BlackBerry Ltd (BB) 2003 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the Certicom corporation fiscal 2003 Q3 conference call.

At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question for analysts and institutional investors.

If anyone has any difficulties hearing the conference, please press star-0 for operator assistance.

This conference call is being recorded, and we'll now turn the conference call over to Sara Borge Olivier.

Thank you, Bridget, and good afternoon.

On the call today is Ian McKinnon, Chief Executive Officer, who will discuss the earnings.

Hervé Séguin, Chief Financial Officer will review the financial performance.

Also with us is Tony Rosati, who will be available to answer questions during the question-and-answer.

Please note all dollar amounts are in U.S. dollars.

This conference call is also being web cast live on the company's website at www.certicom.com during the course of this conference call, management may make projections or forward-looking statements regarding future events or the future financial performance of the company.

Such statements are predictions, and actual events or results may differ materially.

Please refer to Certicom's most recent annual report and other documents the company files with the securities commissions in Canada, which identify factors that could cause actual results to differ materially from forward-looking statements.

I would now like to turn the call over to Ian McKinnon.

Good afternoon, everyone.

Thank you for joining us.

I'm now on slide 4, for those of you following along on our PowerPoint presentation.

Today, I'll begin with an overview.

Hervé Séguin will give the financial overview, and I'll conclude with the highlights, outlook and brief summary.

Slide 5.

Our revenues for this quarter were affected by the continues downturn in the technology sector, which particularly affected sales of traditional developer toolkits and professional services to original equipment managers, or opens.

In addition, starting late in the second quarter, we reorganized our global sales force to ensure more experienced and consistently high performance team.

So although we're disappointed with the performance, we’re pleased with the progress on other fronts.

We are confident on the steps we are taking in achieves long-term profitable growth for a number of reasons.

Number one, we are continuing to aggressively manage expenses.

Number two, our cash position remains healthy.

Number three, we have made solid operational progress with our new business wins in the wireless security arena, and success in entering the government market.

And, four, our movian product continue to be extremely well-received in the market.

Slide 6.

As I've mentioned, we've strengthened our global sales force, following the valuation of Certicom's sales evaluation late in the second quarter, we reorganized our team to improve or focus on customer need, and penetrating current as well as new markets.

We now have a team of experienced sales leaders in North America and Europe, each with a proven ability to perform through all business cycles.

In addition, we recently added Don Pope to the position of Vice President of Sales.

He joins Certicom with senior sales expertise acquired over a 25-year career.

I'll discuss our third quarter highlights in greater details, but first let's turn the call over to Hervé Séguin.

Hervé?

Hervé Séguin: Thanks, Ian, good afternoon, everyone.

I'm now on slide 7.

Certicom reported revenues of $2.1m, compared to $3.2m in the same quarter of 2002.

As Ian mentioned, the variance reflects the continuing downturn in the technology sector, which particularly affected sales of traditional developers toolkits and professional services to oem.

Operating expenses including cost of sales and excluding depreciation and amortization, totaled $3.2m during the quarter.

At the low end of our previously provided guidance range of $3.2m to $3.5m.

This compares with operating expenses of $7.2m in the same quarter a year ago, which represents a decrease of 56%.

The EBITDA loss for the quarter was $1.1m, compared with $4m, excluding goodwill, impairment, restructuring and other costs in the same quarter last year, and this represents a decrease of 72%.

Net loss was $174,000 or 1 cent per share, compared to a net loss of $7m or 22 cents per share in the same period last year.

Included in the Q3 net loss is a reversal of the $1.9m restructuring provision recorded at April 30th, 2002, made up of two factors.

I'll discuss this in further detail in a minute.

Cash and cash equivalent, marketable securities and restricted cash totaled $10.9m.

Cash at the end of Q2 was $2.4m, while cash at April 30th totaled $17.7m, and cash a year ago, $20.5m.

We have significantly reduced our cash burn in each quarter this year.

I'd also like to note that we have reduced our overall cost structure and maintained a strong cash balance.

So we do not expect to require additional financing in the next fiscal year.

I now turn to slide eight.

Turning to the nine months of fiscal '03, Certicom reported revenues of $8m, down 6% from $8.5m in the same period last year.

Operating expenses, including cost of sales and excluding depreciation and amortization, decreased 67% to $10.4m from $31.6m, excluding goodwill, impairment restructuring, and other costs a year ago.

The EBITDA loss for the period was $2.4m, compared with $23m, excluding goodwill impairment, restructuring and other costs in the same period last year.

This represents a decrease of 90%.

The company posted a net loss of $2.9m or 9 cents per share for the period, compared with a loss of $60.6m in the same period last year.

I now turn to slide 9.

During the quarter, Certicom reached an agreement to terminate the lease of our Hayward, California facility.

As a result, in Q3, we reversed a remaining $900,000 restructuring provision recorded at April 30th, 2002.

Additionally, the agreement will eliminate $2.7m of future unrecorded operating expenses related to the lease, which was scheduled to expire in the year 2007.

It would also eliminate $3.7m of future cash payment obligations for the period August 2003 to July 2007.

And, lastly, we will gradually reduce $1.2m in restricted cash to August 2003, thereby strengthening Certicom's unrestricted cash position.

Certicom also successfully renegotiated certain of its leases for certain equipment and other obligations during the quarter, and as a result of this we reversed the remain $1m restructuring provision recorded at [ inaudible ].

We are confident that we are taking the right steps to put certificate I com on a profitable growth plan, and with that, I'd like to thank you, and would like to turn the call back over to Ian for his operational highlights.

Thanks.

Operationally, Certicom made progress on a number of fronts in the third quarter.

We signed eight new channel partners based in North and South America, Europe and Asia Pacific.

Year to date, we have signed 14 agreements which collectively expand a global reach of our direct sales team.

And all of our reseller partners are generating revenue as we speak.

We also signed a total of six new customers and extended our relationship with eight other systems which expanded its use of toolkits in eighther fusion, eighther also licensed Certicom PKI toolkits to the deliver the U.S. government recommended advanced encryption standard or AES, and strong authentication to applications that extend the enterprise data to a mobile environment.

We're also very proud to have joined Symbian's platform partner program in December of 2002.

With this agreement, Certicom is now working with three leading developers of operating systems for hand held devices.

We're also very pleased to have been named in Business 2.0's third annual essential business software tool kit list which is jointly sponsored by Metagroup.

This award recognizes companies and technologies that are enhancing the transparency, productivity and speed at which business is conducted.

Slide 11.

Subsequent to quarter end Certicom was selected by Microsoft to join the Microsoft partner advisory council, otherwise known as Impack.

It was formed by Microsoft to provide a feedback mechanism of its mobility platform and to provide new technical, marketing and business development support for companies making significant investment and inroads in the mobility space.

Certicom was also recently named one of the top ten companies offering the right solutions to homeland security by Federal Computer Week.

Certicom is recognized as a leading vendor of elliptic curve cryptography and for our expertise in wireless security.

Slide 12.

Now, turning to our operational outlook.

Due to the currently unpredictable economic environment, in the second quarter you may recall that we ceased providing quarterly guidance for revenue and cash.

We are continuing, however, to provide guidance for operating expenses.

Fourth quarter operating expenses, including cost of sales for fiscal '03 are expected to range from $3m to $3.3m.

Slide 13.

So to sum up, although we're disappointed with our revenue performance in Q3, we believe Certicom has significant competitive strengths and a unique value proposition.

We have a strong sales force that is focused on customer needs and increasing market share.

We have a strong cash position, with no anticipated financing required in the next fiscal year.

The wireless security market is forecast to grow rapidly over the next five years.

We are well positioned to win new business.

And, finally we are focused on executing our go-to-market strategy.

At this point, we'd be very pleased to answer any questions you might have.

Ladies and gentlemen, we will now conduct the question-and-answer session.

Please be advised members of the media and the general public will be in a listen-only mode.

Certicom will be pleased to arrange for any follow-up discussion or interviews of senior management after the call has been completed.

To make these arrangements, please contact Brendan Zeolo at 613-266-1793.

If you have a question, please press star, followed by the 1 on your Touch-Tone phone.

You will hear a three-tone prompt, and your question will be polled in the order they are received.

If you'd like to decline from the process, please star-2.

Please ensure you lift the handset before pressing any keys if you're using a speakerphone.

One moment, please, for your first question.

Your first question comes from Scott Preston of Research Capital.

Good afternoon, guys.

A couple quick questions here.

On the weakness in revenue, what percentage of that is due to the economy and what percentage due to the reorganization of the sales force in the middle of the quarter?

Scott, it's Ian.

I would probably stop short of providing a percentage.

It's tough to say.

There's no question as we mentioned in Q2, we're continuing, as many companies are, to experience slowness in the sales cycle in the market.

The economy is absolutely a factor.

I don't want to hide exclusively behind that, but that is, without question, an issue that we're facing and there's a strong general sense that we have that people are very focused on preserving cash in the current climate of economic uncertainty.

And, also, I think it's safe to say, as a result of that, a number of our customers have been consolidating or delaying bringing out some new devices where they would normally be buying some of our product for future rollout of those product.

So some of the projects are being delayed.

Some of the general sense is that people are looking for better deals, lower prices, sales cycles are longer, negotiations are protracted.

Having said that, I would also say that we started -- with the results we had in Q2, we recognized in the October time frame that there were some need for change.

So we started to initiate some of those changes to the sales group in late Q2 and throughout Q3.

And I've got to say that, considering that it takes typical three to six months for a new sales rep to ramp up, we've already been making some good progress with some of the those individuals who joined in the October time frame.

So I would have to say that, looking forward, we're not, as you know, providing next quarter revenue guidance, but longer term, I'm very optimistic about getting back to growth and seeing the company achieve its longer-term revenue growth expectations and profitability.

But there's no doubt in Q3, we did experience some reduction, if you will, from revenue in the sense that we did have to make some changes, as was evident in our Q2 results.

But I'm very, very confident that today we have a very highly experienced team that knows how to sell successfully through all phases of the business cycle, good economy, poor economy, and we're already seeing the results of some of those individuals kicking in.

And, of course, we have Don Pope.

That was announced in the latter part of Q3.

He has already had a very significant impact on the sales organization in terms of discipline, focus, and results.

Great.

Two more quick questions.

One, if you could just comment on when you expect to see any visibility into the government spending and I guess the second question would be how many people do you have employed in the services side of your business?

And given the weakness there, do you expect to make any changes?

On the government side, we have, as I said before in the past a number of times, we had not planned in our FY ‘03 to see significant revenues from the government sector.

We had some, but it was very limited.

I would have to say we are extremely pleased with our progress to date.

We see the government, and frankly many of the NATO countries in future starting to become a greater and greater percentage of our revenue.

So I would say that FY '04, we expect to see some what I call more significant uptick in revenue from that sector.

There's no doubt we're seeing tremendous opportunity.

We're involved in a number of very, very exciting government pilot projects, and I think you'll see we're working towards some pretty significant announcements over the next few months.

I'm pleased with the government progress.

Of course, there's a limited amount we can say with regards to the governments given the types of projects we will periodically become involved in, but they are moving well.

And the government tends to have even a longer sales cycle, as you know, than other private sector areas, so we have used this FY '03 time frame to build our structure and the momentum that will result next year.

On the service front, we have a fairly standard consulting model, Scott, that's based on some industry yields and utilizations.

So our headcount resources in the professional services business really -- and I'm excluding product support now, I'm talking primary of consulting services -- our headcount will vary based on revenue as it pertains to the utilization model.

So our yield and utilization will -- we have models for that, and as goes our revenue, if our rates are down a little bit, we'll have to increase our utilization and vice versa, so you know how that model works.

Our headcount will swing up and down in services as a result of the model there.

Okay.

Thanks a lot, guys

Thanks, Scott.

Your next question coming from Paul Lechem from CIBC.

I'm wondering if any of you can break out the product revenues a little more, maybe talk about the subscription?

Are you still selling subscription-type deals?

What are royalty revenues?

What are tool kit revenues?

And maybe can you also talk about the partners you signed up?

What are they contributing?

I'm going to share this answer with a combination of Tony and Hervé, to the extent they can provide some additional data.

Let me take the last question first.

We are seeing a good amount of revenue being generated from our resellers.

As you know, we've been ramping up throughout the year, and so it's been progressively increasing from Q1 to where we sit today.

They are responsible for the bulk of our enterprise sales of movian.

So every quarter, Paul, we're seeing a significant increase in terms of the reseller revenue as it pertains to movian.

As we've had said before, that is our channel for taking movian to the enterprise.

If you look at the product revenue line in total, I'm going to ask Hervé and Tony if they can provide additional data here, but I think it's safe to say movian is still providing the bulk of that revenue line.

We don't break it out, Paul, in terms of individual product revenue, because it's just not significant enough at this stage to start -- or material enough to start reporting if between toolkits and movian.

On the subscription side, we have made throughout this year a greater transition to perpetual.

I think in part because of the need to continue to drive revenue, but also we're not getting a huge demand for subscription in the market.

In the past, I will tell you that some subscription deals just didn't make sense.

Financially for Certicom, there are some deals that are far better off being sold purely and solely in a perpetual mode.

And I would say it's crazy for us to sell movian, which has a per seat basis on a subscription basis, given the pricing model we have there.

We've evolved it, we do still offer subscription on certain deals, and some customers are acting on that one, but the bulk of customers don't seem to be overly focused on subscription versus perpetual.

Do either of you have additional comments?

Hervé Séguin: The royalty revenue continues to be about 5% of our total revenue on a quarterly basis.

So that's the other stat we've got here.

Thank you.

That was very helpful.

Okay, Paul.

Thanks.

Ladies and gentlemen, if there are any additional questions at this time, please press star-1.

As a reminder, if you're using a speakerphone, please lift the handset before pressing any keys.

Mr. McKinnon, there are no further questions at this time.

Please continue.

That's all for us.

Ladies and gentlemen.

Thank you very much for your time and for joining us today.

We look forward to keeping you updated through the rest of this year.

Thank you very much.

Ladies and gentlemen, this concludes your conference call today.

Thank you for participating, and please disconnect your lines.