BlackBerry Limited

the BlackBerry first quarter fiscal year 2023 results conference call. My name is Brent, and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. We will be facilitating a brief question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing star zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Tim Foote, Vice President of BlackBerry Investor Relations. Please go ahead.

Thank you, Brent. Good afternoon and welcome to BlackBerry's first quarter fiscal 2023 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. you should not place undue reliance on the company's forward-looking statements. Any forward-looking statements are made only as of today, and the company has no intention and undertakes no obligation to update or revise any of them, 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 members, please see the earnings press release published earlier today, which is available on the EDGAR, CEDAR, and BlackBerry.com websites. And with that, I'll turn the call over to John. Thanks, Tim.

Good afternoon, everybody, and thanks for joining the call. I must first apologize after speaking for two days because we had our AGM and board meeting last My throat is a little sketchy, so I apologize for that. Anyway, this quarter, we built on the momentum from fiscal 22 and continue to execute it well, delivering solid year-over-year revenue growth. Total software and services revenue was $164 million, representing a 9% year-over-year. Let me first start my review today with the IoT business unit. Despite a tough macro environment for auto, we delivered revenue of $51 million, which represent 19% year-over-year growth. Growth margin came in at 84%. IoT ARR was $94 million, increasing 9% year-over-year. We recorded strong revenue from pre-production development seats and professional services, setting yet another quarterly record for the third quarter in a row, As you know, this is not only a positive for the current year, but also a strong indicator of future revenue once the design enters into production. Our strength in securing new design wins have driven a year-over-year increase in our royalty revenue backlog, which is now at approximately $560 million, a 14% increase from a year ago. Further, The number of vehicles with QNS software embedded has increased year-over-year from over 195 million to over 215 million. I'm pleased that the strength of our design wins once again allow us to overcome the impact of the headwind that the auto industry is currently facing. These headwind include COVID-related lockdowns in China, supply chain issues, the Ukraine war, inflation, and rising interest rates. On the supply chain front, the situation appears to be showing some sign of stabilization. While the economic issues will impact the overall auto market, demand for higher-end models and electric vehicles appears to be holding up. As mentioned, QNX continued to perform well in terms of securing new design wins. In a quarter, we gained a total of 14 new design wins, with nine in auto and five in the general embedded market. We are a market leader in ADARs, Advanced Driver Assist, that is, and digital carpets, both fast-growing safety-critical domains. In fact, strategy analytics a leading independent auto analyst, estimate a three-year CAGR for ADAS market to be 29% and digital carpet to be 40%. And within those domain, we plan to grow even faster than that as we continue to win market share. In a quarter, we have a number of large design wins in digital carpet. In addition to wins with leading tier one Bosch and Vizion, we secure a win with a global automaker based in North America. as well as BICV, a leading Chinese tier one for an augmented reality AI and hologram-enabled digital carpet to be deployed in Renault, Jiangling's latest fully electric sedan. That's quite a bit of technology. Furthermore, despite lockdown challenges, we're able to secure a number of new design wins with major Chinese automakers, including autonomous drive design with Great Wall Motor and others. Outside of auto, this quarter our QNX hypervisor was pre-certified by the independent auditor at TUV Rhineland to the highest level of safety for medical device software. We continue to make progress with medical design wins, and a good example in the quarter was for a dialysis machine with a major technology customer base in India. Let me now provide you with an update on the progress we're making with IV. As previously mentioned, we have received more proof of concept of POC trial requests than we can currently handle, and we continue to receive more. This is a strong indicator that Ivy is a product with the right strategy, in the right place, and the right time. In a quarter, we commenced a number of POCs, which include leading global automakers and tier ones. Engagement so far has been positive, and some of the learnings are helping guide our product development. Product development is advancing well, and our June release now supports an even wider range of sensors and hardware. We're also progressing well with developers' tools. Progress is also being made on the application ecosystem side, and we're currently engaged with multiple potential partners. These partners enable a wide variety of exciting use cases, including AI-driven battery management, predictive maintenance, and user-based insurance, just to name a few. And a number of them are being considered for inclusion in the current POCs. Overall, we continue to be excited by the potential opportunity for IV and are pleased with our progress this quarter. Now moving on to cybersecurity. This was a solid quarter for the cybersecurity business unit. Revenue came in at $113,113, a 6% growth year-over-year. Buildings on a total contract value basis was $89 million, a 16% year-over-year increase. Gross margin was 53%. ARR was 334, 334 million. Dollar-based net retention rate was 88%. This number, of course, does not include new local wins, nor certain perpetual license win in government. With the elevated cyber threat levels, we see a strong demand environment at present. Given this backdrop, we continue to invest in go-to-market. In the quarter, we added net direct quarter carrying headcount. We are pleased with how these additions to the team are ramping up. And of course, it will take a few quarters for them to reach full productivity. During the past quarter, we also expanded our channel presence. We added Midas Group, a partner with over 5,000 employees, and a presence in over 70 countries across the Middle East, Europe, and Africa. This significantly expand our reach in those markets. Midas brings a lot of experience in cyber, having been distributed with McAfee, Symantec, and Tram Michaels. We've also made a number of enhancements to our managed security service provider, or MSSP program. As growth in our guard MDR solution has shown, this is a very large demand. There is a very large demand for managed service in cybersecurity, and SSP allow us to greatly scale out our go-to-market. During the quarter, we secured a number of new logo wins, mainly displacing legacy vendors. The legacy vendors market remains a very large opportunity for BlackBerry, and we have been running a number of targeted campaigns. In particular, this quarter we saw a number of customers move from Kaspersky to Sidelines Protect. ScienceProtect works very well in this context, and its lightweight agent is both quick and easy to deploy. We continue to compete head-to-head and win against other next-gen cyber players. A good example of a win this past quarter was of a major US-based medical industry customer with deployments of tens of thousands of endpoints in a direct head-to-head competition against CloudStrike. The customers select BlackBerry because they were impressed by the effectiveness of our product, especially against the log4j and Kerberos, as well as our high level of customer service. Our cyber products receive further external validation in the recent MITRE ATT&CK evaluations. Our cyber suite of solution was 100% successful in preventing both the viscid spider and sandworm attacks very early in each scenario and critically before any damages occurred. Let me now provide an update for UEM. This quarter, we secure renew with some of our largest customer, including the US Air Force, U.S. Navy, U.S. Special Ops Command, the Canadian Senate, the Supreme Court of Canada, and the Royal Canadian Mint. We book a great amount of business with law enforcement agencies in the border, such as with the U.K. Serious Fraud Office, the London and Manchester Police Services, as well as the Vancouver Police Department. We were pleased to both increase the number of UEM license and deploy additional products to these customers. In addition to government, we secure, renew, and upsell a number of leading financial services customers, including leading banks and UFG. I believe they're the largest Japanese bank. Misuho and Sumimoto Misui Banking Corporation, three of Japan's four largest banks. Switzerland's Julius Baer Group, First Citizen Bank, and Liberty Bank in the United States, as well as other leading banks in both Germany and Canada. As we mentioned previously, given the competitive market, we continue to strengthen our UEM product offering, and we're pleased to partner with Google to add support for enterprise running Chrome OS and Chrome browser, support that Microsoft Intune does not offer. According to IDC, Chrome OS recently overtook Mac OS as the number two desktop OS with more than 10% market share. And Chrome is also the world's leading browser with approximately 70% market share. The strength of our UEM offering continues to be recognized. And last month, IDC MarketScape named BlackBerry as the leader in UEM for the third year in a row. Among other items, they highlight the wide range of government and industrial security and compliance certification that BlackBerry UEM hosts. These certifications help BlackBerry maintain its strong position in core regulated market. And now a brief word about licensing. In the quarter, licensing revenue was $4 million and gross margin was 50%. Earlier this month, We will issue a press release updating the status of the proposed sale of the legacy portion of our patent portfolio. The buyer, Catapult, is working to secure their financing, and we look forward to the completion of the transaction. At the same time, as we are no longer under exclusivity with Catapult, we are free to explore new options as they come our way. We will provide more details as and when appropriate. Let me now hand over to Steve, who will provide additional color on our financial results of the quarter.