Debbie Tuck - VP of Finance and Head of IR John Chen - Executive Chairman and CEO James Yersh - CFO.

Maynard Um - Wells Fargo Daniel Chan - TD Securities Tim Long - BMO Capital Markets Ben Bollin - Cleveland Research Paul Treiber - RBC Capital Markets Rod Hall - JPMorgan Paul Steep - Scotial Capital Steven Li - Raymond James Michael Kim - Imperial Capital AJ Shrestha - Deutsche Bank.

Welcome to the BlackBerry’s 2016 Fourth Quarter Conference Call. Please note that all participants have been placed on listen-only mode. I would turn the call over to Debbie Tuck, VP of Finance and Head of Investor Relations for BlackBerry. .

Thank you, operator. Welcome to BlackBerry’s fiscal 2016 fourth quarter results conference call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen and Chief Financial Officer, James Yersh.

After I read our cautionary note regarding forward-looking statements, John will provide a business update and James will then review the fourth quarter results. We will then open up the call for a 30 minute Q&A session. In order to let as many people as possible ask questions, please limit yourself to one question.

This call is available to the general public via call-in numbers and via webcast in the Investor Relations section at BlackBerry.com. A replay will also be available on the BlackBerry.com website. Some of the statements we will 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 will indicate forward-looking statements by using words such as expect, will, should, model, intend, believe and similar expressions.

Forward-looking statements are based on estimates and assumptions made by the company, in light of its experience and its perception of historical trends, current conditions and expected future developments, 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, including the risk factors that are discussed in the company's annual information form, which is included in our Annual Report on Form 40-F and in our MD&A.

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. I will now turn the call over to John..

Thank you. Thank you, Debbie. Good morning everybody and welcome. This morning, I will take you through the summary of our Q4 results as well as the highlights from our fiscal year, then I will provide more details on the main area of our business focus. Our overall Q4 performance was reasonably good. We made progress on all our strategic priorities.

I like to remind everybody what they are. First and foremost is to grow our software business faster than the market. Two, we are going to get towards a profitable device business. And third, but not last or last but not least is to continue to generate positive cash flow.

In fact, on the first one, we have more than doubled our software business growing faster than the mobility software market.

We increased our overall gross margin and continue to generate cash, and we made significant progress in moving our device business towards profitability, which I am going to talk a little bit, and James and I both will talk about that later.

In all, but one area, we were in line with or ahead of our key business metrics and the metrics in the analyst model. The one area of shortfall was in hardware revenue, which declined from last quarter and I will talk about plans to address this later in the call.

On the plus side, we reduced a loss in hardware, a key positive device gross margin and average selling price was steady from the last quarter from Q3. As I mentioned before, software was clearly the highlight in Q4. We are increasing in both scale and gaining market share, and consistent with the strategy we laid out.

Like in Q3, growth in software more than offset the decline in SAF revenue in the quarter. Our enterprise business finished the quarter and the year very strong, enabling us to exceed our goal of $500 million in enterprise software and licensing revenue for the full year. This of course exclude the BBM consumer revenue.

This is more than double the amount compared to last year. We have multiple growth engines in software and I continue to expect above market growth in FY17. Now, a summary of our Q4 results. All the number I use is non-GAAP. So revenue came in $487 million, software and service revenue was $153 million, up 106% from year-over-year.

Non-GAAP EPS loss was $0.03 a share. We also achieved our ninth consecutive quarter of positive EBITDA, which was $78 million in the quarter. Free cash flow was $6 million, our eighth consecutive quarter of positive free cash flow. Ending Q4 cash balance was slightly above $2.6 billion.

As usual, James will take you through the financials in much more detail. In FY16, we achieved some significant business accomplishments. I would like to point out some of the highlights. One, positive free cash flow of approximately $229 million. Total software and service revenue of $527 million, up 113% year-over-year.

Software orders were over 10,000 enterprise customers. We completed the acquisition of WatchDox, AtHoc, Good Technology and Encription to drive the cross-platform software and Internet of Things strategy. We launched two new devices, Leap and Priv.

Priv represent BlackBerry’s first Android device and support our cross-platform strategy and our ability to provide a secure end-to-end mobile platform for Android in enterprise. Now, let me provide various details on our key businesses starting with the hardware.

Our strategy call for a profitable device business and I am encouraged at least by the progress we are making here. At the same time, our device volume would be low as our expectations. The softness in the high-end of the smartphone market is certainly a headwind.

So the main reasons, the main issues that we face, issue that we need to address is the distribution. As planned, Priv is now available in 34 countries, up from four last quarter. Unfortunately, contract negotiations took longer than planned with certain major carriers, including Verizon. It pushes the Verizon launch out of the quarter.

However, Priv continues to receive very positive review and net promoter scores. Our value proposition that is to offer the most secured Android smartphone for the enterprise is actually quite strong.

We believe this market opportunity, whilst maybe small today, we continue to develop and open up, and we are leveraging this through increased channel coverages. Here are some things that we are working on. With March, we launched Priv with Verizon Enterprise in all 1,700 plus retail store.

We are working on six more countries and 14 more additional carriers. In the last week, we formally launched in Japan, and next week we are planning to launch in Mexico. We are also focusing on expanding the e-commerce channel and ramping up enterprise direct activity for Priv as well as for BB10. A word on our overall device roadmap.

We are planning our Android Marshmallow release, known as the M release for late April, early May. On BB10, the 10.3.3 releases that we are all waiting for has been released and started the NIAD with the security certificate program, NIAD certification testing in Q1 as we have planned.

With the official release pending technical acceptance targeted for mid-June, we are waiting on the certificate testing and this is a little outside of our control. A 10.3.4, the next release is already being planned for BB10 for later in the FY17 and early FY18.

From a financial standpoint, we have made significant progress on margin improvement and moving the business towards profitability. In fact, in Q4, we reduced our device business operating loss by half from Q3. ASP was steady and consistent with Q3, came in possibly $315 and we achieved positive device gross margin.

We are still on track with our plans falling for achieving device business profitability some time in this fiscal year, FY17. Moving on to the enterprise software, as I noted at the beginning, our software business is performing well and we are gaining share.

I am very pleased that we slightly exceeded our enterprise goal of $500 million in revenue for the full year. There were a number of deltas when we first set this goal in November 2014. So this milestone now shows the scale and the traction that we are achieving.

In addition, we landed 3,600 customer orders in Q4 giving us over 10,000 customer orders for the fiscal year FY16. The mix of recurring revenue was about 70%, which is consistent with last quarter.

Some notable enterprise customer wins in the quarter, including the US Department of Veteran Affairs, which awarded us a $20 million multi-year order for our secure crisis communication platform covering about over 600,000 VA personnel. We also had further wins with Dell, CommonWealth Bank and Rabobank.

The Good Technology organization is now fully integrated in BlackBerry, and our go-to-market functions are operating as one. In addition, we are now delivering BlackBerry level customer support to Good customers. Well, all customers are good, but Good customers, which has been very well received.

In January, we launched five secure Enterprise Mobility Management, a management suite, combining the best of breed capabilities from BlackBerry and Good Technology. These suites provided a secure mobile platform for messaging, collaboration, application enablement, device management as well as content management.

The customer feedback since we launched this week has been extremely encouraging and positive, besides they were amazed that we were able to do it so quick after the coming of the two company together. The best evidence of this is the traction we’ve seen right out of gate. With that we won 90 – we have 90 wins in the first 60 days of the release.

The examples including the HotRod [ph] in Germany, Jones Day and Case Nacional [ph], I am sure that’s in France, [indiscernible] Quebec. I also want to emphasize that these integrated suites are important for our cross-platform story. We are seeing this resonate well across our customer base as well as with the analyst communities.

To accelerate adoption of the suite, we are expanding our professional services practice by adding additional billable resources. Looking forward, we feel very good about the outlook of our software business. We have multiple growth engines in place, I count total of 5. I will give you some quick recap here.

Number one, obviously our EMM, Enterprise Mobility Management suite and we being the market leader with 19% market share, our higher value-added application stack, and with all the capability I just mentioned give us clear differentiation versus our competition.

Secure messaging and content management came from our acquisition of AtHoc and WatchDox are now fully integrated also provide us differentiation as an entry point to new customers and new verticals. Third, which is a major focus of this year, the strength of our QNX business, especially in automotive helps drive growth in the IoT.

I will give you some data points. The QNX kernel is embedded in over 60 million cars around the world. We have more than 50% market share in the infotainment systems. At CES, in the beginning of the calendar year, we launched new capabilities in advanced driver assist system, ADAS and the vehicle to vehicle communications.

Some of you might have seen it on the CES floor. These innovation demonstrate our commitment to the connected car and autonomous driving technology. We also launched our latest IoT initiative, our assets tracking box branded as BlackBerry Radar, which we just announced yesterday and demonstrated at the Mid-America trucking shows.

We are starting a pilot program and there are already a number of customers signing up to do that. The general availability of this product is in summer of this year. Asset tracking and connected cars is a $6 billion market opportunity growing at 20% year-over-year.

Four, we form a cyber security consulting practice to build on our security heritage that include the experience in managing hundreds of millions of mobile endpoints. We made an acquisition and announced that at Mobile World Congress, a UK-based company by the name of Encription Limited.

This help accelerate the effort as well the effort supporting this practice together as well as supporting our auto and IoT initiative. This practice combined with our existing security offering will address strategic and technical security, the latest cyber security threat and risk mitigations.

This address a $18 billion market opportunity today, going to $23 billion in 2019 according to the Gartner Group. Of course, we are going to use both our internal resources and then try to leverage a lot of the system integrators and partners around the world to deliver the services.

Last, but not least, we did not generate – although we did not generate any IP licensing revenue in Q4 as we have predicted in Q3, we are working on building a base of recurring IP revenue. So with these five growth engines, we do expect to grow faster and pick share in the markets for mobile, software and services.

We have been ramping up investment in all these areas in FY16 and we will continue to do that in FY17. We see the mobile software and service market grow at about 20% to 25% depending on which segment because we cover a huge segment of it. So we are targeting our software growth at 30% in FY17.

We expect quarterly software and service growth to exceed the decline in SAF revenue cumulatively over the full year. I would now turn the call over to James for a detailed look at the financials.

James?.

Thank you, John and good morning everyone. Today, we reported Q4 GAAP revenue of $464 million and non-GAAP revenue of $487 million, with a GAAP loss per share of $0.45 and a non-GAAP loss per share of $0.03.

Our non-GAAP income statement presentation exclude purchase accounted deferred revenue write-down, debenture per value adjustments, stock compensation expense, restructuring program charges, amortization of purchased intangibles and business acquisition and integration charges.

My comments going forward on our financial performance for the quarter will be based in non-GAAP terms unless otherwise specified. For reconciliation between GAAP and non-GAAP numbers, please see the earnings release and supplement published earlier today. Now let me begin with the income statement.

Our total revenue for the fourth quarter was $487 million and $2.2 billion for our fiscal year 2016. Software and services represented 32% of revenue and grew over 106% on a year-over-year basis for the fourth quarter.

Total software and services revenue for the full fiscal year was $527 million, up 113% year-over-year and to be clear, this includes both IP and BBM revenue. Roughly 70% of total software and services revenue including contributions from acquisitions was recurring in nature. Our target as we previously discussed is to get to 80% in fiscal year 2017.

Service access fees or SAF were 29% of revenue. The sequential SAF decline of 17% was in-line with our expectations and was fully offset, as John mentioned, by the growth in software. We are modeling a sequential decline in SAF revenue of roughly 18% next quarter as well. Lastly, our hardware and other revenue represented 39% of revenue.

We recognized revenue on roughly 600,000 units in the quarter. ASP was approximately $315. Hardware volumes and revenue declined from last quarter, yet we delivered solid results overall as our gross margins on hardware improved in the quarter and at an operating income level, we cut the loss in hardware by half compared to the prior quarter.

Turning to margins, gross margin was 48.7%, up from 44.9% last quarter. Gross margin increased sequentially due to strong performance in software and services. The reduction in fixed royalty costs, slightly offset by low hardware volume and continued decline in SAF also helped gross margins in the quarter.

Our model reflects a gross margin in the mid-to-high 40s for the next quarter. Operating expenses were $258 million, down from $280 million last quarter.

Our non-GAAP operating expenses exclude $188 million in restructuring and acquisition charges, $28 million in amortization of acquired intangibles, $17 million in stock comp expense, and a non-cash credit of $40 million from our convertible debt.

As a reminder, this non-cash adjustment to the debt has no impact on the face value, on our liquidity or on our operations and cash flow. Operating loss was $21 million, largely due to amortization expense excluding acquired intangibles of $99 million.

Our adjusted EBITDA this quarter which excludes non-GAAP adjustments previously mentioned was a positive $78 million. We had a non-cash tax recovery of $18 million in the quarter. Now moving onto the balance sheet and our working capital performance. Total cash, cash equivalents and investments ended at $2.62 billion.

This reflects net cash used for the purchase of Encription and $36 million used for share purchases. Our net cash position is $1.37 billion.

Aggregate contractual obligations which includes purchase orders, operating lease obligations, interest payments and other goods and services utilized in operations amounted to approximately $862 million, down from $1.3 billion in the same year ago period.

Purchase orders with contract manufacturers represented approximately $391 million as of total, down from $697 million in the same year-ago period. Moving to the cash flow statement, we generated positive free cash flow of $6 million in the fourth quarter.

This reflects the increased investments we made in working capital leading up to the Priv launch. This is our eighth consecutive quarter of positive free cash flow. Looking forward, we expect to maintain our positive free cash flow and positive EBITDA for fiscal 17. That concludes my comments and I’ll turn it back to John..

Okay, well thank you James. Before we start our Q&A, I’ll share some thoughts or repeat some of the thoughts that we laid out earlier. As I stated earlier, we’re modeling our software growth around 30% in FY17.

I expect continued gain in market share at that level; I also expect quarterly software and service growth to offset the decline in our SAF cumulatively over the full year. Work remains in the device to drive higher volume and we have plan to accomplish that. The path to profitability however in device looks quite reasonable.

To provide transparency on our progress, we plan to report a multiple operating segment known as segment reporting including device as one segment, software services as one and SAF. We expect this to begin reporting in the basis starting in this fiscal year, FY17. So with that operator we are ready for the Q&A..

[Operator Instructions] And our first question comes from the line of Maynard Um from Wells Fargo. Your line is now open..

Your software revenue this quarter annualized is about $612 million. So, I presume your software guidance on a like-for-like basis is around 11% year-over-year growth which is kind of lighter than I would have expected relative to market.

You talked about the growth drivers but maybe talk about are there areas that are slower than expectations and does your guidance assume further M&A and IT revenue.

And then just quickly on hardware, if you can just help us understand the cost structure, how much of the cost structure is now related to hardware and how strategic you think that is because you can obviously grow your soft business - software business even without the hardware? Thanks..

First of all, I couldn't follow your math in terms of $600 million, I don’t know what the normalized $600 million some and maybe you could --.

I just took your software revenue from the quarter and then annualized and multiplied by four --and you obviously did acquisitions through the year --..

Yeah, I think that might not be the most accurate probably because while now A, we are pushing more modest subscription B, there is a - what do you call that, not a timing but seasonalization sectors and I don't think you take that number and multiply by four and then you said [indiscernible] assuming there is seasonalization assuming we are even pushing harder onto subscriptions.

The last couple of quarters, subscription is at 70%, our plans go to 80% subscription for FY17. So all these are factored in and we literally are looking at 30%. Than the 30% growth does not include acquisitions but it does include some level of IT.

In fact, I would tell you, my plan of the IT number is actually lower than the IT numbers what we see in FY16. So, that should give you a general idea. Truly I believe it's truly organic. So, that's one. There are no segment of the market that are growing less than like in the 20.

When we did our – all the segment we’re talking about in QNX, secure messaging and all that, with the lowest one is about 20, may be on the secure messaging the growth rate because it’s all subscriptions and user account that might be a little bit lower than 20 but not much after that. So everything else is about that..

Maynard, it's James. For your second part of your comment on hardware in terms of the cost base, obviously as we have said we cut the operating loss in half with some benefit from fixed royalty and margin but obviously the cost base continues to come down in terms of hardware and the proportion that’s dedicated to it.

So, we’re not going to give an actual number but we continue to make progress in taking that down as well..

And then John just to the other part of that question. You can obviously grow your software business pretty strongly in your EMM business without sort of significant hardware growth. So I guess I'm just curious how strategic that is to you? Thank you..

My goal is, I mean my plan is always been I wanted to get to a break even or better device business. It does have some tied in, a number of our major accounts for example, especially in government so, they actually buy both the hardware and the software to create a more robust and more secure environment.

So, there are some tie in, I would agree in general industry side maybe not as much of a tie-in. So there are some relationships - you're right, right now the number one focus that I have or the company now has is to continue to ramp the software and services program..

And our next question comes from the line of Daniel Chan from TD Securities. Your line is now open..

So the hardware units have come down to 600,000 units and we’ve seen a number of few flagships with more modern hardware launched recently and even one of your competitors moved to a lower tier product as a high-end market get saturated, so how do see yourself competing given these market dynamics?.

That's a good question I'm not really prepared to talk about, first of all I would say that I agree with what you said. I too are looking at a more of a midrange profit-owned type of devices with good security for Android. But I'm not prepared to make an announcement as such.

The first thing I want to do is to get my cost deflation and expenses and capabilities line up correctly in the device process. I truly believe that we’re very, very close in being able to break even or start making money in device.

As you all know and I said many times if we - despite of all the efforts that we put in, if we cannot make money on the device business and it become a burden due to consolidation then I will have to get out of that particular business but that's not a big secret, I say it. I say it and that hurts me in front of the customers.

A lot of time I go to show to a customer, they keep wanting me to explain that but I think I explained it as a reasonable good business person and that people get it. But I still believe that we have a shot at it, hopefully I'm not naive but we do have a pretty good plan with multiple engine firing at the same time. That's where we are.

But we will have to take - you hit it right on the nose. One of the problem that we ran into in the last quarter, people does like our Priv but there is a much more limited audience in that particular market that segment seems to be quite saturated at this point.

So, people would love [indiscernible] moves down one level in high point and so we’re looking to address that..

Just related to the part about once you’ve said break even as -- that’s your first goal but beyond that what would you -- what would make you consider the hardware business successful for you to continue to participate in that..

I will need to start seeing growth and contribution to the bottom line..

Our next question comes from the line of the Tim Long from BMO Capital Markets. Your line is open..

Just one clarification and then a question for you. Just want to understand the revenues from software.

I think as I understood it for the full year that revenue growth should be higher than SAF decline in absolute numbers, I mean running my math I would seem like the SAF revenues would go down a lot less or have to go up, am I missing something in the interpretation of that comment.

And then on the just wanted to talk about all the new customers who moved to some of these integrated suites. Could you talk a little bit about deal sizes and what are you seeing with these integrated deals, are you seeing a meaningful move up in revenue opportunities with some of these newer customers? Thank you..

Thanks Jim, this is James. In terms of the coverage of SAF, I assume that you're talking about fiscal ‘17..

Yeah the cumulative..

So ultimately that's been our objective all along. And when we talk about covering SAF it’s not like we’re looking at total fiscal ‘16 versus total fiscal ’17, we’re talking about covering the first dollar we lose in SAF from day one of fiscal ‘17 through to that last dollar we view in fiscal ‘17 as well. So it’s that decline.

So that’s kind of a definition of it and as we have both said that yes we expect software growth to fully cover that..

So the answer to the question, actually the suites are quite encouraging. The average transaction rate has picked up I am seeing high six figures, seven figures deal but cautionary note is that usually is subscription base for multi-year. So, we're going to have to take it on a monthly basis, but it's quite encouraging..

Our next question comes from the line of Ben Bollin from Cleveland Research. Your line is now open..

James, I wanted to start by looking at the last question, you talked about coverage of the SAF decline.

So if we model your software targeted at this 30% year-on-year growth and that kind of an 18% sequential SAF decline on a go-forward basis, you lose $400 million in service revenue on the SAF side and you pick out $250 million, $260 million in software revenue. So where the delta in terms of the coverage and then I have a follow-up..

Okay, then go back to one of my last answer. I'm not looking it as a full fiscal ‘16 versus full ’17. So for example if you think of where we ended up in Q4 take 18% after off of that, you’ll lose somewhere between $25 million and $30 million.

And then so on and so forth, so even if I took the 30 multiplied by four compared to your $400 million, I'm losing $120 million that's the way I’m looking at it, the full number of dollars that I'm losing in fiscal ‘17 will be replaced by the software growth..

The other item, when you look at the software engagement, what is the average contract duration and what is the strategy to migrate from kind of the 70% recurring fees to 80% recurring? Thanks..

Duration usually is two to three years. There are one-year deals but they don't tend to be dominant, they are usually two to three years, three years renewal cycle very common. So that's point number fine one. The strategy is, it’s actually reasonably simple, we have a lot of common customers between good technology and BlackBerry.

And good technology usually tends to have a higher percentage of the recurring revenue. And BlackBerry used to be more perpetual base or term license maybe I should say. So what we’re doing is to work with the customers and come up with a goals forward to combine purchasing and commitment.

And of course at the same time upsell them new capability like the suites and provide professional services for migration for the cross platform migration. But it’s the quoting process and our own commission plan process tends to buyers or people to push on a more subscription base. So that's basically a strategy.

We do, do some perpetual licenses but really almost at a instance of the customers..

Our next question from the line of Paul Treiber from RBC Capital Markets. Your line is now open..

Looking at the software revenue growth exceeding the decline in SAF, how should we think about the profitability, the EBITDA profitability of those two businesses over the year?.

They are actually reasonably comparable. So, because I do have a lot of infrastructure supporting the SAF.

So it doesn't come as pure margins and our software because we own a lot of software, we sell them to third-party - we sell software only a couple of them, [indiscernible] so other than that so our margins are reasonable, so they are very comparable..

And Paul and also remember just that the infrastructure that John talked about also involved in delivering some of these enterprise services too. So, one of our task of course is to make sure its sufficient but there is kind of a reuse for that functionality from SAF across to the new services as well..

So we should think as a mix shift from software to -- or from SAF to software, the profitability would be essentially a wash as that mix happens?.

Very similar, yes correct. Since day one, I have always been since I cannot stop the SAF from declining given all the dynamics out there. I have always been very focused on replacing the SAD revenue and eventually go the other way because the SAF revenue will come down.

And so that's always been my strategy and then fortunately, luckily Q3, Q4 we made that happen and I hope to continue on..

Just one follow up just in regards to the hardware business.

Has the hardware at the breakeven point for hardware declined from the 5 million units previously indicated?.

It's roughly about three now. It all has to do with the ASP, right. Its 3 million units, 300 or so ASP that we experienced. So I mean, as we move downstream which we want to occur in compensation that I have to increase that sales but my problem really is more on the channel.

We sell secure enterprise really literally executive and up, a much more different kind of a profile despite of the fact AT&T and T-Mob, Verizon in United States and all the three cell phone company in Canada has been extremely supportive. And their audience we need to ship to their enterprise audience more so and that's what I'm working on..

Our next question comes from the line of Rod Hall from JP Morgan. Your line is now open..

Just a couple of things to clarify and then a question. I just wanted to see on the software revenue can you guys talk about the Good plus AtHoc revenue for fiscal Q4 against any kind of idea how big that was just so we can calculate underlying organic revenue there more easily? And then --..

So -- sorry, finish it, yeah sorry..

No, go ahead James and then I can follow up with my other question..

This is John. Here is a thing, I will give you a number because we kind of expected on this fall people would want that organic number. I would give you a number but I have to first explain that we completely integrated and we have common customer base.

And so we talk about going back to all our customers and they have been well received and say, here are the suites, here are your renewals for BlackBerry, here are your renewals for Good Technology and it’s really one and the same now, because we offer one suite.

So it’s really hard to say whether you take that part as an MDM from BlackBerry, you take the application servers from Good Technology. So it really is a combined -- we don’t even have to use those names anymore. We basically have a combined suite with a base platform and five offerings. Okay.

So with that and so I would hopefully appreciate the fact that there is no special SKUs to identify is this from the old or is this from the new. So -- but I know that that would not satisfy any one of you guys. So I’m going to give you a number. We did a lot of work in calculating to the best of our ability to identify, it is 24% organic growth, Q4.

And we feel pretty good, because we look at everybody in an industry that’s better than anybody that we know of, okay. So, that’s the number. So I can’t really kind of break everything out going forward for you because of everything..

Okay.

Can you just -- that's year-over-year organic? Quarter-over-quarter?.

24% growth, its year-over-year..

Year-over-year. Okay. And then the other thing I wanted to ask, John, is you made this comment in the response to the last question that you were thinking about distribution. You talked about distribution a couple times.

Are you saying you want to go outside the carriers and just go direct to the enterprises and distribute these devices or what is it you're doing with distribution exactly there because it seems like it would make sense to go direct to enterprises, but--?.

So, some of the carriers, so -- great questions. We have a history that are very much tied to the retail side of the carriers. We do a lot of emphasis on that where everybody is really trying their best and I mean it everybody.

We have great relationship with AT&T, T-Mo, Bell, Rogers, Telus, everybody likes the product, trying it, but the movements are slow. And slower than I like obviously, so but they all have the enterprise arm. So we’re going to put more emphasis working the joint marketing thing with the enterprise arm.

So I’m not running away from the carriers, but at the same time, I also need my direct sales force, especially with government and financial and healthcare, we’re selling software, I like my sales force to also represent selling hardware to them.

And we seem to have, in very selective, this is extremely early, some reasonably good example of wins in the last quarter, so we just did it in like literally the last month. Seems to be a strong amount of interest for us to do that. And I want to extend that answer to one other thing.

Notice that we are putting together a professional services for both security services like intrusion detection and management of that as well as helping people to move on the cross-EMM platform. Two professional services organizations are being built up right now in the company and the pipelines are very, very good.

Although, our capability or our capacity is very constrained as much as I keep adding people to it, it’s still very constrained. So we’re now trying to branch out to work with professional services firms that have a lot more people that could take and deploy around the world.

So I feel good about that, because of the volume of business that’s being generated, the interest of that and I feel good about going directly to the enterprises..

Okay. And then I know it's three questions, but I wanted to double check with you on this Foxconn deal.

Is that still a big part of the getting to profitability or do you feel like that's kind of popped out now in terms of the proportion? I know you've been reluctant to give us the proportion of units, but if you can give us any idea how big that is in terms of relative units, just be curious?.

The Foxconn built out classic and it’s a – from my limited experience in the last 2.5 years here has been extremely, extremely successful. In fact, people still want the classic. I unfortunately am getting to the point that I can’t make it anymore because of the fact that the memory components and all that is changing.

So I’m working on that issue also. The Foxconn is an important component, but it’s not a huge component of it. That’s number one. But maybe we can work on something else with Foxconn. The financial arrangements works for both sides and there are other ODMs will offer us the same thing now.

So that environment has completely changed and I thank Foxconn for leading the charge with us when I first joined, but now other people are doing the same thing with us now..

The next question comes from Paul Steep from Scotia Capital. Your line is now open..

Great. Thanks.

On QNX design wins, could you talk about what the backlog was from ‘15 that will fuel the -- sorry, fiscal ‘16 that will fuel the ‘17 results? And then I've got one quick follow-up?.

QNX in fact, our people are calm on design wins. This is why it’s a more longer term revenue. We don’t lose much knock on wood. And it’s building [indiscernible] we’re working very -- much more broader and closely with Ford because of Sync 3 and an extension of that, we’re creating new modules.

We’ve got definitely over 250 customers in automotive around the world. So and I don’t -- we don’t tend to lose customers, maybe one city and two cities, but not many. So as I added more modules to it, we will get more royalty going forward.

So sorry, I don’t give you specific numbers, but first, I’d have a look at it for a while and secondly, I don’t think I should just disclose these data..

Okay.

And then maybe in core software, how far through the transition are you from a perpetual model towards a subscription model when we think about your 70% recurring, specifically? How much of that is traditional maintenance that is up for annual renewals?.

No. Good question. The 70% is not a maintenance at all. It really is a subscription based count. As I said, we’d like to get to 80%.

As time progresses, there are more renewal that’s going to come up and when the renewal comes up for licensing, either on the Good Technology side or the BlackBerry side and the maintenance renewal on the BlackBerry side came up, which is fee support, we tend to work with the customer to move to the pure subscription based model.

From our modeling of the pipeline, we believe we could get to 80% a year from today, but that’s the push that we’re on. So it’s quite honest way is -- there is no negative here, we just need to continue to push it..

One quick follow-up, sorry. Just on the EMM business, you mentioned it before.

How significant is the government as a customer percentage-wise? I know you're obviously not going to give a specific, but is it 50% of the EMM maintenance base or is it--?.

Not 50%, but it’s still significant. If I have to get and this is not a scientific guess, by just running around, seeing customer and stuff, I’d say about 30%. That may be even higher, I mean higher than actual. But it’s significant, the government is an important customer base for us..

And our next question comes from the line of Steven Li from Raymond James. Your line is now open..

Thank you. John, the 24% organic growth for software you just provided, so that looks like it would place Q4 organic software at about $80 million, which is flat from Q3.

Does that sound about right?.

I didn’t look at it that way. We were just counting knowing that you folks, really $150 million, $155 million, 24%, it sounds low, Steven. It sounds low, so a lot of subjectivity in that 24% because of the bundling that’s going on. So we want to try to ballpark..

So because last Q4 ‘15 last year, you reported $67 million.

So I can't just do $67 million plus 24% and get the organic software for Q4?.

I don’t know, I have to think a little about that, but I don’t know whether that is the way to think about it. If $67 million and 24%, we will get back to you on that. I think it sounded low to me..

Okay. I can follow up. And then James, in your prepared remarks, you said hardware losses, you cut it in one-half. Does that fully reflect the fixed royalties step function decline or is there more to come? Thanks..

Yeah. It’s a combination. It’s the fixed royalty is some consolidation of our resources and, so it’s a combination of a number of things and some of the design costs that we have a lot of partners to bear a little bit more. So it’s really literally every little thing that we spend money on running business..

But is there more fixed royalties decline coming or is that done?.

Even as we know, we -- the one particular deal took us to the end of December, calendar 2015. So conceptually there is one more month for that benefit to come in to Q1..

And our next question comes from the line of Michael Kim from Imperial Capital. Your line is now open..

Hi, good morning, guys.

You talked a little about the strategy around expanding into the cyber security service and professional services with the Encription acquisition, maybe more specifically how you think about scaling that business globally, given the shortage in skilled talent, and Encription had somewhere around 40 folks?.

Yes. So the reason why Encription is important to us is first of all, their main customers are basically UK, government agencies and we could learn a lot about from them about the process of delivering that.

In addition to that, my IoT strategy, in order for IOT to move forward that we can offer more to our customers, we really do need to have a security services and certification program that our customers are more than willing to pay for. So those two are my immediate focus.

We do have a security -- a pretty big security team actually quite close to where Encription is physically. Our big security team is in UK. So we believe that some of our security people could turn into revenue producers into billables and they’re very keen on doing so. So that’s one part of expansion.

But you could think that somehow I’m going to build a huge professional services organization and be profitable and I’ve been in that business for a while, it’s a really, really tough business to be in to have good margin, because of capacity planning and where all the resources are.

So we’re going to be very, very specialized in those two areas that we talk about, for government agencies, intrusions and large corporations, intrusion detections and threat analysis and so forth and as well as for the IoT cloud certification services.

In the meantime, I’ve been reaching out to various SI of the world, which they love to have a partner like us that would create and provide knowhow and they would like to take it out and we could do some kind of a revenue sharing process going forward.

A number of them have resonated with me, none of them where I could announce today because we’re still working on kind of how they work together.

So those are the -- so I’m going to try more leverage on partners with some very specialized verticals on ours, does that make sense?.

Yeah. That makes sense..

Thank you. Our next question comes from the line of Vijay Bhagavath from Deutsche Bank. Your line is open..

Good morning, John. This is actually -- this is AJ Shrestha in for Vijay Bhagavath. Just a real quick one from me. I just wanted to get some kind of a demand trend based on the geo current macro on the smartphone and PRIV.

Any kind of granularity would be great?.

I think partly it’s driven by our own distribution capability. So I’ll give you as much as I think make logical sense in a global basis.

Because of the tiering of the PRIV, it came out at $799 and $699 because tiering at PRIV and it’s a pretty high end product, it tends to be in more of the developed economy and so we’ve done reasonably well in the US, we’ve done reasonably well given our levels in Canada, in Hong Kong, in major metro cities, in Singapore and so forth.

I think we’re going to expand into as I said, we’re going to expand into Tokyo or Japan, and some of the western European states like UK as well as Germany. So I think those are what we see a better demand than a different tier of the market..

And at this time, I would like to pass the call back to John Chen for any closing remarks..

Okay. All right. That’s it.

That’s all -- I don’t really have much closing remarks and as I said, like to repeat the fact that we’re not satisfied with our hardware volume, but we’re satisfied with the ability to get to profitability and so the gross margin, the ASP and the plans surrounding continue to improve that and then now working on distribution, I think there is some good hope there.

Software services doing very well, teams are great. They are charged and energized and I think they will continue to do well on that.

So SAF, we will do what we can, but I don’t think I could change much of where the SAF is, but eventually in a year or so, you could see that the SAF impact of us although painful is going to be a lot less and then our software growth will be a lot higher. So we thank you for your patience and thank you for your support and we’ll talk next time.

Have a good day..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day..