BlackBerry Ltd (BB) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Certicom Corp. fiscal 2004 third quarter results conference call. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded today, Wednesday, March 10, 2004 at 5 PM Eastern time. And I will now turn the conference over to John Vincent (ph), Investor Relations Consultant. Please go ahead sir.

Thank you and our apologies to everyone for the technical difficulties. They seem to be resolved, so we are going to proceed. Good afternoon and thank you for joining us for Certicom's fiscal 2004 third quarter conference call. On the call from Certicom today are Ian McKinnon, President and Chief Executive Officer, Herve Seguin, Chief Financial Officer, and Tony Rosati, Vice President IP Licensing. In addition, Roy Pereira, acting Vice President of Marketing and Product Management is on hand to help answer your questions.

Ian will begin with a review of the Company's operations during the third quarter ended January 31, 2004. Herve will then review the Company's financial performance. And let me remind you that all dollar amounts discussed today are in U.S. dollars. Ian will also discuss the new growth strategy announced earlier today by Certicom.

The call is also being webcast live on the Company's Web site at www.Certicom.com. And let me remind you that during the call management may make projections or other forward-looking statements regarding future events or future financial performance. Actual performance, events or results may differ materially. Please refer to the Company's most recent annual report and other documents filed with the securities regulators for a discussion of factors that could cause actual results to differ materially from any forward-looking statements. Now let me turn the call over to Ian McKinnon.

Good afternoon and thank you for joining us. I'm now on slide 3. I would like to begin today with an overview of our third quarter results. Then I will ask Herve Sequin to provide a review of our performance in our third quarter and fiscal '04 to date. Finally, I will return for a discussion of our new growth strategy which was announced earlier today.

Slide 4. Although the IT spending environment is slowly recovering, Certicom continues to experience weaker demand in the market for security tool kits and applications. This is been compounded by longer than expected sales cycles targeting OEMs and independent software vendors, or ISVs, which embed security into their products. As a result, Q3 revenues of $2.1 million are flat compared against the same period last year, and down from $2.7 million, excluding the NSA revenue in the second quarter.

During the second quarter of this fiscal year Certicom scored a major success with $24.9 million in revenue recognized from the U.S. National Security Agency's licensing of our Elliptic Curve Cryptography, or ECC. Now thoughout these times have changed we're working diligently to maximize the growth potential of Certicom's core business. Market conditions are expected to remain challenging and unpredictable. As ECC is becoming more widely accepted, we anticipate that our core business will deliver increasing growth over time, although the pattern may be uneven periodically.

Our key focus now is to leverage the NSA win, which represents a significant validation for Certicom and its ECC based technologies. A key to growth will be licensing the Company's intellectual property, from which we expect to see revenues in the latter half of fiscal '05. I will have more to say about the early progress with this new strategy a little later in the call.

Slide five. Some of the some of the sales highlights from Q3 fiscal '04 include a total of five new customer contracts as well as the announcement of these important wins. Number one, we announced Expertcity's decision to employee Security Builder Crypto and Security Builder SSL tool kits to embed ECC security in its next generation technologies.

Secondly, with the achievement FIPS 140-2 validation for the Palm OS 4.5 platform for our Security Builder GSE. Slide six. We also announced movianVPN for Pocket PC, a launch that with continuing support for the latest operating systems including Microsoft Windows Mobile, Palm OS and Simeon OS, means that movianVPN can now be used with more than 50 leading hand held devices.

Number four, was Bluefire Technologies' decision to integrate Security Builder GSE into its product line. This decision enables Bluefire to offer new solutions that comply with stringent government information security requirements. And fifth, in addition, Certicom announced that Motorola has embedded movianVPN in its A760 Smartphone, a VPN security first for one of the world's leading handset manufacturers.

Slide seven. Subsequent to the quarter end we announced an agreement to license our ECC technology to Neopost, the world's second largest supplier of mailing solutions. This development enables Neopost to embed ECC security in its mailing systems to create a secure means to generate digital postal marks that meet the stringent requirements of North American postal systems.

Slide eight. Also subsequent to quarter end we were chosen by Regal CineMedia Corporation, the media subsidiary of Regal Entertainment Group, the world's largest theatre operator, to provide them with the security solution to protect their digital content network. Using the Security Crypto Builder Developer tool kit, we developed an encryption solution system that allows Regal CineMedia to send encrypted -- to send copyrighted digital content by satellite to selected feeders.

Slide nine. These new licensing agreements and sales are clear evidence that Certicom's ECC core technology is finding increasing acceptance among the world's OEMs. To date, Certicom's core technology products and services have been licensed by more than 300 customers, including Motorola, NCR, Pitney Bowes, and of course the NSA. We can be confident that Certicom has embarked on a path that will lead to increasing revenues and profitability. And that we're properly positioned to exploit the increasingly attractive opportunities available to us.

Before I describe our new strategy in more detail, let me call on Herve Seguin to discuss Certicom's financial performance in Q3.

Good afternoon everyone. Please turn to slide ten. As Ian noted earlier, third quarter revenues from our core business were flat compared to the same period least year at $2.1 million. This was also down from our Q2 which amounted to $2.7 million, excluding the impact of the NSA contract.

Operating expenses, including cost of sales but excluding depreciation and amortization, were $3 million which represents a decline of 200,000 or 5 percent over the same period last year. Comparable operating expenses in the second quarter of fiscal '04 were $2.7 million excluding costs associated with the NSA contract.

The quarterly increase in expenses resulted from the impact of the rising Canadian dollar and our investment in Certicom's evolving intellectual property business. However, Q3 expenses were in line with our guidance of 2.9 to $3.2 million.

On an EBITDA basis, the Company incurred a loss of $900,000 compared to a loss of 1.1 million in the third quarter last year. On a GAAP basis, the net loss for the quarter was $1.8 million, or 5 cents per share. Basic and diluted compared with a loss of 174,000 or 1 penny per share basic and diluted in same period last year. Please note that last year's net loss of 174,000 included a $1.9 million reversal of expenses related to a restructuring charge taken in our fiscal '02.

If you want to now turn to slide 11 please. Looking at the nine months of fiscal '04 Certicom posted revenues of $7 million, which was down 12 percent from the $8 million reported a year earlier. Total revenues for the nine months, which include the NSA contract, amounted to $31.9 million.

Operating expenses for the nine months, which excludes the costs associated with the NSA contract, totaled $8.6 million, down from 10 million a year ago, a decline of 17 percent. The total expenses for the nine months amounted to $9.8 million. The EBITDA loss in the nine quarter narrowed to $1.6 million from a loss of 2.4 million last year, an improvement of 34 percent.

On a GAAP basis the Company recorded net earnings of $18.9 million, or 56 cents per share basic, and 53 cents diluted compared to a net loss of $2.9 million, or 9 cents per share basic and diluted in the same period last year.

Please turn to slide 12. Cash totaled $38.5 million at the end of the quarter, largely as a result of the NSA contract and the $10 million U.S. equity offering in November. Cash at the end of the second quarter of fiscal '04 amounted to $5.3 million. We have now significantly strengthened the Company's financial position to support our pursuit of sustainable profitable growth.

In keeping with our established practice, Certicom does not provide guidance on revenue and the Company's cash position, however, we do give guidance on operating costs. Looking ahead to the fourth quarter of fiscal '04 we expect the operating expenses, including cost of sales, to amount to between 3.4 million and $3.7 million compared to our third quarter expenses of $3 million. This increase is largely attributable to our commitment to investing in our business to capitalize on IP revenue opportunities and a calendar year end charge for employee bonus payments.

To discuss Certicom's new growth strategy and our overview of the business going forward, let me ask Ian McKinnon to lead the remainder of the discussion.

I'm now on slide fourteen. Today I'm pleased to announce a new chapter in Certicom's evolution. We believe our new strategic growth initiative will allow us to achieve our goal of sustainable profitable growth. Earlier today we announced a growth strategy for our intellectual property business that will extend our core business of embedded security to include the licensing of our extensive ECC based patent portfolio.

Certicom has already proven the power and worth of its ECC technology, now embodied in more than 300 individual patents and patents pending that are registered in numerous countries. In October of last year the National Security Agency signed a licensing agreement for key patents within Certicom's portfolio. And while we more recently have targeted the government and wireless sectors, we will now focus our IP and product offerings to the semiconductor and consumer electronics industries as well.

Slide fifteen. ECC technology is already employed in millions of devices worldwide, as mandated by industry standards. Going forward we anticipate that the projected growth in ECC adoption can be attributed to an increasing demand for embedding strong security in constraint devices such as consumer electronics and mobile devices, as well as the growing trend to build in security from day one.

These new factors are ideally suited to ECC adoption as many of the applications require a more efficient form of cryptography, such as ECC, offering equivalent security but with much smaller key sizes. The Company places great value on its patent portfolio and we intent and we intend to protect and capitalize on this important asset.

Slide sixteen. Certicom is currently building an intellectual property pipeline. And we see strong growth in intellectual property license revenue from markets in Europe, North America and parts of Asia beginning in the second half of fiscal '05. To drive this new strategy, Certicom will invest in the business through additional research, development, sales and marketing initiatives.

Earlier today we announced the appointments of two key executives who will be integral in the success of our new strategy. Tony Rosati has been appointed Vice President Intellectual Property Licensing, with overall responsibility for IP license negotiation, planning, communication and other corporate IP initiatives.

Roy Pereira will replace Tony Rosati as acting Vice President Marketing and Product Management. Additionally, Dr. Scott Vanstone, founder of Certicom and Executive Vice President Strategic Technology, will join Tony in building a strong cross functional team.

Side seventeen. This announcement is a key development in the evolution of Certicom. It extends our products and services business, leverages our validation by the NSA, and positions our ECC based intellectual property portfolio as Certicom's key differentiator and growth driver. Selection of Certicom's ECC by the NSA provided validation of our technology as vital for protecting mission critical national security information. We believe this endorsement will convey significant impetus to our overall marketing efforts, as both the public and private sectors will move to embrace the adoption of ECC on a worldwide basis.

Slide eighteen. So in summary, revenues for the third quarter of fiscal '04 were flat. And we were disappointed with the performance of our core business in the quarter. And while we expect business on a quarter to quarter basis to be unpredictable, we anticipate the overall core business to trend upwards. We remain optimistic about our future and are confident that with the combination of the NSA contract and the launch of our new growth strategy, Certicom will build revenues going forward. Certicom is well positioned to grow and enjoy increasing profitability that will reward our shareholders' confidence and patience.

So at this point we would be pleased to respond to any of your questions.

(OPERATOR INSTRUCTIONS). I'm sorry, gentlemen, there are no questions at this time. Please continue.

Alright. I guess if there no questions, thank you for your time this afternoon. And I look forward to speaking with you again in June for our year end review. And again to reiterate, we would be pleased to deal with any of your questions on an individual basis if you prefer. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today. Thank you for participating and please disconnect your lines.