Good afternoon and welcome to the BlackBerry Third Quarter Fiscal Year 2022 Results Conference Call. My name is Charlie 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’d now like to turn the call over to Tim Foote, BlackBerry Investor Relations. Please go ahead, sir.

Thank you, Charlie. Good afternoon and welcome to BlackBerry’s third quarter fiscal 2022 earnings conference call. With me on the call today, are Executive Chair and Chief Executive Officer, John Chen, and Chief Financial Officer, Steve Rai. 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 by 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. We’ll indicate forward-looking statements by using words such as expect, will, should, model, intend, believe, and similar expression. 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, as discussed in the Company’s annual filings and MD&A, including the COVID-19 pandemic. 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 a summary of our quarterly results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGAR, SEDAR, and blackberry.com websites. And with that, I’ll turn the call over to John.

Thank you, Tim. Good afternoon, everybody. Thanks for joining the call today. I’m pleased to report that this quarter we delivered solid sequential billings and revenue growth in both our IoT and cyber business unit, and at these expectations. I’m also pleased that despite on our ongoing investment to grow the top line, EPS came in much better than expected. Let me start my review with the IoT business unit. Revenue was $43 million, representing a 34% year-over-year growth, although noting that last year was heavily impacted by the pandemic. Gross margin was 81% and IoT ARR increased to $91 million. This is now the third consecutive quarter in which ARR has increased. This was a very positive quarter for QNX, driven by continued strength and design wins activities. We achieved record quarterly revenue from development seats license and as well as associated professional services. In fact, demand is so strong right now that we’re expanding our professional services team by hiring additional heads into QNX. In addition to the near-term revenue benefit, these strong design wins serves as a positive leading indicator of the longer term health of the QNX business overall. Once completed, obviously, these designs will move into production and generate royalty revenue in future quarters. In terms of production-based royalty this quarter, we saw a modest increase compared to Q2. While we expect the auto industry supply chain issues to remain a meaningful headwind to vehicle production volumes through the end of this fiscal year and as well into 2022, we see the impact on QNX gradually lessening, including an improvement in Q3 versus -- in Q4 versus Q3. I will now provide additional colors around the design wins in the quarter. The continued strength we are experiencing is further evidence of our leadership position in…

Thank you, John. My comments on our financial performance for the third quarter will be in non-GAAP terms unless otherwise noted. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details. We delivered third quarter total company revenue of $184 million. Third quarter total company gross margin was 64%. Our non-GAAP gross margin excludes stock compensation expense of $1 million. And our third quarter operating expenses were $142 million. Our non-GAAP operating expenses exclude $29 million in amortization of acquired intangibles, $5million in stock compensation expense and a $110 million fair value gain on the convertible debentures. Given our ongoing investment towards driving top line growth in our core IoT and cyber businesses, the third quarter non-GAAP operating loss was $24 million, and the third quarter non-GAAP net loss was $1 million. We recorded a non-operating gain of $25 million as a result of gains realized in two legacy venture investment funds that make up the majority of the long-term investment balance on our balance sheet. Related to this gain, these underlying -- the investments underlying these funds represent a passive interest we had, which were sold and we received a distribution -- cash distribution of approximately $35 million during the quarter. Non-GAAP earnings per share was breakeven in the quarter. Our adjusted EBITDA was negative $8 million this quarter, excluding the non-GAAP adjustments previously mentioned. I will now provide a breakdown of our revenue in the quarter. Cybersecurity revenue was $128 million, and IoT revenue was $43 million. Software product revenue remained in the range of 80% to 85% of the total, with professional services comprising the balance. The recurring portion of software product revenue remained at approximately 80%. Licensing and other revenue was $13 million, given the limitations to our monetization activities due to the potential IP portfolio sale. Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were $772 million as at November 30, 2021, remaining consistent during the quarter. Our net cash position remained at $407 million. Again, given our investment in our core software businesses, third quarter free cash flow was negative $21 million, cash used by operations was $19 million, and capital expenditures were $2 million. That concludes my comments, and I’ll now turn it back to John.

Thanks, Steve. Before I move to the Q&A, let me summarize the key points for the quarter. We are pleased with how our new organization structure is executing right now. We saw strength in design activities for our QNX business, achieving a record quarter for design-related revenue, and it looks like it will continue. Macro supply chain headwinds are still impacting vehicle production, but we see an improvement picture, heading into Q4. We made good progress with IVY, including releasing the early access version of the product. On the cyber side, we again seek the sequential growth in billings and revenue including more head-to-head wins against our key competitors. The ongoing Log4Shell incident is a great example of the huge cyber market opportunity and also showcase our capabilities. While others are struggling to identify the impact on their products from open source call, we are responding rapidly and effectively. Overall, BlackBerry delivered a solid progress -- we delivered solid progress, beating both revenue and earnings expectations for the quarter. So Charlie, please start the process of Q&A.

Sure. No problem, sir. [Operator Instructions] Our first question from today will be from Daniel Chan with TD Securities. Please go ahead.

Can you provide any color on the cybersecurity ARR? It looks like it declined to $358 million from $364 million quarter-on-quarter. Just wondering if there’s any churn and which products may have been affected and maybe any products are showing outside strength?

Yes, we have a positive surprise with a higher revenue came in more than we expected from Secusmart product. So, that has principally drove the numbers that you saw.

Okay. And then, the guidance that you provided for next quarter, what are the puts and takes in that guidance? Thank you.

Yes. So, let me just break it into two pieces, IoT versus Cyber. In the IoT side, touchwood, I think we’re all feeling pretty good about it. As I said, we’re going to get back to pre-pandemic level. Design wins are good. That brings -- we have a good pipeline for professional -- backlog of professional services to help the customers to deploy our technology as well as the developer seat. And as I said earlier, the royalty, we expect to uptick a little bit from Q3. So, that kind of composed the math for the guidance between $50 million to $55 million. I feel okay about that. I don’t want to jinx it, but looks okay. On the cyber side, it relies on a number of deals that are quite big from the government side from a revenue perspective because of the fact that we expect these to close a little later in the quarter. So, the revenue contribution will not be as big as it is, obviously, in the beginning of the quarter, but the buildings will look fine.

Your next question comes from the line of Trip Chowdhry with Global Equities Research. Please go ahead.

Hello. Thank you. Very good execution on the quarter. Few things I would be interested is related to IVY platform. You had the early access program almost now for two months. Any specific data points you would like to share maybe in terms of download applications of partners, any reaction? And then, I have a follow-up question.

Okay. So yes, we, of course, release it to the application partners and a handful of OEMs car manufacturer. The feedback was very positive. As I said earlier, we’re going to use that as a basis of our demonstration or -- and our talk at CES at our booth. And we’re also going to digitize and stream that -- those sessions. I’ll talk a little bit about that later. So, positive response, lots to do, a lot of activities going on. The application, as you know, we have announced a few applications. I hope -- I can’t promise every single one of them you will see at our booth, but we have the battery management systems, we have a car, the wallet. We have other rideshare applications. So, I don’t know whether every single one of them will make it to our booth, but I expect quite a number of them will.

And…

And you’ll also see a cockpit, by the way -- sorry Trip. You also will see a cockpit that we collaborate with Amazon, or AWS.

Beautiful. Then also, if we look at the new generation EV players and also the old guard of automobile players, there seem to be now getting on the bandwagon of over-the-air updates. I was wondering, does your platform, whether it’s IVY or QNX, provide over-the-air updates just out of the box?

Yes. QNX has an option on OTA. Of course, IVY has got the OTA. The physical link is a simple thing, and we do have it. And the more important thing that I talked about earlier about the new AWS -- the new Amazon release is called FleetWise, allow a logical link between the edge of the car to the cloud. And we’re taking advantage of that micro surface. So, yes, we do both -- it’s obviously both ways from the cloud to the car and the vice versa. So, from data and cold, we do have OTA capabilities already existed.

Your next question comes from the line of Mike Walkley with Canaccord. Please go ahead.

This is actually Daniel on for Mike. Thanks for taking our questions. So yes, I guess with John Giamatteo joining your cybersecurity unit last quarter, just wanted to see how the productivity of your investments in your quota-carrying sales reps are trending in this area of your business? And how should we think about maybe some of the sustained investments as we move into ‘23?

Good question. John joined us, and the exciting part of that is that John has enormous experience in the cybersecurity market. He ran a $3 billion business as President of CRO of McAfee before. And so, he’s very relevant, and he brings in a lot of relationship particularly with customers and partners. So, that’s very good. And he knows how to make salespeople successful in the cyber world. So, I don’t know how to describe productivity, but I could tell you one data point that today we have 10% more quota carrier, or what we call the direct quote carrier. We have 10% more direct quota carrier than a year ago -- or the beginning of the year, sorry, than the beginning of the year. We did the math that way, so. And the productivity we will start seeing that. As a lot of them are new because we recently hired them, we will see those coming in the next few quarters. If you think about a sales cycle, let’s say, two to maybe three quarters, call it three, I should be seeing some results in either the second quarter or the third quarter next year.

And I guess, just as a follow-up. So, you noted you saw further pipeline growth within cybersecurity and you also expect sequential billings growth in Q4. When should we expect this to start showing up in ARR?

Next year, I hope. So, I feel pretty good about mathematically that we’re looking for a good ARR growth next year.

Thank you. [Operator Instructions] Your next question comes from the line of Paul Treiber with RBC Capital Markets. Please go ahead.

Within IoT, I mean, it seems like you’re quite upbeat on the design win-related revenue, like developer seats and professional services. What’s the typical gap like in duration between professional services work and when it goes into production? And then also, is there a ratio like for every dollar of professional services and design sort of developer seats to ultimate the royalty revenue that you may see?

No, there’s no -- there’s really no direct ratio. It’s really -- some OEM wants a very aggressive development schedules. So, they use to -- in that case, they will ask us to provide some expertise. And, of course, we -- under the professional service program. And then they will typically buy a higher number of developer seats because they have -- they want to put more engineers on it in parallel. Some want to do it a little bit more sequentially. I would tell you that if you asked our folks that we’re seeing the former -- the people are more aggressive, the time line than not because whether you’re an autonomous vehicle design or whether you’re in the electric vehicle design or the combination of both, competition is heating up in the auto industry, as you all know. So, time to market is important to them, unlike the kind of the old rule of thumb that a new model come out in the last 10 years. And usually, it takes five to seven years to get the new model out from conception to production. I think, those are very much collapsed partly because by players like Tesla of the world and a lot of the Chinese players. Their development cycle and sales cycle are a lot shorter of the manufacturing cycle. So, there isn’t really a -- you buy more developer seats and therefore, you have a long, bigger production royalty. I don’t think there’s a real constant factor or relationship there. Now typically, as I said, we see a developer -- a win and then a developer seat licenses as well as professional service. Usually, you add about three years down, you start seeing production. Nowadays, I have seen numbers that are a little bit off -- plans, I shouldn’t say numbers. Plans are a little bit more aggressive than that. But a typical cycle will be three to five years from win to seeing the royalty start growing. And once the royalty starts growing, usually lasts in excess of seven years.

Okay. Thank you. That’s helpful. Just one follow-up question, sales and marketing, I was under the impression that you’re planning to ramp it up more significantly, it’s been flat this past quarter. How should we think about sales and marketing spending from here?

Yes. Sales and marketing will definitely ramp up. I could tell you John Giamatteo on cyber side. We don’t do as much of marketing in QNX or IoT because especially in the auto space and some of the GEM vertical, we are already a reasonably known name and known entity. So, we don’t need to do as much. On cyber, as you know, we need to do quite a bit, so. And John G is very focused on it. So, you would see that going -- building up and going up quite a bit, in fact.

And we have no further questions at this time. I would like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry, for closing remarks.

Thank you, Charlie. Okay. Thank you, everybody. And as we mentioned, we’re participating at CES in Las Vegas in January. The focus will be on IoT business and how it addresses the benefit from the key trend in edge computing. No doubt, a key highlight will be the demonstration of our IVY technology, including illustrating how IVY use edge computing to create insight for sensor data, both hardware and software-defined sensor. We will be hosting a hybrid in-person and live stream demonstration of the IVY technology, followed by an investor Q&A session with Mattias Eriksson, the President of the BlackBerry IoT Group, at 8 a.m. Pacific on Thursday, the January 6th. We’ll be releasing more details about this shortly. I’d like to wrap up by wishing all of you -- thank you for joining us and wishing all of you and investors and everyone on the call here, a happy holidays and a safe and successful new year. Thank you very much.

And this concludes today’s conference call. Thank you for your participation. You may now disconnect.