BlackBerry Limited

Good morning, and welcome to the BlackBerry Fiscal Fourth Quarter and Fiscal Year 2020 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. 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 today's call over to Christopher Lee, Vice President of Finance. Please go ahead.

Thank you, Josh. Welcome to the BlackBerry Fiscal Fourth Quarter and Fiscal Year 2020 Results Conference Call. With me on the call today are Executive Chairman and Chief Executive Officer John Chen and Chief Financial Officer Steve Ray. 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 webcasts 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 a 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 in MD&A and the COVID-19 coronavirus outbreak, which is negatively impacting public health, financial markets, and global economic activity. 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 results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today, which are available on the EDGAR, CDAR, and BlackBerry.com websites. I will now turn the call over to John.

Thank you, Chris. Good afternoon, everybody. Before I speak about the BlackBerry results, I'd like to acknowledge everyone who's doing all they can to contain and overcome the COVID-19 virus. BlackBerry has taken a number of steps to help the global community, including enabling remote working for our customer employees. And we are taking the lead by offering a limited license of our enterprise software products free to organizations around the world for 60 days. Now onto the results. As Chris stated, I will reference non-GAAP number in my summary of our financial results, unless otherwise stated. Let me start off by some highlights for fiscal 2020, the fiscal year entirely. BlackBerry achieved a year of profitable growth. We are pleased to report 1.1 billion in total company revenue, resulting in 20% growth year-over-year. Proper and surfaces revenue grew 26% year-over-year. Earnings per shares of 13 cents. This amount exceeds the expectation we raised during the year. Positive free cash flow of 14 million. Perhaps the best news is the strong set of products released in the past fiscal year. We released over 30 new products. I'd like to give you some highlights of the one that I'll be really excited about. 2NX Hypervisor 2.0 for safety. which achieves the highest ISO safety standard in the industry. The second product, BlackBerry Intelligence Security, which uses AI to provide adaptive security and continuous authentication to overcome the static security vulnerabilities. Third, the Sylens Optics 2.4, our enhanced endpoint detection and response product. Then, followed by a single-agent platform to deploy both Sylens Protect as well as finance optics. Followed by our mobile threat defense product, MPD product, that integrates our AI-based endpoint security capabilities with our portfolio endpoint management technologies. Our peers do not have a full mobile solution like we do. And last but not final, the BlackBerry Digital Workplace, which delivers lightweight secure desktop virtualization while eliminating the need for VPN and adding AI based protection. Digital workplace can be deployed on corporate and personally owned devices used by the entire Salesforce or the workforce, sorry, excuse me, the workforce. This is a must have for secure remote worker productivity and business continuity. Additionally, we make tremendous progress in the development of the Spark platform. I will speak more about that later. Now let me provide some highlights for the fourth quarter, four fiscal quarters. Total revenue came in as 291 million. We achieved positive year-over-year software and services billing growth. We also have a healthy sequential billing performance from enterprise software and services. Growth margin was 77%. Operating income was 51 million, and operating margin was 18%. Both of these are very strong results, compared sequentially is an increase on 20 million and 7% respectively from Q3. EPS came in at 9 cents, which was 5 cents higher than expectation we had for the quarter. Free cash flow of 32 million, contributing to a total ending cash and investment balance of 990 million. Let's move into the business commentary. Let me start with a sentence on licensing business. Revenue increased 9% year-over-year. We have better than expected performance due to some business that actually came in early. Moving on to the IoT business, the IoT business underperforming a quarter due primarily to BTS. BTS has been unexpectedly impacted by the slowdown in the auto industry supply chain due to the COVID-19. Unfortunately, we expect this trend to continue for the near future, due to the temporary global auto production shutdowns and related slowdowns of auto sales. Customer and prospect have become more cautious in their decision-making related to capital expenditure and development. The leading indicator to us was that we expected two large transactions with reliable customers that were unfortunately delayed. While our full fiscal quarter results were impacted, We believe these two delay transactions will occur as the business environment returns to normal. On a positive note, BlackBerry QNX continued to gain design wins. We were chosen for 31 design wins in the quarter. 16, 1-6, were in the automotive market, and 15 were in the general embedded market. Within the auto market, the vast majority of design wins came in were ADOS, the Advanced Driver Assist Program, and digital instrument cluster applications. These wins secure for our customer like Bosch, Continental, and Visteon, just to name a few of those tier one, continue the trend of increasing output and volume in the future and will continue to be the leading provider of safety-certified software to the industry. Within the general embedded market, we saw increased demand in the industrial and medical verticals, including being chosen by WebTech Corporations, a global leader in transportation solutions, who merged with GE Transportation last year. And as noted in the last two quarters, growth in the general embedded market has been a stated priority, a strategic priority for us. A brief update on our radar business. In the quarter, we saw continued growth in both the number of ship units and service revenue. We added seven new customers, resulting in 50 new customers, 5-0, in the fiscal year. Additionally, we continue to have steady repeat buying from existing customers. Moving on to our enterprise software and services business. The sales team executed well, resulting in sequential billing growth in a high team's percentage. Our fourth quarter ESS billing was at its highest level in fiscal 2020. The billing strength was across all the ESS businesses, led by strong performance on both the UEM, the endpoint management, as well as ad hoc. On the customer front, our regulated industry business, such as government, financial services, and healthcare, remains healthy and stable. We also experienced strength in our non-regulated industry business, most notably the energy and utility vertical, as well as the manufacturing vertical. We've added several large-sized wins, both new logos and upsell, in comparative situation. Let me highlight a few. Gerodynamics, a Fortune 100 aerospace and defense leaders. CGI, a global professional services and consulting company. John Hopkins, Armico Healthcare, a leading healthcare provider in Saudi Arabia. EDN Group. one of the largest producers and transporters of electricity in Europe, and Nippon Steel, one of the world's largest steel producers. Our pipeline is building for our new product as well, notably for the MPD, the Mobile Threat Defense, and the BlackBerry Intelligence Security. Now onto our BlackBerry sign-in business. Revenue was up slightly year-over-year against a recently tough calm. building increased sequential leads as we anticipated. We're highly competitive against other next-generation AD players because of the following reasons. Number one, BlackBerry Sign-In is the best mobile solution in the market. Number two, our lightweight solution protects all endpoints, whether they're connected or not. Other next-gen AD players only protect when the endpoint is connected to their cloud. Number three, Instead of being cloud-only, we support cloud-managed, on-premise, and hybrid deployment models. And last but not least, we're compatible with both the current and legacy device operating system, especially on the desktop. This was a strong quarter of new logo. Sidelines won over 300 new customers. Some of the new logos won in a competitive environment include the Fonterra, sorry, Fonterra Cooperative Group, the world's largest dairy exporters. A notable state healthcare organization in Australia. Unfortunately, we don't have permission to name the name. A Fortune 500 financial services company based in the Midwest of the United States. The Suho Security, which was a opportunity to leverage our UEM relationships. And Hartford Financial Services Group, a leading insurance a leader in insurance vertical that was run through our managed service partner with Verizon. As a result, ARR was $167 million, up 9% year-over-year. Our dollar-based net retention rates continue to be over 90%. We ended the quarter with 18% year-over-year growth in active subscription customers. And as I previously said, with the leader momentum will only continue now that BlackBerry Cylance has a full portfolio, plus other BlackBerry capabilities in the market. Before I turn the call over to Steve, let me update you on the Spark platform and the Cylance integration. We have made tangible progress in the development of Spark, a secure IoT platform. This past February, we announced the release of our Unified Endpoint Security, or UES layer, within the smart platform that leverages AI machine learning and automation to deliver zero trust security across all the fixed and mobile endpoints. The UES layer is supported by six initial products, which are Endpoint Protection Platform, the EPP, Endpoint Detection and Respond, the EDR, the Mobile Threat Defense, the MTD, Continuous Authentication, data loss prevention, known as DLP, and secure web gateway. These products work seamlessly together to analyze and define risk, make contextual decisions based on large amount of shared data, and dynamically apply a set of policy controls to address the risks of our customer environment. Our platform development Now, this platform development is in line with the marketplace convergence noted by Gartner, who has seen the consolidation of MTD offerings with EDR and EPP tools and calling this combined stack unified endpoint security. Gartner sees this stack forming a single solution during the next three to five years and indicated their organization should invest with UES in mind. Gartner also noted that 70% of organizations We'll need a combined endpoint management council by 2024, and 50% of the organization will have to have mobile threat defense by 2022, which is up from 20% this year. Given our product and the marketplace progression, we are now ready to increase go-to-market synergies and go after these fake UES and UEM opportunities. Accordingly, we have successfully integrated the entire side ends organization including sales and R&D teams, into our IoT business segment, effective March 1, 2020, which was just a month ago. We believe a unified team leads to broader customer coverage, a richer product roadmap, a clearer sales message, and most importantly, very differentiated offerings. The value proposition to a customer is that BlackBerry Sparks provide the highest level of security and management, with a simpler yet more productive user experience on any endpoint, fixed or mobile, from any location over any network. Many of you actually have asked me over the past several quarters about BlackBerry Prospect in a competitive landscape, especially against much larger players. I could not provide you a complete answer then, only to tell you that we're working on it, because the solution at the time was under development. We now have a differentiated technology architecture that's ready to ship in the market. Today, our UES products work with BlackBerry UEM. However, we recognize that customers may be using competitors or often more than one UEM product. Therefore, in the near future, as part of our roadmap, our UES solution will be made compatible with Intune, AirWatch, and other competitors' UEM products to give customers the best of both worlds. namely preserving investment while enjoying the benefit of the highest security and management that BlackBerry provides. We believe UES changes the competitive dynamics and our operating objectives now is to gain market share because UES is complementary to but not a direct competitor of the non-BlackBerry UEM products and also BlackBerry UEM will maintain our leadership in the regulated industry due to our continued focus and commitment and security and management. In time, we believe this Spark architecture expand our total addressable market, including in the IoT security area. With that, let me turn 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 reconciliation. We delivered fourth quarter non-GAAP total company revenue of $291 million and GAAP total company revenue of $282 million. I will break down revenue shortly. Fourth quarter total company gross margin was 77%. Our non-GAAP gross margin includes software deferred revenue acquired but not recognized of $9 million and excludes stock compensation expense of $2 million. Fourth quarter operating expenses of $172 million were down sequentially by $23 million and we continue to invest in product development and go to market. At the same time, we continue to demonstrate cost discipline across the entire company and gain operating leverage, in particular at Silance. Our non-GAAP operating expenses exclude $35 million in amortization of acquired intangibles, which equates to about $0.06 impact to GAAP earnings per share. Additionally, our non-GAAP operating expenses exclude $27 million in goodwill and long-term asset impairment charges, $15 million in stock compensation expense, $3 million for software deferred commissions expense acquired, $1 million in acquisition and integration costs, $1 million in restructuring costs, and a charge of $5 million related to the fair value adjustment on the convertible debenture. Fourth quarter non-GAAP operating income was $51 million, 5-1, and fourth quarter non-GAAP net income was also $51 million. Non-GAAP earnings per share was 9 cents in the quarter. Our adjusted EBITDA was 68 million this quarter, excluding the non-GAAP adjustments previously mentioned. This equates to an adjusted EBITDA margin of 23%. I will now provide a breakdown of our revenue in the quarter. Total software and services revenue was 287 million, representing 99% of total company revenue, Other revenue is solely comprised of service access fees, which were $4 million and were expected to decline given the continued wind-down of this legacy business. Recurring software and services revenue, excluding IP licensing and professional services revenue, was about 90% in the quarter. Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents, and investments were $990 million at February 29, 2020, which increased by $20 million from November 30, 2019. Our net cash position was $385 million at the end of the quarter. Fourth quarter free cash flow before considering the impact of acquisition and integration expenses, restructuring costs, and legal proceedings was positive $36 million. Cash generated from operations was $35 million, and capital expenditures were $3 million. That concludes my comments. I'll turn the call back to John to provide our financial outlook for fiscal 2021.

Thank you, Steve. Thank you, Steve. Currently, I'm sure you all agree there's a lot of uncertainty across the global economy due to the COVID-19 pandemic. Therefore, it is not prudent for BlackBerry to provide any specific fiscal 2021 financial outlook as things are changing almost on a daily basis. However, I'd like to make some macro comments on our business. Our revenue most likely will be negatively impacted by continuing headwinds to global auto production and sales. We anticipate a continued delay in capital spending in the auto as well as the other industry. At the same time, This negative impact could be partially offset because our product and services portfolio is well suited to how enterprise meet the challenges of business continuity driven by the dramatic expansion of remote workers or the number of remote workers. We are known for offering the best security and productivity solution. These product and services including our UEM product, Silence, Digital Workspace, Secchi Smart, which is secure voice syntax solution, as well as ad hoc, our crisis communication solution, including the new situation respond product, which is the entire lifecycle of managing crisis. In fact, we are experiencing increased demand. More transaction and inquiries comes in daily from new and existing customer, resulting in more licenses being deployed. Furthermore, our side-end products, including side-end card, which are cloud-based managed detection and respond offering, are helping customers to combat growing cybersecurity and privacy risks as the number of BYOD endpoints increases in a remote working environment. While it is difficult to predict the volume of business year-over-year, the company remains strongly focused on the overall financial health in fiscal 2021. The management team has managed through uncertain times in the past and has a track record in balancing profitability and investment for long-term growth. As it related to the shape of the fiscal 2021, we anticipate a tough first quarter due to the COVID-19 impact on our business. This may linger into the second quarter, but we do anticipate a stronger second half of fiscal year versus the first half of the fiscal year. When looking beyond 2021, we do not believe the current global crisis changes BlackBerry's strategy and the pieces of any of our long-term prosperity growth and value creation. I would now like to open up for Q&A. Josh?

We will now begin the question and answer session. To ask a question, you may press star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We do request that you limit yourself to one question and one follow-up. Our first question comes from Daniel Chen with TD Securities. Please go ahead.

Well, hi. Thank you for taking my question. Hi, John. Now, given the macro uncertainty, how are you thinking about capital requirements? In particular, how much do you need and what are your plans for the convert?

Yeah, we have an after-paying office convert program. we have $385 million of cash, all equivalent. And so we had made some assumptions under a stress test environment. A couple of assumptions. Number one, we will pay back Alconvert. The good news of paying back Alconvert is that we would save roughly about $23 million a year in interest payment. Obviously, the cash balance will go down quite a bit. We also assume there's no financing work being done. And part of the reason is, as you know very well, you probably know much better than I do, last couple of weeks, the market isn't really available. I think it's starting to loosen up a little bit. But we assume no financing. We assume no dramatic cutback of headcount or investment for the future. This is why I said earlier, We're going to balance possibility and long-term growth. We know this will pass. We know things will come back to normal. And we believe we have very competitive strategy and products. So we don't want to compromise the future. At the same time, we don't want to put ourselves in a financial difficult position. So we're going to be working balancing that. But we're not saying that we're going to overhaul anything to disrupt our investment pieces. Given those as kind of a background, We ran through the scenario of, you know, revenue coming down by 20%, by 30%, by 50%. Do you expect anybody to do in modeling? And we believe we are quite comfortable, unless it's in very extreme condition, which we are not anticipating, we're quite comfortable to be able to last the liquidity and the health, financial health for a couple of years.

Oh, that's very helpful. Thank you. I want to shift gears a little bit to the enterprise software side. It sounds like things are improving there. Can you give us a sense on whether the enterprise software segment grew year over year? And maybe give us a sense of how well you see your go-to-market and your channel. Is it developing the way that you anticipated?

Yeah. I don't have, and I think it's just the year over year numbers. So what I could tell you, From a buildings growth perspective, we saw a very healthy Q4, better than, you know, a double-digit over Q3, and so that feels good. The businesses are there. We have a hiccup. I think we overcame the hiccup. We have people very committed going after the business. We've had infrastructure build up for both the renew and new businesses that we won't let fall through the cracks. You know, a while back, it was really us doing, our doing, for not, you know, being more diligent on some of the stuff. So now, I think those are all overcome. We have a number of layers that want to start a business, as I said, both in the new, renewal and the new logo, going after the new logo. We have a bigger sales force now, and the combination of the silence into this IRP portfolio with the UES makes it even more exciting because now each of our sales rep has more things to sell. The silent sales rep could sell the UEM ad hoc and other products, mainly UEM, I believe, and vice versa. Now the UEM sales force now combined as one, could sell the UES product, which included a lot of science and AI technology. So we feel good about the focus. We feel good about how we align the territories. So, you know, majority of our sales is still going direct. We are building channel business, but that probably – that benefit will probably kick in mid-year, this year, or maybe towards the end of the year.

And your next question comes from Daniel Bartos with Bank of America. Please go ahead.

Hi, Daniel. Hey, guys. Thanks for taking the questions. First, I wanted to ask about the competitive environment for endpoint security. So on the one hand, you know, we have CrowdStrike growing very well, and they have a similar approach, it seems like, to Silance. And then you have others like VMware and Microsoft that can follow your moves to integrate the classic UEM business with the endpoint security potentially. So it'd be great to just get an update on the competitive landscape you're seeing for Silance. And I'm curious if the combined UEM and security is a real conversation yet with customers. And then I have a quick follow-up. Okay.

Okay. That's a good question. So Silance, So, you know, I took a little while to label, to lay it out, sorry, not label, to lay it out why we win some of the sidelines still. As I said earlier, sidelines have secured over 300 new locals in a quarter. And so we're winning against somebody. I don't want to name names of who we're winning against. And it looks like To summarize, it looks like with a silent one, the win rate basically comes from, A, we're the mobile leader. B, we don't always need the cloud. So we do secure protection on the endpoint both offline and online, and that's the differentiators. We have now managed service and the full suite of products. So that also was a factor. So those are, you know, among other things, those are three that I feel jumped out at me when I look at the win. The combination of that whole set of silence portfolio with the managed service and the management tools that UEM has is exactly where the market is going and is verified and confirmed by Gartner. That's what, you know, they named this whole segment called UES, Unified Endpoint Security, which is a combination of mobile and fixed, cloud and on-premise, and also managers and threat detection and protection. So we just happen to be, you know, an early provider of the product, and I'm hoping that, therefore, give us a much more competitive advantage of, against some of our big players and our big competitors out there. And then we'll win, hopefully, an unfair share of the deals. Finally, you know, most of you have asked me the question about there are some of our traditional competitors that provide site licenses. And if you look at everything that we offer, we are above, you know, For example, a site license called ELA-5 will be a lot cheaper than ELA-5 and much better security product. So, ELA-5 is not free, unlike the ELA-3. So, I believe that we could be competitive out there.

Great. That's very helpful. And then, just quickly on the licensing strengths. You know, when we entered this year, you guys were thinking that segment might be down 5% or so year over year, and then it turned out to really surprise up 15%. So I was wondering if you could just kind of walk through what changed throughout the year, and more importantly, did this strength come at the expense of some fiscal 21 licensing strength?

Thanks. Yeah. Yeah, I like to be blunt, but certainly the problem with it, I mean, it is a good business because it's very good margin, and unfortunately, you all know very well that somewhat lumpy uh and the timing is a little hard to predict uh than just the kind of an enterprise transactions so so because of that i'm always conservative um i think um you know i i prefer to still plan it at about a 250 mark uh um for the fy21 and hoping we'll do better i mean but but it is really hard to predict that this quarter I didn't expect it to come in that strong, honestly. It's been strong a little bit the entire year. Great. Thanks, guys. Thank you.

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

Thanks very much, and good afternoon. Good afternoon. Just trying to understand the BPS segment a little bit more, can you speak to the magnitude of the decline in the quarter, and then is that driven predominantly from royalties on the volume of production, or are there other non-recurring items in there, like professional services, the licenses of tools that may have contracted?

Unfortunately, it's a little bit of everything. I So, first off, royalties are down. We have projects we believe that we were going to get the developer seats. That has been delayed. And once the project, the new projects are being delayed, mind you, it didn't go away at all. It's just been delayed because a lot of these are tier one and OEM. They start looking at the auto sales figures, and they started to become a little concerned. they'll be a little more cautious. We still run the projects. There's no question about it. But then the developer seats, business have gone down. And those are the higher, you call it one time, you know, the immediate revenue, right? And then once the developer seats got slowed down, normally they come with some portion of professional services so that they, you know, they have to help them to deploy it and to start the new projects. That, of course, is also slowed down because of that. So it is a rather unusual situation, and I don't expect it to last long. Our game plan is to do more of the professional services work on a remote basis. Then, of course, you have to get the authorization from the customers, which they're working remote also. And so we should be able to get that. And second thing is to go after more of the jam growth because then they would need to buy developer seats. So those are the two. And continue working with our auto customers, obviously, because they will come back. I mean, this is not going to just end. So they will come back. It may take a quarter, another quarter, but that's about what I expect it to be.

Okay, that's helpful. Just shifting to COVID-19, in regards to the promotions that you've implemented or announced, could you provide some uptake, some metrics on the uptake of that, and what do you expect in terms of potential conversion longer term?

Yeah. Okay, this is – my people are probably going to yell at me about – I'll give you the update. In the first week, I think we saw our pipeline grew at least 30 million. And these are good pipeline because this is the one that actually came to us with strong needs. Customers are able, in some cases, process a PO in record time. I mean, you guys know all this, so I'm not saying anything that you don't. And I don't, I said we do have that situation and So it's a lot of different software companies. So I'm not saying anything to you that are very standout-ish and very unique, but I just want you all to know that we do have a piece of business that in an environment like this, you know, unfortunately benefit from, you know, this whole crisis. And we do okay in that area. And so that's about the only metrics I could share with you. That's more than anybody would tell you.

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

Great. Thank you. Hi. Thanks for taking my question. Just following up a little bit on cost structure, you know, how should we think about kind of the investment level? It sounds like you guys feel good with the team in place and want to invest for the long term. But OpEx was a little lower than expected this quarter, and I imagine it could be lower again just given lack of travel, entertainment type projects, things like that. But is there an OpEx rate you're looking at maybe on a run rate for the calendar year that we think about?

I did not calculate that. We know we have a number of lever. So, for example, in our plan, you know, there were, of course, you know, replacement of attrition of headcount. would probably, given this environment, we'll still be hiring people. We actually make some offers lately. But we're going to hire in areas of quota carriers, people that are billables, you know, so that could help us on the revenue side. And then the other areas, unless it's very specific, like we just recently hired a very strong data scientist. And so, of course, we'll always be looking for excellent people like that. But other areas we might slow down. We probably not might. We are slowing down. And partly because it's just everybody's working from home. And we have a global work from home now. And it's just difficult to do the interview and the processing, the background check, and the references check. And so it just takes much longer. So there will be some natural changes. reduction of cost built in. Obviously, we look at our capital spending very carefully, and that also, like you pointed out, travel goes down literally 95%, you know, probably even conservative when I say that. Nobody is traveling at all. And there are other areas that we could take some costs out, you know, infrastructures, facilities, that kind of areas.

Thanks. Just my follow-up question, just circling back to the licensing, which was strong as you laid out this year, can you share with us just kind of heading into this year what the recurring revenue run rate is? I know 250 might be a good number for the year, but is there a recurring piece you feel is pretty solid for the calendar year coming up? Thank you.

Yeah, in my model, I mean, saying that last year, I realized that, you know, I probably don't have a whole ton of credibility because I tell everybody it's about 250. I'm going to tell you it's going to be about 250 for the coming fiscal year. But I hope this time you will believe me a little bit more. Last year, we have a lot of things, a lot of deals in play. And so, and they came in through the various time of the year. So, different quarters. I believe, you know, this year planning on 250 is reasonable.

Your next question comes from Gus Papagiorgio with BI Financial. Please go ahead.

Hey, Gus. Thanks for taking the question. Just a couple of questions. Steve, on the $27 million Google impairment piece, tell us what was that for?

The impairment, I think, was $22 million.

$22, yeah.

And that related to the BBM consumer. It was a while back. We licensed. This was a licensing arrangement. And we were no longer operating the consumer BBM piece. And eventually... You know, it was known that there were certain amounts that we were going to receive under the agreement. And naturally, we had to allocate some goodwill to it back in time. And since that, you know, service has been shut down during the year, you know, the impairment results from that.

Great. Thanks. And then just, I guess, on Q and X on the auto. So, obviously, we're seeing volumes under pressure here in the short term. But I guess part of the plan for QNX is that you should increase your market share, but also the ASP per car should go up as car manufacturers adopt more software modules. Do you think the kind of the ASP growth is going to get pushed back as well, or do you think that it's just a volume issue in the short term, but we should still see ASPs increase this year and then increase again next year?

It is short-term in a volume base, not the ASP. The output has gone up because if you look back in the last three, four, five quarters when we announced the results, we talked about the design win in clusters, instrumentation, hypervisors, ADOT, OTA. We talked about those wins. Those wins all carry a higher output. AASP than the traditional IDI business.

Okay, so they're not getting deferred at all?

No, not that we could see. We're basically based on, at this point, it's really more volume versus less volume.

Great, thanks.

Your next question comes from Paul Steep with Gosha Bank. Please go ahead.

Great, thanks. Hey, John, can you maybe talk just one, a little bit about ad hoc and what we've seen there, obviously. That's one area that I'm assuming you're seeing a lift in, and then I'll give you one quick follow-up. Thanks.

Yeah, ad hoc and an environment like this. So for those of you who are not, haven't really followed our ad hoc business, it is very strong in the federal government and a more of a kind of, and I meant federal government, I actually manage the United States federal government, and we have over 2 million seats in the United States federal government space, including armed forces and so forth. And then, of course, in Canada, you know, Ad Hoc is in the parliament, and the other G15 countries, a lot of them uses Ad Hoc and coordinate security and crisis. But we haven't really gone out of the government and the federal space, which we are beginning to see us getting into. You know, there's a company called Everbridge, a public company, and they do exactly what we do, but they are more in the state, local, and education market, which we're interested in. So we're hiring people, building that up. And so this is an opportunity of growth. And it looks like that we are quite competitive. And we just released our latest product, which we're very proud of, which is the lifecycle management of a crisis. And so anyway, so I think this is going to be a good growth engine.

Great. And then the last one from me would be, Maybe you could talk a little bit about where you see the organization being. You've obviously changed things around, integrated silencing. It looks like you've got a new head of field operations and marketing, or presumably sales is what that title means. How should we think about any changes to the sales force? And then secondly, how would you recapture any of the cost saves from letting go a few people in the silence area and would you redirect that capital to growth or are you just going to sort of hold on to it in the current environment? Thanks.

Yeah. So first off, I'm very pleased to, when you combine two organizations like that who have traditionally their own infrastructure and sales management, I got the luxury to pick the A-team between the so-called legacy BlackBerry and Silence. And it helps save a lot of the management infrastructure costs that we will then throw it back into hiring reps around the world. So, you know, the equation works out fine with us, for us. And Dave Castanola is picked to run sales, field marketing, and customer services for Spark, which is a combination for the UEM and Skylens products. and so we now have one organization do that, and we, you know, as we have stayed down to a number of levels, whether it's a regional manager, a country manager, and so forth, we obviously, at the luxury of picking one versus the other person, so that, in my mind, give us a cleaner structure and also give us an opportunity to pick, you know, the better person. At the same time, there are a number of organizations opportunity out there and geographies and regions that actually have both very strong person and very promising person. We're able to deploy one of the two to a solution side of the business, which are ad hoc, second smart, and QNX. So, like, for example, we now have a solution team in Asia-Pac, leading by some really good people. And so we are We're taking advantage of the talents pool and the simplification of the organizations.

Your next question comes from Chip Chowdhury with Global Equities Research. Please go ahead.

Thank you. Very good execution in a terrible environment. I have two quick questions. First, regarding your digital workplace. I think you are giving this product free for six months. Do you see that business to give you some uplift, as you mentioned in your prepared remarks in the second half. Do you think that product is playing an important role? The second question I have is Zoom video is getting more popular, but they are terrible in providing the security and privacy. Do you think some sort of OEM engagement or relationship with companies like Zoom could be, if they use digital workplace, those issues could be put to rest. Any thoughts on that?

Good. Thank you. So, the first question is digital workspace. It's a brand new product for us. We just released it probably no more than a couple of months. And it's slightly early to tell, but Through this process of remote working from home, we've been seeing some good license movement on digital workspace. Not big enough to make a dent. So I will reserve my comment on this probably way to a quarter or two from now. But it certainly has picked up already, and partly because of the environment we're in. Not having to deal with ETN and being able to put it on BYOD, it's a huge deal. It's a huge deal. And we're now integrating, by the way, on every one of those desktops, we're putting finance protect on it. And so I'm hopeful we're certainly doing the right thing. So that's one area. Zoom is obviously picking up quite a bit because of the reason of it. And, yes, there were some concerns of security and privacy, and not just Zoom and other players too. Zoom is part of our containerized size program, meaning that Zoom works in a container. If you are a UEM customer, our BlackBerry UEM customers running Zoom, you will already be secure both in the data privacy and the security of it.

That's very wonderful, good to know. So the container, is it, we are talking about containers in the context of Dockers or is this containerized in some different context? Basically, if I'm a customer of, say, your Unified Endpoint Management and whatever service I put into that container, by default, they will have the same level of security as Dockers the underlying platform provides. Is that the correct way to think about it?

Yeah. So the container I was referring to is our endpoint management software, which is a combination of mobile device management and application management, and we use the container technology there. So that wraps around every application and protects the thread and intrusion of outside agents. So I'm talking about that container.

That is all the time we have for questions. I would like to turn the call back over to John Chen, Executive Chairman and CEO of BlackBerry, for closing remarks.

Okay. Thank you. I was just having fun. But thank you very much for your time today. We look forward to speaking with you at our analyst day, which unfortunately we now need to be on webcast because of the work in, you know, shelter in place. It will be webcast on April 21st, coming April 21st. Lastly, I'd like to take this opportunity to hope you and your family to stay healthy and stay safe as we work together through these challenging times. And I added one statement, you know, this crisis shall pass. So looking forward to interacting with all of you. Thank you very much for your time.