BlackBerry Limited

Good afternoon and welcome to the BlackBerry fourth quarter and fiscal year 2021 results conference call. My name is Sadie 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. You should need assistance during the call. Please signal a conference specialist by pressing star zero. As a reminder, this conference is being recorded for a replay purposes. I would now like to turn today's call over to Tim Foote. BlackBerry Investor Relations, please go ahead.

Thank you, Sadie. Good afternoon and welcome to BlackBerry's fourth quarter fiscal 2021 earnings 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 forward-looking statements, John will provide a business update and Steve will review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via call-in numbers. and via webcast in the investor information section at blackberry.com. A replay will also be available on the blackberry.com website. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. will indicate forward-looking statements by using words such as expect, will, should, model, intend, believe and similar expressions. Forward-looking statements are based on estimates and assumptions made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. These factors include the risk factors that are discussed in the company's annual filings and MD&A, including the COVID-19 pandemic. 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 a 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 EDGA, CEDA, and BlackBerry.com websites. And with that, I'll turn the call over to John. Thanks, Jim.

Tim. Tim. Sorry, sorry. Thanks, Tim. Good afternoon, everybody, and thank you for joining us today. I'll begin with three headlines for the quarter. The first headline is licensing. This quarter, we entered into an exclusive negotiation of a North American party for the sale of the portion of the company's patent portfolio primarily related to mobile devices, messaging, and wireless networking. BlackBerry will retain rights to use these patents. Patents associated with the company's strategic software and services business including Spark, QNX, Ivy, secure communication, and critical event management will continue to be owned and managed by BlackBerry. The company has not yet reached a definitive binding agreement, and negotiations are ongoing. The company limits its licensing activities in the quarter due to the negotiations and because of accounting rules, which Steve will explain later. This results in licensing revenue being lower than expected. The second headline is software and services. This quarter, we saw a slight sequential revenue improvement for Spark, and a continuing recovery for BTS. BTS had a good quarter, despite vehicle production headwinds, from the global chip shortage. Software and services billing grew strongly and are now back to the level of a year ago. The third headline is BlackBerry Ivy. Discussion with automakers and tier ones are progressing well, and I'll touch on some of the exciting developments later. Now let me get into the more details. BlackBerry reported total company revenue of $215 million. 215 software and services revenue was 165 165 licensing and others was 50 million five zero gross margin was 73 percent earnings per share was positive three cents cash generated from operation came in at 51 million total ending cash and investment as of february 28 was 804 million I'll now turn to our business commentary, starting with software and services. Our ongoing strategy is to safeguard the Internet of Things with intelligence and security. We achieved this by combining our 30 years plus of security expertise with newly acquired technologies such as side-ends AI and machine learning. We currently serve the market in two different ways. The first is to provide cybersecurity for enterprise, particularly large, highly regulated verticals, such as government, financial services, and healthcare. Here, we protect endpoints, networks, and communications with our zero-trust architecture. The second is to embed technology to provide safety and security to the endpoint. Here, our focus is currently largely on automotive. Again, a very large, fast-growing market. Starting from a QNX installed base of over 175 million cars on the road today, QNX and Ivy, in partnership with AWS, have significant growth opportunities. Over time, these two paths that I mentioned will intersect and provide tremendous opportunity for BlackBerry. Investment in smart mobility and smart city infrastructure will help drive this convergence. but obviously the market is too early. We recognize the need to be louder when communicating our strategy and who BlackBerry is today. This month, we launched a major new digital, radio, and print branding campaign across North America and the UK to get the message out powerfully into the marketplace. From a financial reporting perspective, starting this Q1, which is this quarter we're in, we intend to report software and services as two separate revenue lines, namely cybersecurity and BTS. The cybersecurity line addressed include and addressed the cybersecurity endpoint management and critical event management markets. Our main competitors, including other leading next-generation endpoint security providers, as well as notable UEM vendors. We address these markets with our AI-driven SPARC, a fully integrated UES and UEM platform, along with AdHoc and Secchi Smart. BTS addresses the embedded software and vehicle data analytics markets. Notable competitors, including AutoGrade Linux, Android, and proprietary operating systems. Our QNX product, over the highest level in data functional safety and security, our Bacteria IV will provide an end-to-end solution for harnessing data in a car. We believe that this change will help investors to gain greater insight into the performance and opportunity of these businesses going forward. Moving on to software and services metrics. ARR was approximately $468 million, slightly down from last quarter, primarily due as expected to the pandemic-related impact on BTS. Dollar-based net retention rate improved sequentially from 90% last quarter to 91% this past quarter. Net customer churn remained low at around 1%. now moving on to bts as a reminder qnx is by far the largest component of bts as we anticipated during last quarter earnings call we saw improvement in both qnx design win design phase revenue and production based royalties this improvement continued despite a challenge from the global ship chip shortage and it's impacted and its impact on auto supply chain it's not fully clear what the impact will be on production volumes, at least nor for how long will it last. However, we continue to expect improvement from BTS in the upcoming fiscal year. Our plan of returning to a pre-pandemic normal revenue run rate of around $15 million per quarter by mid-fiscal year assumes that the new challenges are overcome by that point. Looking beyond the short-term headwinds, though, Strategy Analytics, a leading research firm, estimated there will be a large expansion in the number of embedded systems in a car by 2027. The estimated disk growth will be mainly driven by ADOS, which is Advanced Driver Assist Systems, as well as data gateways. These systems require the highest level of safety certification and are increasingly deployed on chips with higher compute power. Both factors play to QNX strengths, and recent wins, some of which I'll mention a little shortly, give real data points that support this trend. This validates the strategy of focusing on safety, critical application, and points to an increasing ASP per part. During the quarter, QNX strengthened its leadership position in its safety critical software. We announced enhancement to our hypervisor, which, by the way, is the only one in the market certified to the highest level of functional safety. We also announced a number of design wins, including our Motional, a joint venture between Hyundai and Aptiv, will be using QNX black channel communication technology in its next generation driverless vehicle. Also, Baidu announced that their machine maps, a critical component of autonomous driving, will also be built on QNX and designed into the new energy ion models from GAC, which happen to be a leading Chinese electrical vehicle automaker. These announcements demonstrate that QNX is at the heart of data's vehicle technology development, positioning the business well for future revenue growth. It was also confirmed at CES that QNX has been selected by Sony, the latest Sony NuVision S car. Furthermore, Scania selected QNX as its primary operating system for its heavy-duty trucks. Overall, in the quarter, QNX has 25 design wins, with 9 in auto and 16 in general embedded market, or JAMM. The auto wins were predominantly ADAS and digital instrument custom designs. The GM wins include a mail processing control system for USPS, United States Postal Service, a connected manufacturing plant system from GE, and a next-generation eye surgery equipment from the leading medical device company. We are delighted to report that now we have half-designed wins with 23 of the world's top 25 electric vehicle OEMs, who together represent 68% of the global EV production. This is an increase, by the way, from 19 of the top 25 last quarter, with recent wins including Toyota and Honda. In the recent reports, Deloitte estimated the CAGR, the compound annual growth rate, the global EV sales will be around 29% over the next 10 years. And QNX is well positioned to benefit from this growth. Let me now provide you with an update on Ivey. Since the announcement in December, the response from OEMs has been very positive. We have held many discussions, many workshops with a number of leading automakers and are pleased in how these discussions have progressed so far. Many use cases have already been discussed, showing the potential of this platform once creative app developers are able to build on it. Most of these use cases are being developed under NDA and can be shared right now. However, one we can share is the Right to Repair Initiative. Garner the leading analyst, has identified BlackBerry iV as a potential solution to the problem of safety and securely sharing standardized vehicle data with repair shops without compromising either vehicle safety or the OEM's IP. To support the development of the app ecosystems, this quarter we made an investment to grow the iV R&D team This includes starting an ecosystem development group led by a new executive joining us shortly from a major OEM. We recently announced the creation of an IB innovation fund. The fund will drive use case innovation and adoption of IB by startups We intended to start with a $50 million investment in the fund. Portfolio Company, by the way, will also have access to up to $100,000 in AWS credit as well as insight and guidance through the AWS Activate program, a program that has already helped develop hundreds and thousands of early-stage startups. We're also soon to unveil an IV advisory council designed to shape and advise the IV development community, focused on defining vertical specific use cases. Among the first names to have already signed up are leading insurance company, technology company, as well as telcos. Their input will complement the auto industry expertise provided by the top OEMs in Tier 1. Following our IV announcement, major players such as Ford and Google, as well as Bosch and Microsoft, announced commitments to the vehicle data market. Because IV is hardware, operating system, and cloud-agnostic, we do not see these announcements as competition, but rather opportunity for IV to partner and add value. The vehicle data analytics market is both large and growing. McKinsey In their monetizing data report, estimate that the TAM, the total available market, will be in the region of $450 to $750 billion per year by 2030. We recognize that this market is going to be competitive, but we're still very well positioned. While we are already working with OEM, in October, we expect to release the early SS version of IVY. We also expect to ship, we should start shipping the product in February of next year. Now moving on to Spark. As a reminder, we launch our new Spark Suites in May and the Cyber Suites in October. Pipeline for our Spark Suites grew strongly sequentially. The typical sell cycle is given nine months. So we're expecting a good second half of the fiscal 22. We continue to have success in upgrading our UEM install base to Spark, adding Unify, Endpoint Security, or UES. This year, we will start focusing on new logos for the cyber street. Across Spark, we start to see strength in both renewal and upsell in our key verticals. Let me share some names with you, some wins. These included Q4 businesses with IRS, the United States Department of Commerce, the Qatar Development Bank, the Scottish Government, as well as the Scottish Police, the London Metro Police Services, and the US Marine Corps, as well as Bail Canada, just to name a few. On the service front, I must mention that none of our Guard MDR managed service customer were negatively impacted by the recent SolarWinds breach. While I'm on that subject, the happiness Today's sponsored attack on Microsoft Exchange Server identified early this month was an example of threat actors leveraging patch-run abilities. The script control of our EPP product, Protect, has demonstrated we can safeguard customers from this threat. Optics, our EDR product, provides additional protection. We're excited about two upcoming products that will launch and are an important part of our extended detection and response, or our XDR strategy. The first is our cloud-based EDR product, Optics 3.0, that due to be released this coming quarter. And we'll expand data query and provide richer content for alert triage and threat hunting. The second is our BlackBerry Gateway product, that will be the first to offer the zero-trust network access to both SaaS environment as well as on-prem applications, while enabling Sidense AI for faster detection and response. We will provide more detail at our Virtual Analyst Day next month. Finally, a brief word about SecuSmart and AdHop. We have been pleased with the progress made by SecuSmart this fiscal year, SecuSmart technology is now used by 18 governments worldwide, offering the highest level of security for voice and text communication. Ad hoc has a strong position in federal government around the world, including protecting over 70% of U.S. federal government employees. We see a significant opportunity for ad hoc in the enterprise. And following the quarter end, just most recently that is, we announced a new BlackBerry Alert product. Alert is built on our critical event management expertise in the public sector, but with the additional features tailored to the needs of the enterprise, such as integration with Microsoft Teams and ServiceNow. While it's much early in this stage of our sale, we have already recorded enterprise win, including Fujitsu. I'll now turn the call over to Steve to provide more details about our financial performance. Steve?

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. Please note that starting in the first quarter of our new fiscal year we will no longer adjust GAAP revenue for deferred revenue acquired. This means that GAAP and non-GAAP revenue will be the same going forward and comparatives will be conformed accordingly. We delivered fourth quarter non-GAAP total company revenue of $215 million and GAAP total company revenue of $210 million. Fourth quarter total company gross margin was 73%. Our non-GAAP gross margin includes software deferred revenue acquired but not recognized of $5 million and excludes stock compensation expense of $1 million. Fourth quarter operating expenses were $140 million. Our non-GAAP operating expenses exclude $32 million in amortization of acquired intangibles, $22 million in impairment of long-term assets, primarily due to rationalization of real estate due to the transition to remote working models. $16 million in stock compensation expense. $3 million for software deferred commissions expense acquired. And $258 million fair value adjustment on the convertible to ventures, which is a non-cash accounting adjustment largely driven by market conditions. Needless to say, this is due to the exceptionally high volatility and trading volume in the company's shares during the fourth quarter. Fourth quarter non-GAAP operating income was $18 million and fourth quarter non-GAAP net income was $16 million. Non-GAAP earnings per share was $0.03 in the quarter. Our adjusted EBITDA was $35 million this quarter, excluding the non-GAAP adjustments previously mentioned. I will now provide a breakdown of our revenue in the quarter. Software and services revenue was $165 million. Software product revenue remained in the range of 80% to 85% of the total, with professional services comprising the balance. The recurring proportion of software product revenue was approximately 90%. As John mentioned earlier, for the new fiscal year, we intend to report software and services revenue in two lines, cybersecurity and BTS. Licensing and other revenue was $50 million in the fourth quarter. Further to John's comments regarding negotiations relating to a potential sale, licensing activities have been limited not only due to the ongoing negotiations, but also because revenue from additional transactions that could have been completed in the quarter would have been treated as contingent revenue and deferred to future periods. Therefore, had negotiations not been in progress, we believe licensing revenue would have been higher. Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were $804 million at February 28, 2021, an increase of $47 million during the quarter. Our net cash position increased to $439 million at the end of the quarter. Fourth quarter free cash flow was $48 million and cash generated from operations was $51 million and capital expenditures were $3 million. That concludes my comments. I'll now turn the call back to John.

Thank you, Steve. For this upcoming fiscal year, our primary focus is on software and services growth. As mentioned earlier, we will not be making any non-GAAP adjustment to revenue starting this fiscal year. Therefore, any revenue outlook comments I will make today and Steve will make today will be on a GAAP basis. Because of the ongoing negotiation regarding the patent portfolio that we discussed, we're unable to provide a full-year licensing revenue outlook at this time, but I will give you some color at the end so that we have some plans, but it's still a lot of moving parts on that. So first, we anticipate double-digit buildings growth for both cybersecurity and DTS for the fiscal year 2022. resulting in total software and services gap revenue in the range of, oh, sorry, I got my, excuse me, I got my notes all jumbled up. Yeah, reserving in total software and services gap revenue in the range of $675 to $715 million, $675 to $715. This represents a growth rate of between 9% to 15% from fiscal year 21. Cybersecurity, which will include UEM, UES, Ad Hoc, and SecuSmart, is expected to have full-year gap revenue in the range of $495 to $515, $495 to $515. Millions, of course. I'm sorry. BTS is expected to have full-year gap revenue in the range of $180 to $200 million. For both cybersecurity and BTS, we anticipate revenue in the second half of the fiscal year to be stronger than the first half. Because of the ongoing negotiation regarding the patent portfolio that we discussed, there is uncertainty around the licensing revenue outlook. However, appreciating that it would be useful to have an outlook for modeling purpose, the most conservative scenario in which we model that sales does not happen or does not complete, full-year licensing revenue would be in the region of $100 million. In this scenario, we assume that negotiation and regulatory review continue for the first half, and therefore we expect revenue to be limited in the range of maybe 10 to 15 million per quarter. However, we believe that the completion of the transaction will be beneficial to our shareholders. We will, of course, update you on any of the major developments. This has been an unusual and challenging years to navigate. Despite the challenges, we had a strong year executing our technology roadmap, bringing 59 new products to market. That's up from 30 last year. In particular, the Spark and CyberSuite has made significant steps forward. We also made significant progress with strategic partnership, both on the technology as well as the go-to-market perspective. Our IV partnership with AWS has obviously been a particular standout. I would like now to open for the call for Q&A. Operator, will you please help us?

Yes, sir. And now we will begin the question and answer session. To ask a question, you may press star 1 on your telephone keypad. If you are using speakerphone, please make sure your unmute function is turned off to allow your signal to reach our equipment. Again, press star one to ask question. We'll pause for just a moment to allow everyone an opportunity to signal for question. We request that you limit yourself to one question and one follow-up. For our first question, we have Mike Walkley from Canaccord. Mike, your line is open.

Good afternoon, Mike. Hey, John. Congrats on all the announcements. Busy year for you guys. I guess the first question for me is just trying to understand the licensing negotiations a little better. Should you complete the sale, just the vast majority of your portfolio, and you won't have any licensing revenue going forward? Is it really the whole portfolio, or is it just a portion of it, just trying to gauge that?

Well, it's a major portion of our portfolio. As I said, we cover three major areas, cellular, wireless communications, and networking. So things that, you know, it's relevant but it's not useful to us today in our strategic software part of the business. And we retained, you know, all the embedded and all the side ends and all the encryption and security technology patterns.

Okay, great. And then my follow-up question, just on the guidance, and I think it would be great to break out the two divisions, on the 9% to 15% growth, can you maybe help us think about the two areas, which one you think will grow stronger? I'm assuming it's BTS given the recovery in auto, but any color on how the two different divisions, cybersecurity and BTS, might grow?

Yes. I think because it's revenue, first of all, let me clarify one thing. Dillings, we expect double-digit growth in both Spark and BTS. From a revenue standpoint, because it's subscription-based revenue, we expect single-digit percentage growth in Spark, and we expect double-digit percentage growth in BTS. So you are right in expecting BTS to have a strong growth because of the recovery.

Yeah, but double-digit billings and bills would be great. Okay, thank you. Sure, absolutely.

For our next question, we have Daniel Chan from TD Securities. Daniel, your line is open.

Hey, Daniel. Hi, John. Just a question about how you're hoping to structure the deal for the patent sale. Should we expect ongoing royalties to come from maybe you get a portion of the licensing fees that the buyer will take, or is this more of a one-time deal?

There is a majority of the deal will come in one time early, but there is a tail that goes on. I can't give you the details of this for a multiple number of years.

Okay. Now, you mentioned in the past that you've had offers for the entire portfolio. So what's different now that's making you consider selling it?

There are two reasons. Number one is I really think it's a wrong thing to sell the entire portfolio because there's so much of – we have an ongoing business in cybersecurity and an ongoing business in BTS. which, of course, includes IV and QNX, I think selling those portfolios will be extremely unwise for the company and for the shareholders. So I think the team were able to get connected with – with parties that are willing to address the portfolio part that is not being used by us today. So it just worked out from a business-friendly point of view.

Okay. And just one more, if I may. If this deal does go through, any thoughts on how you'll deploy that capital?

Yeah. We're going to invest in

We're going to invest in both cyber and – we have an ambition in cyber. I know we have lost a couple of years because of our integrations, and we have our product all caught up. So you see us being more aggressive. In fact, you know, we ran an ad today, intelligence security everywhere, an ad today. I just saw it on New York Times. So we're just going to step up and vote people and – spending and resources to go after the market. And it's a huge, as you know very well, it's a huge market and no winner, no clear winner at this point. And the barrier entries are not that high. So we should be able to capture some new businesses. So we're going to invest in that. And then, of course, we're going to invest heavily on ID, in-vehicle data, platform, it's very important to every OEM. Whether they build it themselves, work with somebody else, or work with somebody like us, it's all very important. So our relationship with AWS in this case is a big plus. So those are the two businesses that we're going to invest in.

Great. Thank you.

Thank you. Absolutely.

For our next question, we have Trip Chowdhury from Global Equities.

Hi there.

Hello. Congratulations.

Thank you. For the very challenging year, very good execution, John. Two quick questions I have. If I reflect upon the popularity of Apple IOS, It also started with an innovation fund that Apple created. But the difference is it was not just Apple, but they also got two, three venture capitalists along with it. And today we know something which is called App Economy, which is a multi-billion dollar market, and Apple is a prime beneficiary. When we look at the IV platform that you have, it is spectacular. Like, you are moving really at the speed of light. in october the product will be launched and i mean for the developers for the developer preview next year it will be in the market and you have the innovation fund exactly 50 for the seed money apple put in but wondering do you have uh or have you thought about also bringing in venture capitalists also and jumpstart a sub app economy automobile applications economy or something along those lines have you thought on those and also do you think you could provide which would be very very solid differentiation for your company is if you could not just provide the money like what apple did but also provide intellectual property patent protection to each and every company that creates products or applications on your platform and take an equity stake in each one of those startups that will make you complete completely you know it little I'll speculated but it could be a much better strategy that Apple had that I iOS a platform any party may have been out of all oppression okay great trip thank thank you so

We only, you know, initially we put up $50 million of this fund. And the objective, so everybody, the objective is to make sure that we could build application. And we believe that although we could build a very solid data, in-vehicle data analytics platform, without good applications and use cases, you know, it would not be sticky. you will not be adopted. You know, I think there are a lot of companies that could build data platforms. Maybe ours is more secure, XYZ, and so forth. And, you know, having a partner like AWS help, but at the same time, you know, you won't get the stickiness. So I didn't want to learn, you know, the experience or learn the lesson twice. So this is important that early on I set up the – you know, enablement group that go after applications that we build some ourselves. But the majority is going to have to be encouraged startups and even, you know, established companies that are interested in working with AWS Cloud and working with BlackBerry QNX and all the other technology that we provide and build up the application on the Ivy. And I also added... that we are going to start an advisory council, which are vertical people, vertical industry people, as I said, and they will then bring in some ideas that this is how I could see, you know, ID help out in my business case going forward. To answer your questions, with the limited fund that we have to establish, initially $50 million, we will have to work with other VCs. And so now I haven't got to the steps of trying to pull them in and being a co-funder, but we will have to work through their pipeline and identify a target company that could be benefited from both what AWS offers, which is $100,000, with free cloud usage so that they could run their tests and the development. AWS also has a lot of tools and a lot of know-how in Navigate, called Navigate, to help them. We, of course, provide them a testbed and the technology support and help. As far as IP is concerned, I don't think we're going to touch other people's IP unless that we see ourselves owning part of it, we're going to let that company own that IP, the company that we invest in. So I don't know whether I could help to protect them, but obviously we could help them to accelerate the IP filing. We have a lot of people that know how to do this very well.

Very good, John. As you know, today, intellectual property and patents are the new gold. Second question I had was regarding the intellectual property portfolio you have. The last time we counted, it was more than 30,000 patents.

38,000 to be exact.

Oh, wow. That's amazing. Now, I know it's very difficult to put the details of your ongoing negotiations, but ballpark figures. Are you talking about the 20,000 patents which will be sold or 15,000 or 30,000?

I guess not to do this, to provide the answer. Sorry about that because, you know, it's part of our negotiation. and uh so the category i put out was probably the the best you could get at least for now um the categories obviously are cellular networking uh and um geez i'm missing one cellular networking and messaging and messaging and messaging sorry cellular networking and messaging and then you know Encryption, security, IV, QNX are all separated from this. I'm not included.

Excellent. I think I had my questions answered all the best. I'm looking forward to 2022.

Thank you, Drew.

For our next question, we have Paul Treiber from RBC Capital Markets. Paul, your line is open.

Thanks very much and good afternoon. Good afternoon. Just on the patent sale, the $100 million in patent license revenue that you expect for this year, if the sale goes through, does the $100 million go away? So eventually, you know, all the patent licensing revenue goes with the sale. And conversely, hypothetically speaking, if the sale doesn't happen at all, Should we think of, you know, patent licensing revenue being in that, you know, continue to have that, I think, $250 million in the past is what you said on the China basis.

Paul, that's a good question. So this is an unusual year. So let's talk about if the patent license goes through, the sale goes through, we will record a one-time gain, right? of a reasonably big number followed by a tail of up to seven years. So it will not go away to zero. There are some recurring stuff that most of them will not be with us. So it will not be zero, but it will be quite small if the patent sales go through with one big year in this fiscal year, 2022. If the patent sale does not go through, then the first couple of quarters will be low because as the patent sale is being negotiated right now, I actually are unable to do more other negotiation going on. So the pipeline basically is frozen, but it won't go away. So if the patent sale does not go through, I may have to suffer a little bit for the first couple of two, three quarters, and then we will then resume the target $250 a year patent licensing.

Did I answer your question? Yeah, no, that's very helpful. And I assume that the cash flow would be similarly aligned with those revenue numbers. Unfortunately, yes. The cash flow would be similarly aligned.

Okay, that's very helpful.

And then the second one is a big picture, like with the stock, you know, having gone through the rally that it's gone through, you know, finance theory would say your cost of capital, your cost of equity is lower. And so the question is, you know, seeing the sort of newfound enthusiasm and lower cost of capital, have you contemplated, you know, issuing equity, you know, at these levels, you know, seeing how it could, you know, enhance the strategy having, you know, more equity or more cash?

Yeah, that's a good question. It's been a constant conversation with various bankers from our strategic planning group and our M&A group. I, today, am not working on any specific thing. But we're open. I mean, we're not – there's no – There's no principle that we won't do. The only thing that we won't do is we won't, you know, intentionally dilute our shareholders just to keep some money in the banks on the balance sheets. You know, I'd like to make sure that we have at least some idea of the usage. So when people come to me and say, by the way, you could raise the convert at 0%, and a premium of X percent up, 40%, 50% up, let's say. I see that very attractive, but then I keep asking my people, so okay, once you get the money, what are you going to do with it? Because you have a dilution hanging over your head, and so I don't know whether I answered your question. I guess kind of just kind of explain why. how I think about it. Um, I'm not against it. I know there's very attractive terms out there. Um, and at this level equity, uh, so, but I wanted to make sure that we have a targeted use that could help the business first.

Maybe another way to ask the same question is for your strategic plan, You don't require a significant acquisition or deployment of capital to execute on that current plan that you have?

No, we do. The plan I gave you, 9% to 15% growth, does not assume any acquisition. Okay. Thank you. Sure.

For our next question, we have Paul Stief from Kosher Capital Markets. Paul, you're live.

Hi there. Hey, John. John, just recognizing it's challenging with the situation with licensing, but I guess with the proceeds, if we assume this proceeds, how would we think about deploying that capital? I know you answered it earlier, but I guess the point being, is it envisioned that you would look to do some type of a strategic or transformative M&A to materially accelerate growth in the business, I think becomes the question, and I do have a quick follow-up that's somewhat... Yes.

It really is, Paul. It's really somehow depending on the target out there. The answer to your question is I will always love to do that. I really do. And so, you know, there's also a question of affordability, but especially in the auto space, in the auto tech space, I think, you know, with our position with QNX and stuff we were doing on Ivy with, you know, silences technology that could go into a car. I think we're well-positioned in terms of what we could put in. There might be some acquisition we need to make to further our growth rate of our revenue. That will be a target, you know, an interesting target. And, you know, today... There is no specific target I had in mind. You know, my people always have a list of names that they go look at, but I don't have any specific thing. But the answer to your question is the usage, those will be of a priority usage for us.

Okay, and maybe related, let's set aside whatever is going to occur with the patent sale will transpire or not, as the case might be. Just dialing back to your comments earlier in the call, Can you talk to us about how we should think about the level of spend? I know you're not guiding EBITDA or free cash flow, and I respect why, but maybe just help us put it in context. I think you talked about accelerating increased growth, but then when I look at the spend, and I know maybe Q4 isn't the best spot to look, you know, sale to marketing is up 10 year-on-year, 10%. I know it's got stock-based comp in there, but R&D actually offset it. So, Should we think net that you're actually dipping in and we might go negative a little bit or no?

No, that's not our intent.

We have a reasonably large number of hires in our

I know you're right. It's shifting so much. So we didn't want to go there at this point. But we are taking reduction in QA.

but take reduction in real estates. If you notice that Steve had mentioned that we have an impairment charge of $22 million, and a lot of them related to real estates, it's because we decided to cut down our real estates footprint by maybe up to 25%. And this way, we will have a team member that will be

working remotely on a rather permanent basis.

We will provide some hoteling offices. And I think you see that in many companies, especially in maintaining level of creativity and personality involvement. So we're going to save some money from infrastructures, We're going to take some money from IT and some of the consolidation work over there, and then we will then fund engineering and mostly fund go-to-market.

Great. I'll just ask one last quick clarifying one. Can you just comment in that respect that it's difficult? Obviously, we have the situation in Japan relating to China. and automotive. What's sort of the broader mood, John, in terms of the base? Obviously, these decisions don't get made in a vacuum or overnight, but is there overall maybe a bit of a pause going on, or people are still moving forward with... The 25 design win we have in a quarter, with some really big-name wins, you know, Toyota, Honda, and EV, Scania in trucks in Sweden...

and other things, other wins that we have. So far, the auto space are still very vibrant from a design win standpoint. Then eventually it will hit us. I'm following what GM and Ford have said publicly, that GM has stated that second half of this year, the chip shortages issues will be overcome, and they assume reduction, of the free shutdown factories right now. You know, so that's why we said when we do our planning today, we assume that we continue to win design wins in QNX, that we will then, you know, have developer license as revenue and hoping that we'll do some more professional services. And then the production obviously kicked in in the future. It does affect us immediately a little bit, but since we're in the recovering mode, I think it's being absorbed in somewhat. So our guidance of $180 million, $200 million for the year, assume that this problem, shortage problem or the planned shutdown problem, ends in mid-year. Now, that's just a stake in the ground, and we have to – model it somehow, somewhere. If that prolonged, then that will prolong our recovery. But I'm hoping to minimize that as best as we can. Not every plant is shut down, by the way. Obviously, you know that.

Yeah, that helps. Thanks, guys. All the best. Sure, absolutely.

Next, we have Steven Lee from Raymond James. Steven, your line's open.

Hey, John. How profitable are these licensing revenues? Is the gross margin, for example, higher than your corporate average?

Yes. Yes, which is painful for us in the first couple of quarters because we expect one way or the other it's going to be a low revenue, low level. But the answer is yes, it's higher than the corporate number by a significant percentage.

Okay. So, John, if the patent sale goes through, could your EBITDA turn negative, for example?

Yeah, it could be. I'm hoping to EBITDA go negative. I didn't calculate EBITDA go negative. EPS will go negative. But I am hoping that we will start registering some growth in software and services to offset it.

All right. Got it. Thanks. Absolutely.

We don't have any further questions at this time. I would like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry, for closing remarks.

Thank you. Thank you very much. I don't have any remarks. Thank you all for your interest in the company. We will have a very interesting year ahead of us here. We believe our software services and Especially when we separate out the two lines, we already know that Spox will do some growth in buildings. Revenue growth will come in mostly from DTS. And licensing, it could go either way, and we'll keep you posted. So I'm sorry it's being late in the evening in the East Coast. Thank you all very much for attending today's call, and have a great evening.

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