushing it..

Your next question comes from Maynard Um with Wells Fargo. Please go ahead..

I know you don’t provide gross margin by the segments, but if I look at the mix of your hardware, you had a greater BlackBerry 10 mix, which I presume is higher margin, lower BlackBerry 7, which is lower margin. And if I run the math and make some assumptions, it actually looks like the implication is the hardware gross margin declined sequentially.

Could you just maybe walk us through why that is, despite the mix? I am a little surprised that despite the number of operators you have, the number of shipments per operator still seems pretty small, particularly in light of the sales and marketing dollars that you’re putting out there.

If you could just kind of walk us through that as well, I’d appreciate it..

Just on the gross margin, as it relates to the overall mix, it’s obviously dependent upon the mix of hardware, and even inside hardware, and then the mix of hardware relative to service revenue. So we’re continuing to focus on that cost management and make sure we’ve got the right efficiencies, procurement, manufacturing, supply chain.

So as we look through the mix of our hardware side, with Q5 coming on, it does have a different margin [stock] than the other products, but we are working to drive those efficiencies. And it’s early in the cycle, and we’re looking to get BES 10 deployed and rolled out as well..

You were asking about the marketing spend relative to results. I think if you look at the launch schedule that we had, Q10 isn’t even available in all markets yet. We just went to the U.S. last week. So I think it’s really early to say.

And as you know, you have to provide these marketing spends earlier to create the promotional windows around the various product launches. Also, it is a very competitive market, so yes, we have to take the measures that we have to take to be successful.

But all in all, I think it’s pretty early days still, as we still haven’t even completed the entire portfolio. One more element of this, by the way, is that we are just launching BES 10 into the market, and as you know there is a correlation between numbers of BES 10 out there, then testing in enterprises, then purchasing the devices.

So from that perspective, I think it’s too early to really say there is some sort of stable, predictive way of predicting the future. But what we see so far in terms of BES 10, I gave you the numbers in my script, and on Q10, is encouraging..

Your next question comes from Peter Misek with Jefferies. Please go ahead..

One, you said you sold through 6.8 million total smartphones. Any way you could give us what you sold through of BlackBerry 10? You shipped in 2.7 million, and you said you built some inventory, but I’d love to understand what sell-through was.

And then really quickly, on MDM, your mobile device management opportunity, any metrics you have? Or how should we think about the success of you managing iPhones and Android devices?.

We’re not going to provide the split on sell-through on the BB10 versus BBOS. I think just relating to channel inventory, we’re expecting that we would see BBOS come down and channel build on BB10, as with BlackBerry 10, as we start launching it across the integral launch..

On the metrics for MDM, we have an installed base that we are working into, and as I just stated, we’re just launching BES 10, with its cross-platform capability. Very excited about the Secure Work Space. I myself met a lot of customers. What I can tell you, qualitatively, is that I received very, very good feedback.

Those deployment cycles take time, because we have to run it through the IT department of our customers. We’re helping them, we’re assisting them. So the metric is really is kind of like a typical Fortune 500 metric, what’s the penetration there? We’re looking at our installed base, how much coverage of the installed base will we be able to achieve.

And also, frankly, how many new customers are we able to win. So we’re working customer by customer by customer and that’s what you will be seeing us do throughout the quarter..

Your next question comes from Todd Coupland with CIBC. Please go ahead..

On services, are you saying that we should use $800 million now as the base, and then continue to decline that in the single digit range?.

Yes, that’s correct. As we get more information and we have any updates on Venezuela, we’ll provide those as appropriate..

Your next question comes from Simona Jankowski with Goldman Sachs. Please go ahead..

You cited a more competitive environment as one of the contributors to your expectation for an operating loss this quarter.

Can you just expand on that and just let us know specifically what you mean there? Are you seeing an impact from pricing, or you having to do the more marketing promotions, [counter] revenues, anything of that nature?.

This is mostly due to if you look at BlackBerry 10 being a whole new platform. We will be investing and really making sure this platform penetrates the market. So it’s really the penetration play that we need to do, and for that, we need to invest in marketing, we need to invest in promotion, whatever kind of nature they take.

There’s very different instruments you can bring into play here. And we still haven’t launched all of our products yet. We’re building our portfolio. There’s more to come, more exciting products to come.

And they will also require investment in order to really manage a broad and high enough penetration of BlackBerry 10 into all the various global markets that we’re in..

Your next question comes from Richard Kramer with Arete Research. Please go ahead..

Thorsten, you mentioned several times that you’re not a device-only company, and that you want to get into this mobile computing space.

I guess the question is now, with such a difficult and competitive environment in devices, could you see BlackBerry pivoting away from making devices and trying to become, over the next couple of years, just an enterprise software services company? And I guess the key question for Brian, for all of us, is will there be any material services revenues from BES 10 or BB10 in FY14, or is that something that is going to take another year to build up the base of that we see it only in FY15?.

That’s a long term strategic question, and as you can imagine, we’re also working with our board on our long term strategic view. However, I mentioned that I was visiting with a lot of corporate customers and corporate clients, and I’m really talking big, large companies.

And for them, it was very, very obvious, in all of these meetings, that they don’t look at BlackBerry as elements toward a solution. They actually look at BlackBerry as an end-to-end solution that includes the device. As for high end security, the device plays a major part in delivering that best of breed security to the market.

Right now, I will not break that logic. I need to provide my customers what they require. They require best and highly innovative security, and that, for the time being, needs the device to be part of that end-to-end solution. But what we also do is, in order to address the BYOD trend, that’s why we launched the Secure Work Space.

It’s not as secure as BlackBerry, as you would a BlackBerry device, but you know, it is paying tribute to what’s going on in the market, and positioning BlackBerry as a strong cross-platform security player..

Just on the services question, we’re just starting to roll out these services as everyone knows, so our focus is on building these out. We need to invest in them. We need services in BES 10, BBM. And I think with our financial positioning, it allows us to invest in a long term strategy, execution.

So it is going to take some time for those to develop, and we’re also looking to mitigate that exposure that Thorsten referenced in his script about the declining service revenue..

Your next question comes from Ehud Gelblum with Morgan Stanley. Please go ahead..

A couple of questions, just for clarification. The 72 million subs, Brian, that you said that you have right now, I think you said you’re not going to be repeating that number going forward.

Just want to make sure that with the lack of being able to recognize cash out of Venezuela that 72 million does or does not include the subscribers in Venezuela? Just a clarification..

Yes, it does include Venezuela..

One of the the things I didn’t hear, and may have missed, was, in terms of units, if you can give us a sense as to guidance for next quarter, how are you looking at units for next quarter, both on the BB10 side and BB7, and total, whichever you feel comfortable with? And then during the quarter - going back to the previous question about gross margin on the hardware side - was there any adjustment in prices to any of the BB10 devices that you’ve been selling in the quarter? Or did they pretty much sell at the same price points that you initially entered them into the market with?.

First, we are not providing really specific guidance at the moment. I think we all understand why. It’s a very competitive, very volatile market. So many dynamics going on here. So it is really really hard to predict, even with a three-month outlook, where we’re going to be.

And what we’re doing right now is, again, we’re pushing the whole portfolio into a global market. That’s what we’re focusing on. We’re focusing on driving the sell-through so our customers get the devices in their hands.

And when they get them in their hands, they seem to be really happy with what they see, and what they can experience with the new user experience on BlackBerry. But that’s what we’re focusing on, and that’s what we will be driving. And we will report back by the end of Q2 on how things are going.

But full focus is on penetrating the market, the global market, and full focus is on expanding the portfolio..

And just in terms of pricing, we don’t give any specifics on price moves on our BB10 devices. So as we’ve mentioned, we are looking to invest with carrier partners on driving and improving that adoption of BB10 as we move forward..

Your next question comes from Amitabh Passi with UBS. Please go ahead..

Brian, a question for you. If I look at the core elements of working capital, receivables, inventory, payables, it looks like the three items were down over a use of cash about $355 million. You actually generated cash from working capital, and there’s a big movement on the other current asset line.

I was wondering if you could clarify what that was, and just your expectations for working capital, [uses of or sources of cash] as we move into the next quarter..

I mentioned in my comments that we were in receipt of a corporate tax refund, so that was the one offset to the use of cash related to building out our inventory and the sequential increase in our revenue quarter on quarter. So as we continue to move forward, we’re looking at every way we can to more efficiently manage working capital.

And we’re seeing that we’re going to be investing in the Q10, Q5 launch, more launch activities. So we’re going to see continued pressure on inventories, and just building out to support the launches..

Your next question comes from Rod Hall with JPMorgan. Please go ahead..

I understand the strategic logic on enterprise. I just wonder if you could comment on how interlinked you see the consumer business with the enterprise business. Obviously there’s quite a bit of opex going out, or marketing and so on, distribution in consumer.

Just wondering if you think you need that consumer business to lower component costs so that your enterprise devices are more competitive. Can you just help us understand what the interlinkage between consumer and that enterprise business might be in your mind, or if there’s no linkage, let us know that too.

And then on the BlackBerry Messaging app, on iOS and Android, just wondering how open you guys are to a full blown BlackBerry app on those platforms, iOS now providing background processing. So it seems like it would be possible for you to go more full-bore on those platforms and provide a full user experience.

I’m just wondering how open you are to that..

So, first one, how much is consumer and enterprise linked, I think we all have seen the BYOD trend that has basically been going on for about probably two years or a bit longer.

And yes, it’s kind of a little bit of a dichotomy that you have to be good in consumer to be good in enterprise, because right now it is actually also the employee in the enterprise deciding which device makes it into the enterprise.

So from that perspective, there is segmentation in the enterprise, which is where can I deploy consumer devices without having too much of a security concern? And where do I really need the full-blown BlackBerry security? So you’ve got to be good in consumer [audio dropped out]…you know, based on our experience in security, to bring a good level of security to iOS and Android devices, which gives peace of mind to CIOs, but that absolutely the full management experience and the security experience on BlackBerry is unmatched.

That’s the way we look at it at the moment. And as I said, customers look at us to provide an end-to-end solution still, and we [can’t] break that paradigm..

Your next question comes from Kulbinder Garcha with Credit Suisse. Please go ahead..

Just a couple of clarifications. Brian, one thing I’m struggling with is on the cash flow side. If it wasn’t for the income tax receivables benefit you had, you would have burned probably $400 million or $500 million of cash.

And given the launches you’ve got ahead, can you actually not burn cash in the next couple of quarters? That’s my first question.

And the second question, for Thorsten, is I understand that you’re in the midst of this launch on BlackBerry 10, but the numbers that it is producing at the moment seem to have fallen short of a lot of people’s expectations, including our own.

And I’m kind of wondering, is there anything when you look at the launch that you think hasn’t gone as well, you could have done better? Or is it just a timing thing, and you’re comfortable with that. Because I guess unless the volumes pick up quite soon, you’re going to become a very niche player in the smartphone business..

Just on your comment, we fully anticipated that with the launch of these products we were going to, as it relates to working capital, consume some working capital as it relates to investing in these launches. And as we move forward, we think we have the right financial strength for the long term execution on the launch of these products.

So as we work through it we’ll continue to look at how do we optimize and manage our working capital going forward..

For the second question of how do we feel about BlackBerry 10 and the launch, I think I said this in my script. We’re doing what we said we would do, right? We are launching BES 10, Q10, Q5, more to come. We’re in the middle of it, right? So it’s really too early to say. We’re building a portfolio right now.

Against what my expectation was in Q1, we are performing, and from that perspective, I’m confident in the future of BlackBerry 10. But there’s lots of work to do, there’s lots of new products to be built, there are lots of new products to be launched. There’s lots of marketing campaigns to be generated. So it’s going to be ongoing effort.

It’s not automatic. I know sometimes you guys look at, you know, where is this one product that kills everything else? I tell you, it’s not out there. It is a very competitive market, it has several players. And you’ve got to be on your tippy toes all the time to perform, and that’s what we’re doing. But we’re not ignoring competition either.

And what we have done with BlackBerry 10 is build a fantastic, differentiated user experience that users now latch onto. And that doesn’t happen from one week to the other. It doesn’t happen from one month to the other. And it actually doesn’t happen from one quarter to the other.

This a marathon, right? And we are ready, with the financials that we have under our belt, and we’re ready to run that marathon. And that’s what we’re doing. So I’m not looking at the short term. It’s important for me how the BB10 penetrates. It’s important for me how the BES 10 penetrates, and it’s important how is the BBM cross-platform coming along.

And I think all of these three initiatives are very very exciting growth initiatives. And what we have decided as a company, we will be investing in them and we will drive them hard and there will be a time we will see, and our shareholders will see, the value and the benefit of those initiatives..

Your next question comes from Richard Tse with Cormark Securities. Please go ahead..

I know you’re early here, but obviously you can’t continue at the current run rate.

So how long has the board given you to get some meaningful traction BB10 before you kind of pivot to something else, or consider some kind of strategic review? Because the uptake that you’ve had now - and again, I know it’s early - it looks like it’s been pretty soft here.

So what’s the timeframe for that?.

I love my board, but it’s the C levels in BlackBerry that run the operations. And you know, we’re absolutely bang-on with what we wanted to do with the product. We’re executing as we speak. And, you know, whatever’s being discussed in the board room, I probably wouldn’t discuss that on public earnings call.

But I can tell you that we are in sync with our board. We all know what we’re up for here. We’re all together in this fight. And you know, we’re executing, and the last quarter has shown that we execute against what we say we would do in that very quarter.

And that’s the only thing that matters at the moment to the board and to the executive management of BlackBerry..

Your next question comes from Jim Suva with Citigroup. Please go ahead..

We’re starting to already see carriers do price cuts on the Z10, which has not been out very long. Net subs is also [unintelligible] and is concerning, and you’re opening up BlackBerry Messenger to be free. And it seems like the marketing support so far, even though you’ve increased, just really hasn’t taken off.

And I don’t know if customers aren’t catching the message, or carriers aren’t catching the message, or the product is not sticking. But can you just kind of help us understand about where the marketing spend is going? And last quarter you had mentioned an increase of 50%.

Should we expect that again going forward? It just seems like all these things you’ve thrown out there, it just seems not really to be sticking. Or we’re just simply too early in the story to just know, and see the fruits of those efforts..

If you talk about where we spend marketing and how we drive adoption of the portfolio, there’s a plethora of different activities that we’re actually running and that we’re also funding. And this is not just what you see, probably, in above the line and on TV. It goes way further than that.

It’s really training of the sales reps, it’s video assets that we deploy in order to get people familiar with the great BlackBerry experience. It’s in traditional media, it’s in carrier promotion. So there’s lots of activities going on. And then we do this product by product, and we do this region by region.

So it’s a huge variety within those marketing initiatives. But again, as I said before, these initiatives need to be planned, they need to be well executed upon, once time comes to execute on them. And our carriers are with us, and they’re helping with promoting BlackBerry 10.

But certainly there’s also, as I said, it’s a new experience, it’s a new platform, it’s a plethora of new products coming out, and you don’t do this in step function. This is stuff that takes a bit of time, and takes some investment. But, again, we are happy that customers are buying our product.

We’re getting great reviews on the user experience being different than what’s out there. And I think I said this on the last call, I’m so proud, and I’m so happy, that we’ve built our own platform with BB10 that allows us to be different, to be differentiated, to be segmented, to clearly understand who we’re targeting as BlackBerry.

Not to be a me-too, based on an open OS and based on an open application framework. That matters to us. That matters to our customers. That’s what we’ve expressed in our marketing campaigns. That’s what we’re focusing on. We’re seeing good traction with it..

And just on the [quantum] that you were asking about for Q2. It would be similar to Q1, but again, it fluctuates based on different launch activities..

And we will do what it takes to make this successful. This is not a static number. We will not sacrifice long term success for short term numbers. It’s important we get the platform out there, we get it penetrated, and then we build on it with additional services, with the combination of BES, BB10, and BBM platforms..

Your last question will come from Ben Bollin with Cleveland Research. Please go ahead..

A two-part question.

The first part, looking again at this cash flow benefit in the quarter, driven by working capital efficiencies, Brian, how much longer do you anticipate to see benefits from noncore working capital metrics? And then the second part is, looking at BES10 and BBM on a go forward basis, can you give us some specific examples of how you’re going to monetize each of those, looking at BES10? Is it [cal/key] support? And then BBM, how do you monetize the social networking aspect?.

So just on the working capital, I wouldn’t put a timeframe on how we’re efficiently managing this. So we’ll continue to look at ways to maximize what we can do within working capital, and that includes all aspects of inventory management and our receivable balances and other aspects of working capital..

On your second question, about how to monetize on BES, the way I look at this, and what we’re building with BES, is not just a cross-platform mobile device management system. What we’re actually building is a mobile enterprise service platform.

And if you look at what I just talked about in the script, you can imagine this sitting there as a platform that will be monetized by itself by whatever means, but they you put these additional services on top of that platform, one of which then will be cross-platform mobile device management, one of which will be security, and then one of which will be secure work space for third-party devices.

So we will monetize through the platform but also through services sitting on top of that. And one of the examples was over the air software download into the automotive sector. So we’re working on initiatives that are not just within the classical enterprise workforce or productivity environment.

We’re working with examples, and on projects, where we actually help vertical industries to get much more productive and efficient and being capable of doing things they couldn’t do today on an extremely reliable and secure data network..

Thanks, operator, and thanks everyone for joining us on the call. And we will talk to you next quarter..