Good afternoon, and welcome to the BlackBerry First Quarter Fiscal Year 2021 Results Conference Call. My name is Josh, and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn today’s call over to Christopher Lee, Vice President of Finance. Please go ahead..

Thank you, Josh. Welcome to the BlackBerry fiscal 2021 first quarter results conference call. With me on the call today are Executive Chair and Chief Executive Officer, John Chen; and Chief Financial Officer, Steve Rai.

After I read our cautionary note regarding forward-looking statements, John will provide a business update, and Steve will then review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via calling numbers and via webcast in the Investor Information section at BlackBerry.com.

A replay will also be available on the BlackBerry.com website. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of applicable 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 statement 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.

These factors include the risk factors that are discussed in the Company's annual filings and MD&A and the COVID-19 pandemic, which is negatively impacting public health, financial markets and global economic activity. You should not place undue reliance on company’s forward-looking statements.

The Company has no intention and undertakes no obligation to update or revise any forward-looking statements except as required by law. As is customary during the call, John and Steve will reference non-GAAP numbers in their summary of our quarterly results.

For a reconciliation between our GAAP to non-GAAP numbers, please see the earnings press release and supplement published earlier today, which are available on the EDGAR, SEDAR and BlackBerry.com websites. I will now turn the call over to John..

Thank you, Chris. Good afternoon, everybody. I hope that all of you and your families and your loved ones are staying safe and healthy during these very unprecedented times. This fiscal quarter of ours, which happened during March, April, and May overlapped directly with COVID-19 business constraints, resulting in both headwinds and tailwinds.

The entire Company moved to working from home in early March, and operation has been reasonably smooth. I would start with the financial highlight in the quarter and then move into the business commentary. I will reference non-GAAP numbers in my summary. In our first fiscal quarter, we reported total Company revenue of $214 million.

All the businesses performed in line or better than our expectation except for QNX, which was negatively affected by global auto production shutdowns.

However, our enterprise products and services that feature security and productivity benefited from the increase in remote working, business continuity, and crisis management use cases with our customers. Total Company billings were also down year-over-year due to the pandemic, but the billings decline rate was less than the revenue decline rate.

This is of course a big positive for future revenue. Gross margin was 71%. We achieved a profit of $0.02 per share. BlackBerry continues to balance profitability and investment for a long-term. Cash used in operation was $31 million versus $64 million in cash used in operation last year.

As you are aware, our first fiscal quarter typically has a high use of cash due to the commission and the annual bonuses payment. This year, we spread the annual bonus payment over to the first two quarters. Total ending cash and investment balance at May 31 was $955 million.

Before I move on to business commentary, please be reminded that we have fully integrated Cylance into BlackBerry on March 1, the start of our current fiscal year. As a result, we are now operating in two reporting groups, the Software and Services group and the Licensing and Others group. Let me start with the Licensing and Others group.

Revenue was $58 million in the quarter, in line with our expectation. The vast majority of the revenue is from IP licensing. We're off to a solid start for the fiscal year. Moving on to the Software and Services group, revenue came in at $156 million. AR was approximately $500 million, and dollar-based net retention rate was 93%.

Going forward, we intend to provide these metrics on a quarterly basis. Net customer churn was close to 0%, and there has been no change to this net churn rate for the last several quarters. Let me click down on the key product components of the group. Let's start with QNX.

Development seats, professional services, and royalty revenue were all negatively impacted, primarily due to the auto shutdown, production shutdown, and the project delays. That said, we're starting to see signs of recovery in the auto sector evidenced by the reopening of the production facilities.

Engagement with our auto and general embedded customer has increased on projects that we were working on prior to the shutdown as well as new opportunities that came up. We anticipated a slow and gradual recovery for QNX throughout the year. It will take time for the production to ramp back to full capacity.

In the quarter, QNX was chosen for 10 design wins, 6 of which were in the general embedded market for industrial and medical applications. The remaining 4 were in auto, including in ADAS advanced driver-assist software, design wins with Hyundai Autron, and an acoustic win -- design win have with Volvo.

The other two auto design awards were for the secure gateway and in infotainment systems. This continued design win momentum supports our leadership positions. Our latest automotive installed-base number is over 175 million, an increase from 150 million last year.

These metrics which we generally update once a year, have been validated by Strategy Analytics, an independent third party. In an attempt to provide more information about -- on QNX business, we have decided to share our royalty revenue backlog on an annual basis.

The backlog is based on the customer estimates of lifetime volume of the design when it is awarded. As of today, the estimated royalty revenue backlog is at $450 million. QNX is a recognized name associated with safety and trust, and we continue to expect that QNX will be selected for many design wins in the future.

These design wins will add on incremental revenue from development seats, professional services, as well as royalties. Our full-year historical compound annual growth rate or CAGR is 13%, which is well-ahead of the 5% market CAGR over the same period.

Over the next five years, we plan to achieve a CAGR above the market growth rate of 11%, which is cited by McKinsey for automotive, operating system, and middleware over the next decade.

Our plan to accelerate the QNX growth rate includes increased investment to gain market share in both the auto and general embedded markets and to grow our professional services business. We recently launched our first service package that offers cybersecurity assessments and testing. Moving on to AtHoc, our crisis communications life cycle solution.

AtHoc was a performance leader this quarter. AtHoc is very well suited for business continuity, preparedness, and execution in the current environment. We had a number of new customer wins in competitive wins -- competitive situations, sorry, including wins with first responder agency and energy companies.

We also had a strong quarter expansion and renewals. After the quarter, we announced several notable new logos, including United States Department of Transportation and the U.S. Federal Trade Commission. We also expanded our business with the U.S. Department of Health and Human Services.

Moving on to Cylance and UEM, which going forward will be referred to as the Spark platform. BlackBerry Cylance was slightly ahead of consensus expectations for the quarter. We added 279 new customers and new active subscription customer growth was about 15%. This is a measure on a year-over-year basis.

Notable new customers include General Motors, Becton Dickinson, Philips Healthcare, SKF which is one of the Sweden’s largest manufacturer, the New Zealand Defense Force, and the United States Census Bureau just to name a few.

We have seen revenue steadily increase for the bundle that includes Optics, which is our EDR products and Protect, which happens to be our EPP product.

Interest in our managed service offering, Guard continues to be strong since its launch last July, resulting in sequential revenue growth of over 85%, which is what I have to caution, this is of a small base.

BlackBerry Cylance performed extraordinarily well in the recent MIDR [ph] evaluation, which is regarded by the industry as the most objective and transparent standard currently in the market.

We clearly demonstrate that our AI led solution and managed service Protect customers from global threat efforts, we were especially pleased by the performance of optics. We surpassed many EDR players who happen to be ranked above in the industry analyst report.

Our UEM business also executed well, benefited from the increased need to deploy more endpoint, especially in mobile. Demand was strong from our regulated industry customers. Let me name some notable wins, notable customers.

They include American Express, CIBC, the European Bank for Reconstruction and Development, Qatar [ph] National Bank, The National Commercial Bank, [indiscernible] Bank, the Development Bank of Singapore, Mitsubishi UFJ Financial Group and the Republic of India. With the Republic of India win, we now have 18 of the G20 government as customers.

These wins I hope you agree will solidify our strength in the financial services and governments vertical. Let me wrap up with a Spark Suite, enterprise today face an increasingly chaotic environment with cyber threats, ever more sophisticated and pervasive.

Attackers’ primary target endpoints in 70% are successful breaches, especially in the form of mobile. The 5G rollout will lead us to a significant increase in attack on mobile endpoints. At the same time, enterprise endpoint and the amount of data share at edge are also growing exponentially.

Together, cyber security threats and endpoint chaos are putting organizations at risk, while cutting into the employee productivity and increasing the IT costs. A recent assessment by Frost & Sullivan defines the cyber threats to the entire IoT landscape. This report recognized how BlackBerry solution addressed over 96% of the collective threats.

A copy of this assessment is available on our website. A big part of the BlackBerry value proposition is our ability to address these threats with our Spark Suites, a platform that combines endpoint security as well as endpoint management.

Though the Spark Suites could only launch on May 19th, which was about four or five weeks ago, they have been extremely well received by both customers and partners.

Since the launch, over 15, one five, 15 customers have purchased one of our Spark Suites, including Deutsche Börse AG, one of the largest provider of financial market transaction infrastructure worldwide. After the quarter, we announced a partnership with Bell Canada.

BlackBerry became Bell Canada's preferred partners for mobile threat detection -- and defense, sorry MTDs sometimes used as mobile threat defense. Bell will offer our MTD product to their enterprise customers. Our AI driven MTD product is one of the core pillars in our Spark Suites. We're adding more features.

We're on schedule to ship data loss protection and secure gateway later this year. We anticipated these additional pillars will increase revenue. We also believe this will increase our addressable market because of the way we architect our UES security layer to interoperate with competitor's UEM solutions.

Let me wrap up this session on a personnel front. We recently announced that Tom Eacobacci has been appointed as BlackBerry's newest President. Tom's role will be to lead all business activities for the Software and Services group. Tom is an accomplished software sales executive from Citrix with over 20 years of enterprise customer facing experience.

Tom has led all types of the global sales organization. In addition to Tom, we also have recently recruited two other senior level industry leaders focused on go-to-market. The first is our new Head of Software and Services Business Development, the second is our Head of Corporate Marketing. Both started on June 15, already.

The hiring I hope is a good indicator of industry talent interested in joining BlackBerry and demonstrates our conviction to build a stronger go-to-market engine. With that said, let me turn the call over to Steve to provide more details about our financial performance..

Thank you, John. My comments on our financial performance for the fiscal quarter will be in non-GAAP terms unless otherwise noted. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details and reconciliations.

We delivered first quarter non-GAAP total Company revenue of $214 million and GAAP total Company revenue of $206 million. I will break down revenues shortly. First quarter total Company gross margin was 71% versus 75% reported in the first quarter of fiscal 2020. The change is due primarily to a decline in QNX royalty revenue.

Our non-GAAP gross margin includes software deferred revenue acquired but not recognized of $8 million and excludes stock compensation expense of $2 million. First quarter operating expenses of $150 million were down sequentially by $22 million.

We continued our investment in product development and go-to-market while maintaining strong control over spending given the current macro landscape. And of course, the global shutdown did help to reduce spending. Our non-GAAP operating expenses exclude a $594 million non-cash accounting goodwill impairment charge.

This represents an impact of $1.06 to GAAP earnings per share. This assessment was required in accordance with accounting rules and was driven by the broad-based economic decline and corresponding impact on our market capitalization. Further details will be available in our Form 10-Q.

In addition, our non-GAAP operating expenses exclude $33 million in amortization of acquired intangibles, $12 million in stock compensation expense, $3 million for software deferred commissions expense acquired, $1 million in restructuring costs and a charge of $1 million related to the fair value adjustment on the convertible debenture.

First quarter non-GAAP operating income was $3 million and first quarter non-GAAP net income was $12 million. Non-GAAP earnings per share was $0.02 in the quarter. Our adjusted EBITDA was $20 million this quarter, excluding the non-GAAP adjustments previously mentioned. So, this equates to an adjusted EBITDA margin of 9%.

I will now provide a breakdown of our revenue in the quarter. In our Software and Services group, our product revenue was between 80% and 85% of the group's revenue mix with professional services comprising the rest of the mix. Recurring software product revenue was above 90% in the quarter.

In our Licensing and Other group as John loaded earlier, the vast majority of revenue is from IP licensing. And service access fees were about $2 million, and we anticipate about this amount for each remaining quarter in fiscal 2021. Now, moving to our balance sheet and cash flow performance.

Total cash, cash equivalents and investments were $955 million at May 31, 2020, which decreased by $35 million from February 29, 2020. Our net cash position was $350 million at the end of the quarter.

First quarter free cash flow before considering the impact of acquisition and integration expenses, restructuring costs and legal proceedings was negative $30 million. And cash used in operations was $31 million with capital expenditures at $1 million. That concludes my prepared remarks. I'll now turn the call back to John for additional comments..

Thank you, Steve. BlackBerry remains strongly focused on achieving profitability growth, a profitable growth while investing for the long-term. Now, given the continued uncertainty across the global economy due to the pandemic, it is still prudent for us not to provide a specific fiscal 2021 outlook.

However, that said, I’d like to provide some directional comments on the rest of the BlackBerry fiscal year. We are expecting a good second fiscal quarter because one, we anticipate a modest, sequential growth for our Software and Services group; and two, we expect a strong sequential growth in our Licensing group.

We anticipate licensing revenue to be around $250 million for the full fiscal year, not Q2, full fiscal year, in line with our normal intra-year seasonality we anticipate also a strong fiscal fourth quarter. I also want to reiterate, BlackBerry continues to be financially healthy.

Even during these uncertain times, we demonstrated fiscal discipline, generated profitability and maintained liquidity. We have ran -- recently ran another set of financial stress test, assuming up to 30% of revenue decline and no new financing. The result showed that we continue to be solved and liquid for the next several years.

We anticipate ending the year in a positive free cash flow position and therefore adding to our cash balance. And we plan to redeem the debenture this coming November, when they mature. This will save about $23 million a year in interest payment going forward.

We believe BlackBerry will capitalize on the secular trends on securing and connecting endpoints. Our business strategy and technology are definitely in place, we're competing in the right markets, and now the most important tasks right now is profitable revenue growth and market share expansion. And we are very focused on that.

Before I open up for Q&A, I would like to make a statement about yesterday's annual shareholder meeting to clear up any confusion. The fact that we did hold a Q&A session, unfortunately only one registered shareholder submitted a question. We answered the question.

There may have been others who wished to ask question, but could not because they were actually guests. So, there was no bridge on the technology. Our proxy materials are clear that guests will not be able to ask questions. I will now open the question up for Q&A.

Josh?.

Your first question comes from Gus Papageorgiou from PI Financial. Please go ahead. .

Thanks for taking my questions. Just a couple of questions, just first on QNX. So, you issued a press release, I believe it was yesterday that showed your increase in the installed base increased by about 25 million automobiles, which is about 25% of the market year-over-year.

I'm wondering if you could comment on the market share within automobiles year-over-year.

So, if it's roughly 25% now, what was it a year ago? And then just, secondly, thanks for providing -- giving some sort of sense of what the rest of the year is going to pan out like, just on your kind of on the enterprise software side, obviously, you said you saw strong demand in this quarter, what do you expect demand will be like for the rest of the year in that segment?.

Okay, Gus. Thank you. So, on 175 million cars, actually I know you've done a ton of research on the auto space as we spoke many times in the past. They are roughly -- in a big number sense, there are roughly 1 billion cars in the world running around every day.

And I would daresay maybe 60% plus are the cars that are in a connected -- connected car, obviously very little in the autonomous car, but in the connected cars, I would dare to -- I mean, I would guess it's going to be about 60%, 70%.

And so, if you look at that number and you look at the fact that we have 175 million cars that have our software on the road today, I mean you can calculate the market share. I mean, we definitely are -- if you take about 600, you divide by that, I'm guessing we’re roughly about about 30% market share. That will be my best guess, non-scientific.

I’d just walk you through how I look at the numbers. I'm sure somebody else might point out -- maybe they’ll point out flaw in my thinking. But, that's that. So, regarding the year, I think when I look at -- maybe I'll start with the industry consensus. Maybe I’ll start with that.

The consensus is about a mid-$900 million for the year, looks reasonable, definitely in the ballpark. And we expect small sequential growth in the software and services business. We expect our IP business, licensing piece of the business to come in about $250 million for the year. So, you could kind of triangulate that back to the consensus.

I think we're in -- we're pretty much in the same ballpark as you guys are..

Okay. On the....

Go ahead, Gus?.

Sorry.

Kind of profitability?.

Oh, on profitability, I think it's a good shot at us being profitable. We demonstrated -- yes, for the full year. Yes..

Great. Thank you so much..

And I already said Gus that we will -- we're looking like we're going to be cash flow positive for the year, free cash flow positive for the year. So, I believe we'll be able to be profitable for the year also on a non-GAAP basis..

Perfect. Thank you very much..

Thank you, Gus..

Your next question comes from Daniel Chan with TD Securities. Please go ahead..

The QNX royalty backlog, did I hear correctly, is this $450 million?.

Yes, $450 million..

So, how did you guys calculate that number? I actually thought the number would be higher, considering you do annual QNX revenue.

I know there is a whole bunch of other stuff in there, but annual QNX revenue, that's about what like around $200 million or so? So, how do you calculate that backlog considering that a lot of the programs that you're involved in have a long life cycle?.

Yes. So, we generate -- I'll give you some historical number, not this year obviously, the year ago we generated roughly about $150 million in royalty in the year. Some of those will become revenue in the year. We also generated somewhere between -- in the ballpark, $70 million to $100 million from developer seats and professional services.

So, if you add that together, I think you’ll get close to the number that you just cited..

Okay..

Is that helpful?.

Yes. That's helpful. I just assumed that the lifecycle of some of these automotive programs were really long. So, when you win one of the design wins, you've got a very long tail of continued royalty revenues. I thought it would probably add up to, I suspect -- I expected a much larger number than that. Okay..

Yes. I would say that we're probably on a conservative side ourselves. These are the numbers that was given to us by the customers at the time of the win, they usually adjust it. And so, I mean, it could go down or it could go up.

And there will also be derivative win, like for example when we win certain model with an OEM, they most likely will give us different models at the same time, and we have seen that rather repeatedly. I think one thing you could take away that we are very comfortable with our competitiveness and our relationship with our customers on a global basis.

So, as the business starts returning and the design wins start being awarded, we will get a good share of it..

And then, on the delayed programs that started to kick in last quarter, it sounds like things are starting to move again.

Any word on some of the delayed programs picking back up?.

Yes. Our team had told me that and to us that the customers are back talking about the design and talking about new projects and talking about the schedules of the new project, their schedules. That's the number one most important thing, they have to have the schedule first. Then, we'll enhance our ability to win. So, that's where we are.

It's a good start..

Okay. Thank you..

Sure..

Your next question comes from Trip Chowdhry with Global Equity Research. Please go ahead..

A lot better numbers than I was expecting. Very good execution in a very difficult environment. I had a couple of questions.

Would you be comfortable saying that the one -- first quarter was pretty much the bottom and you are seeing signs of economy opening up and recovery happening?.

Well, in my kind of early -- when I told Gus that I'm comfortable we're in the right ballpark with the consensus is to assume a gradual reopening of the economy, like earlier we talk about QNX design wins. Despite of a very difficult quarter, I was actually positively surprised that we won 10 designs in a quarter.

I mean, it doesn't translate to a lot of the immediate revenue. But, I thought that was actually better than I thought because nobody is going to work. So, I have a certain -- or we have a certain expectation that things are getting better, although we are being very cautious. We believe you are going to get better slowly.

So, this is where I said okay, we're going to see incremental -- small incremental improvement in software and services on the enterprise side, a slow incremental improvement in QNX, maybe as same a difficult quarter in Q2 but we expect the second half to be better, and then, we feel comfortable with the pipeline of our IP.

This is how we all grew everything together and our spending and everything else. So, that leads to our belief that we could be profitable over the year, we have positive cash flow. So, for the year -- so that's kind of the -- Trip, that's the environment that I'm expecting, and that's tied to the number..

Beautiful, beautiful. John, you're always being very innovative and always ahead of the curve. We all are working from home, we are doing remote working. But there is a challenge when it comes to selling in terms of more selling. So, I was wondering like, knowing you from Sybase, you turned the whole industry upside down.

When we think about remote selling, what you think you are putting in place and how are you differentiating and making it feasible because your numbers definitely tell that the sales execution is a lot better than I was expecting.

So, what processes you may have put in place to have success and win rates better in an environment where remote selling is going to be somewhat of a norm?.

Well -- thank you. We're not as good as you said we are, but because we benefitted from the trend that I think most of all my peers in the industry see that. And because we provide security software, cybersecurity software, because we provide crisis management software and mobile, that helps facilitate the remote working from home.

And what we have seen in the first three months or the three months that was the most severely impacted, what we have seen is new customers are extremely hard to come by.

Existing customers, up-selling to them and they have a build-in requirement to need more software, more seats, more licenses and in some cases AtHoc where people are on the fence and say, well, I don't really know I need it, whatever, they have decided they need it.

And so, there -- and because -- unfortunately because of the price, it's kind of like the only silver lining to this pandemic situation. But I traded notes with other CEO of other tech company, pretty much everybody is saying the same thing. Upselling, and especially, you have the right type of software, it's a good expansion.

It's okay to sell the remote. This is where the relationships are very important. And we fortunately -- BlackBerry has a lot of good relationship, especially in the regulated industry, like the banks and the medical field and the government. So, that helps us to put some kind of anchor into the business.

The new project or the new customer base, I will have to say is much more difficult to come by..

Thank you, John. All the best..

Thanks. Thank you, Trip..

Your next question comes from Mike Walkley with Canaccord Genuity. Please go ahead..

Hey, Mike..

Hey, John. A question for you..

Sure..

Yes. Hi. Yes. You talked about AtHoc on the call area of strength.

With the changing working government safety environment, how are you leveraging AtHoc strong position with federal government into opportunities to compete more maybe at the state, local and even enterprise level, compete more with Everbridge offering?.

That are very good questions. So, the federal space, the G20, The Five Eyes countries, United States, Canada, we do have good customer recognition and we have a big installed base, especially in the United States, for example, multimillion licenses that we have. So, those are all good thing.

We have traditionally not been strong in state local and that is about to change. We're putting a team of people that's just responding to RFP and RFI, a dedicated team. We also recognize the fact that we need a more SMB-type sales force rather than enterprise sales force like selling to the government agency. That's larger.

So, we're resources in both areas that I talked about. So, we go after the RFP with the state and local, then education market and the other SMB market we go after with a more of an SMB sales team. And I think it will work well.

The good news is, we also have upgraded our product and to have a complete lifecycle product and we also delivered a managed service product. And so, that fits to the smaller enterprise because we never had the managed service product.

That's just recently announced, I got, literally days, right? So, we’re equipped now both in the managed service with the way we laid out services approach, and it's a great market, I have to say. Time like this, it's a really great market..

Thanks. And just following up on that -- is there any metrics you can share on the business, maybe you have a size a bit on an annual basis or growth metrics.

And then also, how do you view the positioning? Are you adding salespeople to attack the EU mandated and the opportunities for mass notification over there in the upcoming years?.

I don't have the answer to your question right now. But let me do this. Let me see what metrics I could deliver and provide, because we're early -- we're actually early to a non-federal play. The federal play is very easy metrics. You know our wins, you know our no-goes. The renewal is a strong, and we had seat -- over 2 million seats.

But they are very concentrated to the federal government and the armed forces. We are starting to expand. So. it's still a little early for me to give you these metrics, but I will go work on it and look into it. And I would like to know too..

Okay, great. Last question for me. Just switching gears, any update on radar and the IoT business, and will that be mapped into software and services going forward also? Thank you..

Yes. We wrote it on in. Radar is actually doing reasonably well. Unfortunately, the numbers are not high. They did get affected somewhat by the pandemic because we are unable to visit customers, but because radar is really very -- the radar team is very focused on winning new customers because we win new customer, we got recurring one.

And that's the focus on. But it's been -- it's done well. I mean, it was nothing negative. We have some wins, increased some usage, but nothing to -- at this point, nothing moved the needles on that. On the IoT, they are all now merging under software and services. I don't really look at it that way or separate it all, at all..

Your next question comes from Daniel Bartus with Bank of America. Please go ahead..

First, I just wanted to clarify what was the ARR number that you said in the beginning?.

Above $500 million..

Okay, got you.

Is that up year-over-year?.

This is the first time we actually collected and disclosed it. So, I don't know whether it's up year-over-year at all..

Okay, got you. And then, what was the Cylance consensus number that you referenced [Technical Difficulty] grew year-over-year..

Yes. Year-over-year, it is relatively flat. And I think the Cylance number is like $48 million, $49 million for the quarter..

That's probably right..

Yes, yes..

Got you. And then just last one, I'm surprised SG&A is so low.

Can you just talk about if you feel like you're investing enough for growth and does it make sense this is kind of the trough level for SG&A?.

Yes. I'm glad you asked this question. We are spending -- we did two things to fund our go-to-market engine. We moved a lot of the headcounts, and unfortunately some of the headcounts we had to reduce and then hire back in some other area, but, in the beginning early on, not during this pandemic period.

We have -- we moved the resources from the back offices to the frontline.

So, the back offices [Technical Difficulty] and which is pretty much across the board, whether it's finance, HR, legal, IT, we have really [Technical Difficulty] because one of the good -- one of the benefit of grouping the company -- the businesses together is we actually [Technical Difficulty].

So, for example, you don't need three different finance teams, you only need one. You don't need three different [Technical Difficulty] contracts people, you only need [Technical Difficulty] bigger one, but one. So, it helps a lot. And then we move that -- this is by design, and we move that, I call it a 10% move.

We moved 10% our resources from the back office to the front, and then hire the people that way. So, a lot of these people are going though trainings and stuff. We also increased our executive [Technical Difficulty] recruiting more talents from the outside and augment the people we have here today.

So, we're basically all-in [Technical Difficulty] feeling very comfortable [Technical Difficulty] people. I name you a couple of executives. We probably have another 100 reps that are being recorded right now in sales and marketing at this -- as we speak..

Your next question comes from Paul Treiber with RBC Capital Markets. Please go ahead..

First, high-level question on strategy. With this environment, we've seen tremendous uptake of video conferencing. BlackBerry is known for secure communications we have across email, BBM and voice, but no video.

How do you think about video [Technical Difficulty] you see is critical or not synergistic with your -- the bigger piece of portfolio that you're building?.

It's not critical, Paul. I mean, it could get synergistic but I'd rather do it with partners like, for example, we've done -- we're doing a ton of security work with a number of the name players that you could probably close your eyes and recite. So, we rather do it that way.

Now [Technical Difficulty] we have good products and we're pushing [Technical Difficulty] But the reason why I didn't really attend into video, if I find out a really crowded place and I'm not pretty sure [Technical Difficulty]. Now eventually, if the market and [Technical Difficulty] video.

By the way, we integrate Zoom, the Webex, and all the other [Technical Difficulty] nobody have called me and said, [Technical Difficulty] a video conferencing that I want it. And in some cases, we use container under UEM to manage the security of some of these conferences. So, today, I'm trying not to dilute more.

So, you'll get my UEM-UES launch properly. In the future [Technical Difficulty]..

Okay, thanks. That's helpful perspective. Just in regards to IP licensing, I mean, obviously you sound positive going into this quarter.

Now, given there are travel restrictions and social distancing and whatnot challenges, what's the process for closing deals in this environment? And can you do a lot of it or all of it remotely or are you assuming some relaxation of the measures to have [Technical Difficulty] negotiations?.

You know I'm -- I hope everybody will give me credit as a reasonably safe [Technical Difficulty]. So when I tell you that we're going to have a reasonable Q2 and a good Q2, especially with the licensing, we pretty much [Technical Difficulty] in the bag [Technical Difficulty] the answer to your question really is at stages.

If I'm approaching a licensee -- potential licensee for the first time, especially overseas, that is going to be delayed. It could be delayed indefinitely. And that's a function of [Technical Difficulty] by the way why do you license from me.

You really have to have a face-to-face conversation and talk about design, talk about plain charts, presenting plain charts. So, there is a process of this sales. So, now at the end, we're really talking terms like, okay, so how long would I be cross [Technical Difficulty] category are not included.

When you're down to that conversation, you could do all that by video conferencing [Technical Difficulty]. So, it's really the stages of the pipe. So, in this particular case, we believe that we have the Q2 under control..

One last one for me is I think last quarter you mentioned you had $30 million of new pipeline from that [Technical Difficulty].

Can you provide an update on the pipeline or perhaps how the conversions [Technical Difficulty]?.

[Technical Difficulty] I don't, I didn't keep track [Technical Difficulty] price is reasonably good. Pipeline at that stage, I think normally you convert 2.5 to 1 [Technical Difficulty] because the trial is a pretty much driven by special circumstances. So, I say the conversions are reasonably good..

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

Quick question on OpEx, follow-up from the SG&A question.

So, if we think about the $151 million in the quarter, how should we think about that flexing over the course of the year?.

Okay. We are -- okay, so, we are -- like Steve has mentioned, we benefited a lot from no travel, we benefited a lot from the shutdown. But, I would tell you I'm here [Technical Difficulty] unfortunately looking at, Chris. But I have to do what I have to do. And we are gradually opening up.

There are six offices in multiple phases around the world that's open up. And so -- and there are about another 20 or so that will be opening up.

Now, when we say opening up -- this is a good time to talk about, we have internal process that's industry well-accepted, which is A, we follow the government guidelines around the world [Technical Difficulty] do it by phases. Right now, San Ramon is opening on the Phase 1 meaning about only 20% of our populations are allowed to return back to work.

And then, everybody else [Technical Difficulty] 50% in Phase 2, which have to do a lot to do with the [Technical Difficulty] provisions and the provinces and so far so to see how this health situation progresses. And then the Phase 3 is 90% [Technical Difficulty] child care and all that good stuff.

So, we have a very thoughtful process that we laid out. Now the reason I take you down this on answering your question on a lot of expenses is that we will see expenses to start going up. And in addition to that we are hiring a lot of people on a global basis. Interestingly enough, this is not a bad time to hire talents. I don't know why.

[Technical Difficulty] That’s okay. I'm not complaining. And so, [Technical Difficulty] sales and marketing [Technical Difficulty] since we're doing most of the thing virtual, we should still save money on travel. We will save money on actual shows that we go to that we no longer going to, for example.

So, there is a give and take that you should see trending up..

Okay. That's very helpful. And then my second question, you gave a few hints on longer term growth rates. It seems like for software and services group, the new bundle you're giving hints in the 10% to 15% range.

Is that the way to think about that business once we get through the pandemic?.

Well, yes. [Technical Difficulty] Yes..

Great. Thank you..

Sure, of course. Thank you..

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

Thank you, Josh. Okay, look, before I close, I'd like to mention one of our recent announcement in demonstrating our commitment to the Sustainable Development Goal initiated by the United Nation. I'm very proud that BlackBerry continues to contribute toward making the world a better place and I hope a lot of you agree with me, I'm sure you do.

And we have made significant progress toward our goal to be carbon-neutral by 2021. We'll get to carbon-neutral by next year. [Technical Difficulty] this is later in the day for the East Coast friends of ours. But, thank you [Technical Difficulty] stay safe, stay healthy. I hope to see you guys in person soon..

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