BlackBerry Limited

Good afternoon and welcome to the BlackBerry first quarter and fiscal year 2022 results conference call. My name is Jesse and I'll be your conference moderator for today's call. During the presentation, all participants will be in the listen only mode. You'll be facilitating 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 Tim Foote, BlackBerry Investor Relations. Sir, please go ahead.

Thank you, Jesse. Good afternoon and welcome to BlackBerry's first quarter fiscal 2022 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer John Chen and and Chief Financial Officer Steve Ray. After I read our cautionary notes 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. 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 his 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 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 EDGA, CEDA and BlackBerry.com websites. And with that, I'll turn the call over to John.

Thank you, Tim. Good afternoon, everybody, and thank you all for joining us today. The main headline for this quarter is that we have organized our software and services business around our two biggest market opportunities, namely IoT and cybersecurity. In the past few years, we have done a good job in product development. Last year, we launched 59 new products, and the year before, over 30. Later, I'll discuss more about the XTR product that we have launched this quarter, and I'll provide you an update on BlackBerry ID. As you all know, at the same time that we're delivering our products, many of you know that we've been investing in our go-to-market as well. We have, in the last number of years, especially the last few quarters, turned up the noise of our marketing, expanded our channel and partnerships, and invest in more feet on the street. Now we are pivoting the organization more heavily towards the market by creating two business units, cybersecurity and IoT. By aligning the cybersecurity and IoT business unit to the main market opportunities, we will drive more focus and accountability. We will also improve our agility, being able to react to the fast-changing needs of the market. And even today, both of those BUs have their own business dynamics. In order to accomplish this, we have recruited a number of new talents, especially with deep IoT experience. This includes Matthias Eriksson, who joined us from HERE Technologies as the president of the IoT business unit. Matthias brings over two decades of relevant industry experience, and we focused on strategy, operation, and driving growth in the IoT business. BlackBerry president and chief operating officer, Tom Egobasi, will focus on leading the cybersecurity business unit. Tom has deep enterprise software experience and is a perfect person to engineer the growth of this business. From a financial reporting perspective, beginning this quarter, we will provide revenue and gross margin by business unit, as well as other selected metrics. We believe that this additional color will help investors gain better understanding of the underlying performance of the business units, ultimately driving shoulder value. So let me start by reviewing with you the IoT business unit. This business, which is primarily QNX, but also includes Ivy, Sotacom, JAWS, Radar, had a good, strong quarter. Revenue came in at $43 million, which represented an increasing 48% year over year. Of course, a year ago, there was a pandemic, a hard-hit quarter. Gross margin was 84%. IoT ARR was 86 million. This growth in bulk revenue and ARR was achieved despite the fact that we have global chip shortage. The shortage continues to be a significant factor in the auto market in the near term, and it's no doubt currently impacting the production-driven revenue of QNX. The scale of the impact varies by region and by OEM. The impact looks to be greatest in North America, and less so in Europe and Asia. One of our largest customers in North America has indicated that production in Q2 will be impacted, or may be impacted by up to 50%, but others are less severe. Generally speaking, Q2 appears to be the low point, with Q3 improving and Q4 further still. The impact also looks to be smaller than that of the pandemic last year's. So currently, we don't see a need to change our revenue outlook for the year, but we'll continue to assess the impact with our customer, and we'll update you again next quarter. Just as a reminder, our IoT revenue outlook remains at $180 to $200 million for the fiscal year. In contrast to the production-based royalties, however, revenue from design activities, i.e., the developer seats and professional services, is strong. Unlike Q1 of last fiscal year when COVID was becoming a major issue, confidence in our OEM appears high, and we've seen a lot of design activities in progress. We are particularly pleased with two design wins this quarter. First one was with Volvo Group, who selected QNS RTOS, hybrid devices that stand for real-time operating system. Sorry, guys. and hypervisor on a whole truck basis, meaning that our technology will power multiple ECUs throughout the truck. Second, we further strengthen our position in the EV market with a design win with the Shanghai-based WM Motor. The QNX OS, the QNX OS and hypervisor will power their all-electric W6 SUV vehicle. In total, this quarter we had 28 new design wins, with 17 in auto and 11 in jam, the general embedded market. In auto, along those we just mentioned, notable design wins also includes Bosch and Vizion. These design wins span hypervisor, digital carpet, multiple socket ADAS, platform, and high-definition maps. On the jam front, The wide range of application won in the quarter was surgical robotic arm, industrial 3D printers, as well as nuclear crowd station. So design wins such as the Volvo demonstrate two key secular trends that QNX business benefits from. The first one is the consolidation of lower compute power ECUs towards fewer numbers, higher power chipset, such as the ARM version V8 and the x86 64-bit chipset. It is on these higher power chips that QNX operates. And as this consolidation continues, it gives QNX ever more opportunity in the car. Secondarily, there is a second point, Second trend, that is, there's a trend of increasing software content per vehicle, particularly in safety-critical systems, such as ADARs, gateway, and digital carpets. This is, of course, where QNX shines with the highest level of safety certification and has the strongest competitive advantage. Our strategy to focus on safety-critical systems which we put in place a number of years ago, has allowed the business to benefit from these trends, ultimately leading to a higher average revenue per car. This strategy is delivering higher value design wins and within the royalty revenue backlog. The backlog metrics is calculated using contracted price and future production volume estimates provided by the customer when the design is awarded. It's important to note that this is a customer's estimate. The backlog increased from $450 million last Q1 to $490 million this first quarter. This is a 9% increase year on year, despite the pressure on new auto designs over the last 12 months. Strategy Analytics, a leading independent research firm, recently published that QNX software is now embedded in over 195 million vehicles. That is up from 175 million confirmed the year before. Now for a brief update on progress with Ivy. Driving the Ivy opportunity forward remains one of our key priorities, and we're working closely with AWS to achieve this. Product development remains on track and in line with the roadmap. We remain on target for the early SS version to be available in October, and for the production versions to start shipping next February. Customer discussion and workshops are continuing, and we remain positive about how things are progressing. This quarter, an additional five automakers engaged to explore Ivy. This means that we're now engaged with almost all of our major QNX customers. We recently announced the launch of the Ivy Advisory Council, industry leaders from a number of key verticals have signed up, including Telus Telecommunications, one of the big three telephone companies in Canada, Geico Insurance, you see a lot on TV, they're commercial, Hear Apps, and Sarence, which is the voice recognition auto business. Development of relevant and exciting new use cases for IP platforms remains a key priority, and we believe that the Council could greatly assist us with this. Delivering relevant maps and experience provide a higher engagement model with both the consumer as well as the enterprise. Last quarter, we launched the IV Innovation Fund, established to invest in startups adopting the IV platform. Since then, we had a great response on the market, and we have reviewed over 200 prospective customers. We recently announced our first investment in an exciting startup called Electra Vehicle, Unlike most other startups in the battery management space, Electra aims to not only analyze activity, but to also actively manage the battery operation using artificial intelligence. Vehicle sensor data from Ivy will feed their AI-driven platform, dynamically determining factors such as driving behavior and environmental conditions to optimize battery performance. In summary, Ivy is progressing well, and we remain very focused on the various elements to need to make this a strong growth business and success. Now let me move to our cybersecurity business units. This business unit includes our Spark endpoint security and endpoint management products, UEM, as well as AdHoc, the critical event management software, and SecuSmart, secure voice and tax products. GAAP revenue for the quarter was $107 million. As mentioned during the last earnings call, we now switch to GAAP-based revenue only. Gross margin was 57%, ARR was $364 million, and dollar-based net retention was 94%. Over the last couple of years, the prevailing narrative has been that detection and remediation are the most important part of cybersecurity. However, the founding principle of Silence and one of our main reasons that we acquired it is the prevention is far better than cure. And that's why we're a market leader in EPP. Stopping threats before they execute and start doing harm is clearly a better strategy than trying to shut them down afterwards. This quarter, we demonstrated strategy clearly with our next generation AV product named Protect, rocking the Dockside Resinware Deleted to actually the cause of the Colonial Pipeline cyber incidents. In fact, the 2015 version of Protect also blocked most of the variants of the same ransomware, obviously six years ahead of its time. We do have the most mature AI engine in this space and the ability to block ransomware years ahead of time without the needs for update that connection. This shows the power of our prevention first strategy. Protect was also shown to prevent other high-profile threats, such as the Condi, Ransomware, Novalium, Revo, and others. In addition to large enterprise customers, this AI-driven automated protection also resonates with small and medium-sized customers that don't have the resources to establish the SOCs, meaning the Security Operations Centers, We see strong sequential growth in SMB new business pipeline of around 18%. In the quarter, we announced two significant new products, both of which are part of the Extended Detection and Response, or XDR, strategy, kind of the latest evolved market from EDR. The first product is Bacteria Gateway. With employee base remotely and not in the office, as well as mobile becoming more prevalent, The traditional moat and castle model of network access is no longer efficient or effective. In fact, VPN users, once authenticated, often have access to the entire network, including on-prem and all the SaaS applications, for the length of their session. Factory Gateway is a zero-trust network access product that uses the Silence AI to continuously authenticate network activity. The cloud AI invalidates over 30 risk factors, or we name it factors, such as downloading behavior, DNS, query, time of day, et cetera, to determine unusual activity. The second product released this quarter is Optic 3.0. It's our latest version of our endpoint detection and response market, or namely EDR. With this new version, The AI-driven engine remains at both the edge and in the cloud, allowing near real-time responses both offline and online. This continues to be a differentiator for us. However, importantly, this new cloud-enabled product will allow event data to be stored centrally in a cloud-based data lake. This, together with a new search engine and a query language, allows threat hunters to gain greater visibility. Switching to a sales front, UEM revenue in QN was down over a year, in part due to the work-from-home ramp-up that we have saw now here but didn't repeat. Let me reassure you that the UEM remains an important part of our cyber business, and we remain fully committed to it. In the quarter, we continue to secure business with our highly regulated customers. Let me start with financial services. In financial services included Mitsubishi UFJ, Bank of China, Bank of France, and the Union Bank of India. In the government and healthcare sector, we conduct business with the Government of Canada, the UK NHS Health Services, University Health Network Canada, the United States Department of Energy and Department of Commerce, the Netherlands Ministry of General Affairs, the Australian Department of Environmental and Energy, also the White House Communication Agency, U.S. Department of State, Department of Treasury, and the United States Department of Defense. Also in government, in the United States federal government, we have increased the number of ad hoc cloud FATRAM users by 6% sequentially. From a market perspective, this quarter we gained new business through a partnership we recently announced with Verizon, with Verizon, Vodafone, as well as Telus. With Microsoft, we have integrated our critical event management product, Alert, with Microsoft Teams. Further, as we've communicated in the past, CyberSuite, our UES platform, is on target to integrate with Intune by the end of August. This quarter, we significantly step up on our sales hiring. The market for high-quality talent is competitive. and it has taken a little longer to increase our headcount. But we currently expect to end Q2 with around 23% more sales rep than at the start of the year. This expanded reach will help BlackBerry to be in more competitive bake-offs, where our product stands out well. With the recent increase of sales hiring, many of which start during Q2, billing score is likely to be more heavily weighted to the back half of the year. Revenue is likely to be at the lower end of our $495 to $515 million range that we gave last quarter. Moving on to licenses. Revenue for the quarter was $24 million, which is better than expected because some business came in early. Gross margin was 75%. The negotiations for the sale of a large portion of the patent portfolio are ongoing and good progress has been made. In fact, we have started negotiating the definitive agreements. Revenue for Q2 is likely to be in the range of $10 to $15 million for the IP. That stayed the last quarter, so this has not changed. This is due to the monetization activities being limited by the ongoing negotiations. In terms of the full-year outlook for the licensing business, should the sales not complete, we expect revenue to be around $100 million. Let me now hand the call over to Steve.

Thanks, Jonathan. So 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. As John mentioned earlier, starting this quarter, we are no longer adjusting GAAP revenue for deferred revenue acquired. This means that GAAP and non-GAAP revenue will be the same going forward and comparatives have been conformed accordingly. We delivered first quarter total company revenue of $174 million. First quarter total company gross margin was 66%. Our non-GAAP gross margin excludes stock compensation expense of $1 million. First quarter operating expenses were $138 million. Our non-GAAP operating expenses exclude $32 million in amortization of acquired intangibles $6 million in stock compensation, and a $4 million fair value adjustment on the ventures, which is a non-cash accounting adjustment largely driven by market conditions. The first quarter non-GAAP operating loss was $23 million, and the first quarter non-GAAP net loss was $27 million. GAAP earnings per share was a $0.05 loss in the quarter, and our adjusted EBITDA was negative $6 million this quarter, excluding the non-GAAP adjustments previously mentioned. I will now provide a breakdown of our revenue in the quarter. Cybersecurity revenue was $107 million, and IoT revenue was $43 million. Software product revenue remained in the range of 80% to 85% of the total, with professional services comprising the balance. The recurring portion of software product revenue was approximately 90%. Licensing and other revenue, as John mentioned, was 24%. This is a little higher than expected as deals came in early. The monetization activity remains limited while negotiations for the potential IP sale continue. Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were $769 million at May 31, 2021, a decrease of $35 million during the quarter. Our net cash position decreased to $404 million at the end of the quarter. First quarter free cash flow was negative $35 million, cash generated from operations was negative $33 million, and capital expenditures were $2 million. Bear in mind, the first quarter of our fiscal year typically has a higher cash requirement due to payment of annual bonuses and other demands at this time. That concludes my comments, and I'll now turn the call back to John.

Thank you, Steve. Before the Q&A, I'd like to update everybody on a few things. Although we have organized a lot of the go-to-market lines, there are a number of future high-growth opportunities that our factory lab is working on that actually harness the power of our entire technology portfolio. This is applying our AI ML engine in IoT. One good example is this is using silence in the car. You may or may not remember at CES a couple of years ago, we demonstrated an early version of how our persona technology that identifies inappropriate assets for the use of behaviors can be applied to drivers of vehicles. We also demonstrated how our protected EPP can be used to protect the connected cars from cyber threats. There are just two of the number of potential use cases that we are currently looking at. The second is our data lake. Drawing data for an ever-increasing number of sources allow for greater visibility and determination of the real level of risk across an organization. This is obviously essential to Zero Trust applications. This applies not only to XDR, but also the increasing sensor-rich auto environment, autonomous drive, and smart cities. Decentralization of data and insights through our data lake can enable a whole new business model in the future. The third area is related to the recent U.S. pass-bomb sent for software-built materials, the executive orders that aim to secure the software supply chain. This comes in light of the recent incidents, including SolarWinds and the Colonial Pipeline intrusions. Combining products from our IoT products, including our Java's code-scanning tools, our QNX-embedded operating system, and our CertiCom cryptology, With our prevention-first AI-driven cybersecurity product and services, MeanSpecRary offers a comprehensive approach to this issue. We have begun working closely with various government and standard-setting bodies. So before we open the line for Q&A, I'd like to summarize the key messages again. Our software and services business around of key market opportunity, strengthening our management team in the process. QNX made solid progress this year, this quarter, sorry. We preached to the strong design activities and the pipeline of new design wins that saw royalty revenue backlog increase year over year. We continue to demonstrate real progress with Ivy with tangible staff, such as the launch of the advisory council, as well as the first investment by the innovation fund. We launched two new important products as part of our XDR strategy, and the AI-driven prevention-first approach continues to be our focus. We're also increasing headcounts, sales headcounts, and pipeline is growing, particularly for our new UES products. Our main focus is on growing the top line, and therefore we continue to increase investment in both our software business units as we see double-digit building growth this year. Finally, we remain optimistic about a successful conclusion to the negotiation of the patent portfolio itself. And with that, I would like to ask Jesse to open the line for Q&A, please.

Thank you, speakers. Participants, we will now begin the question and answer session. To ask a question over the phone, you may press star key followed by the number one on your telephone keypad. If you're using a speakerphone, please make sure your mute button 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 request that you limit yourself to one question and one follow-up. Our first question is from the line of Daniel Chan of TD Securities. Your line is now open.

Daniel Chan So you stated that your QNX royalty revenue backlog increased to 490 from 450 last year. Over what period of time do you expect that backlog to be recognized over?

Typically, the highest, usually it's four to seven years. And typically, it's peak at four. and then it started moving down towards the end of the life cycle of a car. Sometime it extended more beyond that. Okay. That's helpful.

Thanks. And then you also talked about the IAV Advisory Council. Can you talk about the level of commitment partners have agreed to as part of this council and whether you plan to include major OEMs on it?

Yeah, that's a great question. But before I answer that question, let me make one more comment on the backlog because I have also gotten some feedback from Regarding that, our backlog number is very conservative. I would tell you that it is on the conservative side. And we get it directly from the OEM when we win the design win and they gave us the estimate. We also have not included professional services backlog and developer seed backlog. So in the future, when we have a really solid methodology, so that we just don't, you know, kind of do much of the guessing and we get a very grounded set of math, you will see that background number to go up and tell you all that we're going to include that. But that might take a couple of quarters. And to go back to answer your question regarding the advisory council, they're there to help us to define use cases, particularly in the vertical that they operate in, that the IV could be of great help. And I don't want to exclude any OEM, but I don't think – OEM would want to do that. They tend to do it one-on-one with us directly because this is obviously value-add that they don't want to share. So it's all proprietary to themselves. I hope that makes sense.

It does. Thank you.

Sure.

Next question is from the line of Mike Walkley of Canaccord. Your line is now open. Hi, Mike.

Hey, John. Thanks for taking my question. Yeah, I was hoping you could update us on BlackBerry's UEM strategy. I know there's some tough comps because of the pandemic from last year, but if you could update us on the strategy, it's still a large piece of your cybersecurity business unit.

yeah yeah that's that's a very that's a good question so um let's see our spot platforms is composed of uem and uef and uem is very strategic to us because it is our gateway to a lot of our major customers who are completely relying on us on security so um uh so our our strategy is continue to expand our footprint in in the regulated industry And where on the more price-sensitive and kind of the non-regulated industries, we want to make sure that our UES platform, which is our endpoint security platform, also connect and run on it. And obviously, one of the largest and store-based outside of MySpace here, outside of the regulated, is Microsoft Intune. So this is why we're excited about the fact that we'll have Intune released, a connected release in the end of August, I believe. Yes, on the end of August. So basically the strategy is continue to expand the footprint that we have in the vertical, like financial, healthcare, and government. That's very important to us. with the UEM, with its roadmap. The roadmap is highly geared towards security and certifications and compliance and so forth. And then the bring your own device, BYOD, environment uh and that's the kind of the roadmap of uem focus on and then the ues is of course expanding on the all the other cyber security uh antivirus wireless stuff so that's our major that's our strategy of how we approach the market all right now that's very helpful and just my follow-up question just just on the

Gross margin by division. Thanks for the updated business metrics. How should we think about growth and trends for the businesses over time, particularly on the cybersecurity business? Where could those growth margins get to over time as the business ramps? And any reason why it might have fallen a bit sequentially?

Yeah, yeah. You know, I think the best way to answer the question is that, especially in cybersecurity, we're trying to go to the enterprise software timeless model. And so we have not, you know, deviated from that. So the gross margin ought to be maybe Python competitive, but you have the high volume growth, somewhere between 75% to 80%. I think that would be a very good target to shoot for. for the cyber business.

And what needs to happen to maybe get there from where you are today? What would be that time frame, you think?

Time frame? I think probably a year out. If you want me to guess that, I base that on. Because if you recall, we actually have a lot of increase of headcount feet on the street this quarter. In fact, our quarter ends in August. In fact, some of them have committed to sign on and it's yet to start. And with that, if I give them the time for nine to 12 months, six to nine months getting up to speed, and at the same time, cultivating the pipeline to make the sales cycle work. I think about a year out I should see some good results from this class of incoming team members here.

Great. Thanks for taking my questions. Sure.

Next question is from the line of Paul Treiber of RBC Capital Markets.

Your line is up. Hi. Thanks, and good afternoon. To follow up to the question on sales, you mentioned in the outlook or the marks that you expect bookings, double-digit bookings growth for the year. How should we think about the ramp or the trajectory over the year?

I actually didn't get it. Paul, I missed some part of your words.

Yeah, bookings growth. How should we think about bookings growth over this coming year? You know, how should we think about the ramp over the year, you know, relative to where we are now?

Yeah, as I said earlier also, you know, we just recently had a lot of increase of headcounts in sales. So the booking – need to be back-ended this year and then continue on for next year, obviously. So I don't know whether that's the question you're asking.

Or in the rate of growth there, like, you know, where do you expect to go to?

Yeah, yeah. We do, on bookings, we do expect it towards the end of the year. We do expect it to double the percentage growth.

Okay, that's helpful. On cybersecurity revenue for this quarter, you know, based on the numbers, the historical numbers and gap numbers, you know, I did take a step down. I think you mentioned UEM. Can you just elaborate on, you know, what you saw customers doing? I mean, I imagine they purchased last year. Did they turn off? Did they, you know, can you just elaborate on what happened there?

No, I think it's quite, in general, it's quite steady and stable. We didn't see the growth that we're hoping for, but it was forthcoming because, you know, we just released the EDR products. We talked about the cloud version, the latest Optics 3.0. We just released all these new products a quarter ago, actually, a quarter ago. So we're seeing that pipeline being built up, and it's looking for them to come into being buildings and business. So I don't see any major movement one way or the other. But people are interested in EDR. I believe that they should be interested. more and protect that's our job to make sure that that message come across and and the benefit of that could be demonstrated and I definitely could demonstrate you know one thing you can look at you know the the blackberry the blackberry silence product combo you know none of these major viruses yes none of these major viruses have actually hit our user base you know touchwood And so anyway, that tells you the power of our product.

Okay. Thank you. I'll pass the line. Sure.

Next question is from the line of Trip Chowdhury of Global Equities Research. Your line is now open.

Hi, Trip. Thank you. Very good execution on the product front. Two quick questions. First, regarding the battery management system, I was wondering, this is definitely an incremental market for you. There are three parts of the business model that I look at. There could be a design win, production part of it in the software, and there could subscription part to the software that is running and managing the batteries so among these three things is it all the three components or is it only the software and subscription uh regarding the battery management software that qnx is running yeah so thank you trip um so first off uh it's it's a little early for me to answer the question i have a preference

The preference is a usage-based revenue or a monthly subscription-type revenue. That would be my preference. Of course, that would have to be in agreement with the OEM. So demonstrating that as an IV use case is one of the most important things that we need to do in the next three to six months. There is a demo being put together, and it will not be available until probably the end of this calendar year, as both engineering teams just started working on it. And in the meantime, we'll try to figure out the answer to the question that you posed. Again, I have a strong preference for this to be either usage-based or monthly recurring-based.

Wonderful. The second question I have regarding your exceptional machine learning models you have, and definitely currently your silent machine learning AI models work with only your products. Are you exploring or do you think it makes a business sense to open up your machine learning models to, say, other OEMs or to other ISVs and then charge for connection or charge for APIs because your product, which is gateway security, I think that is very normal. And again, that's another incremental revenue opportunity you can get over a period of time. So we're just thinking, you know, since you have the best training models available, just licensing them or any other business model that can give more revenues to you, your thoughts on that would be really appreciated. And, again, very good execution on the product front.

Thank you. We haven't thought about licensing those models to other applications, maybe I should say that. However, we are licensing that – well, licensing is the wrong word, sorry. We are embedding – the lightweight agent in IoT devices, including medical equipment and industrial equipment. And some of those other technology we have, like the mobile threat detection and prevention, also uses the model. So it's being used in a different way. From a business perspective, we didn't think about licensing. We could explore that, but we're more focused on doing embedding in endpoints.

Very good. Thank you very much, John.

Sure, Terp. Thank you.

Next question is from the line of Paul Steeth of Scotia Capital. Your line's now open.

Hi, Bob. Hi, John. This one may be booked for both you and Steve, and I'll just make it one question. You can parse it up as you like here. Can you give us some context around the cost base? Obviously, you disclosed last quarter that you had 3,497 employees globally. And then earlier in this call, you talked about increasing the number of reps by 23% at the end of Q2. So I'm just trying to square up how we'd want to think about your cost base maybe going forward, whether you've just incrementally shifted resources or is this like net new ads that we should all be thinking that are temporarily going to get added and then come to productivity as you pointed out earlier?

Yeah, we have not done any major or even minor reduction in falls. We have moved some resources around more for functional investment reasons, not for reduction of people. So it's probably best for you to think about it as incremental.

That's helpful. Maybe just the last one as well. In terms of new cybersecurity products, obviously you're talking about giving the team time to ramp up, but maybe talk to us a little bit about what you're seeing from inbound client interest, because you've launched a significant number of products, been on a bit of a roll here in terms of new product launches. That's it.

Thanks. Uh-huh. I'm assuming you're talking about the cyber side.

Yeah, sorry, cyber.

Okay, right. Probably most of the conversation center around the protect product. I would say if I think about the larger opportunities and sites that we have won, the key winning product, it is the protect. So this is why you heard me say a number of times on this call today um and we're going to try to double down on the protect side because it's a differentiator for us and in addition to that you know the the aiml model that we have could be embedded and it could embed it without having to be updated it's been valid for for a very long time so um so that's probably the largest opportunities when you think about large installation And now what we're trying to do is to position the XDR product we talk about, the new one called Gateway, and that provided zero-trust architecture. So enterprise, especially like government, is extremely interested in that.

So those two areas. Thank you. Sure. Thank you. Thank you, participants. I'll now turn the call back over to John Chen, Executive Chair and CEO of BlackBerry, for closing remarks.

Thank you, Jesse. Thanks, everybody, for joining us. I know it's late in the East Coast, so I want to just, you know, hopefully you all are doing well, and thank some of you who attended our annual show, the meeting yesterday, and I'm looking forward to speaking with you folks soon.

have a great evening thank you speakers that concludes today's conference call thank you all for joining you may now disconnect