Earnings Call: Q1 2021

Jun 24, 2020

Good afternoon, and welcome to the BlackBerry First Quarter Fiscal Year 2021 Results Conference Call. My name is Josh, 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. As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Christopher Lee, Vice President of Finance. Please go ahead. Thank you, Josh. Welcome to the BlackBerry 2021 Q1 results conference call. With me on the call today are Executive Chair and Chief Executive Officer, John Chen and Chief Financial Officer, Steve Bray. 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. These factors include the risk factors that are discussed in the company's annual filings and MD and A and the COVID-nineteen pandemic, which is negatively impacting public health, financial markets and global economic activity. You should not place undue reliance on the company's forward looking statements. The company has no intention and undertakes no obligation to update or revise any forward looking statements except as required by law. As is customary during the call, John and Steve will reference non GAAP numbers in their summary of our quarterly results. For a reconciliation between our GAAP and non GAAP numbers, please see the earnings press release and supplement published earlier today, which are available on the EDGAR, SEDAR and blackberry.com websites. I will now turn the call over to John. Thank you, Steve Chris. Sorry, I was looking at Steve. Thank you, Chris. Good afternoon, everybody. I hope that all of you and your families and your loved ones are staying safe and healthy during these very unprecedented times. This fiscal quarter of ours, which happened during March, April May, overlapped directly with COVID-nineteen business constraints, resulting in both headwinds and tailwinds. The entire company moved to working from home in early March and operation has been reasonably smooth. I will start with the financial highlight in the quarter and then move into a business commentary. I will reference non GAAP number in my summary. In our 1st fiscal quarter, we reported total company revenue of $214,000,000 All the businesses performed in line or better than our expectation, except for QNX, which was negatively affected by global auto production shutdowns. However, our enterprise product and services that feature security and productivity benefit from the increase in remote working, business continuity and crisis management's use cases with our customers. Total company billings were also down year over year due to the pandemic, but the billings decline rate was less than the revenue decline rate. This is of course a big positive for future revenue. Gross margin was 71%. We achieved a profit of $0.02 per share. BlackBerry continues to balance profitability and investment for the long term. Cash used in operation was 31,000,000 dollars versus $64,000,000 in cash used in operation last year. As you are aware, our 1st fiscal quarter typically has a high use of cash due to the commission and the annual bonuses payment. This year, we spread the annual bonus payment over to the 1st two quarters. Total ending cash and investment balance at May 31 was 955,000,000 dollars Before I move on to business commentary, please be reminded that we have fully integrated Cylance into BlackBerry on March 1, the start of our current fiscal year. As a result, we are now operating in 2 reporting groups: the software and services group and the licensing and others group. Let me start with the licensing and other groups. Revenue was $58,000,000 in the quarter, in line with our expectation. The vast majority of the revenue is from IP licensing. We're off to a solid start for the fiscal year. Moving on to the Software and Services Group. Revenue was came in at $156,000,000 $156,000,000 ARR was approximately $500,000,000 and the dollar based net retention rate was 93%. Going forward, we intend to provide these metrics on a quarterly basis. Net customer churn was close to 0%, and there has been no change to this net churn rate for the last several quarters. Let me click down on a key product component of the group. Let's start with QNX. Development seat, professional services and royalty revenue were all negatively impacted, primarily due to the auto shutdown, production shutdown and the project delays. That said, we're starting to see signs of recovery in the auto sector evidenced by the reopening of the production facilities. Engagement with our auto and general embedded customer has increased on projects that we were working on prior to the shutdown as well as new opportunity that came up. We anticipated a slow and gradual recovery for QNX throughout the year. It will take time for the production to ramp back to full capacity. In the quarter, QNX was chosen for 10 design wins, 6 of which were in the general embedded market for industrial and medical applications. The remaining 4 were in auto, including a ADAS, advanced driver assist, software, design wins with Hyundai Altran, sorry Hyundai Altran and an acoustic win design win we have with Volvo. The other 2 auto design awards were for the secure gateway and an infotainment systems. This continued design win momentum supports our leadership positions. Our latest automotive installed base number is over $175,000,000 an increase from $150,000,000 last year. These metrics, which we generally update once a year, have been validated by strategy analytics and independent third party. In an attempt to provide more information about on QNX Business, we have decided to share our royalty revenue backlog on an annual basis. The backlog is based on the customer estimate of lifetime volume of the design when it is awarded. As of today, the estimated royalty revenue backlog is at 450,000,000 dollars QNX is a recognized name associated with safety and trust, and we continue to expect that QNX will be selected for many design wins in the future. These design wins will add on incremental revenue from development seats, professional services as well as royalties. Our 4 year historical compound annual growth rate or CAGR is 13%, which is well ahead of the 5% market CAGR over the same period. Over the next 5 years, we plan to achieve a CAGR above the market growth rate of 11%, which is cited by McKinsey for automotive operating system and middleware over the next decade. Our plan to accelerate Acuity's growth rate includes increased investment to gain market share in both the auto and general embedded markets and to grow our professional services business. We recently launched our 1st service package that offers cybersecurity assessment and testing. Moving on to Ad Hoc, our crisis communication lifecycle solution. Ad Hoc was a performance leader this quarter. Ad hoc is very well suited for business continuity, preparedness and execution in the current environment. We had a number of new customer wins and competitive wins competitive situations, sorry, including wins with 1st responder agency and energy companies. We also had a strong quarter expansion and renewals. After the quarter, we announced several notable new logos, including United States Department of Transportation and the U. S. Federal Trade Commission. We also expanded our business with the U. S. Department of Health and Human Services. Moving on to Cylance and UEM, which going forward will be referred to as the Spark platform. BlackBerry Cylance was slightly ahead of consensus expectation for the quarter. We added 279 new customers and new active subscription customer growth was about 15%, 1.5%. This is measured on a year over year basis. Notable new customers include General Motors, Bakktondikkinson, Philips Healthcare, SKF, which is one of the Sweden's largest manufacturer, the New Zealand Defense Force and the United States Census Bureau, just to name a few. We have been we have seen revenue steadily increase for the bundle that includes optics, which is our EDR products and ProTek, which happens to be our EPP product. Interest in our managed service offering, Guard, continues to be strong since its launch last July, resulting in sequential revenue growth of over 85%, which is, but I have to caution, this is of a small base. BlackBerry Cylance performed extraordinarily well in the recent MITRE evaluation, which is regarded by the industry as the most objective and transparent standards currently in the market. We clearly demonstrate that our AI led solution and managed service protect customers from global threat actors. We were especially pleased by the performance of optics, which surpassed many EDR players who happen to be ranked above us in industry analyst report. Our UEM business also executed well, benefited from the increased need to deploy more endpoint, especially in mobile. Demand was strong from our regulated industry customers. Let me name you some notable wins notable customers. They include American Express, CIBC, the European Bank For Reconstruction and Development, Tata National Bank, the National Commercial Bank, Absurd Bank, the Development Bank of Singapore, Mitsubishi UFJ Financial Group and the Republic of India. With the Republic of India win, we now have 18 of the G20 government as customers. These wins, I hope you agree, will solidify our strength in the financial services and government vertical. Let me wrap up with the Spark suites. Enterprise today face an increasingly chaotic environment where cyber threats are ever more sophisticated and pervasive. Attacker primary target endpoints in 70% of successful breaches, especially in the form of mobile. The 5 gs rollout will lead us to a significant increase in attack on mobile endpoints. At the same time, enterprise endpoint and the amount of data share at the edge are also growing exponentially. Together, cybersecurity threats and endpoint chaos are putting organizations at risk while cutting into the employee productivity and increasing the IT costs. A recent assessment by Frost and Sullivan defines the cyber threats to the entire IoT landscape. This report recognize how BlackBerry's solution address over 96% of the collective threats. A copy of this assessment is available on our website. A big part of BlackBerry value proposition is our ability to address these threats with our Spark suites, a platform that combines endpoint security as well as endpoint management. Though the Spark suites were only launched on May 19, which was maybe 4 or 5 weeks ago, they have been extremely well received by both customers and partners. Since the launch, over 15, 1-five, 15 customers have purchased one of our Spark suites, including Deutsche Borse AG, one of the largest provider of financial market transaction infrastructure worldwide. After the quarter, we announced a partnership with Bell Canada. Blackberry becomes Bell Canada's preferred partners for mobile threat detection and defense, sorry, MTDs sometimes used as mobile threat defense. Bell will offer our MTD product to their enterprise customers. Our AI driven MTD product is one of the core pillars in our Spark suites. We're adding more features. We are on schedule to ship data loss protection and secure gateway later this year. We anticipated these additional pillars will increase revenue. We also believe this will increase our addressable market because of the way we architect our UES security layer to interoperate with competitors' UEM solutions. Let me wrap up this session on the personnel front. We recently announced that Tom Ecobasi has been appointed as BlackBerry News' newest President. Tom's role will be to lead all business activities of the Software and Services Group. Tom is an accomplished software sales executive from Citrix with over 20 years of enterprise customer facing experience. Tom has led all facets of the global sales organization. In addition to Tom, we also have recently recruited 2 other senior level industry leaders focused on go to market. The first is our new Head of Software Services Business Development. The second is our Head of Corporate Marketing. Both started on June 15 already. The hiring, I hope, is a good indicator of industry talent interested in joining BlackBerry and demonstrate our conviction to build a stronger go to market engine. With that said, let me turn the call over to Steve to provide more details about our financial performance. Thank you, John. My comments on our financial performance for the fiscal 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 and reconciliations. We delivered 1st quarter non GAAP total company revenue of $214,000,000 and GAAP total company revenue of $206,000,000 I will break down revenue shortly. 1st quarter total company gross margin was 71% versus 75% reported in the Q1 of fiscal 2020. The change is due primarily to a decline in QNX royalty revenue. Our non GAAP gross margin includes software deferred revenue acquired but not recognized of $8,000,000 and excludes stock compensation expense of 2,000,000 dollars 1st quarter operating expenses of $150,000,000 were down sequentially by 22,000,000 dollars We continued our investment in product development and go to market, while maintaining strong control over spending given the current macro landscape. And of course, the global shutdown did help to reduce spending. Our non GAAP operating expenses exclude a $594,000,000 non cash accounting goodwill impairment charge. This represents an impact of $1.06 to GAAP earnings per share. This assessment was required in accordance with accounting rules and was driven by the broad based economic decline and corresponding impact on our market capitalization. Further details will be available in our Form 10 Q. In addition, our non GAAP operating expenses exclude $33,000,000 in amortization of acquired intangibles, dollars 12,000,000 in stock compensation expense, dollars 3,000,000 for software deferred commissions expense acquired, dollars 1,000,000 in restructuring costs and a charge of $1,000,000 related to the fair value adjustment on the convertible debenture. 1st quarter non GAAP operating income was 3,000,000 dollars and 1st quarter non GAAP net income was $12,000,000 Non GAAP earnings per share was $0.02 in the quarter. Our adjusted EBITDA was $20,000,000 this quarter, excluding the non GAAP adjustments previously mentioned. So this equates to an adjusted EBITDA margin of 9%. I will now provide a breakdown of our revenue in the quarter. In our software and services group, our product revenue was between 80% 85% of the group's revenue mix, with professional services comprising the rest of the mix. Recurring software product revenue was above 90% in the quarter. In our licensing and other group, as John noted earlier, the vast majority of revenue is from IP licensing. And service access fees were about $2,000,000 and we anticipate about this amount for each remaining quarter in fiscal 2021. Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were 955,000,000 dollars at May 31, 2020, which decreased by $35,000,000 from February 29, 2020. Our net cash position was $350,000,000 at the end of the quarter. 1st quarter free cash flow before considering the impact of acquisition and integration expenses, restructuring costs and legal proceedings was negative 30,000,000 dollars and cash used in operations was $31,000,000 with capital expenditures at 1,000,000 dollars That concludes my prepared remarks. I'll now turn the call back to John for additional comments. Thank you, Steve. BlackBerry remains strongly focused on achieving profitability growth, a profitable growth while investing for the long term. Now given the continued uncertainty across the global economy due to the pandemic, it is still prudent for us not to provide a specific fiscal 2021 outlook. However, that said, I'd like to provide some directional comments on the rest of the BlackBerry fiscal year. We are expecting a good second fiscal quarter because, 1, we anticipated modest sequential growth for our software and services group and 2, we expect a strong sequential growth in our licensing group. We anticipate licensing revenue to be around $250,000,000 for the full fiscal year, not Q2, full fiscal year. In line with our normal intra year seasonality, we anticipated also a strong fiscal Q4. I also want to reiterate that BlackBerry continued to be financially healthy. Even during these uncertain times, we demonstrated fiscal discipline, generated profitability and maintained liquidity. We have ran recently ran another set of financial stress tests assuming up to 30% of revenue decline and no new financing. The result showed that we continue to be solvent and liquid for the next several years. We anticipate ending the year in a positive free cash flow position and therefore adding to our cash balance and we plan to redeem the divestiture this coming November when they mature. This will save about $23,000,000 a year in interest payment going forward. We believe BlackBerry will capitalize on the secular trends on securing and connecting endpoints. Our business strategy and technology are definitely in place. We're competing in the right markets and now the most important task right now is profitable revenue growth and market share expansion, and we are very focused on that. Before I open up for Q and A, I would like to make a statement about yesterday's Annual Shareholder Meeting to clear up any confusion. The fact that we did hold a Q and A session, unfortunately, only one registered shareholder submitted a question. We answered the question. There may have been others who wished to ask question but could not because they were actually guests. So there was no glitch on the technology. Our proxy materials are clear that guests will not be able to ask questions. I will now open the question up for Q and A. Josh? And now we will begin the question and answer session. Your first question comes from Gus Papageorgiou with PI Financial. Please go ahead. Thanks. Thanks for taking my question. Just a couple of questions. Just first on QNX. So you issued a press release, I believe it was yesterday that showed you your increase in installed base increased by about 25,000,000 automobiles, which is about 25% of the market year over year. I'm wondering if you could comment on the market share within automobiles year over year. So if it's 25% now, what was it a year ago? And then just secondly, thanks for giving some sort of sense of what the rest of the year is going to pan out like. Just on your kind of on the enterprise software side, obviously, you said you saw strong demand in this quarter. What do you expect demand will be like for the rest of the year in that segment? Okay, guys. Thank you. So on 175,000,000 cars, actually, I know you have done a ton of research on the auto space. As we spoke many times in the past, there are roughly in a big number sense, they're roughly 1,000,000,000 cars in the world running around every day. And I would dare say maybe 60% plus are the cars that are in a connected car. Obviously, very little in the autonomous car, but in the connected cars, I would dare to I mean, our guess is going to be about 60%, 70%. And so if you look at that number, you look at the fact that we have 175,000,000 cars that have our software on the road today, I mean, you could calculate the market share. I mean, we definitely are if you take about 600, you divide by that, I'm guessing we're roughly about 30% market share. That will be my best guess, non scientific. I just walk you through how I look at the numbers. I'm sure somebody else might point out maybe they'll point out 4 in my thinking, but that's that. So regarding the year, I think when I look at maybe I'll start with the industry consensus. Maybe I'll start with that. The consensus in about a mid-nine 100,000,000 for the year looks reasonable, definitely in the ballpark. And we expect small sequential growth in the software and services business. We expect our IT business, licensing piece of business to come in about $250,000,000 for the year. So you could kind of triangulate that back to the consensus. I think we're in the we're pretty much in the same ballpark as you guys are. Okay. Sorry, on the kind of profitability? On profitability, I think it's a good shot of us being profitable. We demonstrated yes, for the full year, yes. Great. And I already said, Gus said, we will we're looking like we're going to be cash flow positive for the year, free cash flow positive for the year. So I believe we'll be able to be profitable for the year also on a non GAAP basis. Perfect. Thank you very much. Thank you, Gus. Your next question comes from Daniel Chan with TD Securities. Please go ahead. Hi. Thanks for taking my questions. The QNX royalty backlog, did I hear correctly, it was $450,000,000 Yes, dollars 450,000,000 So how did you guys calculate that number? I actually thought that number would be higher considering you do annual QNX revenue. I know there's a whole bunch of other stuff in there, but annual QNX revenue, that's about what like around $200,000,000 or so. So how did you calculate that backlog considering that a lot of the programs that you're involved in have a long life cycle? Yes. So we generate I'll give you some historical number. Not this year, obviously, the year ago, we generated roughly about $150,000,000 in royalty in a year. Some of those will become revenue in the year. We also generated somewhere between in a ballpark $70,000,000 to $100,000,000 from developer seats and professional services. So if you add that together, I think you'll get close to the number that you just cited. Is that helpful? Yes, that's helpful. I just assumed that the life cycle of some of these automotive programs were really long. So when you win one of these design wins, you've got a very long tail of continued royalty revenues. I thought it would probably add up to I suspect I expected a much larger number than that, but okay. Yes. We I would say I would say that we're probably on the conservative side ourselves. These are the numbers that was given to us by the customers at the time of the win. They usually adjust it. And so I mean, it could go down or it could go up. And there will also be derivative win, like for example, when we win certain model with an OEM, they like they most likely will give us different models at the same time. And we have seen that rather repeatedly. I think one thing you could take away that we are very comfortable with our competitiveness and our relationship with our customers on a global basis. So as the business start returning and the design wins start being awarded, we will get a good share of it. Okay. Yes, that's helpful. Thanks. And then on the delayed programs that started to kick in last quarter, it sounds like they're starting to move again. Any word on some of these delayed programs picking back up? Yes. We our team has told me that and told us that the customers are back talking about the design and talking about new projects and talking about the schedules of the new project, their schedules, that's the number one most important thing is they have to have a schedule first, then we'll enhance our ability to win. So that's where we are. It's a good start. Okay. Thank you. Sure. Your next question comes from Trip Chowdhury with Global Equity Research. Please go ahead. Hi, Trip. Thank you. Hello, hello. A lot better numbers than I was expecting, very good execution in a very difficult environment. I had a couple of questions. Would you be comfortable saying that the one Q1 was pretty much the bottom and you are seeing signs of economy opening up and recovery happening? Well, we in my kind of earlier when I told Gus that I'm comfortable we're in the right ballpark with the consensus is to assume a gradual reopening of the economy. And like earlier, we talked about QNX design wins. Despite of a very difficult quarter, I was actually positively surprised that we won 10 designs in a quarter. I mean, it doesn't translate to a lot of immediate revenue, but I thought that was actually better than I thought because nobody is going to work. So I have a certain or we have a certain expectation that things are getting better, although we are being very cautious. We believe you're going to get better slowly. So this is where I said, okay, we're going to see incremental small incremental improvement in software and services on the enterprise side, a slow incremental improvement in QNX, maybe it's same, a difficult quarter in Q2, but we expect the second half to be better. And then we feel comfortable with the pipeline of our IT. This is how we all group everything together and our spending and everything else. So that leads to our belief that we could be profitable over the year. We have positive cash flow. So for the year, so that's kind of the that's the environment that I'm expecting, and that's tied to the number. Beautiful, beautiful. John, you have always been very innovative and always ahead of the curve. We all are working from home. We are doing remote working. But there's a challenge when it comes to selling in terms of more selling. So I was wondering like knowing you from Sybiz, you turned the whole industry upside down. When we think about remote selling, what new things you are putting in place and who are you differentiating and making it feasible because your numbers definitely tell that the sales execution is a lot better than I was expecting. So what processes you may have put in place to have success and win rates better in an environment where remote selling is going to be somewhat of a norm? Well, okay. Thank you. We're not as good as you said we are, but because we benefit on the trend that I think most of all my peers in the industry see that. And because we provide security software, cybersecurity software, because we provide crisis management software and mobile, that helps facilitate the remote working from home. And what we have seen in the 1st 3 months or the 3 months that was the most severely impacted, what we have seen is new customers are extremely hard to come by. Existing customers upselling to them, and they have a billion requirement to need more software, more seats, more licenses. And in some cases, ad hoc, where people are on the fence and say, well, I don't really know I need it, whatever, they have decided they need it. And so they're and because unfortunately, because of the price, it's kind of like the only silver lining to this pandemic situation. So I but I traded notes with other CEO of other tech company and pretty much everybody is saying the same thing. Upselling and especially you have the right type of software, it's a good expansion. It's okay to sell the remote. This is where the relationships are very important. And we fortunately, BlackBerry has a lot of good relationship, especially in the regulated industry like the banks and the medical field and the government. So that help us to put some kind of anchor into the business. The new project or new customer base, I would have to say is much more difficult to come by. Thank you, John. All the best. Thank you, Chip. Your next question comes from Mike Walkley with Canaccord Genuity. Please go ahead. Hey, Mike. Hey, John. Hi, Mike. A question for you. Sure. Yes. Hi. Yes. With you called out ad hoc on the call as an area of strength. With the changing work in government safety environment, how are you leveraging ad hoc strong position with federal government into opportunities to compete more maybe at the state, local and even enterprise level, compete more maybe with Everbridge offering? That's a very good question. So the federal space, the G20, the 5i countries, United States, Canada, we do have good customer recognition, and we have a big installed base, especially in the United States, for example, multimillion licenses that we have. So those are a good thing. We have traditionally not been strong in state local, and that is about to change. We're putting a team of people that's just responding to RFP and RFI, a dedicated team. We also recognize the fact that we need a more SMB type sales force rather than an enterprise sales force like selling to the government agency. That's a large set. So we're adding resources in both areas that I talk about. So we go after the RFP to for the states and local, then education market and the other SMB market we go after with a more of an SMB sales team. So and I think it will work well. The good news is we also have upgraded our product and to have a complete lifecycle product and we also delivered a managed service product and so that fits to the smaller enterprise because we never had to add them as a managed surface product. That's just recently announced. I forgot literally days, right? So we're equipped now, both in the managed service with the way we laid out our sales approach, And it's a great market, I have to say. Time like this is a really great market. Great. And just following up on that, is there any metrics you can share on the business, maybe the size of it on an annual basis or growth metrics? And then also how do you view the positioning? Are you adding salespeople to attack the EU mandate and the opportunities for mass notification over there in the upcoming years? I don't have the answer to your question right now, but let me do this. Let me see what metrics I could deliver and provide, because we're early we are actually early to a non federal play. The federal play is very easy metrics. You know all our wins, you know all our no goals. The renewals are strong. And we had seats like in the United States. Our licenses are over 2,000,000 seats. So but they are very concentrated to the federal government and the armed forces and so forth. So we are starting to expand. So it's still a little early for me to give you these metrics, but I will go work on it and look into it. And I'd like to know, too. Okay. Great. Last question for me. Just switching gears, any update on Radnor on the IoT business? And will that be mapped into software and services going forward also? Thank you. Yes. We wrote it on in. Radar is actually doing reasonably well. Unfortunately, the numbers are not high. They did get affected somewhat by the pandemic because we are unable to visit customers. Because radar is really very the radar team is very focused on winning new customers because with new customer, we get recurring revenue per radar. And so and that's the focus on and but it's been I've done well. I mean, it was nothing negative. We had some wins. We've increased some usage, and but nothing to at this point, nothing moved the needles on that. On the IoT, they are all now merging under software and services. So I don't really look at it that way or separate it out at all. Great. Thank you very much. Best wishes for the year. Sure. Thank you. Your next question comes from Daniel Bartus with Bank of America. Please go ahead. Hello there. Great. Hey John. Hi. Yes, thanks for taking the question. First, I just wanted to clarify, what was the ARR number that you said in the beginning? 500,000,000 about 500,000,000 dollars Okay. Got you. Is that up year over year? This is the first time we actually collect and disclose it. So I don't know whether it's a whole year over year at all. Okay. Okay. Got you. And then just what was the Cylance consensus number that you referenced? And I'm just curious if Cylance grew year over year? Yes. Year over year is relatively flat. And I think the Cylance number is like $48,000,000 $49,000,000 for the quarter. That's probably right. Yes. Got you. So it's about that number. Got you. And then just last one, I'm surprised the SG and A is so low. Can you just talk about if you feel like you're investing enough for growth and does it make sense this is kind of the trough level for SG and A? Thanks. Yes. I'm glad you asked this question. We are spending we did 2 things to fund our go to market engine. We moved a lot of the headcounts, And unfortunately, some of the headcounts we have to reduce and then hire back in some other area. We've done a little bit of that. But in the beginning, earlier on, not during this pandemic period, we have we moved the resources from the back offices to the front line. So the back offices has reduced and streamlined quite a bit, and which is pretty much across the board, whether it's finance, HR, legal, IT, we have really streamlined it because one of the good one of the benefit of grouping the company, the businesses together is we actually could reduce overhead. So for example, you don't need 3 different finance team, you only need 1. You don't need 3 different groups of contracts people, you only need 1. So maybe a bigger one, but you need 1. So it helps a lot. And then we moved that and this is by design and we moved that, I call it 10% move. We moved 10% of resources from the back office to the front and then hired the people that way. So a lot of these people are going through trainings and stuff. We also increased our executive rank by recruiting more talents out from the outside and augment the people we have here today. So we're basically all in to do sales and marketing, feeling very comfortable in that. We're actually hiring a lot of people. I named you a couple of executives. We probably had another 100 racks that are being recruited right now in sales and marketing at this as we speak. Great. That's really helpful. Thank you. Sure. Your next question comes from Paul Treiber with RBC Capital Markets. Please go ahead. Hi. Hi, Deborah. Thanks very much. Hi, Chuck. First, high level question on strategy. Just with this environment, we've seen tremendous uptake of video conferencing. BlackBerry is known for secure communications. You have cross email, BBM and voice, but no video. How do you think about video as a category? Is it something that you see as critical or not synergistic with your the bigger picture portfolio that you're building? It's not critical or it's I mean it could get synergistic, but I'd rather do it with partners. Like for example, we're doing a ton of security work with a number of the name players that you could probably close your eyes and recite. So we want to do it that way. Now messaging and voice is different. We have good product and we're pushing that in messaging and voice. But the reason why I didn't really attend into video is I find that a really crowded place. And I'm not quite sure that I wanted to dilute ourselves yet to yet add one more thing. Now eventually, if the market and therefore our customers say, hey, you've got to integrate video, by the way, we integrate Zoom, the WebEx and all the other team and so nobody have called me and said, hey, I can't buy your software because it didn't work with a video conferencing that I wanted. And in some cases, we use container under UEM to manage the security of some of these conferences. So today, I'm trying not to dilute more, so to get my UEM, UES launched properly. In the future, it might something be of interest, but I would rather go through partner. Okay, thanks. That's a helpful perspective. In regards to IP Licensing, I mean, obviously, you sound positive going into this quarter. Now given there are travel restrictions and social distancing and whatnot challenges, what's the process for closing deals in this environment? Can you do a lot of it or all of it remotely? Or are you assuming some relaxation of the measures to have in person negotiating negotiations? Right. You know I'm a I hope everybody will give me credit as a reasonably safe guy, conservative guide. So when I show you that we're going to have a reasonable Q2 and a good Q2, especially for licensing, we pretty much, I mean, I would use the word in the bag, but we'll deliver that. Now the answer to your question really is the stages. If I'm approaching a licensee, a potential licensee for the first time, especially overseas, that is going to be delayed. It could be delayed indefinitely. And that's a function of when you're in the beginning, you don't send people a letter and say, oh, by the way, why don't you license for me? You really have to have a face to face conversation and talk about design, talk about claim charts, presenting claim charts. So there's a process to this sales. So now at the end, when you're really talking about terms like, okay, so how long would I be cross licensing with? What category are not included? When you're down to that conversation, you could do all that by video conferencing or phone. So it's really the stages of the pipe. So in this particular case, we believe that we have the Q2 under control. One last one for me is, I think last quarter, you mentioned you had $30,000,000 in new pipeline from that free trial that you're offering. Can you provide an update on the pipeline or perhaps how the conversions have been going? I don't I didn't keep track of it, but the conversion usually of those is just reasonably good. Pipeline at that stage, I think normally you convert 2.5 to 1. And this one may be a little better than that because the trial is pretty much driven by a special circumstances. So I'd say the conversions are reasonably good. Thanks for taking my questions. Absolutely. Your next question comes from Todd Coupland with CIBC. Please go ahead. Hi. Hi, Todd. Good evening. Hey, there. Hey, there. Quick question on OpEx, follow-up from the SG and A question. So if we think about the $151,000,000 in the quarter, how should we think about that flexing over the course of the year? Okay. We are okay. So we are like Steve has mentioned, we benefited a lot from no travel. We benefited a lot from the shutdown. But I would tell you, I'm here right now sitting in our ceremony office. Unfortunately, looking at Chris, but I have to do what I have to do. And we are gradually opening up. There are 6 offices in multiple phases around the world that's opened up. And so and there are about another 20 or so that we'll be opening up. Now that we say opening up, I won't this is a good time to talk about. We have internal a process that industry well accepted, which is, A, we follow the government guidelines around the world. B, we do it by phases. Like right now, several moments opening up at Phase 1, meaning about only 20% of our populations are allowed to return back to work. And then everybody else still remain working from home. And then the 50% in Phase II, which I'll have to do a lot of we'll do with the country, the county, the provisions and the provinces and so forth to see how this health situation progresses. So and then the Phase III is 90%, and it ties to school opening and childcare and all that good stuff. So we have a very thoughtful process that we laid out. Now the reason I'm going I'll take you down this answering your question on a lot of expenses is that we will see expenses to start going up. And in addition to that, we are hiring a lot of people on a global basis. Interestingly enough, this is not a bad time to hire talents. I don't know why. As long as I'm the beneficiary of this, that's okay. I'm not complaining. And so you'll see our sales and marketing costs to go up. Now the virtual since we're doing most of it virtual, we should still save money on travel. We will save money on actual shows that we go to that we no longer go into, for example. So there is a give and take there, but you should see it trending up. Okay. That's very helpful. And then my second question, you gave a few hints on longer term growth rates. It seems like for Software and Services Group, the new bundle, either giving hints in the 10% to 15% range. Is that the way to think about that business once we get through the pandemic? Well, yes, I mean, I would like to see double digit growth, yes. Great. Thank you. Sure. Of course. Thank you. I would like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry, for closing remarks. Thank you, Josh. Okay. So before I close, I'd like to mention one of our recent announcements in demonstrating our commitment to the sustainable development goal initiated by the United Nations. I'm very proud that BlackBerry continues to contribute towards making the world a better place, and I hope a lot of you agree with me, I'm sure you do. And we have made significant progress towards our goal to be carbon neutral by 2021. We'll get to carbon neutral by next year. So I'm sorry this is later in the day for the East Coast friends of ours, but thank you very much for joining us today, and stay safe, stay healthy. I hope to see you guys in person soon. This concludes today's call. Thank you for your participation. You may now disconnect.