BlackBerry Limited

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, we will be facilitating a brief question and answer session towards the end of 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 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 Ray. After I read our cautionary note regarding forelooking 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. Forelooking 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 forelooking statements. These factors include the risk factors that are discussed in the company's annual filings in 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 a company's forward-looking statement. 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 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. Sorry, I was looking at Steve. Thank you, Chris. Good afternoon, everybody. I hope that all of you and your families and your loved ones are staying safe and healthy and during this very unprecedented times. This fiscal quarter of ours, which happened to be 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 recently smoothed. I will start with the financial highlight in a quarter, and then move into a business commentary I will reference non-GAAP number 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 product and services that feature security and productivity benefit from the increased in remote working, business continuity, and crisis management use cases with our customers. Total company billings were also down over the year due to the pandemic, but the billings decline rate was less than the revenue decline rate. This is, of course, the 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 the long term. Cash use in operation was $31 million versus $64 million in cash use 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 31st was $955 million. Before I move on to business commentary, please be reminded that we have fully integrated Silance 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 other groups. Revenue was 58 million in a quarter, in line with our expectation. The vast majority of the revenue is from IT 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, 156. ARR was approximately 500 million, and the 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 a key product component of the group. Let's start with QNX. Development seat, 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 opportunity that came up. We anticipated a slow and gradual recovery for QNX throughout the year. It would take time for the production to run back to full capacity. In the quarter, QNX was chosen for 10 design wins, six of which were in the general embedded market for industrial and medical applications. The remaining four were in auto, including an ADOS, advanced driver assist software, design wins with Hyundai Altron, sorry, Hyundai Altron, and an acoustic win, design win we 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 install base number is over 175 million, an increase from 150 million last year. This metrics, which we generally update once a year, have been validated by strategy analytics and independent third parties. In an attempt to provide more information on QNX business, we have decided to share our royalty revenue backlog on an annual basis. The backlog is based on the customer estimate 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 four-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 assessment and testing. Moving on to Ad Hoc, a crisis communication lifecycle solution. Ad Hoc was a performance leader this quarter. Ad Hoc is very well suited for business continuity, preparedness, and execution in the current environment. We had a number of new customer wins in comparative situations, 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 Silence and UEM, which going forward will be referred to as the SPARC platform. Blackberry Silence was slightly ahead of consensus expectation for the quarter. We added 279 new customers, and new active subscription customer growth was about 15%, 1.5. This is measured on a year-over-year basis. Notable new customers include General Motors, Bacton Dickinson, Philips Healthcare, SKF, which is one of the Sweden's largest manufacturers, 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 product, 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, but I have to caution, this is of a small base. BlackBerry East Island performed extraordinarily well in the recent MITRE evaluation, which is regarded by the industry as the most objective and transparent standards currently in the market. We clearly demonstrate that our AI-led solution and managed service protect customers from global threat actors, We were especially pleased by the performance of Optics, which surpassed many EDR players who happened to be ranked above us in industry analyst report. Our UEM business also executed well, benefited from the increased need to provide more endpoint, especially mobile. Demand was strong from our regulated industry customers. Let me name you some notable wins, notable customers. They include American Express, CIBC, the European Bank for Reconstruction and Development, Qatar National Bank, the National Commercial Bank, AFSA 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 government vertical. Let me wrap up with the spot streets. Enterprise today face an increasingly chaotic environment where cyber threats are ever more sophisticated and pervasive. Attack the primary target endpoints in 70% of successful breaches, especially in the form of mobile. The 5G road out will lead us to a significant increase in attack on mobile endpoints. At the same time, enterprise endpoint and the amount of data shared at the edge are also growing exponentially. Together, cybersecurity 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 and Sullivan defines the cyber threats to the entire IoT landscape. This report recognized how BlackBerry's solution addressed over 96% of the collective threats. A copy of this assessment is available on our website. A big part of BlackBerry value proposition is our ability to address these threats with our Spark Suite, a platform that combines endpoint security as well as endpoint management. Though the Spark Suites were only launched on May 19, 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 Boss AG, one of the largest provider of financial market transaction infrastructure worldwide. After the quarter, we announced a partnership with Bell Canada. BlackBerry becomes 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 streams. We're adding more features. We are on schedule to ship data loss protection, and secure gateway later this year. We anticipated these additional fillers 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 competitors' UEM solutions. Let me wrap up this session on the personnel front. We recently announced that Tom Ecobasi, 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 facets of the global sales organization. In addition to Tom, we also have recently recruited two other senior-level industry leaders focus on go-to-market. The first is our new head of software services business, 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 demonstrate 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 revenue 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 10Q. 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 groups, 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 noted 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 anticipated 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 two-two, full fiscal year. In line with our normal intra-year seasonality, we anticipate also a strong fiscal fourth quarter. I also want to reiterate that BlackBerry continues to be financially healthy. Even during these uncertain times, we demonstrated fiscal discipline, generated profitability, and maintained liquidity. We have recently ran another set of financial stress tests, assuming up to 30% of revenue decline and no new financing. The result showed that we continue to be solvent 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 expenditure 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 task right now is profitable revenue growth and market share expansion. And we are very focused on that. Before I open up the 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 questions but could not because they were actually GATs. So there was no glitch on the technology. Our proxy materials are clear that GATs will not be able to ask questions. I will now open the question up for Q&A. Josh?

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

Thanks. Thanks for taking my question. Just a couple questions. Just first on QNX, so you issued a press release, I believe it was yesterday, that showed your increase in 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 gonna have. Like just on your kind of, on the enterprise software side, obviously you said you saw a 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 175 million costs, Actually, I know you have done a ton of research on the auto space, as we spoke many times in the past. There are roughly, in a big number of sense, there are roughly a billion cars in the world running around every day. And I would dare say maybe 60% plus are the cars that are in a 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, you look at the fact that we have 175 million cars that have our software, you know, on the road today, I mean, you could calculate the market share. I mean, we definitely are, if you take about 600, you divide by that, you know, I'm guessing we're roughly about 30% market share. That will be my best guess. non-scientific. I just walked you through how I look at the numbers. I'm sure somebody else might point out, you know, maybe they'll point out four in my thinking, but that's that. So, regarding the year, you know, I think when I look at, maybe I'll start with the industry consensus. Maybe I'll start with that. The consensus in 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 IT business, licensing piece of 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 pretty much in the same board partners you guys are.

Okay. On profitability? Sorry, kind of profitability?

Oh, on profitability, I think it's a good shot of us being profitable. You know, we demonstrated – yeah, for the full year, yes. And I already said, Gus, that 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.

Oh, hi. Thanks for taking my questions. The QNX royalty backlog, did I hear correctly, is it $450 million? Yes, $450 million. So how did you guys calculate that number? I actually thought that number would be higher considering you do annual QNX revenue. I know there's a whole bunch of other stuff in there, but annual QNX revenue, that's about, what, like around $200 million or so. So... How did you calculate that backlog considering that a lot of the programs that you're involved in have a long life cycle?

Yeah. 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 a year. Some of those will become revenue in a year. We also generated somewhere between in a ballpark 70 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?

Yeah, yeah, that's helpful. I just assumed that the life cycle of some of these automotive programs were really long, so When you win one of these design wins, you've got a very long tail of continued royalty revenues. I thought it would probably add up to – I expect a much larger number than that.

Yeah, I would say that we're probably on the 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 of the same thing. 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 start returning and the design wins start being awarded, we will get a good share of it.

Okay. Yeah, that's helpful. Thanks. 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?

Yeah, we, our team, our team has told me that, told 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 is they have to have a schedule first. Then we'll enhance our ability to win. So, So that's where we are. It's a good start. Okay, thank you. Sure.

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

Thank you. Hello, hello. 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 first quarter was pretty much the bottom, and you are seeing signs of economy opening up and recovery happening?

Well, we, in my kind of earlier 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. And like earlier, we talked about QNX design wins. Despite all the 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 immediate revenue, but I thought that was actually better than I thought because nobody's going to work. So I have a certain, or we have a certain expectation that things are getting better, although we're being very cautious. We believe you're 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 it's the 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 IT. This is how we all group 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 for the year. That's kind of the environment that I'm expecting, and that's tied to the number.

Beautiful, beautiful. John, you are always being very innovative and always ahead of the curve. We all are working from home. We are doing remote working. But there's a challenge when it comes to selling in terms of remote selling. So I was wondering, like knowing you from Sybase, you turned the whole industry upside down. when we think about remote selling, what new things 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 because we benefit from a 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 Python 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 upselling to them, and they have a built-in requirement to need more software, more seats, more licenses, and in some cases, ad hoc, where people are on the fence and say, well, I don't really know I need it. You know, whatever. They have decided they need it. And so they're – 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 CEOs of other tech companies, and 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 relationships, especially in the regulated industry, like the banks and the medical field and the government. So that helped us to put some kind of anchor into the business. The new project, the new customer base, I would have to say is much more difficult to come by.

Thank you, John. All the best.

Thank you, Joe.

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

Hey, Mike. Hey, John. I have a question for you. Sure. Yeah, hi. Yeah, we can call that ad hoc on the call, the area of strength. You know, with the changing work in government safety environments, you know, how are you leveraging ad hoc strong position with federal government into opportunities to compete more maybe at the state, local, and even enterprise level, you know, compete more maybe with Everbridge offering? Mm-hmm.

Mm-hmm. That's a very good question. So the federal space, the you know, the G20, the 5i countries, United States, Canada, we do have, you know, good customer recognition and we have a big install base, especially in the United States, for example, multi-million licenses that we have. So, those are all good things. We have traditionally not been strong in stay 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 an enterprise sales force like selling to the government agency. That's a hot rod set. So we're adding... We're adding resources in both areas that I talk about. So we go after the RFP for the states and local, then education market, and the other SMB market we go after with more of an SMP sales team. And I think it will work well. The good news is we also have upgraded our product to have a complete lifecycle product. and we also deliver the managed surface product, and so that fits to the smaller enterprise, because we never had to have the managed surface product. That's just recently announced. I forgot literally days, right? So we're equipped now, you know, both in the managed surface with the way we laid out sales approach, and it's a great market, I have to say. We, you know... A time like this is a really great market.

Great, thanks. And just following up on that, is there any metrics you can share on the business, maybe the size of it on an annual basis or growth metrics? And then also, how do you view the positioning? Are you adding salespeople to attack the EU mandate 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. You know, the renewals are strong. And, you know, we have seats like in the United States, over 2 million seats. So, you know, but they're 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'd like to know, too. Okay. Great.

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

Yeah, we wrote it all in. Radar is actually doing reasonably well. Unfortunately, the numbers are not high. They did get affected somewhat by the pandemic because we're unable to visit customers, you know, because Radar is really very – the Radar team is very focused on winning new customers because we win new customers, we get recurring sales, and that's the focus on – But it's done well. I mean, it was nothing negative. We had some wins. We 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 out at all. Thank you very much. That's horses for the year. Sure. Thank you.

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

Hello there. Great. Hey, John.

Yeah, thanks for taking the question. First, I just wanted to clarify, what was the ARR number that you said in the beginning?

About $500 million.

Okay, gotcha. Is that up year over year?

Oh, this is the first time we actually collect and disclose it. So I don't know where there's a year-over-year at all.

Okay. Okay, gotcha. And then just what was the silence consensus number that you grew year-over-year?

Yeah, year-over-year is relatively flat. And I think the silenced number is like 48, 49 million, about a quarter. That's probably right. Yeah. Yeah.

Gotcha. Gotcha. 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? Thanks.

Yes. I'm glad you asked this question. We are spending, we did two things to fund our go-to-market engine. We move a lot of the headcounts, and unfortunately, some of the headcounts we have to reduce and then hide back in some other area. But in the beginning, earlier on, not during this pandemic period, we have we move the resources from the back offices to the front line. So the back offices, and which is pretty much across the board, whether it's finance, HR, you know, legal, IT, you know, we have, because one of the good, one of the benefits of, you know, grouping the company, you know, the businesses together is we actually So, for example, you don't need three different finance, you know, finance team. You only need one. You don't need three different contracts people. You only need a bigger one, but you need one. So, it helps a lot. And then we moved that. This is by design. And we moved that. I call it a 10% move. We moved 10% of resources from the back office to the front and then hired the people that way. So, A lot of these people are going through trainings and stuff. We also increased our acceptance. Recruiting more talent from the outside in our men, the people we have here today. So we're basically feeling very comfortable. I named you a couple of executives. We probably have another 100 racks that are being recruited right now in sales and marketing as we speak. Great.

It's really helpful. Thank you. Sure.

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

Hi. Hi, everyone. Thanks very much. First, a high-level question on strategy. With this environment, we're seeing tremendous uptake of video conferencing. BlackBerry is known for secure communications. You have email, BBM, and voice, but no video. How do you think about video you see as critical or not synergistic with the bigger portfolio that you're building?

It's not critical. I mean, it could get synergistic, but I'd rather do it with partners. Like, for example, we're doing a ton of security work with a number of the main players that you could probably close your eyes and excite. So we want to do it that way. Now, we have good products and we're pushing voice. But the reason why I didn't really attend and do video is I find that a really crowded place, and I'm not quite sure. Now, eventually, if the market and, therefore, By the way, we integrate Zoom, the WebEx, and all the other tools. Nobody will call me and say, hey, I actually have a video content thing that I wanted. And in some cases, we use container under UDM to manage the security of some of these conferences. So today, I'm trying not to dilute more. So, you know, get my UEM, UES launched properly. In the future, might be harder.

Thanks. That's a helpful perspective. In regards to IP licensing, I mean, obviously, you sound positive going into this quarter. Now, given, you know, there are, you know, travel restrictions and social distancing and whatnot challenges, Yeah. What's the process for closing deals in this environment? Can you do a lot of it or all of it remotely? Or are you assuming, you know, some relaxation of the measures to have negotiations?

Right. You know, I hope everybody will give me credit as a reasonably safe. So when I show you that we're going to have a reasonable Q2 and a grid Q2, especially for licensing, we pretty much are in the back. But the answer to your question really is the stages. If I'm approaching a licensee, a potential licensee for the first time, especially overseas, that is going to be delayed. It could be delayed indefinitely. And that's the function of when you say, oh, by the way, you know, why didn't you license for me? You really have to have a face-to-face conversation and talk about design, talk about playing charts, you know, presenting playing charts. So there's a process to this sales. So now at the end, when you're really talking about terms like, okay, so how long will I be processing? category are not included. When you're down to that conversation, you could do all that by video. 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 in new pipeline from that you provide an update on the pipeline or perhaps, you know, how the conversion?

I don't, I didn't keep track. This is recently good. You know, pipeline at that stage, I think normally you convert two and a half to one, you know, because the trial is a pretty much driven by a special circumstances. So, So I say the conversions are reasonably good. Thanks for taking my question. Absolutely.

Our next question comes from Todd Copeland with CIBC. Please go ahead.

Hi. Hi, Todd. Good evening. Hey there. Quick question on OpEx follow-up from the SG&A question. So if we think about the 151 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 will tell you, I'm here, unfortunately, looking at Chris, but, you know, I have to do what I do. And we are gradually opening up. You know, there are six offices in multiple phases around the world that's opened up. And so 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, you know, we have internal, you know, a process that industry well accepted, which is, A, we follow the government guidelines around the world. Right now, it's that Ramon is opening up at phase one, meaning about only 20% of our population is allowed to return back to work. And then everybody else 50% in phase two, which I have to do a lot to do with the provisions and the provinces and so forth to see how the health situation progresses. And then the phase three is 90%. and childcare and all that stuff. So we have a very thoughtful process that we laid out. Now, the reason I'm going, I'll 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, you know, this is not a bad time to hire talents. I don't know why. But, That's okay. I'm not complaining. And so sales and marketing costs. Since we're doing most of it in virtual, we should still save money on travel. We will save money on actual shows that we go to that we no longer go into, for example. So there is a get and take there, but you should see it 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 the 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, yeah. 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, so before I close, I'd like to mention one of our recent announcements in demonstrating our commitment to the Sustainable Development Goal initiated by the United Nations. I'm very proud that BlackBerry continues to contribute towards 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 towards our goal to be carbon neutral by 2021. We'll get to carbon neutral by next year. This is a later in the day for the East Coast friends of ours. But thank you. 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.