Good morning and welcome to the BlackBerry Fiscal First Quarter and Fiscal Year 2019 Results Conference Call. My name is Leanne 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. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today’s call, Christopher Lee, Vice President of Finance. Please go ahead.

Thank you, Leanne. Welcome to the BlackBerry fiscal year 2019 first quarter results conference call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen; and Chief Financial Officer and Chief Operating Officer, Steve Capelli. After I read our cautionary note regarding forward-looking statements, John will provide a business update and Steve will then 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 will 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 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, including the risk factors that are discussed in the Company’s Annual Information Form, which is included in our annual report on Form 40-F and in our MD&A. 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 reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today. I will now turn the call over to John.

Thank you. Just in case you didn’t hear Chris, I’m using non-GAAP number. Good morning, everybody. We are off to a pretty good start for the fiscal 2019. We continued the momentum from the second half of last year or the last fiscal year. We see strong customer demand for our security-focused products, resulting in double-digit year-over-year software and services billing growth in the first quarter. The business that’s shown the best momentum are two, the BlackBerry Technology Solutions and the Licensing business, which I will elaborate on that a little later. We are on track to deliver, to achieve and deliver our financial guidance for the fiscal year 2019, which we have started. The guidance are double-digit billings growth in total software and services, positive earnings per share, and positive free cash flow. Let me now provide some highlights for the quarter. Total Company revenue came in as $217 million. Total software and services revenue was $193 million, which was a 14% increase year-over-year. Gross margin was 76%. Operating income was $12 million and operating margin was 6%. Earnings per share was $0.03. And total ending cash and investment were $2.3 billion. Next here are some of the highlights by the business. In the BlackBerry Technology Solutions group which includes embedded software and assets tracking. The revenue grew 31% year-over-year, driven primarily by BlackBerry QNX software embedded and connected in autonomous auto platforms. QNX continued strong year-over-year growth momentum with several new design wins. One of the design wins was in digital instrument cluster for a major auto OEM through our partner, tier 1 partner, Denso. Unfortunately, we don’t have permission to state the name of the customer, the end customer. We are, however, very excited about this partnership win with Denso and the long-term business opportunity with both…

Thank you, John. My comments on our financial performance for the fiscal quarter will be in non-GAAP terms unless specified otherwise. Before I go through the quarterly results, I’d like summarize four primary points from the implementation of ASC 606 impacting our financial statements. First, we adopted ASC 606 using the modified retrospective method. Under this method, we are not required to restate our financial statements. This means that the income statement information shown for FY18 is under the prior accounting standard, ASC 605; and the income statement information shown for FY19 is under ASC 606. Noting that it creates comparability challenges, we have provided data to compare both periods under ASC 605 in our footnote disclosure. We will also provide a verbal comparison for both periods under ASC 606, which are unaudited, and I will do so for Q1 ‘19 shortly. Second, under the modified retrospective method, there is a one-time cumulative transition adjustment, increasing our deferred revenue balance by approximately $100 million with an equal decrease to retained earnings. Third, the perpetual software licensees we transact will now be recognize ratably instead of upfront as it was previously. This is because we deliver service component to our customers with the use of our secure network operation center. As a result, recurring revenue is expected to increase over time. And fourth, sales commissions are now recognized in conjunction with the matching revenue. This change is expected to have an immaterial impact to our financial statements. There is no impact to billings or cash flows from this new accounting standard. Additional details can be found in our public filings, which will be posted on our Investor Relations website later today. Now, let me recap our first quarter results. We delivered first quarter non-GAAP total Company revenue of $217 million and…

Thank you, Steve. On the outlook, we affirm our fiscal -- we talked about that earlier. We affirm our fiscal year 2019 financial outlook, which are one, the total Company software and services billing growth to be in the double-digits; two, the non-GAAP EPS to be positive; and three to deliver to positive free cash flow before considering the impact of restructure and legal proceedings. With the ASC 606 now implemented, we are introducing fiscal 2019 guidance for total software and services to be annual growth between 8% to 10%. Our guidance is based on the following that BTS continues its double-digit growth throughout the year; the License to perform better than we originally planned; the Enterprise Software to include the impact of what Steve has gone through in detail about the 606; total software and services revenue growth to be weighted towards the second half of fiscal year, very similar to the last fiscal year; recurring software and services revenue to be in the high 80 percentage range in fiscal 2019. With that, I would like the operator to start opening our Q&A session. Operator?

We will now begin the question-and-answer session. [Operator Instructions] We’ll take our first question from Todd Coupland with CIBC.

Good morning. So, obviously, a few things to clean up here on the quarter. So, I’ll start with a couple of questions. I’m sure there’ll be follow-ups from others. So, on the Enterprise Software business, so, it seems like the new run rate is about $83 million, which was 11% year-on-year. So, is that sort of the baseline we should model from? And then, just, if it is, talk about the rhythm of that business as we think about it over the next few quarters. Thanks.

The baseline probably is correct. We -- with this -- after the 606 impact, which there is a lot of ins and outs that -- so please bear with me a little bit on that. We have as I said it earlier somewhere between 25% to 30% of perpetual licenses in prior quarters on average. Those are now need taken over ratable. And then, of course there are -- from the accounting rule, there are some deferred revenue movement and so forth. The net of all that is that we think the billings number to be reasonable flat year-over-year. So, it doesn’t hurt our business on a long-term, because the reporting of the revenue in the short-term will have to go down by probably high single digit, low double digits. And that will be the new base. But from a competitive standpoint -- and we also expect, looking on our business pipeline that the second half, as I said earlier are reasonably strong. So, it’s kind of pretty much parallel or have the image of the last year. So, I hope that I answered your questions. There’s lot of ins and outs. But basic fundamental is we expect the business continue to grow.

Okay. And then, my follow-up was, it seemed like QNX was a bit stronger than, I was expecting, $47 million in the quarter. What’s the rhythm of that business going to look like, particularly with comments about second half being stronger? Thanks.

Right. The rhythm is, we expect double-digit growth throughout the year. So, as I said, this business for many years ago, you win the design win, you start seeing the royalty, and as long as the economy is reasonably robust for the connected cars and the autonomous cars and other platform that we designed in, we expect to see this loyalty to continue to uptick. So, every time, we reach a base, it doesn’t have a lot of wild swing, it just keep -- there will be the new base. So, you should see, as I said last quarter that the mid-40s million is a new base. And I’m hoping obviously go even further as we continue, but it’s a very steady base, steady ramp.

And we’ll take our next question from Paul Steep with Scotia Capital.

John or Steve, maybe you could talk -- obviously you touched on the 606 change. Maybe we could talk about the real world change in terms of the sales force now selling more on a recurring ratable basis versus a perpetual basis. How should we think about that rolling out and sort of implementing across the field over the year? And maybe then we can follow up and talk about any one-time impacts in the quarter?

I think, it took a little bit of adjustment when we took perpetual off their -- what do you call? Calling card sales kit. But, we just met with the team, our global team came in to Waterloo and we had, I would call, a decent meeting with them. They are well understood. That is what it is. That is the reality. And it’s good for the company, but as recurring rate goes up, it makes our business more predictable. And then actually, you could argue the margin is better. And so everybody bought into it. And now, we just need to go after the deals not thinking about this multiyear large thing. So, I’m comfortable that we’re making all the right adjustments. Carl is very committed to this movement. And so, he’s training and retraining and -- his people globally. So, I don’t see that being a problem on a long term.

Yes. You don’t have the hockey stick at the end, but you have the predictability. And as John mentioned, should be improved margins as well. So, we think long-term, it’s very beneficial.

And Steve, maybe on the renewals portion and maintenance, how should we think about transitioning over customers or this is solely new deal we’re talking about and existing base sort of stays where it is? And how would you handle incremental seat sales for an existing client, I think is that the struggle I’m having this morning. Thanks.

Well, the first thing I want to say is that it will be for contracts going forward. Second would be, there is not an absolute that we would never -- obviously we have large government accounts that buy perpetual licenses. And so, those items will be taken under consideration, but our sales motion will be non perpetual and a recurring revenue model. And we thought this was the right time to make that adjustment. And that’s why we were able to now give the new guidance.

And also with our NOCs, we don’t really have choices. I mean, it’s not like we could randomly decide. So, yes, obviously going forward, people who already have the perpetual, we are going need to get them to buy new licenses for new projects. And that’s -- but one who pay maintenance will continue to build their maintenance of course.

And we’ll take our next question from Paul Treiber with RBC Capital Markets.

Thanks very much. Good morning. Just on license revenue this quarter, it was a record high and you’re seeing a stronger momentum in that business. For this quarter, is that related to the handset deals that you have with TCL and others or was there any sort of unusually large IP license deals this quarter?

We had some pretty good IP licensing this quarter. No, it’s not -- we have not seen the effect of the TCL because it just rolled out. So, I’m hoping -- and I’m very hopeful that we’ll see some contribution there in the coming quarters.

And then, on your comment on billings, you mentioned that the enterprise billings should be reasonably flat this year. I assume that relates to the lack of having perpetual license. Should we assume that that should pick up or should we think of that picking up in time as you shift over to selling the SaaS? And then, related to that, does that imply your double-digit billings growth for the year that’s obviously stemming from licensing and BTS, is that correct?

That is exactly correct. We expect the billings because of the 606 to be pretty flat year-over-year. And then yes, you will see a trend up a year after for sure. Well, that is definitely our plan. And it is our expectation, is proper expectation. But this year, we’re going to have to rely -- the double-digit billings growth going to have to rely on BTS, which I looks pretty solid. And the licensing, recurring licensing revenue and actually that looks reasonably solid too. So, I’m -- I can’t guarantee anything like the safe harbor language that Chris has recited every time. But, we feel good with where we are.

And we’ll take our next question from Gus Papageorgiou with Macquarie.

Hey, good morning. Can you give an indication on the increasing revenue? Is that because your -- is it volumes or is it more cars you’re penetrating into, or is it that the ASP is going up for cars? Any color on that would be helpful.

Just as the BTS revenue growth? Unit count had gone -- actually, Gus, it’s a little bit of both. Unit count had gone up, as -- I chose one of the design wins to discus has to do with cluster. In fact, actually both of the design wins I talked about, the one that went through Denso in Japan and the one -- and the China electric company, electric car company Byton, both of them are on the cluster side. So, as you know, the cluster ASP is higher than the traditional IVI business. But the IVI unit counts are looking good too. So, we didn’t really lose any IVI account. So, it’s both. We got more units and in some cases newer one. And we even have some ADAS win.

And we’ll take our next question from Gabriela Borges with Goldman Sachs.

Good morning. Thanks for taking my questions. Mine are also on the perpetual license to subscription, mixed transition that’s happening. Either for John or Steve, I’m hoping if you can clarify it for us. If I’m a customer and I choose the subscription model, over what period of time do I break even versus the perpetual license and maintenance model? And then, just a little bit of a color on the billings number. The double-digit billings growth that you’re seeing, what is the duration of those billings? Is the sales force incentivized to sign multi-year deals, are there any discounts associated with billing multiple years upfront? And for the guidance assumption, what’s the assumption that’s embedded in the asset billings? Thank you. On the contract duration?

Okay. So, on the first piece, you mentioned on where the breakeven point is. Typically a perpetual license is roughly a 3.5-year to 4-year recurring license. And so, you would expect the customer to have at least one more rebuying pattern to break even. But then after that, as I think you are alluding to, you would pass the breakeven point. So you probably need two cycles of buying. The other point, John, the other question was related to?

The duration of billings and how does that factor into our assumption for guidance. Do we incentivize -- the billings well of 14%. Do we incentivize people to go ahead and get multiyear deal?

If they do a multiyear deal, they will be paid for the…

No. Do we incentivize?

Yes, we do.

Are we pushing people to do -- the question is the 14% growth, are we pushing people to do multiyear deal? Although we take it ratable but…

Correct. So, we do have -- the incentive is based on their total billings. And so, there is an incentive to drive multiyear purchasing.

And for guidance, are you assuming that duration in billing stays about constant, or are you assuming any increase or decrease in duration assumption?

Yes. The only -- the billings guidance we give is on total company. In respect to this, we did not change our model for the duration of the billings.

Okay, that’s very helpful. And the follow-up is for John on M&A. If you could just give us a little bit of an update on how you’re thinking about strategic assets with respect to the M&A strategy.

Yes. I’ve always been on -- the last few quarters been very consistent. Since the last year, I’ve been very consistent that we are looking to be active with the M&A. Well we are -- we’ve been talking to number of companies, continue to look for strategic assets that make sense. So, I obviously cannot comment more about where we are discussing or looking at. But obviously, areas strategic on the cybersecurity side, on the mobile side and on the autonomous side.

And we’ll take our next question from Daniel Chan with TD Securities.

John, at the AGM, you talked about how you expect autonomous driving to be more of a long, slow rollout. With your strong BTS numbers and as we look out to the second half of this year as well as next year, how should we think about BTS ramping up? Should we think of it as large step function like we saw coming from last quarter or should we start seeing a kind of more gradual?

More gradual, more gradual. I mean, I spoke many times about -- well, I mean -- let me put it this way, Daniel. Our plan is more gradual, okay? That doesn’t mean that we won’t hit homeruns to give us a bump, but the 3-year plan that we have, for example, in front of us are of gradual nature.

And then, Steve on your 8% to 10% software and services guidance, that’s under the new ASC 606, right? So, do you know what that expectation would’ve looked like under the old accounting rules, just so we have some sort of apples-to-apples comparison in your guidance numbers?

We really haven’t done comparative of that way because with the lack of getting perpetual licenses, it’s hard to configure. In the short answer, I would say, if you took 20% to 30% of our business called the perpetual and say that a more recurring license would be half that size, that might be the difference. So, maybe, it would be, if revenues were flat, you may have 10% growth, that type of parameter.

And we’ll take our next question from Steven Li with Raymond James.

Steve, just clarify, and I think I missed it. So, if you were still under 606, did you say your enterprise revenues would have been down by 11%?

Well, that’s taking the consideration that there would be no perpetual licenses. So that’s what put you in that same spot. You see, I can’t make a -- you can’t make that easy conversion from perpetual to recurring. That’s the difference.

Right. Because so that comparison there is missing perpetual license component that you might have had in Q1.

Correct.

Okay. But I did hear you say it was down 11% under 605, if you had Q1 under 605?

Correct.

11% under 606.

So then Q1 ‘18 last year, if was under 606 and compared to this year you would be down 11%?

Yes.

So, then that would be a good comparison, right? Because then last year you would -- any perpetual that was in last year’s Q1 would not be -- would be ratably recognized?

I think we’re generalizing a number of parameters, because on perpetual -- we sell something perpetual, the numbers are actually much higher than either single year or two years recurring. So, the ASP accounts in perpetuals are mutually higher. So, I think you can’t really do the strict math so to speak, because you’re comparing a higher ASP to a lower ASP expectation, but more recurring.

Right. Okay. No, it makes sense. Okay. And then, what is the impact on EBITDA, or is there any impact on EBITDA from 606?

It would be the EBITDA as we reported, so that would be 14%.

Okay. No, but converting from 605 to 606, is there any impact on EBITDA?

Not if you’re considering the same revenue numbers, that’s why they wouldn’t be. We haven’t tried to make a complete modification running through the P&L.

Yes. We didn't really look at that -- what the impact is. We know we have to report in 606. So, didn’t really calculate it down to the EBITDA.

Okay. No worries. And then just my follow-up on -- what was the contribution from Radar this quarter? And what was handheld devices of $8 million? Thanks.

Well, the contribution of Radar is more because Radar numbers are small. Radar just happens to have continuous growth in their number and in the number of trials and the number of wins and the repeat buy, but compared to QNX obviously in the auto space that’s not a comparison, insignificant for that matter. And the handset with some of the contracts that we have signed, have a time for it to expire. So, once it’s expired, then we have to reconcile kind of who owns who, what money and all that. And it so happened that we have it on our balance sheet something that could be released, because of -- because we have to, because of the fact that the contract ended with one particular carrier that we have no more further obligation. So, you see some of those, but you’re going to see less and less going forward. And we -- it’s definitely not something we should depend on or rely on at all.

And we’ll take our last question from James Faucette with Morgan Stanley.

Hi. This is Yuuji Anderson on for James, actually. Thanks for taking my question. A question on the licensing business, for the rest of the year, how should we think about the mix between ramp up of devices versus any incremental transactions that you might have in the pipeline?

Right now, the IP -- as I talked about last quarter going to be a little bit better than a $100 million run rate. Deals are all identified, or maybe one or two smaller transactions that might come in, and might not, but regardless of that we expect to do a little better than $100 million in that IP world. The rest come from licensing. And obviously, you would see that, that means you have to grow year-over-year.

Got it, okay. That’s helpful. And then just a quick question on gross margins. The sequential decline from last quarter, is that just a function of the accounting change there, or is there another variable that we should be thinking about?

It’s really a function of the revenue. So, the software revenue was higher than in Q1. And that’s what really drove the margin difference.

But that’s more seasonal, because our Q4 was a big quarter.

Okay, got it. Thanks so much.

Sure. Okay. Since we have to wrap up the call, I’d like to thank everybody for joining us today. And before I close the call, I’d like to mention our upcoming security summit. And given that in 2018 we had very high demand or fiscal year 2018, we had very high demand and attendance last year. We’re now again hosting two security summit events, the first one in London during September and the second one in New York during October. I look forward to seeing you all at the events. And thank you very much for your time. Have a great day.

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