BlackBerry Limited

We'll be in a listen-only mode. We will be facilitating a brief question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing star zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the face call over to Tim Foote, BlackBerry Investor Relations. Please go ahead.

Thank you, Ashley. Good afternoon and welcome to BlackBerry's second quarter fiscal 2022 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. 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. We should not place the 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 reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGA, FIDA, and BlackBerry.com websites. And with that, I'll turn the call over to John.

Thank you. Thank you, Jim. Good afternoon, everybody, and thanks for joining the call today. One correction, I think all the number, all the revenue number we use will be GAAP-based, correct? Yes. When you say non-GAAP numbers, it's actually the revenue number we refer to are all GAAP-based numbers. Okay, starting with our headlines. This quarter, the business performed well. with revenue for all the free business summons beating expectation. The cybersecurity business unit delivers strong sequential billings and revenue growth. The IoT business unit performed better than expected with strong design-related activities, partially offsetting the impact of the global chip shortage on production royalties. Licensing revenue reflects the restriction on monetization activity from the ongoing patent sale negotiations, which I'll talk about more in detail shortly. Licensing and other revenue came in slightly stronger than expected. This quarter, BlackBerry generated positive operating cash flow. Following the strengthening of our IoT leadership team in Q1, we have appointed John Gio Matteo to lead our cybersecurity business unit beginning or commencing October 4th, sorry, commencing October 4th, which is a couple of weeks from now. John was previously the McAfee president and chief revenue officer running the enterprise and consumer cybersecurity businesses. This new appointment completes the refocus of our software business into two business units. I'll cover this in more detail later. Excuse me. I'll start my review with the IoT business unit. Revenue came in at $40 million, which is better than expected, primarily due to ongoing strength in the design activities area. Gross margin remained strong at 83%. IoT AR increased to $89 million. As you are all aware, the auto industry experienced some significant headwinds in Q2 due to the global semiconductor chip shortage. This impacts production volume, particularly in North America. Ford, for instance, a major customer of ours, reported 700,000 lost units of production in calendar Q2. Production-based royalties are historically the largest single component of our QNX revenue. However, A significant portion of revenue is also generated from design activities prior to the vehicle entering production. This part of the business remains very vibrant, and we continue to generate strong development seat and professional services revenues. As a result, total IoT revenue in a quarter was better than expected. Furthermore, these design wins will translate into future production-based royalties. As we look ahead to the rest of the year, we continue to see the headwind for vehicle production. The problem appears to have shifted from surprise of wafers to more of a back-end assembly and testing issues, largely due to spike in COVID cases in Asia, as well as some of the accidents going on in Asia, like some of the plants have fired, for example. Feedback from OEM about the impact on production volumes in the second half is somewhat mixed and constantly evolving. For example, Daimler recently indicated they are expecting a lessening impact by Q4. Excuse me. Sorry. But Volkswagen, on the other hand, see challenges persisting into 2023. In terms of outlook, we continue to see the past quarter as the low point. But significant headwinds are expected to continue into Q3 and Q4, and perhaps even beyond that, albeit with a sequentially decreasing impact. The impact of the chip shortage on QNX royalty revenue is expected to be buffered somewhat by ongoing strength in design activities. We are comfortable with the current IoT revenue consensus, meaning the full-year revenue outlook remains unchanged. As mentioned, despite the supply chain issue, QNX continued to win new design at a very solid pace. In the quarter, we had 23 new design wins, with seven in auto and 16 in the general embedded market. We call it JAM. Because of our market presence and leading technology, we are the trusted go-to supplier and market leader in auto. Furthermore, we're delighted to announce that we now have design wins with 24 of the world's top 25 electric vehicle automakers as measured by volume. Haven't been selected most recently by Daimler as part of their design, as part of their EV design. This is from the 23 or 25 we had last quarter. These 24 OEMs between them represent 82% of global EV market, or production, sorry. 82% of global EV production. This demonstrates the leading position we have in this very fast-growing part of the auto industry. I'd like to expand on a couple of design wins to get investors more colors as to why QNX was chosen and why we are the industry leader. The first is with an automotive tier one that is building full digital cockpit and gateway solution for a Chinese EV OEM. using the QNX real-time operating system and hypervisor. QNX technology is well-known and trusted in China, in the Chinese automotive industry, given its reputation for safety and security. QNX was chosen about software solution from both domestic and as well as multinational competitors. Production is expected in 2022, which is next year, and run for around five years. The second is the leading Japanese industrial robotics manufacturer. That also happened to be a new logo to the library. The customers select QNX for an autonomous 3D robot warehousing system ahead of the leading competitors. QNX was chosen for its functional safety credentials. Production is expected to start this year and continue for five years. Other notable design wins this quarter in auto include instrument, cluster, and ADOT systems. In a gem space, design wins include a medical diagnostic, industrial process control, and a thermal control system for a power plant. I'm going to shift it to Jarvis. During the quarter, we launched Jarvis 2.0. This is a fast version of our software composition and analytics tool, which was previously offered as a beast book service engagement. Java 2.0, which includes a market-leading binary code scanner, is an important part of how BlackBerry can assist customers to achieve compliance with the recent SBOM executive order, secure bill of materials, software bill of materials, sorry, software bill of materials, executive orders mandated by the Biden administration. Moving to a brief update on Ivy. We are pleased with the ongoing progress being made. Both BlackBerry and AWA have significant resources allocated to the project, and our timeline remains on track. We are on schedule to release an early access version of the production in October. In the product, sorry. We are scheduled to release an early access version of the product in October that will enable further engagement with OEMs and also allow demonstration at CES in January. This version will be available to certain ecosystem partners to begin actively building applications on IV. And speaking of applications, for IV to be embraced by automakers, we recognize that it is important to demonstrate IV value to them. Following on from an AI-driven battery management app that we announced last quarter, we announced another application that will be built on IV. This new application enables in-vehicle payments and is being delivered through a partnership with CarIQ, a California-based startup. The application will use direct access to the sensor data and the edge compute, two of the IV's key differentiators, to produce a unique digital fingerprint for the vehicle. This will allow authentication of payments for items such as fuel, tolls, parking surfaces, et cetera. without the need of a fleet, credit cards, or other traditional payment methods. This opened up the possibility for OEM to participate in the new revenue streams and is another of the many potential applications that Ivey will enable. In summary, Ivey continues to progress nicely. Now let me turn to cybersecurity. This quarter, the business unit delivered strong sequential billing and revenue growth. Revenue was $120 million. Growth margin came in at 59%. ARR was $364 million. Dollar-based net retention was 95%. As we mentioned earlier, John Gio Matteo will be joining BlackBerry to lead the cybersecurity business unit, taking over from Tom Agobazzi, who was the acting general manager. John brings with him many years of cybersecurity industry experience. During his six years as president and chief revenue officer at McAfee, he delivered both double-digit growth and margin expansion for the enterprise, the SMB, as well as the consumer divisions. John will build on the progress that has been made in recent quarters with the cybersecurity business unit, go-to-market engine, and will also direct both product development and business unit strategy. Tom Ekobatsi has decided to pursue other opportunities and will leave BlackBerry at the end of October. The addition of John to the team completes a split of the software and services business into two market-focused business units. Both IoT and cybers are targeted with driving growth and with its shareholder value. The two business units will report directly to me. As mentioned, this was a good quarter. All there's still work for the team to do. There's a few outstanding areas that I feel that I'd like to share with you about. This quarter, we saw further growth in pipeline for our cybersecurity product, especially for the new local customers. Pipeline grew strongly for BlackBerry Gateway, a zero-trust network access product launched last quarter. To help realize this increased pipeline, investment in our direct sales force, in particular the hiring of quota-carrying sales head, continues. We're also making further progress to the channel, as illustrated by a 32% sequential growth in channel buildings this quarter. New partner program has also helped significantly increase both channel-driven pipeline generation and in new local buildings, mainly in the North America arena. We also have seen robust growth in business through managed security service providers, or MSSP. You may recall that during the Q2 earnings call a year ago, we targeted using MSSP to quickly scale our guarded managed service offering. Today, one of these partners, I'm happy to report, managed more than 100,000 endpoints using BlackBerry Cyber's products. I'd like to take a closer look at some wins from the quarter that demonstrate why customers are choosing BlackBerry for their cybersecurity needs. The first customer is one of the top 10 automakers in the world. This customer select our Protect EPP and Optics EDR solution following a competitive takeoff in which we went head to head with CloudStrike and Carbonback. The customers selected BlackBerry due to our near 100% malware detection rate, our lightweight engine, and flexible deployment options, both in the cloud as well as the standalone factory network. The second is the Fortune 100 financial services company. BlackBerry displays Microsoft Defender with ProTech and Optics. The companies select us particularly for our performance on Mac OS. The third is where we have continued success within the Australian state government agencies. This quarter, we sold Protect, Optics, and our Threat Zero consulting services into a number of agencies, displacing predominantly electricity incumbents that included Trend Micro and Symantec. The customer chose BlackBerry for our next-generation prevention-first technology. On the Industry Recognition Fund, SELAB, a leading independent research firm based in London, has performed a rigorous set of tests on our EPP and EDR products, protect and optics. This breach test differs from their quarterly endpoint tests. Rather than simply loading known malware onto an endpoint, which typically masks the inability of traditional signature-based vendors to defend zero-day threats, the breach test instead applies real-time, real-world hacking tactics. They apply comprehensive techniques to evade our defense and concluded that protect and optics provide complete prevention, complete detection, as well as zero false positives. A link to the full report could be found on our investor relations web page. This third-party validation of our product, not just our EPP, but also our EDR, demonstrate how we have successfully closed the product gap to competitors with recent product launches. The market is now recognizing some of the unique differentiated abilities of our cyber products, one of which is the maturity of our AI engine. As in the previous quarters, we're seeing new malware and ransomware hitting the headline on an almost daily basis. Our AI engine, the most mature in the industry, continues to provide zero-day prevention against a host of these threats. In the quarter, our product successfully brought new profile ransomware such as Hive, LockBit, RagnarLocker, and many more before they could do any damages. BlackBerry's sign-in AI engine is firmly focused on preventing our customer from being breached, whereas some of the leading competitors instead focus on showing customers all the different ways that their system could be accessed. On the UEM front, we'll continue to invest in our roadmap, delivering enhancements that add most value to customers. We recently announced that enterprise can now benefit from BlackBerry leading security while enjoying a seamless and native user experience with Microsoft 365 productivity apps. This is enabled by additional integration between BlackBerry UEM and Microsoft 365, primarily through the Azure Active Directory Conditional SS. This is part of the latest version of the UEM U-Series, which was released this month, earlier this month, that is. U-Series also provides zero-day support for Android 12 and iOS 15. This past quarter, we secured important UEM renewals with government agencies such as IRS, the Department of Homeland Security, the U.S. Marine Corps, the U.S. Army Corps of Engineers, the U.K. Ministry of Defense, the United States Air Force, as well as leading enterprises such as General Dynamics and Magna. We also won a number of new logos such as the French National Institute for Criminal Research and the Tel Aviv Stock Exchange. With continued growth in pipeline, coupled with investment in direct and channel sales, the outlook of the cybersecurity business units is for sequential building growth for the remaining other fiscal year. This is expected to lead to modest sequential revenue growth due to the subscription model. The full year outlook remains as before, at a lower end of $495 to $515 million range. Turning now to licensing. As I mentioned earlier, negotiations to sell the portion of the patent portfolio related to mobile devices, messaging, and wireless networking are ongoing, and we have made significant progress since our last earnings call, including preliminary agreement of many of the key items of the key terms of the deal. We expect to execute a definitive agreement this quarter. Closing the transaction will be subject to a normal regulatory review. Naturally, given this backdrop, we will continue to limit monetization activities for the remaining of this fiscal year. Therefore, revenue for both Q3 and Q4 is expected to be similar to Q2, which is at $10 million per quarter. While we expected sales to conclude successfully, the process had taken longer than we expected or anticipated. Should it not conclude this quarter, we'll have other options, including additional interest to parties. We will update investment on any of the material developments in a timely manner. So let me now hand over to Steve to further review the financials. Steve?

Thank you, Jack. My comments on our financial performance for the second 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. We delivered second quarter total company revenue of $175 million. Second quarter total company gross margin was 65%. Our non-GAAP gross margin excludes stock compensation expense of $1 million. Second quarter operating expenses were $143 million. Our non-GAAP operating expenses exclude $32 million in amortization of acquired intangibles, $11 million in stock compensation expense and $67 million fair value adjustment on the convertible to ventures, which is a non-cash accounting adjustment prone to large swings driven by market and trading conditions. The second quarter non-GAAP operating loss was $30 million and the second quarter non-GAAP net loss was $33 million. Non-GAAP earnings per share was a $0.06 loss in the quarter. Our adjusted EBITDA was negative $14 million this quarter, excluding the non-GAAP adjustments previously mentioned as we continue to invest in both our cyber and IoT businesses to drive top-line growth. I will now provide a breakdown of our revenue in the quarter. Cybersecurity revenue was $120 million and IoT revenue was $40 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 80%. Licensing and other revenue was 15 million. As John mentioned, our IP monetization activities remain limited while negotiations for the potential sale continue. Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were $772 million as of August 31, 2021, an increase of $3 million during the quarter. Our net cash position increased to $407 million. Second quarter free cash flow was $10 million. cash generated from operations was $12 million, and capital expenditures were $2 million. That concludes my comments. I'll now turn it back to John.

Thank you, Steve. Before we move to Q&A, I'd like to summarize this past quarter. I'm pleased with how the business performed, beating revenue expectations for all the businesses, and delivered positive cash flows. The structure of the two market-focused software business units is already delivering results, and we're adding additional relevant industry experience. We're encouraged by the growth in cybersecurity pipeline and continue to invest in sales headcount. QNX design activities remains very strong, and we are weathering the impact of the chip shortage as well. We are now also making good progress with Ivy. And with that, I'd like Ashley, the operator, to open the line for Q&A, please.

And we will now begin the question and answer session. To ask a question, you may press star 1 on your telephone keypad. If you are using a speakerphone, please make sure your line is unmuted. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity signal for questions. We request that you limit yourself to one question and one follow-up. Our first question today will be from Mike Walkley with Canaccord. Your line is open.

Great. Hi, Mike. Thanks. Hi, John. How are you doing? Very good. Thanks for all the updates and the guidance. I guess my first question for you is your guidance arguably implies an aggressive second half outlook just to reach the full year guidance. Can you walk us through, you know, what needs to go right for you to achieve that guidance or stronger second half?

Yeah, thank you. Thank you for the question. So there are some assumptions. Let me break it down a little bit. Licensing, of course, we already explained, so I don't have to go into much detail on that. I think, you know... I think we're going to have $10 million a quarter for the next two quarters, for the second half, that is, each other quarter. And it has something to do with the fact that we're not going to monetize or push on the monetization effort and licensing effort while we're going through this negotiation on selling the portion of the patents that is on those areas of business that we're no longer actively involved with. Regarding IoT, the only wild card, so to speak, is the chip shortage and the impact of that. From all the indicators, all the ups and downs and give and take, and we spoke to a lot of them, the OEMs, that North America seems to be getting better in Q3, Q4. as compared to Q2. A good example would be, you know, Ford believe they are improving, and GM also is, you know, although they're going to shut down a couple of factories in Q3, but I think for my magnitude, it's improving versus the first half of the year. So North America, you see it going back, improving in this situation. Europe, however, still had about a 10% to 15% impact. of the production, and so is Asia Pacific. So, net of all that, if we're in that range without any dramatic departure, then the numbers that we expected in the second half still holds. And a big part of that, of course, is we are winning some very strong design wins that bring us more developer seats, revenue, as well as professional services revenue. So I'm pretty comfortable with that. On cyber, it really is a function of one thing. I mean, I got two considerations in there. One thing, the major part is we have a lot of salespeople join us in the last couple of two, three quarters. We have a pretty young pipeline. The activities in the pipeline has been very strong in the last quarter and two. so putting that together is actually a good thing um except that you know it might take time to ramp up and so the rate of conversion of the pipeline with a newer sales force is the only wild card and it's something that we have to manage very carefully but the good news there is even if it takes longer um you know these things these business uh don't tend to go away so so So that's the assumption that we made in our forecast. The other one is in Q4, we got a couple of large government deals with some of the government, especially in North America. Some of those needs to come to fruition, and then we expect them to. So those are the basis of our forecast. Yes, second half seems to be a bigger number, a stronger number than Q, the first half. That's correct.

Great. Thank you. And just just my follow up question. You're congrats on adding, uh, John GM method to the team. Um, is he gonna run kind of the same playbook that was getting put in place for all the team? Or do you expect further changes with the rotation of such a key key position into that impact your guidance thoughts at all?

It's slightly early to tell, but I'm dying to hear his experience of growth because he was being able to grow Both the consumer business and the enterprise business at McAfee when he was running the, you know, he was the president of McAfee and the CRO. So I'm sure he will make some changes. I'm doubtful that, you know, everything will remain exactly the same. On the other hand, you know, the investment that we made in channel, the investment we made in pipeline, the investment we make in partners and engineering, and the investment we make in hiring more sales staff, And we have a couple of quarters ago, we hired a pretty good head of professional services. I'm sure that he would take full advantage of those.

Great. Thanks for taking my questions. All right. Thank you.

Your next question comes from Daniel Chan with TD Securities. Your line is open.

Hey, Daniel. Hey, John. Hi, Daniel. You mentioned earlier that typically your QNX revenue has a higher mix of royalty versus development. Should we expect a higher mix of development for the next couple of years as electronics and software development become ramped up at a lot of these OEMs?

I think you should expect probably for this year And I don't think in the future years it will continue to be the same. The reason I say this is because, remember, I should be seeing some of the production revenue coming from ADAS, assuming the price shortages issue started to improve. And it has to improve over time. You know, the huge industry and semiconductor, for the whole semiconductor industry, auto is not really that big. it's not 100 obviously it's probably like more like 15 of the of the of the of the market so it will it will address that and and and so i i expect that our royalty rate to go back into some kind of growth especially with all the design wins that we had in the last couple of two three years

Okay, that's helpful. Can you remind us how you sell these development seats? Is it more like a perpetual license, or is there a recurring proportion to that as well?

It's more like a perpetual license. It's selling seats.

Okay. And do you kind of get like a 20% maintenance? Yeah. Yeah, we get upgrade and maintenance on it, yes. Okay. One more, if I may. Cybersecurity ARR was flat sequentially. While you've been saying that the pipeline's been growing, just wondering when we're going to start seeing that metric start to take up or whether there's some seasonality built into it.

Yeah, that's a good question. I asked that question also, and they always give me the product makes answer. Some of them we took, you know, earlier up front because of RAP RAC policy. I expect for the full sales, and I said it in the past, by the way, so it's very consistent. Mid-year or next year is where I'm going to see, you know, I'm going to see some, hoping to see some strong growth of all the investment we have made, the pipeline going, the new sales and so forth.

Okay. Thank you. Sure.

Your next question comes from Paul Treiber with RBC Capital Markets. Your line is open.

Hi there. Hi, John. First question on the patent sale. I know you can't say much, just given you're in the middle of negotiations, but your statement, you mentioned that the negotiations are going well, but then you also indicated that if it doesn't close, you have other options. Could you bridge between those two statements? Because they're actually quite far apart from a tone perspective.

That's a good one. I'm glad you caught it. Yes, it is going well. I fully expect to finish this quarter. But I'm tired of waiting. I know a lot of our investors are too. You know, I'm not blaming anything on anybody. And maybe we have too many lawyers assigned to this. Sorry, lawyers. But the key is, you know, it's a complex and big portfolio. It's rightfully so that they have done a lot of due diligence. And those things are now completed, by the way. All the due diligence are completed. And then we have a lot of time spent on definitive agreement negotiation. And then, by and large, with the exception of one or two items, we're done on that. And then, you know, then we have the purchase agreement. And so, it just, you know, for me, it's been since last Christmas. You know, it's coming up to next Christmas. I basically kind of draw the line at the end and say, I can't just stop licensing the business, you know, needs to either move on one direction or the other. And then there are other interested parties in calling. And so we are not entertaining them because, as you recall, during a period of time not long in the past, we were in exclusive discussion with these people. So I can't really entertain a third party. So my only point is if you want to put percentage, weighting percentage, I put 80-20. I put 80% and we get it done this quarter.

Does that help? Yeah, that's very helpful. I wasn't going to answer a percentage, but I'm glad you threw it out. Switching back to the business, just in regards to 24 out of 25 EV OEMs, how do we think about the magnitude or size of these wins? You find EVs, the ASP is higher than a gasoline vehicle. Is that what you're seeing generally? Yes.

No, usually the ASP ties to functionality. If you look at functionality like IDI, it's usually low single digit dollars per royalty. But if you look at ADARs and clusters, they are usually high single-digit pushing into double-digit per car. So it's not gasoline versus electric vehicle. And so the electric vehicle has one advantage, which is it's a more component of highly complex ECUs. When you have highly complex ECU, it does two things for us. Number one, because we have the highest certification in security and safety, when you have a high-complex ECU, like a computer engine in a car, they tend to go after the most secure and most safe product. So we have an edge or an advantage to win it. That's number one. Number two, they tend to use very complex algorithms. And that will help us sometimes selling more than even one copy for a ECU. And when you sell these complex ECUs, And with ADAS or clusters or hypervisor, typically the ASP is on a higher end. So it's really more function that drives ASP versus EV or gas.

OK, that's helpful. And then one follow up. It seems like BlackBerry QNX has good traction in the Chinese EV market. Could you speak to, like, does the pricing for that market, is it materially different than other OEMs or other geographies for QNX?

No, not materially different. So also other things you need to be aware of that a lot of those Chinese players actually have design centers in the United States. So the market price is the market price because a lot of them are all in the US. But of course, we have a Chinese team and deal with the customers over there and the factories over there and so forth. But they're not materially different.

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

Your next question comes from Todd Coupland with CIBC. Your line is open.

Hello there. Hey there, John. Nice to talk to you. I'll follow up on the EV line of questioning. So that 25th OEM, which you don't have, they're always bringing out new vehicles, many, many new vehicles that are selling well and at lower prices, et cetera. What are the chances of you getting into that OEM?

My team promised me. It's where I've been down there working it. And so... I'm hopeful, but the fact that they typically like to do complete vertical integrations, it would still require work from us. But we're working it.

Okay. And then also on the patent sale, there's been press articles that in the trade press that you more or less have settled on a price. And it was really the complexity of all the participants in a, I guess, a buyer's group, if you will. Any comments on whether that is indeed correct? And it really is these details with the various parties that has yet to get worked out. Thanks a lot.

I can't comment on ongoing negotiations because it doesn't help me or whoever. I would say to you that we have settled on the price. That I would agree, I would confirm. Everything else I can't really comment on.

Okay. All right. That's great. Appreciate the color. Thanks a lot. Absolutely. Absolutely.

Your next question comes from Paul Speed with Scotia. Your line is open.

Hi there. Hi, John. So two quick ones. The first one, maybe talk to us about how you're thinking about monetizing Ivy and how those thoughts have evolved, and then I'll toss out my quick follow-ups.

I'm sorry, how do I monetize Ivy? Ivy. Ivy. Okay, well, it's a work in progress, but I have a lot of ideas. First of all, I wanted something that is usage-based and recurring-based, and that's the revenue model. And if you look at what Ivy really is, it's a collector of sensors there, the ability to analyze it, push it on the edge, put it on the cloud, apply AI to it, and feed it back to the OEM or application providers. And one of the reasons why we spend so much time on the application side, a quarter ago, we have an intelligent battery management system for performance and for managing anything related to a battery and the usage of it. And this past quarter, we turned our attention to have an application that turned your vehicle into a wallet, basically. And it's a huge market for those of you who follow this because the fleet cars, especially the trucks and the, you know, the Amazon delivery trucks or FedEx or UPS or cargoes or, you know, commercial trucks, they, if we could equip with IVY, There are tons of sensing data between security and productivity and the ability to not having to use a third party to do payment and so forth are all very positive and cost effective solution on the truck owner and the truck runners. Also, as I mentioned earlier, the OEM has always also tried to find ways to enrich their source of revenue after they sold the car. And this could, ID may be able to facilitate some of these applications. So that's kind of where I'm really focused on to create usage-based, whether it's app-based or functional-based applications. use cases. And in some cases, I could share with third parties. I could share with banks. I could share the revenue with OEMs. And these are all possibilities. So that's how we focus on monetizing IP.

Great. Thanks. Two quick follow-ups, I guess, for yourself or Steve. First one would just relate to your commentary about continuing to invest in Salesforce and Should we think of the numbers that you've sort of added this quarter in aggregate dollars sort of reflective throughout the remainder of the year? And then the other sort of clarification, not asking you about a pending transaction, but if a patent business didn't exist at BlackBerry, how should we think about stranded cost in the SG&A line? Or is it effectively pure profit that we just see, you know, maybe move off if that business was not to be there?

Thank you. That's a very good question. I need to get clarification on the first question. Can you repeat your first question?

Yeah, you talked about adding more sales headcount. I'm just sort of looking at the pacing of what you've done in terms of investment. Is that already sort of in the envelope, or you're thinking about stepping on the gas a lot harder in your EV as you continue to win deals?

right right i um we have made a that's a very good question uh so as you all know me um that this i've been here for seven years and i always been focused on making money uh running a profitable business and and um and so uh On the other hand, in the last year, I have recognized that the business needs the investment to step on the gas, to use the word. And so for the time being, and we have done that in the last two quarters or three quarters, but for the time being, I'm not going to be so focused on on loss versus profit, as long as it's manageable, meaning that it's not going to be outrageous and it's not going to kill a lot of my cash or burn a lot of my cash, then we are going to step on the gas and continue hiring and continue to increase. And the idea is, since we now have the product and we could generate a pipeline, if I could close the pipeline, with more feet on the streets and channel partners and so forth, it will help me grow the business, and then that will then create the profit that I needed to offset a very profitable source of revenue, which was licensing. And licensing, as you all know, I'm not getting an evaluation of the licensing, at least the recognition of my stock price. And partly because it's just lumpy. And a lot of you have expressed that you actually don't know how to measure and value that, and you don't know how to think about the growth part of it. So that's all fair. So I believe that while we have very fresh set of portfolios with good average lifespan left in the portfolio, that we should monetize it one time, take that proceeds, to step on the gas, and then invest into cyber business, which we know there's a high growth. And we know we caught up in the product gap. And then also enhance the goal of IoT and invest in Ivy, which is a future revenue source, which could be significant. And we have a great partner in Amazon there. So those are all, I believe, positive value creation for BlackBerry.

That helps. Thank you.

Sure.

That concludes the Q&A session. I would like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry, for closing remarks.

Okay. Well, thank you, Ashley. And I thank everybody for joining us today. And before I end the call, I'd like to remind you that we actually have our 8th Annual BlackBerry Security Summit hosted virtually on October 13. The event will feature a live and on-demand section, including keynotes, addresses from library executives, customer-led case study, insight into the cybersecurity and IoT technology landscape. It's free to register for all of you, and if you haven't already, and I encourage you to do so. Otherwise, a replay of the event will also be available through our investor-relation website. Thanks again and see you next time. I hope to see you in person sometime. Take care.

This concludes today's call. Thank you for your