BlackBerry Limited (BB) Q1 2020 Earnings Report, Transcript and Summary

Good morning. And welcome to the BlackBerry Fiscal Year 2020 First Conference -- First Quarter Results Conference Call. My name is Lisa, 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, Lisa. Welcome to the BlackBerry fiscal year 2020 first quarter results conference call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen; and Chief Financial 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 and annual results. For a 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, Chris. Good morning, everybody. BlackBerry is off to a good start in fiscal 2020. Total company revenue grew 23% year-over-year. Total company revenue growth was driven by a 35% increase year-over-year in total software and services revenue. To break it down further, on an organic basis total software and services revenue grew 8% year-over-year and in addition BlackBerry Cylance software and services revenue grew 31% year-over-year. I am pleased to report that our integration of BlackBerry Cylance is ahead of schedule. These activities result in revenue growth and help us in profitability in the first quarter of fiscal 2020. We are executing upon the strategic and operation goal for the fiscal 2020 and we share -- that we share with you last quarter. Our execution gives us confidence to reaffirm our fiscal 2020 financial outlook. Now let me provide some highlights for the first fiscal quarter. Sorry my, I am losing my voice a little bit I apologize. So total company revenue was $267 million. Total -- thanks, total software and services revenue was $260 million, which is a new record quarterly high. Total software and services billing grew a strong double-digit percentage year-over-year. Total company gross margin came in at 75%. Total company operating income was $5 million. The resulting operating margin was 2%. The company EPS was $0.01. Total ending cash and investment was $935 million. Next, I will cover some of our significant highlights in each of our software businesses. Let me start with Cylance, revenue came in at $51 million, which grew 31% year-over-year. This was driven by approximately 30% year-over-year increase in the number of new active subscription customers. This new customer growth in the quarter was broad based across various industry led by professional services sector, manufacturing, as well as government. Annual recurring revenue, which is an indicator of the business momentum was approximately $172 million and up 30% year-over-year in the first quarter of fiscal 2020. Another metrics, dollar based net retention rate, which is an indicator of customer retention expansion continues to be greater than 100%. BlackBerry Cylance executed well during the integration process, which I mentioned earlier is tracking ahead of schedule. Here are some of the highlights and proof points. We have completed the back office function and personnel integration worldwide. The integration for the majority of the system and tools that being used will be finished by the end of the second fiscal quarter, which is in a couple of months. Both the sales and R&D teams are working well together. We are seeing very promising interactions by our sales team within the Blackberry key account base. The R&D team is on track to integrate the Cylance technology into UEM. This integrated product will be available by next spring with a combination of the QNX and Cylance technologies that all came out thereafter. Also the new products that BlackBerry Cylance announced earlier this year namely Cocoon, Gauard and Persona are on track to be released throughout our fiscal year. Now let me briefly discuss our Licensing business. Revenue grew 14% year-over-year with some IP Licensing business occurring earlier in fiscal 2020 than we expected. We remain focused on entering into new IP Licensing arrangement that generates recurring revenue. Moving on to the IoT business. Total IoT revenue grew 5% year-over-year. As shared with you last quarter, the BlackBerry Technology Solution and the Enterprise Software and Services Group will combine to align our financial reporting with the way we manage the company today, which is namely on executive of Bryan Palma. To assist you with the year-over-year comparisons though, BTS revenue grew 16% and ESS revenue grew -- grow was slightly up. During the quarter, we make significant change to the sales leadership team in ESS, which are now completed. Let me walk through some highlights for BTS. BlackBerry QNX continue to drive revenue growth for BTS. BlackBerry QNX licenses, services and royalty revenue all grew year-over-year as we continue to be selected for designs by our customer in both the automotive and general embedded markets. In the quarter, we had a total of 17, 1-7 -- we had 17 design wins of which 13 were in automotive and four were in general embedded market. Of the -- among the automotive wins 11 were in applications like digital cockpits and digital instrument cluster, two of the 13 were infotainment wins. One of our wins in a quarter was with LG Electronics, a growing innovate -- a growing innovative partners to automotive OEM. BlackBerry QNX will be the preferred choice of all next-generation automotive design that LG provides to multiple OEMs. This design includes infotainment systems, digital instrument cluster, digital consolidator cockpits, as well as telematics systems. With these types of partnership -- what these types of partnership will bring us -- to Black -- will bring to BlackBerry is the opportunity to reach new OEMs and increase our content per vehicle, thereby yielding a higher average revenue per car to BlackBerry. Looking ahead BTS expect to have a very busy year of exciting new product launch -- a launches. There are two main ones. The safety certified Hypervisor, which will start shipping in November of 2019, November this year and to integrate a digital cockpit available invader starting at the same time, which is November -- which is November 2019. I would like to highlight a little bit about the digital cockpit. The BlackBerry QNX platform for digital cockpits integrates a number of our technology, namely BlackBerry digital instrument cluster, infotainment, as well as hypervisor technology, all managed in real-time for the safety and security requirements and they will come in as one platform -- one system. Our platform also enabled Android and Linux operating system in a secure manner. Of course, we continue to support Android Auto, as well as Apple CarPlay. This creates yet another opportunity for BlackBerry to have more content in a vehicle, leading to the higher average revenue per car. Based on the strong growth we have experienced in both infotainment and non-infotainment application over the last several years, BlackBerry QNX is now embedded in over 150 million cars up from the 120 million cars that we reported last June. This statistic has been validated by Strategy Analytics, an independent third-party. Before I move onto the ESS, let me briefly talk about our Radar business. In the quarter, we added 20 new customers, 2-0, 20 new customers including one of the top three U.S. retailers specializing in home improvement. I apologize we did not have the permission to name the individual customer. The customer placed a 2,500 units order. Our Radar business is gaining more traction in the market. We are seeing increased activity both directly and through the channels, with reference coming from many existing customers and partners. Now let me walk through ESS and I’d like to make three key highlights. Let me have a sip of water first, sorry. First, we are executing upon the strategic priorities for ESS we shared at the beginning of the fiscal year. We remain strong with customers in regulated industry. This group of customer representing a healthy majority of our revenue generated in ESS. We increased revenue year-over-year in this customer segment, added new customers such as the SMBC and eco-securities, as well as government agency in Canada, Germany and UAE. Our government mobility suite, which is based on UEM has achieved the FedRAMP ready status. This is a key milestones because our cloud based solutions had demonstrated -- has met the core security and process requirements of the United States Government. Also we are now listing on the FedRAMP marketplace highlighting the beauty of our solution to the federal community. We anticipate our product being fully authorized and help to increase our market share within the U.S. Government. We are also seeing returns in our go-to-market investment in AtHoc, our crisis communication system and Secusmart of secure voice solution. In the quarter AtHoc won a number of new customer, even outside the United States Federal Government, a key within a quarter that we like to celebrate was with United Nations. We are also seeing new demand for Secusmart. Our secure voice capability, which historically has been a product for government agency is now seeing demand from multinational companies that do business in political sensitive countries. We have over 15 pilots underway across both government and non-government sectors today. Second, we are investing in new products. We will launch our first security solution for Spark, a secure communication platform for the IoT. One month -- it will be one month ahead of our original schedules. This will be unveiled at the BlackHat Conference in August. It addresses two security concepts that are currently top of mind of customers. These two are the continuous authentication and zero trust. As noted earlier, we are on track to integrate BlackBerry Cylance into UEM. This integration will add mobile threat detection capabilities using AI on to our endpoint management solution. This will be a very differentiated product in the endpoint market. Current and prospective customer tells us they are very interested in these products and they are waiting for these releases. Our innovation will allow us to be even more competitive in the market and drive future revenue growth. Third, we are investing in organization, adding sales rep and channel coverages, while making necessary operational changes to promote future growth. After reviewing the ESS pipeline for fiscal 2020 and noting the business is seasonally weighted towards the second half of fiscal year, we anticipate quarterly sequential revenue growth in the segment or in this category, sorry, it is not segment, category, throughout the fiscal year. With that, I would like to turn the call to Steve to provide some details about our financial performance.

Thank you, John. Note; my comments on our financial performance for the fiscal quarter will be in non-GAAP terms unless specified otherwise. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details. We delivered first quarter non-GAAP total company revenue of $267 million and GAAP total company revenue of $247 million. I will break down revenue shortly. First quarter total company gross margin was 75%. Our non-GAAP gross margin includes software deferred revenue acquired but not recognized of $20 million and excludes stock compensation expense of $1 million and restructuring costs of $1 million. Operating expenses of $194 million were up sequentially by $42 million, primarily due to the inclusion of BlackBerry Cylance for a full fiscal quarter. Our non-GAAP operating expenses exclude $35 million in amortization of acquired intangibles, $16 million in stock comp expense, $5 million for software deferred commissions expense acquired, $1 million in acquisition and integration costs, and a benefit of $28 million related to the fair value adjustment on the convertible debenture. Non-GAAP operating income was $5 million and non-GAAP net income was $5 million. Non-GAAP EPS was $0.01 in the quarter. Our adjusted EBITDA was $23 million this quarter, excluding the non-GAAP adjustments previously mentioned. This equates to an adjusted EBITDA margin of 9%. I will now provide a breakdown of our revenue in the quarter. Total software and services revenue was $260 million, representing 97% of total revenue. Other revenue is now comprised of service access fees, commonly known as SAF. Service access fees were $7 million, down from $16 million or 56% year-over-year. Total handset device revenue was zero, down from $8 million or 100% year-over-year. Both service access fees and handset device revenue were expected to decline given the continued wind down of these legacy businesses. I will now provide a further breakdown of our software and services revenue in the quarter. The IoT business accounted for 53%, the BlackBerry Cylance business accounted for 20% and the Licensing business accounted for 27%. Recurring software and services revenue including BlackBerry Cylance was above 90% in the quarter. Based on our current assumptions we model recurring revenue to be within the range of 85% to 90% throughout the remainder of fiscal 2020. Now moving onto our balance sheet and cash flow performance. Total cash, cash equivalents and investments was $935 million, which decrease by $70 million from February 28, 2019, due to a combination of funding BlackBerry Cylance’s operations and the payment of fiscal 2019 bonuses during the quarter. Our net cash position was $330 million at the end of the quarter. Free cash flow before considering the impact of acquisition and integration expenses restructuring costs and legal proceedings was negative $49 million. Cash used in operations was $64 million and capital expenditures were $2 million. This concludes my comments. I will now turn the call back to John to provide our financial outlook.

Thank you, Steve. I will provide the financial outlook before we do our Q&A session. As I said earlier, we reaffirm our financial outlook for the fiscal ‘20 for the total company year-over-year. Year-over-year revenue growth will come in between 23% to 27%, driven by double-digit percentage increase in billings. Revenue growth according to our model is -- it will break down as follows; IoT year-over-year revenue growth will come in between 12% to 16%, BlackBerry Cylance year-over-year growth is expected to be in the range of 25% to 30%, Licensing year-over-year will decline by about 5%, service access fee to be between $10 million and $20 million of revenue in the total year of fiscal year 2000. We also reaffirm total company profitability for fiscal 2020. I would now open the call for Q&A. Operator, Lisa. Lisa please proceed with that.

Thank you. [Operator Instructions] And our first question comes from the line of Daniel Chan from TD Securities. Your line is open.

Well, hi. Good morning.

Good morning.

John, any early surprises from the Cylance integration either positive or negative that you hadn’t anticipated seven months ago?

The positive -- there are a lot of good positive thing. The number -- the most positive thing is the technology side. The team works extremely well together. We put our integration plan in putting the technology together, wonderful, putting AI capability onto UEM endpoints to differentiate ourselves, that goes very well, progress made. We set up the team on [inaudible] and there are things that just moving along very nicely. And as I said earlier, in my script, we expect that to be done within this fiscal year and to be done meaning to be released as a product, so that’s reasonably a record time. The next team that has launched is to look into putting Cylance AI technology onto the automotive platform under QNX. That’s going on very well too. Lots of idea exchange. Little behind in terms of launching that partly because that the QNX have a pretty post schedule for the two product that I mentioned earlier and that will come shortly after that. So that, I think, on the technological side it’s very, very positive. The sales, we are starting slow, as I said it a couple of quarters ago, BlackBerry is a mobile first company. So all our product runs on mobility. Cylance is more of a progress on PC and routers and servers in fixed plan assets. So it’s important that we align our product roadmap to cover end-to-end from mobile all the way to server and routers. And when we do that and which is again within a year that we are talking about then I think there will be a lot more synergy kicked in on the sale side -- on the revenue side.

That sounds good. I am also wondering if you had any thoughts on what you think might be weighing on the stock price. We have seen the shares underperform in the overall market, and I think, the CrowdStrike IPO has some positive read through for you. Does anything come up in your discussions that may explain it?

Hey. Good question. I -- we obviously pay attention to the stock price especially -- you should -- it actually seems that we could end the market and in discussing with our shareholders, I think, their concerns is -- one concern is we eliminated by the CrowdStrike IPO. Their concern is, A, has BlackBerry overpaid Cylance, paid too much for Cylance, and B, could BlackBerry really integrate the business and this is a good opportunity and thanks for asking the question. Number one, I think, this is a completely undervalued assets. If you look at what we pay for Cylance, you will see that it will be slightly under 7 times, if you think -- if you do to follow the math from the bar up to 25% to 30% revenue growth, you will see that it will probably coming in 6.6 times or 6.7 times in that range. And while I don’t know where CrowdStrike is today, but at one point in time not too distant in the future, they are trading 40 times revenue. So I think this is great news for BlackBerry. That’s number one. In the integration and this is one of the reason why we spend a little bit more time on our script in covering integration. The back office this is all covered, system will be covered by the end of this quarter, which is in the next two months. We started the engineering thing we talk about and we also started the synergy between the markets corning on common customers joining together and so are calling on the big banks and the governments that the BlackBerry has and bring Cylance into that. Cylance has a good SMB channel. We try to get BlackBerry products or traditional BlackBerry products to the Cylance channel. So, it will all help and so I think the integration is well at hand and I wouldn’t be overly concerned about it.

Great. Thank you very much.

Sure. Thanks.

Our next question comes from the line of Steven Fox from Cross Research. Your line is open.

Hey, good morning.

Hi. Good morning, guys. First off, John, I was wondering a little more detail on Cylance. So you mentioned, for example, 100% plus net retention rates. Can you provide a little bit more color on directionally where that could go and how that might compared -- compare to some others out there in similar business models? And also given the first quarter sales growth, I am curious why the full year for Cylance can’t be a little bit better than we originally thought and then I had a follow-up?

So, for the -- it’s easy to answer to your first question, the retention rate. It looks like that speaking to the Cylance customers, they -- once they install the product they really like it and they buy more. And so this is why the retention rate dollar, retention rates up. And I -- there are really two comps out there, Carbon Black and CrowdStrike. And I would say from what I understand and again my understanding of this is an early knowledge base. But from what I understand comparing those two now that the public will see the numbers we are kind of in between, we are better, it seems like we are doing better than Carbon Black and we are now doing as well as CrowdStrike and looking that from a number point of view. Now how long could CrowdStrike sustain that that kind of craziness number is for you guys decide, that’s your job, not mine. But I feel very good about the company, because when I look at it it’s really is the customer staying with you and they buying more. And the answer to both of those questions we really talking to them and looking at the numbers is affirmative. So those are good things. We typically a little bit more conservative and so you could think about us between 25% to 30%. We definitely are focused more on the high end of that range and if we could do better we will report better.

Okay. Great. And then just in terms of the sales force reorganization, it seems like had a little bit of a drag on Q1 sales. Was that about as expected or was there a little bit difference in terms of how it impacted your business during the quarter and where is it done et cetera looking forward? Thanks.

Yeah. Thanks. Thanks, Steve. Yes. It’s done. It’s completed. We have made some management changes. I think is necessary for the business given the phase we are in and phase we are in is in growth. It’s more of a growth rate -- growth phase. So we brought Bryan in and he is very focused on enterprise and building the enterprise service was -- and he bought in a couple of very talented executives who has been in business for a long time and both in sales and in few marketing. And then we have moved some of the promoters some of our internal people to run bigger theater, who have proven that they could grow. So I -- so but the good news is these were all planned as Bryan came in and it’s all done right now and so we are now executing there is no more major changes that we anticipate.

Great. Thank you so much.

Sure.

Our next question comes from the line of Mike Walkley from Canaccord Genuity. Your line is open.

Hi, there.

Great. Thank you. Just on the QNX portion of the business with it -- expected to grow at the higher end of that 12% to 16% growth. Can you talk about the growth in the royalty piece of the business, I imagine you have some pro services ramping ahead of new projects and also with your two new products coming to market, can you help us think about what that could do in terms of dollar content per vehicle on those platforms end up in automobiles? Thank you.

Yeah. Actually, the growth are rather even between royalty professional services, because the gestation period for revenue are so long and sticky, long is one problem and sticky is the one benefit. Because there is so long and sticky we don’t really get a like all of a sudden a big chunk of professional services. Now with LG win we might see some uptick in ProServe [ph] in the coming quarters. But that’s just my own speculation. It was not a confirmed fact yet. But we see uptake in all three segment, development seat that usually comes with when you have a design win and professional services and it depends a little bit about the customer. So some of our customers they should actually like the Tier 1, for example, they already have a lot of engineering resources. So they know what they wanted to do with the technology and they were familiar with the technology. We don’t seem to get a lot of support from them. But if it’s more than OEM then we could -- we definitely, because auto OEMs are ramping up their technological skill set, we seem to have a lot more over that, and then, of course, the royalty will come later. So, I don’t really see any major uptick in any one of the three buckets, only could tell you that in this past quarter compared to a year ago all three of those revenue growth. So, regarding on the ARPU, because we got into the -- a lot more on new cycle product like the digital cockpit and the clusters, the ARPU is -- it is measurably higher per car now. But I have to be -- I have to own the fact that the whole with a lot of our current base royalty are still coming from the infotainment wins that we have done in the last three years to five years. And so this is not a sudden sea change of our ARPU. It will be a gradual change of our ARPU and -- gradual uptick of our ARPU. So we feel good about our business. You are right we expect it to be on the high end. This particular quarter they came in on a high end a 16%.

Okay. Thanks. Just a follow-up question, just on the Licensing business, with a strong start to the year relative to your full year guidance, so we just kind of think about that kind of flattish in the mid-60s the rest of the year. Do you expect maybe a seasonal close to the year strong like last year just trying to think about the cadence of how you are thinking about that down 5% for the year? Thank you.

Yeah. I’d like to answer that one. I am pretty close to it. The -- I believe the second half will be stronger than the first half. And that the -- so you might have a similar number as Q1 or slightly down from that number in Q2. But I expect that Q3 and Q4, the combined number will be greater than the first half.

Great. Thank you.

And that we will make the estimates that we have already guided you too.

But you see flowing [ph] to make the estimate when they go year-over-year minus 5%. But, yeah, Steve is very close to this part of business, that’s true.

Great. Thank you.

Sure. Thanks.

Our next question comes from the line of Paul Steep from Scotia Capital. Your line is open.

Hi, Paul.

Great. Thanks. Good morning. John, could you talk a little bit, you put the announcement out just before yesterday’s AGM about the total installed base of QNX cars, you have given us a little hints around it today. Maybe talk about that net $30 million in vehicle shift growth in terms of where generally was and sort of the uptick in, I guess, what we would call non-infotainment design wins. How that’s starting to ramp into the base and then I have got one quick clarification. Thanks.

Yeah. So, yes, we are seeing. So I let’s just backup a second and I think that, in the last few years, the design wins starting to see a lot of them in Asia. And so when I look at the detail of the $150 million breakdown, I am seeing an uptick on the Asian market. Up -- Asia is now represent about 37%, now there might be manufacturer in Asia and being driven somewhere in other part of the world we only count the manufacturer source. So that just tell you a little bit about that part of the auto market over in Asia is very healthy and it’s growing. And Europe continued to be a big sector and obviously U.S. So we are -- on a dollar basis, because of these design wins, recent design wins over the last three years to five years are a little bit higher ARPU than the infotainment, so we continue to see that uptick of revenue and it’s now also bias towards Asia and Europe.

Okay. Great. That’s helpful. And then just on the ESS sales realignment, just to be clear, is this centered more around the UEM business, I am assuming rightly or wrongly that this isn’t touching at AtHoc or Secusmart and that those businesses are more or less still executing? And then, you just talked about leadership going through, have all the reps that are going to be changed out been changed out. I guess the question is around your confidence in seeing that uptick in the rest of the year we know that usually new people do bring some other change with them sometimes so? Thanks.

Yeah. Yeah. That’s good question. Is actually getting UEM ready for Spark? We are making this change. And yes, AtHoc and Secusmart, and particularly AtHoc, continue to perform well and that is not an issue for us. What we need to do with the new team is to make sure that they do -- they get ready for Spark, they continue the UEM regulated industry business and they are more focused on adding other vertical to it, so that we are not going back. I mean, we love our customers, don’t get me wrong, but we are not going back to the same customers over and over and over again, and we need to have a much newer source of revenue, much broader reach to the channel. By the way, the management change are mostly management change. We don’t have any intention to change our reps. That’s not the point. The new management people comes in, will bring in new reps, but it’s in addition, we are not thinking about wholesale changing our reps.

Next question.

Yeah. Next question please.

Our next question comes from the line of James Faucette from Morgan Stanley. Your line is open.

Hi.

Great. Hi. Good morning. Thanks a lot for…

Good morning.

…taking my questions.

Absolutely.

I just wanted to ask a couple of follow-up questions on Cylance. First, your growth rates that you are anticipating for the rest of the year would imply that you expect a little bit of incremental deceleration from maybe what the business was doing before. Just want to get a sense of where you think that those growth rates will bottom out? And then more broadly, clearly, if you feel like you got a pretty good deal on the Cylance acquisition, especially compared to some of the other assets the way they are being valued. What do you think are the key things that you are focused on operationally that will allow the market to assign a better value to Cylance inside of BlackBerry than what you are able to pay? Thanks a lot.

Yeah. That’s interesting. First question, James, you always have a way to turn a positive question -- a positive situation a little bit of a negative swing. So I don’t anticipate…

I am just asking where the -- what do you think the growth rates are going to bottom out…

I don’t anticipate deterioration. They are doing well. The team that runs the sales over a Cylance of very highly qualified gentleman in -- with RSA for a very long time and he has a really good set of plans to expand with the help of the BlackBerry team and the Blackberry base. I really, I mean, the most important thing is get the joint product done. If you get the joint product done then both teams have a lot more of things to sale just in the back. So I don’t know I think for this year because it would take us a year to get the integrated product with UEM and AI, I -- so I believe that for this year I am being modest and about 25% to 30%. And remember the key word that I used and I have made the guidance was this is our model. And so you know and that means that I will miss some and I will beat some and so there is the -- if you want me to bet money on, on which one I will beat and which one I will miss, I am probably going to bet money on beating Cylance number. That would be my guess. I mean I don’t know what my colleagues thinks, but judging from the momentum and the differentiation out there, I feel pretty good about that and in the market as you know very well it’s quite robust itself. So as far as an operational concern is, this is why I kept Cylance separate and report directly to me and because as much as I like the integration and the synergy, I also want Cylance to continue their expansion in the channel business. They have -- there are literally over 1,000 channel partners and they are mostly focused on SME and so I wanted that business. And they started to make some inroads on the consumer side of the equation by working with OEMs like laptop’s OEMs and desktop OEMs, and I wanted to continue that too. So you will then see the number like we show this today a separate number and I hope we will improve that. It gives visibility to the shareholders of the business and how well the business is doing. I also adopted the industry metric -- standards metrics, as I said, ARR and the retention rate and all that good stuff. And just to make sure that people know that although this is part of BlackBerry, although there was a lot of synergy between the BlackBerry business and Cylance business especially in products, technology and maybe go-to-market they are also going to go after their traditional business and try to continue that growth. So I hope that through that visibility of our shareholders I get valuation. I probably need help from somebody like yourself to highlight that.

Thanks very much John.

Yeah.

Our next question comes from the line of Paul Treiber from RBC Capital Markets. Your line is open.

Hey, Paul.

Hi. Thanks so much. Good morning. Just in regards to ESS, I think last quarter there was a couple of large term license deals that were delayed. Could you -- any of those closed this quarter, did you expect them to close in coming quarters?

I think majority of them will close.

Okay. Thank you. The second question is on automotive and this is where you have been very successful on the design win side. But then the question is, is really around the timeframe for design wins converting to revenue. Have you seen any change in that timeframe? Is there any way you can you can estimate it? And then do you look at backlog for that business and how’s that been tracking?

Good question. Yeah. I would -- some of our people, I mean, like, our QNX management always look at the backlog. And so the part of the QNX business that’s good. It’s quite predictable because of the backlog. And the gestation period unfortunately doesn’t really change a lot. We would always like it to be shorter. And the reason it doesn’t change a lot, it takes -- once we have the design wins and the design wins usually by the way takes anywhere from six months to a year and once you have got the design wins you get some early revenue from maybe ProServe we talk about and definitely developer seats. And once you get -- but those are in six figures typically. We talk about a couple of hundred thousand dollars here and there and then the design got kicked in. I am, for example, intimately kind of working on well in form on a couple of the OEMs especially Jaguar, the Jaguar Land Rover and I speak to the CEO on a very regular basis. And to make sure that we get the new car ready and go. And I have been talking to him for the last couple of years. We have products that’s about to come out probably in a year or two. So you could see that that design period of themselves is roughly about a three-year cycle. And then once that happened then they start production ship and usually that production ship is two years, three years. And if they continue a family like the Daimler group does, when they do a family, they don’t change the family for at least 10 years. So you could see the tail it’s quite long and then a lot of our current royalty enjoyed -- is enjoying that tail and the margins of course is very high.

And then when you look at it the BTS business, the growth rate of that business. Do you think that -- where do you think we are in the S-curve, I mean, do you think or just leave with that, what do you think we are on the S-curve?

Already, we expect growth to continue and to increase. We probably will not see a step function, but we will see a trend up. We are in the mid-teens at this point. And if you remember last year we had a tremendously good year. We grew 25% year-over-year. We expect it to be 16% or above this year and -- but you should expect double-digit growth.

Okay. Thank you.

Percentage -- that percentage I mean.

Our final question today comes from the line of Todd Coupland from CIBC. Your line is open.

Hi.

Good morning, John.

Good morning.

I am not piling on on this question, but I do wonder about it, and certainly, a lot of investors ask about it, there’s an obvious difference in growth rate between Cylance and CrowdStrike, you are more or less 30% in there plus 60% this year more or less. And I am just wondering when you look at that and then relative to the market, how do you think about the differences and how should we be thinking about that? Thanks a lot.

Well, it’s a great question. So we, of course, will not be satisfied until we get parity or better than CrowdStrike. Now CrowdStrike does, by the way I am new to this industry, okay. So just take it with a grain of salt. When people get ready for the IPO, you or I are even more experienced in this area. You know that they are spending an enormous amount of money. They are losing enormous amount of money. They are spending enormous amount of cash to get to this coming out party. And so the sustainability of their growth rate is what I am very interested in. I mean, I wish they could sustain it and that means the market is there and we could then do better in our own growth way, okay. But I am a little bit doubtful. Those numbers are very, very high. Now we have been in the business. Our retention rates are great. As I said, between the people buying from us and buying more, we have over 100% of revenue. So if -- 100%, sorry. So you could sense that our customers are loyal to us and they are buying more and they are using more and we will get more new customers, and because we have 30% net new customers for the quarter. So we will obviously try to do better than 30% and get to a market rate that both CrowdStrike and us could enjoy. We are, however, I want to point out that doing better than our other competitor in terms of growth rate and I don’t know -- they don’t do retention rate. I don’t think they don’t announce that and so I can’t tell you whether they have the same retention advantage. But, anyway, I wouldn’t take a one, I think, we should take it as a little bit of a longer game.

Great. Thanks for the color.

Yeah. Sure. Okay.

I would now like to turn the call back to John Chen for closing remark.

Very well, Lisa. Thank you. As I said earlier, at the start of the call, again, BlackBerry is off to a pretty good start here in 2020. We talk a lot about Cylance here on this call and it is a strategic asset, not because it’s just a -- itself a business that is growing and doing well, but we have overwhelming positive response to our customer and partners, and we are very pleased that technology being able to help out and differentiate our existing technology in UEM and QNX. We have a lot of products coming out this year. And although it may not fully affect this year’s results, but it would help set us up good for next year in terms of growth. We -- I think we have over 30 products across the entire company scheduled to launch this year. We have two main operation priorities and one is to step up our investment to sustain that future growth. We are -- some of us are already working on the next fiscal year. So -- only Bryan works in the current fiscal year. Bryan’s probably on the call and that put a little bit more pressure on him. And we will focus on integrating Cylance, which will yield a much longer-term shareholder value and we are off to a really good start on integration, products, people, so I am very pleased with that. I thank you very much for your time today. I will hope to talk to you guys soon. Have a great day.

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