Good afternoon, and welcome to the BlackBerry Fourth Quarter and Full Fiscal Year 2022 Results Conference Call. My name is Brent, and I will be your conference moderator for today’s call. During the presentation, all participants will be in a listen-only mode.

We will be facilitating a brief question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn today’s call over to Tim Foote, BlackBerry Investor Relations. Please go ahead..

Thank you, Brent. Good afternoon, and welcome to BlackBerry’s fourth quarter and full fiscal year 2022 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer, John Chen; and Chief Financial Officer, Steve Rai.

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

A replay will also be available on the blackberry.com website. Some of the statements we’ll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws.

We’ll 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. These factors include the risk factors that are discussed in the Company’s annual filings and MD&A. You should not place undue reliance on the Company’s forward-looking statements.

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

For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGAR, SEDAR and blackberry.com websites. With that, I’ll turn the call over to John..

Thank you, Tim. We have to change the intro of the script now. Tim was just made Vice President. Congratulations..

Thank you, John..

Gateway Zero Trust Network Access or ZTNA, Guard-managed service and Persona behavioral analytics. On the marketing front, we’re going to leverage the strength of the Cylance brand for our Cylance products. The brand still resonated strongly with customer and across the industry.

Investors have said that hearing how our cyber products are competing out in the field is helpful. So, let me provide you with a couple of recent wins -- recent examples of wins. The first is with a leading publicly traded medical supplies conglomerate based in the United States.

The customer, like many others, was struggling to [serve] (ph) a 24/7 security operations centers and held a competitive tender process between BlackBerry, CrowdStrike and Arctic Wolf. They bought more than 10,000 license of our Guard-managed service due to BlackBerry performance and security credentials.

The second is with a leading manufacturer based in Asia that selected BlackBerry over CrowdStrike’s, Fortinet and Carbon Black. Following a detailed POC, they selected BlackBerry because of our product’s strong performance, uncovering multiple threats during the trial.

Legacy secure [ph] based vendors still account for a significant portion of the overall market, especially with SMB customers. This was always an area of focus for Cylance. An example of the recent wins there was with logistic company that held a bake-off to replace their current McAfee and Microsoft Defender solution.

After a vigorous assessment that included McAfee, Symantec and CrowdStrike, they bought approximately 2,000 -- 3 years license for our Guard Advanced product because we detected a number of threats that other didn’t and as well as providing a higher level of customer services. Let me also provide you with an update on talent acquisition.

Building on the progress we made last year in ramping the sales force, we have been successful in adding further industry experience to the cybersecurity expertise we already have at BlackBerry. This quarter, we not only recruited sales leaders from direct rivals, but product development leaders also. Cyber is a hot market for talent right now.

So, we’re really pleased of our ability to attract and retain high-quality people. As stated earlier, ARR came in at $347 million. This is a decrease of $11 million compared to a prior quarter and was driven by two key factors. The first factor was that in January, we ceased operation for legacy BlackBerry mobile devices.

This move allows us to save significant infrastructure costs going forward. However, revenue for the Enhancing SIM-based Licensing or we call ESBL, are also ended as a result. The second factor impacting ARR was the churn in smaller UEM customers.

Recently, we have seen a trend towards some less feature-rich UEM products being sold by some of our competitors as part of the bundles or enterprise license agreement. BlackBerry UEM on the other hand is a premium product that offers a very high level of security.

We’ve seen some smaller, more price-sensitive customers chose to use the "free" UEM product that’s come with a bundle to save incremental costs at the expense of security. However, these customers represent a relatively small portion of our UEM base.

It is also important to note that our leading security profile continues to resonate strongly with our large core customer base of the largest bank and government agencies. To reinforce this point, this quarter, we secured UEM renewal with the U.S. Air Force, the U.S. Department of Defense, the U.S.

National Grid as well as a number of international governments including Poland Ministry of Foreign Affairs, Northern Ireland Department of Finance and Personnel, along with Swedish and Italian governments, just to name a few.

Among the major bank this quarter, we renewed with Deutsche Bank, along with well-known American, Canadian and Indian banks, two major Swiss banks, including the Swiss National Bank and a global credit card company. We also recently renewed for three years with global law firm, White & Case.

As a law firm, they handle confidential data on the continuous basis, and they felt that none of our competitors met their security needs better than BlackBerry. During the quarter, we also successfully upsold Cylance cybersecurity product to this and other UEM customers.

It is likely that we will continue to see some headwinds for UEM in the near term, but we are taking steps to minimize that impact. This includes looking at ways to bundle BlackBerry UEM with other partners’ products that appeal to the mid-market as well as continue to develop new features that our customers valued.

Stay tuned for future updates on this. Before I wrap up my comments on cybersecurity, I’d like to share that going forward we will start to provide quarterly billings information for our cyber business as part of our ongoing reporting.

We believe that this will be well received by shareholders and help them more clearly see the progress that the business will be making. Moving on to licensing. On January 31st, this year, we announced that we entered into an agreement for the sale of the legacy portion of our patent portfolio.

The sales price is $600 million with $450 million being due at the close and the remaining $150 million due in installments. I’m pleased to report that the transaction has successfully cleared a regulatory review stage, having received approval from the Canadian Government Investment Review Division, on March 22nd as well as the U.S.

HSR approval, the antitrust approval that is, shortly before that. Completion of the remaining closing condition including financing is targeted for the end of this quarter. Following the sale of the legacy portion of the IP portfolio, we will still retain all patents related to our core IoT and cyber software businesses.

We will, of course, keep the door open for future monetization, but revenue is likely to be minimal in the near term. Upon the closure of the deal, we expect a reduction in the operating costs required to maintain our IP portfolio.

Also, our cash position will be strengthened, enabling us to further invest for growth in our core markets, i.e., the QNX, IVY as well as cyber. We will invest both, organically and inorganically. In the quarter, licensing revenue was $11 million, beating expectation. Gross margin came in at 55%.

I’d like -- I’ll now hand over to Steve to provide additional color on the financials.

Steve?.

Thank you, John. As usual, my comments on our financial performance this past quarter will be in non-GAAP terms, unless otherwise noted. And also, please refer to the supplemental table in the press release for the GAAP and non-GAAP details. Total company revenue for the quarter was $185 million. Fourth quarter total company gross margin was 68%.

Our non-GAAP gross margin excludes stock compensation expense of $1 million. Fourth quarter operating expenses were $117 million. Our non-GAAP operating expenses exclude $22 million in amortization of acquired intangibles, $4 million in stock compensation expense, a $165 million fair value gain on the convertible debentures.

As John mentioned, we are continuing to invest in our core IoT and cyber businesses, including headcount growth and new product development to drive top line growth. The planned investment is sizable. We expect to increase headcount by approximately 250 people across both of our core business units this fiscal year.

This quarter, non-GAAP operating profit was $8 million and non-GAAP net profit was $6 million. Our basic GAAP earnings per share was $0.25, while non-GAAP earnings per share was $0.01 in the quarter. Our adjusted EBITDA was positive $20 million excluding the non-GAAP adjustments previously mentioned.

I will now provide a breakdown of our revenue in the quarter. Cybersecurity revenue was $122 million, and IoT revenue was $52 million. Software product revenue remained in the range of 80% to 85% of the total, with professional services making up the balance. The recurring portion of software product revenue remained at approximately 80%.

Licensing and other revenue was $11 million, given the ongoing limitations to monetization activity, prior to closing the sale of the transaction that John referred to. I’ll now move to our balance and cash flow performance. Total cash, cash equivalents and investments remained consistent at $770 million as at February 28, 2022.

Our net cash position remained at $405 million. Despite the ongoing investment in the business, we generated positive free cash flow of $8 million. Cash generated from operations was $10 million and capital expenditures were $2 million. That concludes my comments, and I’ll now turn the call back to John..

first, the visibility of the backlog of professional services from design wins already awarded; second, the strong pipeline of potential new design wins this coming year; and thirdly, the upward trend in the royalty ASP in the new designs. We see a fairly even distribution of revenue across the four quarters.

Before we move to Q&A, let me quickly summarize the key points for the quarter. The IoT business is executing well despite industry-level challenges, and we’re encouraged by the line of sight we have for the years to come. IVY continues to execute well with both, a new product release and strong demand for POC trials in the quarter.

Our cybersecurity business is tracking in the right direction, once again, delivering solid building growth and recording some encouraged head-to-head wins. And the sale of our noncore IP patent portfolio is progressing. Despite our ongoing investment in the business, we generated positive operating cash flow and net profit this quarter.

That concludes my remarks.

Brent, could you please open the line for Q&A?.

[Operator Instructions] Your first question comes from the line of Daniel Chan with TD Securities. Your line is open..

Another strong quarter of strong general embedded wins. It’s been a few quarters now where you’ve seen more general embedded wins than auto.

What is -- how does the lifetime revenue stream look for some of these programs with respect to production royalties versus designs? Because I assume that some of these new wins in general embedded have lower volumes than what you typically see in an auto space.

So, can you just remind us how the revenue streams are structured for the general embedded space?.

Yes.

You’re talking about general embedded or you’re talking about auto?.

GEM, general embedded..

General embedded. General embedded, you see the production being a lot sooner on average, probably a couple of years out versus 6 or 7, or 5 or 6 years. So, -- and typically not as big in terms of dollar on the ASP, or it is a big organization like a hospital or medical devices, then the volume isn’t as big as the car industry.

But it’s still very, very healthy. Now general embedded vertical, I think we -- I mentioned medical, that’s a really good field. We’re winning a lot. We have good momentum in there and because of the safety certification. There are other general embedded markets that are really not as economically exciting. That’s a fair way to say.

So, we use -- we tend to stay away from those..

That’s helpful. Thanks. And then, on the headcount increase, I think you mentioned you guys are budgeting for an increase of 250 people this year. Just wondering where that’s going.

I think you mentioned 100 going towards cybersecurity sales professionals, where are the rest going?.

To IoT. The IoT, a lot of them -- I mean, of course, the sales personnel, but also we have a lot of backlog in professional services. So, we need to fulfill those backlogs and get the revenue..

Your next question comes from Trip Chowdhry with Global Equity Research. Your line is open..

Good morning. So, another very strong quarter on Cylance. A very quick question. I was wondering, like if you could put some more color to it. Like what kind of activity was, say, before the Ukraine war and while we are in the war, you’re getting a lot of interest in Cylance.

Where is that interest coming from? Is it from U.S.-based companies or European-based companies or the whole world? Just provide us some anecdotal comments what you are hearing? I would appreciate that. And again, a very good quarter..

Thank you. So, the cybersecurity world is -- there are a lot of more threats and attack. And we see demand growing -- raw demand growing. Like everybody else in the market have seen, the raw demand is really going very fast. There are also a replacement market for the older generation signature-based companies like McAfee and Symantec and Microsoft.

So, you can see the second generation, the AI/ML-based companies, like ourselves and some of the names, key names in the industry we could do a lot of -- a good success rate in replacing legacy implementation. So, that’s the second one. Cylance is particularly strong in the mid-market, small, medium business mid-market.

And I think we’re seeing our activity picked up quite nicely, partly because of the Guard software that we released, probably by now, it’s about a year. And so -- we could see that trend up continuously every quarter. And so the number is starting to become meaningful. So, those are probably the drivers of what is happening.

And then, last but not least, remember, we’ve been hiring aggressively for over a year now in the sales headcount. And so, it’s starting to pay off in some area. And last but not least, we’ve been able to attract some very strong industry talent from the cyber world.

And particularly under John Giamatteo because he came from McAfee and so he knows how to recruit a lot of these people. And not only individuals, but also channel partners. So, things are starting to come together. Still have ways to go, but it’s starting to come together..

I just have one observation, which is -- I just wanted to share with you. IVY platform, providing machine learning, AI-driven battery management system, none of that system, which is AI-driven for BMS, Battery Management System exist anywhere, not even the biggest EV manufacturer has that. I think this is very unique to your IVY platform. Keep it up..

Okay. Thank you. Thank you much..

[Operator Instructions] Your next question comes from Paul Treiber with RBC Capital Markets. Your line is open..

Just a question on go-to-market strategy in cyber. And it’s just -- you mentioned UEM is obviously strong in large enterprise, but then Cylance is strong in SMB.

How do you bridge those two businesses from a go-to-market perspective, because the customer base is -- your competitive advantages within each seem quite divergent?.

Yes, it’s a great question. So, we now have three go-to-market teams that is coordinated under -- by region under one senior management, and so -- because of John G.

And so, the three market -- go-to-market team are the -- think about it, strategic accounts, which are the large government as well as banks, regulated industry, the SMB market and the channel team.

So, our objective of the first team is to secure our base business in the strategic accounts and then upsell them into -- with technology that could apply to that UEM base, for example, zero trust technology, which is -- the gateway is probably the most talk about right now, particularly the U.S. government.

The new Biden administration budget has specific money allocated for zero trust, and they want every agency and every arm forces to do that, to be able to implement zero trust as part of the overall cybersecurity protection. So, we have that business, and we’re already in many of those institutions.

So, the upsell of Cylance product into that space is a key of growth. The second, SMB, two approaches. One approach is through the Guard services, the managed service, which SMB typically needs that kind of help for either augment their resources or replace their resources because they can’t hire fast enough.

And so, that [left] (ph) with the Cylance product, and then we upsell UEM into it as more bundled oriented. And then, of course, the channel, typically all cyber. And there’s some good channel partners that’s going to come on line. I’m not at liberty to talk about it right now, but in 90 days, I will. I will.

So, that’s the kind of how we go in with each different type of category of customers. I hope that answers your question..

Yes. That was helpful. And I can’t wait for the announcement in 90 days. Just a second question, just on the sale of the patent portfolio.

To the extent that you can, can you just walk through some of the assumptions in terms of like the longer term outlook that went into that arriving at that price? Because one of the things that investors look at as you look at the revenue in that segment, in the previous year, it was quite a large number.

How do we put the sale price in context to the previous revenue that you generated in that segment?.

Okay. So, I would say, there’s still a lot of potential for this noncore set of patents. But two things obviously you know. One is, time is ticking down in the validity of the portfolio. Although we have a very young -- we typically have, even with the noncore, somewhere around 8 to 10 years type average lifetime with the patent still remaining.

So -- but the -- if you notice that -- which you pointed out, the last couple of years -- or the last few years, we have some good success. But those are with very big names. And so, now, we need to go -- the business needs to go cultivate pipeline for the smaller name, which typically takes a little longer time, a lot more back and forth.

Big name does too, but big names have big numbers. So, in a way that the low-hanging fruit, we already approached. And so, I think the numbers we have done in market test the numbers, we think it’s very fair to both sides..

There are no further questions at this time. I would like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry for closing remarks..

Thank you. I’m pleased to announce that -- by the way, I’m pleased to announce that on May 18, we’ll be hosting a hybrid in-person and virtual Analyst Day from San Ramon, California. And some of the questions asked earlier regarding our go-to-market will be addressed by John Giamatteo and Mattias Eriksson, the two BU presidents.

And I will strongly suggest you don’t miss it. In the case of Mattias, we’re also going to prepare to annually talk about backlog that will be during that call -- that meeting also.

So, I really encourage investors to join us and hear about key developments of our product and strategy as well as financial focused sessions that will provide additional color on the IoT and cyber business. More detail will be -- will follow in due course, so please stay tuned. Thank you for joining the call today, everyone, and have a good evening.

I hope to see you in person soon..

Ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect..