BlackBerry Limited

Good morning and welcome to the BlackBerry Fiscal Year 2020 Second Quarter Results Conference Call. My name is Lisa and I'll 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. Should you need assistance during the call, please signal a conference specialist by pressing star zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today's call, Christopher Lee, Vice President of Finance. Please go ahead.

Thank you, Lisa. Welcome to the BlackBerry Fiscal Year 2020 Second Quarter Results Conference Call. With me on the call today are Executive Chairman and Chief Executive Officer John Chen and Chief Financial Officer Steve Capelli. 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 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, including the risk factors that are discussed in the company's annual information form, which is included in our annual report on Form 40F 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. As is customary during the call, John and Steve will reference non-GAAP numbers in their summary of our quarterly and annual results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today. I will now turn the call over to John.

Thank you, Chris. Good morning, everybody. In our second quarter, fiscal quarter, total company revenue was $261 million. It grew 22% over the year. Total software and services was $256 million, growing 30% year-over-year, and driven by double-digit percentage growth in software and services billings in the same period. Earnings per share were breakeven, and free cash flow was positive as we continued to increase our investment in product development and go-to-market to drive long-term sustainable growth. All of our business performed at, or better than our revenue expectation, except for enterprise software and services, or we call ESS. I will speak more about that later. We are executing upon the four operational priorities for fiscal 2020 that we spoke about at our analyst stage, which many of you have attended. Let me remind you what those are. They are developing BlackBerry Spark, the product, integrate BlackBerry Silence, first with the UEM product and then with the QNX product, broadening our reach in regulated industry verticals, and expanding into new verticals. Proof points of this execution during the quarter will include the following. First, the release of BlackBerry Intelligent Security, our initial use case on the Spark platform, with positive validation from both the industry and customer alike. BlackBerry Intelligent Services is the foundation of our zero-trust architecture. Secondly, the integration of Silence AI technology into our product with a combined UEM and Silence product scheduled for release in early calendar 2020, as we have previously communicated. Thirdly, new logo wins in ESS and BlackBerry Technology Solution, or BTS, came in in government, financial services, and transportation, signifying deeper penetration into regulated industry verticals. And last but not least, expansion to new industry vertical, such as in the oil and gas industry. I will now move to our business commentary, starting with the IoT business. Total IoT revenue declined 5% year over year. DTS continued to perform well with double-digit growth in line with our expectation, offset by softness in our ESS business. The softness in our ESS business is primarily due to the retooling of our sales force. We anticipate the impact from this retooling to last another two quarters while we strengthen our go-to-market and increase our pipeline. Our goal of sequential quarterly revenue growth provided last fiscal quarter was push out by three months as the retooling caused some disruption in the development and closure of our pipeline. We believe that the changes we made in sales leadership last quarter and the subsequent changes in other personnel support our objective to increase our reach in existing regulated industry as well as expansion into new verticals. Our regulated industry business remains healthy and stable. We added new logos to win in the government vertical, including the U.S. Department of Health and Human Services, the National Assembly in France, the Cybersecurity Malaysia, a government agency under the Malaysian Ministry of Communication and Multimedia. Our FedRAMP cloud authority to operate ATO increased from nine to 10 United States government agency. And the BlackBerry FedRAMP cloud user base increased by 16% since this last March when we last reported to approximately 1.4 million users. In the financial verticals we added the ICBC, the industrial and commercial bank of China, has a new logo among many others. We also experienced strong growth in the oil and gas industry, a new and developing vertical of focus for BlackBerry. While we are not satisfied with the short-term results, the timing of these changes is important as we are entering a refreshed cycle of our security and communication products that are well-suited for the current security trends. Presently, we are in beta with about 10 customers for BlackBerry Intelligence Security, which we actually announced at Black Hat conference. These 10 customers are interested in the continuous authentication and the adaptive security features of our product. Also, many of our top customer has expressed early interest in the AI-driven mobile threat detection that is natively integrated with the UEM Council and other BlackBerry apps. In this evolving security landscape, we believe data and identity, not the network, is the new security parameters. Now let me walk through some of the BTS highlights. BlackBerry QNX continues to represent the vast majority of BTS revenue. All of BlackBerry QNX revenue stream grew year over year, notwithstanding the downturn in global auto production. We are encouraged by this trend because our customers are spending increasing amounts on BlackBerry software in current and future auto designs. This will definitely increase our output. The recent announcement with Danso and Subaru highlights this trend of BlackBerry achieving more content per vehicle. Our jointly developed HMI, human machine interface, digital cockpit system is the first of its kind and we start to ship in Subaru vehicle this fall in the United States. This leading-edge digital cockpit leverages BlackBerry QNX hypervisor, the operating system, and the digital instrument cluster, while contribute to greater technological efficiency in the car and a safer experience for the users. In a quarter, we have a total of 26 design wins. Eight of the design wins were in the automotive market. All of these wins were for digital carpets and digital instrument cluster designs. The remaining 18 designs wins were in the general embedded market, primarily in the defense industry and medical industry. Further expansion in the general embedded market has been a stated strategic priority this fiscal year. A recent announcement with Deborah Lang Rover demonstrated our thought leadership in the automotive software market, with the addition of the Cylance AI security capabilities. We have the opportunity to provide a first cybersecurity platform for the auto market. JLR is the first to collaborate with us. We are working with others in the auto industry and those interactions looks promising. The Chief Executive Officer of JLR, Sir Ralph Spacht, will deliver the keynote address at our security summit in London on October 2nd and speak more on the topic. Furthermore, we plan to demonstrate a combined QNX and silence capability at CES 2020. Before I move into our licensing, let me briefly talk about our radar business. In the quarter, we added eight new customers, including Labatt Brewing Company, and we have repeated purchase from a number of our customers, including Lowe's Company for our partners, Frexavan. We also added Mattson after quarter end. This continues to demonstrate the demand for our product in the market. Moving on to our licensing business, revenue grew 27% year-over-year, above our expectation as several IP licensing arrangements occurred earlier than expected. We also anticipate the second half of the fiscal year to be stronger than the first half. For fiscal 2020, we now anticipate growth over last year instead of the 5% decline as we previously communicated. Now on to silence. Revenue came in at $51 million, representing an increase of 24% year-over-year, in line with our expectations. This was driven by approximately a 22% year-over-year increase in the number of active subscription customers, with strength on financial services, manufacturing, and professional services industry. Notable wins in the quarters were from ABB Pioneer Natural Resources, Bank United, and NASA. Annual recurring revenue was approximately 170 million and up 21% year-over-year. Dollar-based net retention rate continues to be greater than 100%. From a product standpoint, Sidelines Guard, our managed detection and response subscription solution, was released this past July. The initial feedback received from existing customer, partner, and interested buyer has been very positive, and it substantiates that Guard is a comprehensive solution that provides advanced threat hunting and mobile convenience. Our pipeline growth is off to a very good start. With continual innovation, we have a great opportunity to gain shares in this $11 billion plus endpoint security market, currently led by legacy antivirus vendors. The collective market share for all the next gen, or next generation, endpoint security players, which includes Cylance, is currently less than 10%, so lots of room to grow there. We acquired Cylance for our strategic vision that we stated last year, which is to secure the Internet of Things. We believe we can deliver on this strategy by combining our strength in unified endpoint management, endpoint protection, secure communications, embedded systems, as well as AI onto a single platform. Recent market consolidation validates our early vision and underscores the scale and breadth of technological capabilities that BlackBerry possesses to be a winner in this evolving endpoint security market. Before I turn this call to Steve, I have some personnel changes to announce. Extending our commitment for growth, I'm pleased to announce that Steve Capelli will move into the role of Chief revenue officer. Steve will work with the business leader in IoT and Sidance to drive integrated revenue-generating processes across BlackBerry and assist in the development of our endpoint security go-to-market strategy. Having worked with Steve in the past in a very similar role, he is uniquely qualified with a strong sales experience and knowledges of our market, a full understanding of our strategic goals. Furthermore, I'm pleased to announce that Steve Ray will be promoted to the Chief Financial Officer. Steve Ray has been at BlackBerry for five years as Vice President and Corporate Controller, and most recently as the Deputy CFO for the last several quarter in anticipation of this transition. Steve has an impressive 25-year background as a leader in finance and operation in the technology industry. These changes will take effect as of October 1 of this year. With that, let me turn the call over to Steve Capelli to provide more detail about our financial performance.