BlackBerry Limited

Good afternoon and welcome to the BlackBerry fourth quarter and full fiscal year 2023 results conference call. My name is Jason and I will be your conference moderator for today's call. During the presentation, all participants will be in listen-only mode. We'll be facilitating a brief question and answer session toward the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by 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, Jason. Good afternoon and welcome to BlackBerry's fourth quarter and full fiscal year 2023 earnings conference call. With me on the call today, our 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 US 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 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 and full-year 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, CEDA, 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 today. Let me start my review today with the IoT Business Unit. This has been a very good year. Despite a challenging macro environment, BlackBerry IoT closed out the year with strong 16% year-over-year revenue growth to $206 million. This is in line with the outlook range we provided this time last year. QNX has a record year for adding new royalty backlog from design wins. In fact, backlog at the end of fiscal 23 has grown to a new record high of $640,640,000. Going forward, we will report this annually in Q4 rather than in Q1 to enable a more in-depth discussion during our analyst stay, which is typically happen in May. The result is yet more tangible evidence that our strategy for QNX and IoT is really paying off. The business is executing and capitalizing on strong secular trends. The move towards high performance Safety-critical software running on more powerful chipsets is opening up significant opportunities for QNX. In addition to generating royalty backlog, the new design wins also drove near-record levels for pre-production revenue in Q4, that is, revenue from development seat licenses as well as professional services. Furthermore, the IoT business unit delivered a strong 81% gross margin, 8-1, In a quarter, we secure a total of 36 new design wins, with six in auto and 30 in jam. QNX is winning in multiple auto domains. In particular, we continue to perform well in the fast-growing ADARs and the digital cockpit's domain. In addition to auto, in adjacent verticals, we also see similar trends towards high-performance, safety-critical software at the edge. Medical and industrials are among a number of verticals making this transition, and QNX is capitalizing on it. Example this quarter, including a win with the Alba Labs for the real-time medical analyzer and with Corindus Vascular for a robotic stroke treatment application. There were also wins with South Korean Doosan for nuclear power plant controllers and Honeywell for industrial conveyor control units. Some of you on the call today may have joined us either in person or virtually at CES that happened in January. This was a very successful event for the team, with significant interest from and meetings with leading OEMs and Tier 1s. At CES, we also co-host the first Software Defined Vehicle Innovation Awards with MotorTran. This event brought together and celebrated the best and brightest in software development across the auto industry. This was a key marketing event for us. One of our major announcements at CES was that the QNX RTOS is now available in the cloud through the AWS marketplace. This both extends the reach of QNX to AWS developer community and eliminates the need for physical hardware. The initial response has been positive with auto and gem developers assessing QNX from locations around the world. Let me now move to Ivey. This quarter, we made a significant step forward with Ivey, announcing the first design win. Following a successful POC trials, Dong Fang, one of the China's leading automakers, selected a digital carpet solution from tier one supplier Patel. That includes BlackBerry Ivey to run in their Voyeur range of electric vehicles. At CES, the team demonstrated Ivy running on three commercially available platforms, including Bosch, Pateo, and the AWS Graviton. There was particularly strong interest in seeing Ivy running live in the Jeep Grand Cherokee at the booth. Not only was Ivy an important feature of the BlackBerry booth, it was also featured prominently at the AWS booth. Overall, CES generates significant interest for potential new proof of concept trials for IV. Product development remains on track. As we announced at CES, we're targeting this GA, the general availability, that is the GA release in May. This is an important step in scaling the IV go-to-market and POC efforts. The IV ecosystem is also developing well. One of the IV fund investment, Electra Vehicle, a smart battery management application, was successfully included as part of our first IV design win. This quarter, we added a partner specializing in AI power driver monitoring technology aimed at fleet customers called iDrive. iDrive is a California-based company that plans to leverage IV sensor data's to improve driver safety and fleet efficiency. Let me now turn to outlook for this coming fiscal year. Headwinds for the auto production from the macro environment and supply chain challenges persist, although they appear to be easing a bit. Robo light vehicle production, which is a key driver for our royalty revenue, is expected to increase by around 4% in 2023 to around 85 million vehicles. Despite this improvement, production will remain well below the 95 million vehicles in 2018, that is prior to both the pandemic and the supply chain difficulties. Even with these industry-wide challenges, we expect strong growth for BlackBerry IoT this fiscal year and for revenue to be in the range of 240 to 250 million. This translates to 17% or from 17 to 21% year-on-year growth. And it's in line with the outlook given at our analyst's day last May. We see this growth coming from a combination of both ongoing momentum in new design wins, as well as an uptick in royalties. Given the anticipated timing of design wins throughout the year, we see the growth largely weighted to the second half. We expect revenue for Q1 to be in the range of 50 to 53 million. Turning now to the cybersecurity business units. Revenue for the quarter was 88 million. Billing increased sequentially for the third consecutive quarter to 107 million. Gross margin was 59 percent. ARR was 298 million, and the dollar-based net retention rate was 81 percent. This was a challenging quarter for closing large deals in the government space. We saw an elongation of sales cycle in this vertical with additional layers of approval and reviews. In particular, we saw a number of key deals slip into later quarters, and we don't consider those deal loss, but rather delay. Given the product mix of these deals that included mostly perpetual licenses, the impact on this quarter in quarter revenue was significant. However, strong billing growth from others, non-government verticals, including financial services, result in cyber billings increase overall for the third consecutive quarter. You may recall that we recently outlined a strong opportunity that we see for our Cylance products in a mid-market space. From our SMB wins this year, as well as feedback from customers, We learned that having simple but effective turnkey products is the key to scaling this business. Therefore, we productized according to the market needs and launched two new offerings under the headline, More Security, Less Complexity. These new offerings are designed to be simpler to use, more cost-effective, and deliver leading-edge security. The first product is Silence Endpoint. that brings together and augments our suite of sideline standpoint products into one easy-to-use, cost-effective solution. The product leverages our battle-hardened AI engine, along with a major user experience overhaul. This includes an addition of new OneAlert console that combines the XDR data of the XDR data source and machine learning for simple, intuitive, prioritized alert. Sidense Endpoint is also available as a managed service through Sidense Guard MDR. The second product is Sidense Edge, a product that connects users to their work effortlessly and securely right out of the box. Customers can securely access cloud-based SaaS applications as well as gain visibility into how sensitive data is stored and shared. The third development that I'd like to highlight is an exciting point of differentiation of BlackBerry versus our competitors. We integrated our ad hoc critical event management into a guard-managed service to provide unified communications for cyber crisis response, even if communication channels like emails are compromised. We will provide significantly more detail and demonstrate this new product at RSA in San Francisco next month, so please stay tuned. Turning now to UEM. We were delighted when Gartner announced that BlackBerry UEM was the only vendor voted in the top right quadrant by customers for deployment, capabilities, and support. Receiving this recognition based on review for some of the most security conscious customers in the world, demonstrate a level of performance that only BlackBerry can provide. In the market, we're seeing a tailwind from the return to corporate issue devices given concerns around security and lack of control. For customer making this transition, particularly in the financial services, but in other verticals as well, BlackBerry is seen as the go-to, most secure solution in the market, and we see this driving interest. One key competitive advantage for our product is that Microsoft Intune is unable to block specific apps that present a security or privacy risk across all devices where BlackBerry UEM can. On the product development front, we announced new feature for UEM this quarter. This includes being the first in the industry to integrate with the Adobe Experience Manager, enabling secure document signing on mobile that meets the vigorous government security standards. Once again, we secure sales with leading customers in our core regulated vertical, especially government and financial services this quarter. Among those who are able to name are Bank of America, Deutsche Bank, TD Ameritrade, the Bank of Italy, the Swiss National Bank, and the Bank of India. In government, wins including U.S. Air Force, Scottish Government, the U.S. Department of Treasury, the Netherlands Government, SSC, ICT, the Shared Service Center, and the Australian Department of Health and Human Services. Turning now to the outlook for the cyber BU. For the coming fiscal year and allowing factors such as a macro economic backdrop, we expect revenue to be in the range of 425 to 450 million. Correspondingly, we expect buildings to be in the range of 430 to 480 million, an increase of between 7 to 20% year over year. For Q1, we expect the revenue to increase sequentially and be in the range of 100 to 110 million. As was the case in the past quarter, we expect billings to continue to exceed revenue this fiscal year, which is a strong leading indicator of a return to revenue growth. Furthermore, we expect AR to return to sequential growth in the second half of this fiscal year. Moving now to licensing. Last week, we were pleased to announce the patent sale agreement with Key Patent Innovation for up to $900 million. BlackBerry will receive a combination of cash at closing and potential future royalties as a share of profits generated from the portfolio. KPI, whose team is based in Ireland, brings significant experience and expertise for maximizing the value of the patents and with it, the overall deal value for BlackBerry. Importantly, the agreement with KPI has no financing condition, and they have secured all their funding from a leading US-based investment firm with more than $30 billion in assets under management. Adding meaningfully to the overall deal value, BlackBerry will retain approximately 2,000 patents that would have been sold under the previous transaction with Catapult, as well as BlackBerry keeping all existing revenue-generating contracts. Considering all these factors, especially the assessed level of certainty and ability to execute, we consider this deal to have a higher overall value, and that will be the best outcome for our shareholder. The transaction is subject to the standard regulatory approval, and we expected it to close in Q2. Following the completion of the sale, we plan to leverage third parties to opportunistically monetize the remaining patents. However, this is likely to take some time to ramp up, so revenue excluding proceeds from the patent sale is expected to be approximately $5 million per quarter this fiscal year. In the quarter, we recognize $10 million of revenue related to past patent deals. These revenues is not as a result of net new agreements and had no impact on the sale of our patent portfolio. Let me now turn the call over to Steve for more details on our financial.