BlackBerry Ltd (BB) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Certicom Corporation fiscal 2003 Q4 and year end conference call.

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

I will now turn the conference over to Sara Borge Olivier, IR representative.

Thank you and good afternoon, everyone.

Thank you for joining us.

On the call today is Ian McKinnon, President and Chief Executive Officer, who will discuss the company's operations for the fourth quarter and fiscal year ended April 30th, 2003.

Herve Seguin, Chief Financial Officer, will then review the company's financial performance.

Also with us today is Tony Rosati, VP marketing, who will be available to answer questions during the Q & A session.

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

This conference call is also being web-cast live with supporting slides on the company's website at www.certicom.com.

During the course of this conference call, management may make projections or other 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.

Ian?

Good afternoon, everyone, and thank you for joining us.

I'm now on slide 4.

I'll begin with an overview of our fourth quarter results.

Herve Seguin will then give a Q4 and year-end fiscal '03 financial overview and I will conclude with Certicom's operational highlights, outlook and a brief summary.

Slide 5.

Our Q4 revenues increased by 16% over the third quarter in FY '03.

This increase is primarily due to the reorganization of the global sales force which started late in the second quarter of fiscal 2003.

Although the selling environment continues to be challenging, we are pleased with our progress in the fourth quarter.

We are confident in the steps being taken towards achieving long-term profitable growth for the following reasons.

We strengthened our financial foundation and continued to aggressively manage costs.

We maintained a strong cash position.

We advanced our strategy and expanded our blue chip customer base, including Sony Ericsson.

We achieved success in the government market, including an agreement with The National Security Agency, and received FIPS certification for our GSE products.

And finally, we signed seven new partners including Hitachi.

I'll discuss our fourth quarter highlights in greater detail later on, but first, I'll turn the call over to Herve Seguin to give the Q4 and year-end fiscal 2003 financial overview.

Thanks, Ian, and good afternoon, everyone.

I'm now on slide 6.

In the fourth quarter, Certicom reported revenues of $2.4 million, an increase of 16% from the third quarter.

Revenues in the fourth quarter of fiscal 2002 were $3.8 million.

Operating expenses, which include cost of sales, but exclude depreciation and amortization, totaled $3.2 million during the quarter.

This is in line with previously provided guidance of $3.1 million to $3.3 million and the same as operating expenses in the third quarter.

This further compares with operating expenses of $6.3 million in the same quarter a year ago, which represents a decrease of 49%.

The EBITDA loss for the quarter was $800,000 compared with $2.5 million excluding goodwill impairment and restructuring and other costs in the same quarter last year, which represents a decrease of 67%.

The EBITDA loss for the quarter improved 27% over Q3.

The net loss for the quarter was $2 million or 6 cents per share compared with a net loss of $27.8 million or 88 cents per share in the same period last year.

Net loss for the third quarter of fiscal 2003 was $174,000 or 1 cent per share.

Included in the Q3 net loss is a reversal of a $1.9 million restructuring provision which had been recorded at April 30th, 2002.

Cash and cash equivalent, marketable securities and restricted cash totaled $8.8 million.

Cash at the end of Q3 was $10.9 million, while cash at April 30th, 2002 totaled $17.1 million.

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

I'd also like to note that we have reduced Certicom's overall cost structure.

We do not expect to require additional financing in the next fiscal year to support ongoing operations.

I now turn over to slide 7.

For fiscal 2003, Certicom reported revenues of $10.4 million, down 15% from the $12.3 million in the same period last year.

While the revenue performance in 2003 was disappointing, we have considerably strengthened our financial foundation.

Operating expenses decreased 64% to $13.6 million from $37.9 million a year ago.

The EBITDA loss for the year was $3.2 million compared with $25.6 million excluding goodwill impairment and restructuring charges and other costs in fiscal 2002.

This represents a decrease of 87%.

The company posted a net loss of $4.9 million or 15 cents per share for the fiscal 2003 compared with a net loss of $88.4 million or $2.82 per share in fiscal 2002.

On a year-over-year basis, the net loss decreased by 95%.

I would now like to turn the call back to Ian to discuss our operational highlights.

Thank you.

Thanks, Herve.

I'm now on slide 8.

Operationally, we made progress on a number of fronts in Q4.

We signed six new Alliance channel partners which sell Movian security applications.

Also Hitachi became the first Advantage channel partner with an agreement to add Movian wireless security products to its complete Enterprise mobile solution offering.

Alliance and Advantage levels reflect our partners' geographic reach and revenue commitment.

We also signed a total of six new OEM customers, including an agreement with Sony Ericsson mobile communications to develop Movian VPN for the newly launched Sony Ericsson P800 smart phone.

Certicom launched Movian Mail, the industry's first secure email solution based on SMIM version 3 for use with Microsoft Pocket Outlook.

And we also joined the Symbian Enterprise Advisory Council, which was created to advance wirelessly connected solutions for both voice and data in the enterprise.

Slide 9.

We are also pleased with our progress in the government market.

In the fourth quarter, Certicom announced that it was selected by the National Security Agency to research and develop advanced technology and tools for protecting classified information.

This puts Certicom at the forefront of cryptographic development within both the government and defense sectors.

Subsequent to year-end, we also reached a significant mile milestone in our corporate strategy with the achievement of FIPS certification for our GSE products.

Security Builder GSE, the first solution to receive the designation for use on both PC-based and wireless operating systems, is the core cryptographic module for all Certicom security applications.

As a result, Movian VPN GSE, Movian CRYPT GSE and Movian Mail GSE meet stringent government security requirements.

Slide 10.

We feel that our year-end fiscal 2003 operational highlights reflect the confidence of the marketplace in our product and service offering.

In FY 03, we signed a total of 21 new partners, which collectively expand the global reach of our direct sales team.

We also signed a total of 27 new OEM customers, including agreements with Texas Instruments and Sony Ericsson among others.

In addition, we partnered with Microsoft and Symbian and extended our relationship with Palm, the three leading developers of operating systems for handheld devices.

Slide 11.

We feel Certicom is now strongly positioned in our target markets.

Throughout fiscal 2003, we strengthened our sales team to focus on penetrating target markets, as well as opened a new sales office in Washington, D.C.

We streamlined operations by relocating our head office to Mississauga and significantly reduced operating costs.

We developed a clear focus on wireless security and government markets.

We also introduced the Certicom partner network and developed relationships with security-specific VARs to expand our global reach, and finally, we improved our overall financial foundation.

Slide 12.

Subsequent to year-end, we continued to make operational progress.

Certicom recently announced its support of EDS's extended connected office offering, a fully managed enterprise mobility solution with Movian VPN.

We also recently announced that Certicom has partnered with NetScreen Technologies in the NetScreen global security alliance.

The combined Certicom / NetScreen solution will allow corporations to extend existing NetScreen VPN infrastructures to support wireless devices.

Slide 13.

In terms of our outlook, due to the unpredictable economic environment, Certicom no longer provides quarterly guidance for revenue and cash.

We are continuing to provide guidance for operating expenses.

First quarter operating expenses, including cost of sales, for fiscal 2004 are expected to range from $2.8 million to $3.1 million.

Slide 14.

To sum up, although we're disappointed with our fiscal 2003 revenue performance, we believe Certicom has significant competitive strengths, and our long-term market outlook remains positive.

We now 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.

We are well positioned in the government and defense markets.

We are continuing to attract blue chip customers, and finally, we are focused on executing our go-to-market strategy.

So at this point, we'd be very pleased to answer any questions that you may have.

Thank you.

Please be advised that members of the media and general public will be in a listen-only mode for the duration of the Q&A session.

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 Ziolo at 613-266-1793.

Your first question comes from Scott Preston from Research Capital.

Please go ahead.

Hi.

Good evening, guys.

Nice improvement.

A couple quick questions.

Movian, what was that as a percentage of product revenue in the quarter, and what should we expect for 2004 as a percentage of product revenue?

Thanks, Scott.

It's Ian.

Scott, we haven't broken out Movian from our toolkits in terms of our product revenue.

The reason being is it's still a relatively small portion of our revenues.

I can tell you that throughout FY 03, Movian increased significantly on a percentage basis, on a quarter-to-quarter basis.

It's showing steady growth in every quarter of the year, and as we look forward in 2004, while you know we're not providing revenue guidance from a product perspective, product mix, we absolutely anticipate that Movian is going to continue to grow as a percentage of overall revenue as well as well, of course, as a percentage of product revenue.

Ok.

Great.

With all the partners and resellers you got signed up, did you have any indirect revenue in the quarter from these new partners, and what's the expected indirect-direct revenue split you guys are looking at from all the new resellers?

Well, all of our Movian applications, so when we talk about Movian revenue, it's primarily in the application area, and that's for the most part exclusively sold through all of our reseller channels, and so that was really an investment as you know at the beginning of FY 03, so when we talk about Movian revenues not being a significant portion of our business, that really is the revenue that's going through our reseller channel.

But that's also the portion that has grown dramatically on a quarter-to-quarter basis.

That's really in proportion on a quarter-to-quarter basis the number of resellers that we've been adding.

We introduced that program in Q1, we started off with a handful of resellers and as you know, we're well over 20 now, so I think the growth in the reseller channel with Movian is reflective of the increase in revenue.

That's the part of the business that we continue to see growing, and the indirect portion as a percent in 04 would, I think, be similar to the percentage that we see Movian representing in the overall product revenue.

I can say that we also have some other growth that we're starting to see in our toolkit offerings.

Part of the growth in Q4 came from -- I won't say a resurgence, but I would say some increased penetration with our toolkit products, and that also, I think, bodes well for 04.

Ok.

Then final question, do you guys expect to see any government revenue in July?

And if not, what are the expectations for October that's going to be, I guess, the biggest buying season coming from the government?

Again, as you know in 2003, we had very minimal expectations in our internal plan for government revenue. 2004 is absolutely the year we start to expect to see more government revenues from an internal planning perspective, and Q1, I would expect to see sequential growth over Q4 as we saw throughout 03 in all the various quarters.

The government year-end is -- the September time frame -- certainly a quarter where we expect to see more government revenues, and that is reflected in our internal plan.

But if you look at products like Movian Mail, which was introduced recently, which has tremendous competitive edge for Certicom in the government market, it's a very unique offering and one that has high demand within the government.

We expect to see quite a bit of up-tick with that product.

The FIPS certification for Security Builder really opens up a door for all of our Movian products as well as our Toolkits, and so we expect that certification along with Movian Mail being introduced really to drive a lot of related-related revenue, but in general, some growth in the government market for us in 2004.

Thanks a lot.

Guys.

Good quarter.

Your next question comes from Scott Larson (ph) from National Lewis University.

Please go ahead.

Hi, guys.

I just wanted to ask you real quick to, if you could, as much as you could, compare and contrast what you're seeing in the government market verses your product offering versus a competitor like Safenet.

Thanks.

Well, it's Ian McKinnon.

I'll ask Tony Rosati to jump in on that one, Scott, but we have in some ways different product offerings that we bring to the market in general.

Tony, do you want to expand a little bit on that?

Sure.

Yeah, Ian is correct, the two companies, Safenet and Certicom, have different market targets.

Certicom is very focused in wireless and our Movian applications are all handheld wireless applications, so that's really our target in government.

On the toolkit side, our products are -- we have crypto toolkits as well as security protocol toolkits such as SSL that's used in every web browser on the planet.

Those toolkits are toolkits that can be applied in many government applications, but those are things that Safenet doesn't offer to the market.

So I think they're quite different.

Safenet tends to do a lot more on the desktop and the desktop VPN space, whereas we're on wireless handsets.

Does that answer your question?

Yes and no.

If you had a few more minutes to comment on if you're bumping into them more often in the government market.

Not really, no.

Ok.

Thank you very much.

Thanks, Scott.

There are no further questions at this time.

Please continue.

Well, if that's the end of the questions then, I would thank you for your time today, ladies and gentlemen.

As always, as we mentioned earlier, we'd be pleased to take any of your individual questions if you have any.

So thank you very much for your time.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating.