Earnings Call: Q1 2020

Jun 26, 2019

Good morning, and welcome to the BlackBerry Fiscal Year 20 21st Conference First Quarter Results Conference Call. My name is Lisa, and I'll 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. 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 Q1 results conference call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen and Chief Financial Officer, Steve Catelli. 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 and A session. This call is available to the general public via call in numbers and via webcast in the Investor Information section at blackberry.com. A replay will also be available on the blackberry.com website. Some of the statements we'll be making today constitute forward looking statements and are made pursuant to the Safe Harbor provisions of applicable U. S. And Canadian securities laws. 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, 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 and 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. Our 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'm pleased to report that our integration of BlackBerry Cylance is ahead of schedules. These activities result in revenue growth and help us in profitability in the Q1 of fiscal 2020. We are executing upon the strategic and operational goal for the fiscal 2020, and we share that we shared with you last quarter. Our execution gives us confidence to reaffirm our fiscal 20 20 financial outlook. Now let me provide some highlights for the 1st fiscal quarter. Sorry, I'm losing my voice a little bit, so I apologize. So total company revenue was $267,000,000 Thanks. Total software and services revenue was $260,000,000 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 $5,000,000 The resulting operating margin was 2%. The company EPS was 0 point 0 $1 Total ending cash and investment were $935,000,000 Next, I will cover some of our significant highlights in each of our software businesses. Let me start with Cylance. Revenue came in at $51,000,000 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 the which is an indicator of the business momentum, was approximately 172,000,000 dollars and up 30% year over year in the Q1 of fiscal 2020. Another metrics sorry, another matrix dollar based net retention rate, which is an indicator of customer retention expansion continues to be better 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 are 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 and D teams are working well together. We're seeing very promising interactions by our sales team within the BlackBerry key account base. The R and 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 will come thereafter. Also, the new products that BlackBerryCylance announced earlier this year, namely Cocoon, Guard 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 one of the only executives of Bryan Pharma. To assist you with the year over year comparison though, BTS revenue grew 16% and ESS revenue grew growth was slightly up. During the quarter, we made significant change to the sales leadership team in ESS, which are now completed. Let me walk through some highlights for BTS. BlackBerry QNX continued 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, 17 but 17 design wins, of which 13 were in automotive and 4 were in general embedded market. Of the among the automotive wins, 11 were in applications like digital cockpits and digital instrument cluster, 2 of the 13 were infotainment wins. 1 of our wins in the quarter was with LG Electronics, 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. These design includes infotainment systems, digital instrument cluster, digital consolidated carpets as well as catalytic systems. With these types of partnership, what these types of partnership will bring us 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 expects to have a very busy year of exciting new product launch or launches. There are 2 main ones: the safety certified hypervisor, which will start shipping in November 2019, November this year and the integrated digital cockpit available in beta starting at the same time, which is November 2019. 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 enable 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 add more content in the 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 150,000,000 cards up from the 120,000,000 cards that we reported last June. This statistic has been validated by strategy analytics and independent third party. Before I move on to the ESS, let me briefly talk about our Radar business. In the quarter, we added 20 new customer to 0, 20 new customers, including 1 of the top 3 U. S. Retailer 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're 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 3 key highlights. Let me have a sip of water first. 1st, 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 represent 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 SMDC and Eco Securities as well as government agency in Canada, Germany and UAE. Our government service suite, which is based on UEM, has achieved the FedRAMP ready status. This is a key milestones because our cloud based solutions have demonstrated it has met the core security and process requirements of the United States government. Also, we are now listed on the FedRAMP marketplace, highlighting the availability 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 Ad Hoc, our crisis communication system and SecuSmart, our secure voice solution. In the quarter, Ad hoc won a number of new customer even outside the United States Federal Government. A key win in the quarter that we like to celebrate was with United Nations. We're 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. 2nd, we are investing in new products. We will launch our 1st security solution for Spark, our secure communication platform for the IoT. 1 month it will be 1 month ahead of our original schedules. This will be unveiled at the Black Hat Conference in August, addresses 2 security concepts that are currently top of mind of customers. These 2 are the continuous authentication and 0 trust. As noted earlier, we are on track to integrate BlackBerry Cylance into UEM. This integration will add mobile threat detection capabilities using AI onto 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. 3rd, we are investing in our 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 the fiscal year, we anticipate quarterly sequential revenue growth in this segment or in this category, sorry, we did not summon 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 1st quarter non GAAP total company revenue of $267,000,000 and GAAP total company revenue of 247,000,000 dollars I will break down revenue shortly. 1st quarter total company gross margin was 75%. Our non GAAP gross margin includes software deferred revenue acquired but not recognized of $20,000,000 and excludes stock compensation expense of $1,000,000 and restructuring costs of $1,000,000 Operating expenses of $194,000,000 were up sequentially by $42,000,000 primarily due to the inclusion of BlackBerry Cylance for a full fiscal quarter. Our non GAAP operating expenses exclude $35,000,000 in amortization of acquired intangibles, dollars 16,000,000 in stock comp expense, dollars 5,000,000 for software deferred commissions expense acquired, dollars 1,000,000 in acquisition and integration costs and a benefit of $28,000,000 related to the fair value adjustment on the convertible debenture. Non GAAP operating income was $5,000,000 dollars and non GAAP net income was $5,000,000 Non GAAP EPS was $0.01 in the quarter. Our adjusted EBITDA was $23,000,000 this quarter, excluding 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 $260,000,000 representing 97% of total revenue. Other revenue is now comprised of service access fees, commonly known as SaaS. Service access fees were $7,000,000 down from $16,000,000 or 56% year over year. Total handset device revenue was 0, down from $8,000,000 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 on to our balance sheet and cash flow performance. Total cash, cash equivalents and investments was $935,000,000 which decreased by $70,000,000 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 $330,000,000 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 49,000,000 dollars Cash used in operations was $64,000,000 and capital expenditures were $2,000,000 This concludes my comments. I'll now turn the call back to John to provide our financial outlook. Thank you, Steve. I'll provide a financial outlook before we do our Q and A session. As I said earlier, we reaffirm our financial outlook for the fiscal 2020 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%, BlackBerryCylance 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 excess fee to be between $10,000,000 $20,000,000 of revenue for the total year of fiscal year 2020. We also reaffirm total company profitability for fiscal 2020. I will now open the call for Q and A. Operator, Lisa, Lisa, please proceed with that. Thank you. And we will now begin the question and answer session. And our first question comes from the line of Daniel Chan from TD Securities. Your line is open. Hi, good morning. John, any early surprises from the Cylance integration, either positive or negative that you hadn't anticipated 7 months ago? The positive there are a lot of good positive thing. The most positive thing is the technology side. The team works extremely well together. We put our integration plan in putting the technology together, one with putting AI capability onto UEM endpoints to differentiate ourselves. That goes very well, progress made. We set up the team on both ends and things are 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 rapid 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 QNX have a pretty full schedule for the 2 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 started 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 focused on PC and routers and servers in fixed plant assets. So it's important that we align our product roadmap to cover end to end from mobile all the way to server routers. And when we do that, which is again, we're going to hear that we're talking about, then I think there'll be a lot more synergy kicked in on the sales side, on the revenue side. That sounds good. I'm also wondering if you had any thoughts on what you think might be weighing on the stock price. We've 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? Good question. I we obviously pay attention to the stock price, especially it 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 concerns, 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 1, I think this is a completely undervalued asset. 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 the follow the math from the bar up to our 25% to 30% revenue growth, you will see that it will probably come in at 6.6% or 6.7% 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're trading 40 times revenue. So I think this is greatness for BlackBerry. That's number 1. In your integration, this is one of the reason why we spend a little bit more time on our script and covering integration. The back office is all covered. System will be covered by the end of this quarter, which is in the next 2 months. We started the engineering thing we talked about, and we also started the synergy between the market calling on common customers joining together. And so all calling on the big banks and the governments that BlackBerry has and bring Cylance into that. Cylance has a good SMB channel. We try to get BlackBerry products, traditional BlackBerry products through the Cilen 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 compare to some others out there in similar business models? And also, given the Q1 sales growth, I'm curious why the full year for Cylance can't be a little bit better than you originally thought? And then I had a follow-up. So, from the the easy to answer 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 2 comps out there, Carbon Black and Cloudstrike. 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 2 now that they're public, they will see the numbers, we are kind of in between. We're better it seems like we're doing better than Carbon Black and we're not doing as well as CrowdStrike and looking at that from a number point of view. Now how long could CrowdStrike sustain that kind of craziness number is for you guys to decide. That's your job, not mine. But I feel very good about the company. I mean, because when I look at it, it's really is the customer staying with you? And are they buying more? And the answer to both of those questions, both talking to them and looking at the numbers is affirmative. So those are good things. We typically are 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'll report better. Okay, great. And then just in terms of the sales force reorganization, it seems like you had a little bit of a drag on Q1 sales. And 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, etcetera, for looking at? Thanks. Yes. Thanks, Pete. Yes, it's done. It's completed. We'll make some management changes. I think it's necessary for the business given the phase we're in, and our phase we're in is in the growth It's more on the growth phase. So we brought Brian in, and he's very focused on enterprise and building the enterprise sales force. He brought in a couple of really talented executives who's been in business for a long time and both in sales and in field marketing. And then we have moved some of promoted 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 Brian came in and it's all done right now. And so we're now executing. There's 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, Darren. Great. Thank you. Just on the Q and X portion of the business, which is 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 2 new products coming to market, can you help us think about what that could do in terms of dollar content per vehicle once those platforms end up in automobiles? Yes. Actually, the growth are rather even between royalty, professional services, because the gestation period for revenue are so long in and sticky, long is one problem and sticky is the one benefit. Because they are so long and sticky, you don't really get a all of a sudden a big chunk of professional services. Now with LG wind, we might see some uptick in post in the coming quarters. But that's just my own speculation. It was not a confirmed fact yet. But we see uptick in all three segments: development feet that usually comes with when you have a design win and professional services. It depends a little bit about the customer. So some of the customers, especially 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're familiar with the technology. We don't seem to get a lot of bookshelf from them. But if it's more of an OEM, then we could we definitely because all the OEMs are ramping up the 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 3 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 a lot more on new cycle product like the digital cockpit and the clusters, the ARPUs is at least measurably higher at the car. Now but I have to be I have to warn the fact that the whole a lot of our current base royalty are still coming from the infotainment wins that we have done in the last 3 to 5 years. And so this is not a sudden sea change of ARPU. It will be a gradual change of ARPU and gradual uptick of ARPU. So we feel good about the business. You're right, we expect it to be on the high end. This particular quarter, they came in on the high end of 16%. Great. Just a follow-up question. Just on the licensing business with a strong start to the year relative to your full year guidance, should we just kind of think about that kind of flattish in the mid-60s the rest of the year? Or do you expect maybe a seasonal close to the year strong like last year? Just trying to think about the cadence of how you're thinking about that down 5% for the year. Thank you. Yes. I'd like to answer that one. I'm 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've already guided you to. Well, you see people aim to make the estimate when you go year over year minus 5%. But yes, Steve is very close to this part of business. That's true. Our next question comes from the line of Paul Steep from Scotia Capital. Your line is open. Hi, Paul. Thanks. Good morning. John, could you talk a little bit of you put the announcement out just before yesterday's AGM about the total installed base of QNX cars. You've given us a little hints around it today. Maybe talk about that net $30,000,000 in vehicle shipped growth in terms of where it generally was and sort of the uptick in, I guess, that we'd call it non infotainment design wins, how that's starting to ramp into the base? And then I've got one quick clarification. Yes. So yes, we are seeing so let's just back up a second. And I think that in the last few years, the design wins is starting to see a lot of them in Asia. And so when I look at the detail of the $150,000,000 breakdown, I am seeing an uptick in the Asian market. Up Asia is now represent about 37%. They might be manufactured in Asia and being driven somewhere in other part of the world. We only count the manufacturer's source. So that just tell you a little bit about that part of the auto market over in Asia is very healthy and is 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 3 to 5 years are a little bit higher ARPU than the infotainment. So we continue to see that uptick of revenue and it's now also biased towards Asia and Europe. 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'm assuming rightly or wrongly that this isn't touching ad hoc 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. Yes. That's a good question. It's actually getting UEM ready for Spark. We're making this change. And yes, ad hoc and Secismart and particularly ad hoc 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're more focused on adding other vertical to it. So that we're not going back. I mean, we love our customers, don't get me wrong, but we're 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 OR reps. That's not the point. The new management people comes in, we'll bring in new reps, But it's in addition, we're not thinking about wholesale changing our reps. Next question. Yes, next question please. Our next question comes from the line of James Faucette from Morgan Stanley. Your line is open. Hi. Great. Hey, good morning. Thanks a lot for taking my questions. I just wanted to ask a couple of follow-up questions on Cylance. First, your growth rates that you're 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're being valued, What do you think are the key things that you're 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. 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'm just asking you where do you think growth is going to be? I don't anticipate acceleration. They're doing well. The team that runs the sales over at Cylance, a very highly qualified gentleman, been 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 to get the joint product done. When you get the joint product done, then both teams have a lot more things to sell just in the bag. So I don't I think for this year, because it will take us a year to get the integrated product of UEM and AI, so I believe that for this year, I'm being modest in about 25% to 30%. And remember, the key word that I used when I made the guidance was this is our model. And so and that means that I'll miss some and I'll beat some. And so if there is if you want me to bet money on which one I'll beat and which one I'll miss, I'm probably going to bet money on beating Cylance number. That will be my guess. I mean, I don't know more my colleagues thinks, but judging from the momentum and the differentiation out there, I feel pretty good about that. And the market, as you know very well, is 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 Zydance to continue their expansion in the channel business. They have literally over 1,000 channel partners and they are mostly focused on SME. And so and I wanted that business. And they started to make some minerals on the consumer side of the equation by working with OEMs like laptops OEMs and desktop OEMs. And I wanted to continue that too. So you will then see the number like we showed today, a separate number. And I hope through that, it gives visibility to the shareholders of the business and how well that business is doing. I also adopted the industry metrics, status 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's 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 the traditional business and 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. Our next question comes from the line of Paul Treiber from RBC Capital Markets. Your line is open. Hey, Paul. 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 did any of those close this quarter? Did you expect them to close in coming quarters? I think majority of them will close. Okay. The second question is on automotive. And this is where you've been very successful in the design win side. But then the question 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 estimate it? And then do you look at backlog for that business and how has that been tracking? Good question. Yes, some of our people, I mean, like our QNX management always look at the backlog. And so the part of the new NX business that's good is quite predictable because of that 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 6 months to a year. And once you've got the design wins, you get some early revenue from maybe ProServe, we talk about, and definitely developer seats. And once you but those are in 6 figures typically. We talk about a couple of $100,000 here and there. And then the design got kicked in. I am, for example, intimately kind of working on well informed on a couple of the OEMs, especially Jaguar, the Jaguar Land Rover. I speak to the CEO on a very regular basis and to make sure that we get that new car ready and go. And I've been talking to him for the last couple of years. We have products that's about to come out probably in a year or 2. So you could see that the design period of themselves is roughly about a 3 year cycle. And then once that happened, then they start production ship. And they usually that production ship is 2, 3 years. And if they continue the family like the Daimler Group does, when they do a family, they don't chase the family for at least 10 years. So you can see the tail is quite long. And then a lot of our current royalty enjoy that is enjoying that tail. And the margins, of course, is very high. And then when you look at this, 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 I'll just leave it at that. Where do you think we are in the S curve? Early. 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 about this year. And but you should expect double digit growth. Okay. Yes, percentage, I mean. Our final question today comes from the line of Todd Coupland from CIBC. Your line is open. Hi. Good morning, John. Hi, good morning. I'm not piling on, on this question, but I do wonder about it and certainly a lot of and they're plus 60% this year more or less. And and they're plus 60% this year more or less. And I'm 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 I mean, by the way, I'm new to this industry, okay? So just take it over a grain or so. Salt. When people get ready for the IPO, you or I are even more experienced in this area. You know that they're spending enormous amount of money. They're losing enormous amount of money. They're spending enormous amount of cash to get to this coming out party. And so the sustainability of their growth rate is what I'm very interested in. I mean, I wish they could sustain it. That means the market is there and we could then do better in our own growth rate, okay? But I'm a little bit doubtful. Those numbers are very, very high. Now we've been in 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 you are 100%, right. So you could sense that our customers are loyal to us and they're buying more and they're using more. And we will get more new customers and because we have 30% net new customers for the quarter. So I we will obviously try to do better than 30 percent and get to a market rate that both Cloudstar and us could go to enjoy. We are, however, I want to point out, 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. Yes, sure. Okay. I would now like to turn the call back to John Chen for closing remarks. Very well, Lisa. Thank you. As I said earlier at the start of the call, Gang, BlackBerry is off to a pretty good start here in 20 20. 8. We talk a lot about Cylance this year on this call and it is a strategic asset, not because it's just a it sells a business that is growing and doing well, but we have overwhelming positive response to our customer and partners, and we're very pleased with the technology being able to help out and differentiate our existing technology in UEM and QMx. We have a lot of products coming out this year. And although it might not fully affect this year's result, but it will help set us up good for next year in terms of growth. I think we have over 30 products across the entire company scheduled to launch this year. We have 2 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 and we'll leave Brian what's in the current fiscal year. Brian is probably on the call and that put a little bit more pressure on him. And we will focus on integrating Cylance, which will yield much longer term shareholder value. And we're off to a really good start on integration, products, people. So I'm very pleased with that. I thank you very much for your time today. I 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.