Earnings Call: Q4 2021

Mar 30, 2021

Good afternoon, and welcome to the BlackBerry 4th Quarter and Fiscal Year 2021 Results Conference Call. My name is Sadie, 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 Tim Foote, BlackBerry Investor Relations. Please go ahead. Thank you, Sadie. Good afternoon, and welcome to BlackBerry's 4th quarter fiscal 2021 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer, John Chen and Chief Financial Officer, Steve Wray. 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 and A session. This call is available to the general public via call in numbers and via webcast in the Investor Information section atblackbury.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 phasing 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 All performance could 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, including the COVID-nineteen 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 and supplement published earlier today, which are available on the EDGAR, at SEDAR and blackberry.com websites. And with that, I'll turn the call over to John. Thanks, Jim. Tim, sorry, sorry. Thanks, Tim. Good afternoon, everybody, and thank you for joining us today. I'll begin with 3 headlines for the quarter. The first headline is licensing. This quarter, we entered into an exclusive negotiation with an North American party for the sale of the portion of the company's patent portfolio primarily related to mobile devices, messaging and wireless networking. BlackBerry will retain rights to use these patents. Patents associated with the company's strategic software and services business, including Spark, QNX, IV, Secure Communication and Critical Event Management will continue to be owned and managed by BlackBerry. The company has not yet reached a definitive binding agreement and negotiations are ongoing. The company limits its licensing activities in the quarter due to the negotiations and because of accounting rules, which Steve we'll explain later. This resulted in licensing revenue being lower than expected. The second headline is software and services. This quarter, we saw a slight sequential revenue improvement from Spark and a continuing recovery for BTS. BTS had a good quarter, the slight vehicle production headwinds from the global chip shortage. Software and services billings grew strongly and are now back to the level of a year ago. The 3rd headline is BlackBerry Ivy. Discussion with automakers and Tier 1s are progressing well and I'll touch on some of the exciting developments later. Now let me get into the more details. BlackBerry reported total company revenue of $215,000,000 215,000 Software and services revenue was 165, licensing and others was 50,000,000, 50, Gross margin was 73%. Earnings per share was positive $0.03 Cash generated from operation came in at $51,000,000 Total ending cash and investment as of February 28 was 804,000,000 I'll now turn to our business commentary starting with software and services. Our ongoing strategy is to safeguard the Internet of Things with intelligence We achieved this by combining our 30 years plus of expertise Our security expertise will newly acquire technologies such as Cylance AI and machine learning. We currently serve the market in 2 different ways. The first is to provide cybersecurity for enterprise, particularly large, highly regulated verticals, such as government, Financial Services and Healthcare. Here, we protect endpoints, networks and communications with our Zero Trust architecture. The second is to embed technology to provide safety and security to the endpoint. Here our focus is currently largely on automotive, again a very large fast growing market. Starting from a QNX installed base of over 175,000,000 cars on the road today, QNX and Ivy in partnership with AWS have significant growth opportunities. Over time, these two paths that I mentioned will intersect and provide tremendous opportunity for BlackBerry. Investment in smart mobility and smart city infrastructure will help drive this convergence. But obviously, the market is too early. We recognize the need to be louder when communicating our strategy and who BlackBerry is today. This month, we launched a major new digital radio and print and print branding campaign across North America and the UK to get the message out powerfully into the marketplace. From a financial reporting perspective, starting this Q1, which is this quarter we're in, we intend to report software and services as 2 separate revenue lines, namely cybersecurity and BTS. The cybersecurity line addressed include and address the cybersecurity endpoint management and critical event management markets. Our main competitors, including other leading next generation endpoint security providers, as well as notable UEM vendors. We addressed these markers with our AI driven Spark, a fully integrated UES and UEM platform, along with Ad Hoc and Secchi Sorry. BTS addresses the embedded software and vehicle data analytics Notable competitors including Auto Grade Linux, Android and proprietary operating systems. Our QNX product over the highest level and better functional safety and security of Backfry IB we provide an end to end solution for harnessing data in the car. We believe that this change will help investors to gain greater insight into the performance and opportunity of these businesses going forward. Moving on to software and services metrics. ARR was approximately $468,000,000 slightly down from last quarter, primarily due as expected to the pandemic related impact on DTS. Dollar based net retention rate improved sequentially from 90% last quarter to 91% this past quarter. Net customer churn remained low at around 1%. Now moving on to BTS. As a reminder, QNX is by far the largest component of BTS. As we anticipated during last quarter earnings call, we saw improvement in both QNX design win, design phase revenue and production based royalties. This improvement continued despite the challenge from the global chip shortage and its impacted and its impact on auto supply chain. It's not fully clear what the impact will be on production volumes, At least not for this, how long will it last. However, we continue to expect improvement from BTS in the upcoming fiscal year. Our plan of returning to a pre pandemic normal revenue run rate of around $50,000,000 per quarter by mid fiscal year assumes that the new challenges are overcome by that point. Looking beyond the short term headwinds though, Strategy Analytics, a leading research firm, estimated there will be a large expansion in a number of embedded system will occur by 2027. The estimated this growth will be mainly driven by ADAS, which is advanced driver assist and are increasingly deploying chips with higher compute power. Both factors play to QNX strength and recent wins, some of which I'll mention a little shortly, give real data points that support this trend. This validates the strategy of focusing on safety, critical And points to an increasing ASP per car. During the quarter, QNX strengthened its leadership position in a safety critical software. We announced enhancement to our hypervisor, which by the way is the only one in the market certified to the highest level of functional safety. We also announced a number of design wins, including our motional, A joint venture between Hyundai and Aptiv will be using QNX Black Channel communication technology it is next generation driverless vehicle. Also Baidu announced that their machine maps, A critical component of autonomous driving will also be built on QNX and designed into the new energy ion models from GAC, which happened to be a leading Chinese electrical vehicle automaker. These announcements demonstrate that QNX is at the heart of VAS vehicle technology developments, positioning the business well for future revenue growth. It was also confirmed at CES that QNX has been selected by Sony, the latest Sony new Vision S car. Furthermore, Scania selected QNX as its primary operating system for its heavy duty trucks. Overall in the quarter, QNX had 25 design wins with 9 in auto and 16 in general embedded market or JAM. The auto wins were predominantly ADAS and digital instrument cluster designs. The jam wins include a mail processing control system for UPS or USPS, sorry, United States Postal Service, a connected manufacturing plant system from GE and a next generation eye surgery equipment from a leading medical device company. We are delighted to report that now we have wind design wins or half design wins, sorry, with 23 of the world top 25 electric vehicle OEMs, which together represent 68% of the global EV production. This is an increase by the way from 19 of the top 25 last quarter, with recent wins including Toyota and Honda. In the recent reports, Deloitte estimated the CAGR, the compounded annual growth rate for global EV growth sales will be around 29% over the next 10 years and QNX is well positioned to benefit from this growth. Let me now provide you with an update on Ivy. Since the announcement in December, the response from OEMs has been very positive. We have had held many discussions, many workshops with a number of leading automakers and are pleased in how these discussions have progressed so far. Many use cases have already been discussed, showing the potential of this platform once creative app developers are able to build on it. Most of these use cases are being developed under NDA and can be shared right now. However, one we can share is the right to repair initiative. Varner, the leading analyst, has identified BlackBerry IV as a potential solution to the problem of Safety and securely sharing centralized vehicle data with repair shops without compromising either vehicle safety for the OEM's IP. To support the development of the app ecosystems, this quarter we made an investment to grow the IV R and D team. This includes starting an ecosystem development group led by a new executive joining us shortly from a major OEM. We recently announced the creation of an IB Innovation Fund. The fund will drive use case innovation and adopt of Ivy adoption of Ivy by startups. We intended to With a $50,000,000 investment in the fund, portfolio company by the way will also to up to $100,000 in AWS credit as well as insight and guidance through the AWS Activate program, a program that has already helped develop 100 and 1000 of early stage startups. We're also soon to unveil an IV Advisory Council designed to shape and advise the IV development community, focused on defining vertical specific use cases. Among the first names that have already signed up are leading insurance company, technology company as well as telcos. Their input will complement the auto industry expertise provided by with top OEMs in Tier 1. Following our IV announcement, major players such as Ford and Google as well as Bosch and Microsoft and announced commitments to the vehicle data market. Because Ivy is hardware operating system and cloud agnostic, We do not see these announcements, our competition or as competition, but rather opportunity for IV to partner and add value. The vehicle data analytics market is both large and growing. McKinsey, in the monetizing data car data report, estimate that the TAM, the total available market will be in the region of $450,000,000,000 to $750,000,000,000 per year by 2,030. We recognize that this market is going to be competitive, but we feel very well positioned. While we are already working with OEM, in October, we expect to release the early access version of Ivy. We also expect to ship we should start shipping the product in February of next year. Now moving on to Spark. As a reminder, we launched our new Spark suites in May and the Cyber Suite in October. Pipeline for our Spark suites grew Strongly sequentially. The typical sales cycle is nearly 9 months, so we're expecting a good second half for the fiscal 'twenty two. We continue to assess in upgrading our UEM installed base to Spark, adding Unify Endpoint Security or UES. This year, we will start focusing on new logos for the Cyber Stream. Across Spark, we start to see strength in both renewal and upsell in our key verticals. Let me share some names with you, some wins. These included Q4 businesses with IRS, The United States Department of Commerce, the Carter Development Bank, the Scottish Government as well as the Scottish Police, The London Metro Police Services and the U. S. Marine Corps as well as Bell Canada, just to name a few. On the service front, I must mention that none of our Guard MDR managed service customer were negatively impacted by the recent SolarWinds breach. While I'm on that subject, the Hapneos state sponsored attack on Microsoft Exchange Server identified earlier this month was example of threat actors leveraging patch vulnerabilities. The script control of our EPP product, ProTekt, has demonstrated we can safeguard customer from this threat. Optics, our EDR product, provides additional protection. We're excited about 2 upcoming products that we'll launch and are important part of our extended Action and response or our XDR strategy. The first is our cloud based EDR product, Optics 3.0, that due to be released this coming quarter and will expand data query and provide richer content for alert triage and threat hunting. The second is our BlackBerry Gateway product that will be the first to offer the Zero Trust network assets to both SaaS environment as well as on prem applications, while enabling Cylance AI for faster detection and response. We will provide more detail at our Virtual Analyst Day next month. Finally, a brief words about Secysmart and ad hoc. We have been pleased with the progress made by SecchiSmart this fiscal year. SecchiSmart technology is now used by 18 governments worldwide, offering the highest level of security for voice and text communication. Ad hoc has a strong position in federal government around the world, including protecting over 70% of U. S. Federal government employees. We see a significant opportunity for adhogs in the enterprise. And following the quarter end, Just most recently that is, we announced the new BlackBerry Alert product. Alert is built on our political event management expertise in the public sector, but with additional features tailored to the needs of the enterprise, such as integration with Microsoft Teams and ServiceNow. While it's much early in this stage of our sale, we have already recorded enterprise win, including Fujitsu. I'll now turn the call over to Steve to provide more details about our financial performance. Steve? 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. Please note that starting in the Q1 of our new fiscal year, we will no longer adjust GAAP revenue for deferred revenue acquired. This means that GAAP and non GAAP revenue will be the same going forward and comparatives will be conformed accordingly. We delivered 4th quarter non GAAP total company revenue of $215,000,000 and GAAP total company revenue of 210,000,000 4th quarter total company gross margin was 73%. Our non GAAP gross margin includes Software deferred revenue acquired but not recognized of $5,000,000 and excludes stock compensation expense of 1,000,000 4th quarter operating expenses were $140,000,000 Our non GAAP operating expenses exclude $32,000,000 in amortization of acquired intangibles $22,000,000 in impairment of long term assets, primarily due to rationalization of real estate due to the transition to remote working models, dollars 16,000,000 in stock compensation expense, $3,000,000 for software deferred commissions expense acquired and $258,000,000 fair value adjustment on the convertible debentures, which is a non cash accounting adjustment largely driven by market conditions. Needless to say, this is due to the exceptionally high volatility and trading volume in the company's shares during the 4th quarter. 4th quarter non GAAP operating income was $18,000,000 and 4th quarter non GAAP net income was 16,000,000 Non GAAP earnings per share was $0.03 in the quarter. Our adjusted EBITDA was $35,000,000 this quarter, excluding the non GAAP adjustments previously mentioned. I will now provide a breakdown of our revenue in the quarter. Software and services revenue was $165,000,000 Software product revenue remained in the range of 80% to 85 Product revenue was approximately 90%. As John mentioned earlier, for the new fiscal year, we intend to report software and services Revenue in two lines, cybersecurity and BTS. Licensing and other revenue was 50,000,000 in the Q4. Further to John's comments regarding negotiations relating to a potential sale, Licensing activities have been limited not only due to the ongoing negotiations, but also because revenue from additional transactions that could have been completed in the quarter, would have been treated as contingent revenue and deferred to future periods. Therefore, Had negotiations not been in progress, we believe licensing revenue would have been higher. Now moving to our balance sheet and cash flow performance. Total cash, cash equivalents and investments were $804,000,000 at February 28, 2021, an increase of $47,000,000 during the quarter. Our net cash position increased to $439,000,000 at the end of the quarter. 4th quarter free cash flow was $48,000,000 and cash generated from operations was 51,000,000 And capital expenditures were $3,000,000 That concludes my comments. I'll now turn the call back to John. Thank you, Steve. For this coming upcoming fiscal year, our primary focus is for software and is on software and services growth. As mentioned earlier, we will not be making any non GAAP adjustment to revenue starting this fiscal year. Therefore, any revenue outlook comments I will make today and Steve will make today will be on a GAAP basis. Because of the ongoing negotiation regarding the patent portfolio that we discussed, we're unable to provide a full year licensing revenue outlook at this time. But I will give you some color at the end so that we have some plans, but it's still moving a lot of moving parts on that. So first, we anticipate double digit billings growth for both cybersecurity and DTS for the fiscal year 2022, Just forgot my notes all jumbled up. Yes, resulting in total software and services GAAP revenue in the range of 6.75 to $715,000,000 to $715,000,000 This represents a growth rate of between 9% to 15% from fiscal year 2021. Cybersecurity, which will include UEM, UES, ad hoc and SecuSmart It's expected to have full year GAAP revenue in the range of $495,000,000 to $515,000,000 to $515,000,000 to 515 1,000,000, of course. I'm sorry. DTS is expected to have full year GAAP revenue in the range of $180,000,000 to 200,000,000 For both cybersecurity and DTS, we anticipate revenue in the second half of the fiscal year to be stronger than the first half. Because of the ongoing negotiation regarding the patent portfolio that we discussed, there is uncertainty around the licensing revenue outlook. However, appreciating that it will be useful to have an outlook for modeling purpose, the most conservative scenario in which sales We model that sales does not happen or does not complete, full year licensing revenue will be in the region of 100,000,000 In this scenario, we assume that negotiation and regulatory review continue for the first half and therefore we expect revenue to be limited in the range of may be $10,000,000 to $15,000,000 per quarter. However, we believe that the completion of the transaction will be beneficial to our shareholders. We will of course update you on any of the major developments. This has been an unusual and challenging year to navigate. Despite the challenges, we had a strong year executing our technology roadmap, bringing 59 new products to market. That's up from 30 last year. In particular, the Spark and Cyber Suite has made significant step forward. We also made significant progress with strategic partnership, both on the technology as well as a go to market perspective. Our IB partnership with AWS have obviously been a particular standout. I would like now to open For the call for Q and A. Operator, will you please have it? Yes, sir. And now we will begin the question and answer session. Is turned off to allow your signal to reach our an opportunity to signal for questions. For our first question, we have Mike Walkley from Canaccord. Mike, your line is open. Good afternoon, Mike. Hey, John. Congrats on all the announcements and busy year for you guys. I guess the first question for me is just trying to understand the licensing negotiations a little better. Should you complete the sale, Just the vast majority of your portfolio and you won't have any licensing revenue going forward, is it really the whole portfolio or is it just a portion of it? Just trying to gauge that. Well, it's a major portion of our portfolio. As I said, we cover 3 major areas: Cellular, wireless communications and networking. So things that It's relevant, but it's not useful to us today in our strategic software part of the business. And we retained All the embedded and all the finance and all the encryption and security technology patent. Okay, great. And then my follow-up question, just on the guidance, it would be great to break out the 2 divisions. On the 9% to 15% growth is can you maybe help us think about the two areas, which one you think will grow stronger? I'm assuming it's BTS Given the recovery in auto, but any color on how the 2 different divisions, cybersecurity and BTS Micro? Yes. I think because it's revenue first of all, let me clarify one thing. Billings, we expect double digit growth in both Spark and BTS. From a revenue standpoint, because it's subscription based revenue, We expect single digit percentage growth in Spark and we expect double digit percentage growth in BTS. So you are right And expecting BTS to have a strong growth because of the recovery. Yes, the double digit billings and bills would be great. Okay. Thank you. Sure. Absolutely. For our next question, we have Daniel Chan from TD Securities. Daniel, your line is open. Hey, Daniel. Hi, John. Just a question about how you're hoping to structure the deal for the patent sale. Should we expect ongoing royalties to come from maybe you get a portion of the licensing fees that the buyer will take or is this more of a one time deal? There is a majority of the deal will come in One time early, but there is a tale that goes on. I can't give you the details of this for multiple number of years. Okay. Now you mentioned in the past that you've had offers for the entire portfolio. So what's different now that's making you consider selling it? There are two reasons. Number 1 is I really I think it's a wrong thing to sell the entire portfolio because there's so much of we have an ongoing business in cybersecurity and an ongoing business in DTS, which of course includes IDN and QNX. I think selling those portfolio will be extremely unwise for the company and for the shareholders. So I think the team were able to get connected With parties that are willing to address the portfolio part that is Not being used by us today. So it just worked out from a business friendly point of view. Okay. And just one more, if I may. If this deal does Go through any thoughts on how you'll deploy that capital? Yes. We're going to invest in We're going to invest in both cyber and we have an ambition in cyber that I know we have lost a couple of years Because of our integrations and we have our product all caught up. So you see us being more aggressive. In fact, we ran an ad today, intelligence security everywhere, an ad today. I just saw it on New York Times. And So we're just going to step up in both people and spending and resources to go after the market. And it's a huge As you know very well, it's a huge market and no winner no clear winner at this point And the barrier entries are not that high. So we should be able to capture some new businesses. So we're going to invest in that. And then of course, we're going to invest heavily on ID, in vehicle data Platform is very important to every OEM, whether they build themselves, work with somebody else I'll work with a company like that. It's all very important. So our relationship with AWS in this case is a big plus. So those are the 2 businesses that we're going to invest in. Great. Thank you. Absolutely. For our next question, we have Trip Chowdhury from Global Equities. Hi, there. Congratulations. Good morning, guys. Congratulations for the very challenging year, very good execution, John. Two quick questions I have. If I if you reflect upon the popularity of Apple iOS, It also started with the innovation fund that Apple created. But the difference is it was not just Apple, But they also got 2, 3 venture capitalists along with it. And today we know some which is called app economy, which is a multibillion dollar market And Apple is a prime beneficiary. If you look at the IB platform that you have, it is spectacular You are moving really at the speed of light. In October, the product will be launched and I mean that for the developers for the developer Next year it will be in the market and you have the innovation fund exactly $50 worth of seed money Apple put in. But Wondering, do you have or have you thought about also bringing in venture capitalists also and jumpstart a sub Automobile applications economy or something along those lines. Can you part on those? And also, Do you think you could provide which would be very, very solid differentiation for your company is if you could not just provide the money like what Apple did, But also provide intellectual property, patent protection to each and every company that creates products Our applications on your platform and take and liquidity stake in each one of those startups that will make You're completely, it's a little speculated, but it could be a much better strategy that Apple had with its iOS platform. Any thoughts you may have then? I have a follow-up question. Okay, great, Trevor. Thank you. So We only initially, we put up $50,000,000 of this fund. And the objective, so everybody did, objective is to make sure that we could build application. And we believe that although we could build a very solid data in vehicle data analytics platform, If you doubt without good applications and use cases, it will not be sticky. You will not be adopted. I think there are a lot of companies that could build data platform. Maybe ours more secure, XYZ and so forth. Having a partner like AWS help, but at the same time, it won't get the So I didn't want to learn the experience, so I learned the lesson twice. So this is important that early on, I start up the Enablement group that go after applications that we build some ourselves, but the majority I have to be encouraged start ups and even established company that is interested in working with AWS Cloud And working with BlackBerry, QNX and all the other technology that we provide and build up application on the IV. And I also added That we are going to start an advisory council, which are vertical 3 people, as I said, and they will then bring in some ideas that this is how I could see IB Help out in my business case going forward. To answer your questions, with the limited fund that we have established initially $50,000,000 we will have to work with other VCs. And so now I haven't got to the steps of trying to Pull them in and being a co funder, but we will have to work through their pipeline And identify a target company that could be benefit from both the AWS offer, like which is 100,000 Dollars for free cloud usage so that they could run their tests and the development. AWS also have a lot of tools and a lot of Know how and Navigate, call it Navigate to help them. We of course provide them a test bed and the technology support and help. As far as IP is concerned, I don't think we're going to touch other people's IP Unless that we see ourselves owning part of it, we're going to let A company owned that IT the company that we invest in. So I don't know whether I could help to protect them, But they obviously we could help them to accelerate the IP filing. We have a lot of people that knows how to do this very well. Very good, John. As you know, today, intellectual property and patents are the new gold. Yes. 2nd question I had was Regarding the intellectual property portfolio you have, the last time I counted it was more than 30,000 patents. That we have? 38,000 to be exact. Wow! That's amazing. Now I know it's very difficult to Put the details of your ongoing negotiations. But bond path figure, are we talking about 20,000 patents which will be sold or 15,000 or 30,000 just ballpark on behalf of I guess not to do this to provide the answer. Sorry about that because it's part of our negotiation. And so the category I put out was probably the best you could get at least for now. The categories obviously are cellular, Networking and geez, I'm missing 1, cellular networking And messaging and messaging and messaging, so cellular networking and messaging. And then encryption, security, Ivy, QNX are all separated from this, are not included. I think I had my questions answered. All the best and looking forward for an exciting 2022. Thank you, Trevor. For our next question, we have Paul Treiber from RBC Capital Markets. Paul, your line is open. Hey, thanks very much and good afternoon. Good afternoon. Just on the patent sales, the $100,000,000 in patent license revenue that you expect for this year, If the sale goes through, does the $100,000,000 go away? So eventually, all the patent licensing revenue goes with the sale. And conversely, if hypothetically speaking, if the sale doesn't happen at all, should we think of patent licensing revenue Being in that continue to have that, I think, $250,000,000 in the past is what you said on a client basis. Yes. Paul, that's a good question. So this is an unusual year. So let's talk about if the patent license goes through, the sale goes through, we will have We will record a onetime gain of a reasonably big number followed by a tail of a tail of up to 7 years. So it will not go away to 0. There are some recurring stuff that most of them will not be with us. But so it will not be 0, but it will be Quite small if the patent sales go through with 1 big year in this fiscal year 2022. If the patent sale does not go through, then the 1st couple of quarters will be low because as the patent sale is being negotiated right now, I actually are unable to do more other negotiation going on. So the pipeline basically is frozen, but it won't go away. So if the patent sale does not go through, I may have to suffer a little bit for the 1st couple of 2, 3 quarters and then we will then resume The target $2.50 a year patent licensing. Did I answer your question? Yes. No, that's very helpful. And I The cash flow would be similarly aligned with those revenue numbers? Unfortunately, yes. The cash flow will be similarly aligned. Okay. That's very helpful. And then the second one is, big picture like with the stock Having gone through the rally that has gone through finance theory would say your cost of capital, your cost of equity is lower. And so the question is, seeing the sort of new found enthusiasm and lower cost of So have you contemplated issuing equity at these levels, seeing how it could enhance the strategy having more equity or more cash? Yes, that's a good question. Yes, that's a good question. It's been a constant conversation with various bankers From our Strategic Planning Group and our M and A Group. I today are not working on any specific thing, But we're open. I mean, we're not there's no principle That we won't do. The only thing that we won't do is we won't intentionally dilute our shareholders Just to keep some money in the banks on the balance sheets, I'd like to make sure that we have at least some idea of the usage. So when people come to me By the way, you could raise the convert at 0% and a premium of x percent up, 40%, 50% up, let's say. I see they're very attractive, but then I keep asking my people, so okay, once you get money, what are you going to do with it? Because you have a dilution hanging over your head. And so I don't know whether I answered your question. I guess kind of just kind of explain how I think about it. I'm not against it. I know there's very attractive terms out there. And at this level of equity, so But I wanted to make sure that we have a targeted use that could help the business first. And maybe another way to ask And question is for your strategic plan, you don't require a significant acquisition or deployment of Capital to execute on that current plan that you have? No, we do. The plan I gave you, 9% to 15% growth, Let's not assume any acquisition. Okay. Thank you. Sure. For our next question, we have Paul Steff from Hochschild Capital Markets. Paul, your line is open. Hi, there. Hey, John. Hi. John, just recognizing it's challenging with Situation with licensing, but I guess with the proceeds, if we assume this proceeds, how would we think about Deploying that capital, I know you answered it earlier, but I guess the point being, is it envisioned that you would look to do like some type Of a strategic or transformative M and A to materially accelerate growth in the business, I think becomes the question. I do have a quick follow-up that's somewhat helpful. Yes. It really is, Paul, it's really somehow Depending on the target out there. The answer to your question is I will always love to do that. I really do. And There's also a question of affordability, but especially in the auto space, In the auto tech space, I think with our position with QNX and stuff we're doing on Ivy With Cylance's technology that could go into a car, I think we're well positioned in terms of what we could put in. There might be some acquisition we need to make to further our growth rate of our revenue. That will be a target, a very interesting target. And today, There is no specific target I had in mind. My people always have a list of names that they go look at, But I don't have any specific thing. But the answer to your question is the usage, those will be a priority usage for us. Okay. And then maybe related, let's set aside whatever is going to occur with the patent sale will transpire or not as the case might be. Just dialing back to your comments earlier in the call, can you talk to us about how we should think about the level Spend, I know you're not guiding EBITDA or free cash flow and I respect why, but maybe just help us put it in context. I think You talked about accelerating increased growth, but then when I look at the spend and I know maybe Q4 isn't the best spot to look, Sales and marketing is up 10% year on year 10%. I know it's got stock based comp in there, but R and D actually offset it. So Should we think net that you're actually dipping in and we might go negative a little bit or no? No. That's not our intent. We have a reasonably large number of hires, Mostly in sales and marketing sales and fuel marketing in our plan that I just provided you. I mean, I know you're I'm unable to give you the EPS guidance and cash flow guidance only because I have The licensing part is shifting so much. So we didn't want to go there at this point. But So the answer to your question, it was not intended to reduce many. However, we are taking Reduction in G and A. We are also going to take reduction In Real Estates. If you notice that Steve had mentioned that We have an impairment charge of $22,000,000 and a lot of them related to real estate. It's because we decided to cut down our real estate footprint By maybe up to 25%. And this way that we will have after the pandemic, we will have roughly about 20% to 25 And of our team members that will be working remotely on a rather permanent basis, we will provide Some hoteling offices. And I think you see that in many company, especially in kind of a software tech company. We decided we don't want to go all 100% because we want to maintain level of creativity and personality involvement. But So we're going to save some money from infrastructures. We're going to save some money from IT And some of the consolidation work over there and then we will then fund engineering and mostly fund go go to market. Great. I'll just ask one last quick clarifying one. Can you just comment in respect that it's difficult, but like Obviously, we had the situation in Japan relating to chips and automotive. What's sort of the broader mood, John, in terms of the base? Obviously, These decisions don't get made in a vacuum or overnight, but is there overall maybe a bit of a pause going on or people are still moving forward with projects and I'll pass forward. So far with the 25 design win we have in the quarter with some really big name wins, Toyota, Honda and EV, Scania in trucks in Sweden and other things, Other wins that we have. So far the auto space are still very vibrant from a design win standpoint. Then eventually it will hit us. I'm following what GM and Ford had said publicly that GM has stated that second half of this year, The chip shortages issues will be overcome and they assume reduction Of the 3 shutdown factories right now. So that's why we said when we do our planning today, We assume that we continue to win design wins in QNX that we will then have developer license It's revenue and hoping that we'll do some more professional services. And then the production obviously kicked in, in the future. It does affect us immediately a little bit. But since we're in the recovering mode, I think it's being absorbed in somewhat. So our guidance of $180,000,000 to $200,000,000 for the year assume that this problem, Shortage problem of the planned shutdown problem ends in mid year. Now that's just a stake in the ground. I mean we have to Model it somehow, somewhere. If that prolonged, then that will prolong our recovery. But I'm hoping to minimize that as best as we can. Not every plant is shut down by the way, obviously you know that. Yes, that helps. Thanks guys. I hope the best. Sure, absolutely. Next we have Stephen Lee from Raymond James. Stephen, your line is open. How profitable are these licensing revenues? Is the gross margin, for example, higher than your corporate average? Yes, which is painful for us in the 1st couple of quarters because we expect one way or the other, it's going to be a low revenue, Low level. But the answer is yes, it's higher than the corporate number by significant percentage. Okay. So John, if the patent sale goes through, could your EBITDA turn negative, for example? Yes, it could be. And I'm hoping to because our EBITDA will go negative. I didn't calculate EBITDA will go negative. The EPS will go negative. But I am hoping that we will start registering some growth in software and services to offset it. All right. Got it. Thanks. Absolutely. We don't have any further questions at this time. I would now like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry for closing remarks. Thank you. Thank you very much. I don't have any remarks. And thank you all for your interest in the company. We will have a very interesting year ahead of us here. We believe our software services and especially when we separate out the two lines, We already know the spots will do some growth in billings. Revenue growth will come in mostly from DTS And licensing, it could go either way and we'll keep you posted. And so I'm sorry it's being late in the evening in the East Coast, thank you all very much for attending today's call and have a great evening. This concludes today's call. Thank you for your participation. You may now disconnect.