BlackBerry Ltd (BB) 2020 Q1 法說會逐字稿

Good morning, and welcome to the BlackBerry Fiscal Year 2020 First Conference -- First Quarter Results Conference Call.

My name is Lisa, and I'll be your conference moderator for today's call.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to our host for today's call, Christopher Lee, Vice President of Finance.

Please go ahead.

Thank you, Lisa.

Welcome to the BlackBerry Fiscal Year 2020 First Quarter Results Conference Call.

With me on the call today are Executive Chairman and Chief Executive Officer, John Chen; and Chief Financial Officer, Steve Capelli.

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&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, including the risk factors that are discussed in the company's annual information form, which is included in our annual report on Form 40-F and in our MD&A.

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 and annual results.

For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today.

I will now turn the call over to John.

Thank you, Chris.

Good morning, everybody.

BlackBerry is off to a good start in fiscal 2020.

Our total company revenue grew 23% year-over-year.

Total company revenue growth was driven by a 35% increase year-over-year in total software and services revenue.

To break it down further, on an organic basis, total software and services revenue grew 8% year-over-year and, in addition, BlackBerry Cylance software and services revenue grew 31% year-over-year.

I'm pleased to report that our integration of BlackBerry Cylance is ahead of schedule.

These activities resulted in revenue growth and helped us in profitability in the first quarter of fiscal 2020.

We are executing upon the strategic and operational goal for the fiscal 2020, and we shared -- that we shared with you last quarter.

Our execution gives us confidence to reaffirm our fiscal 2020 financial outlook.

Now let me provide some highlights for the first fiscal quarter.

Sorry, I'm losing my voice a little bit, so I apologize.

So total company revenue was $267 million.

Total software and services revenue was $260 million, which is a new record quarterly high.

Total software and services billing grew a strong double-digit percentage year-over-year.

Total company gross margin came in at 75%.

Total company operating income was $5 million.

The resulting operating margin was 2%.

The company EPS was $0.01.

Total ending cash and investments were $935 million.

Next, I will cover some of our significant highlights in each of our software businesses.

Let me start with Cylance.

Revenue of -- came in at $51 million, which grew 31% year-over-year.

This was driven by approximately 30% year-over-year increase in the number of new active subscription customers.

This new customer growth in the quarter was broad-based across various industry led by professional services sector, manufacturing as well as government.

Annual recurring revenue, which is the -- which is an indicator of the business momentum, was approximately $172 million and up 30% year-over-year in the first quarter of fiscal 2020.

Another matrix -- metric, sorry, another metric, dollar-based net retention rate, which is an indicator of customer retention and expansion, continues to be greater than 100%.

BlackBerry Cylance executed well during the integration process, which I mentioned earlier is tracking ahead of schedule.

Here are some of the highlights and proof points.

We have completed the back office function and personnel integration worldwide.

The integration for the majority of the system and tools that are being used will be finished by the end of the second fiscal quarter, which is in a couple of months.

Both the sales and R&D teams are working well together.

We're seeing very promising interactions by our sales team within the BlackBerry key account base.

The R&D team is on track to integrate the Cylance technology into UEM.

This integrated product will be available by next spring with a combination of the QNX and Cylance technologies that will come thereafter.

Also, the new products that BlackBerry Cylance announced earlier this year, namely Cocoon, Gauard and Persona, are on track to be released throughout our fiscal year.

Now let me briefly discuss our licensing business.

Revenue grew 14% year-over-year with some IP licensing business occurring earlier in fiscal 2020 than we expected.

We remain focused on entering into new IP licensing arrangement that generates recurring revenue.

Moving onto the IoT business.

Total IoT revenue grew 5% year-over-year.

As shared with you last quarter, the BlackBerry Technology Solution and the enterprise software and services group will combine to align our financial reporting with the way we manage the company today, which is naming one executive, Bryan Palma.

To assist you with the year-over-year comparison, though, BTS revenue grew 16%, and ESS revenue grew -- growth was slightly up.

During the quarter, we made significant change to the sales leadership team in ESS, which are now completed.

Let me walk through some highlights of BTS.

BlackBerry QNX continued to drive revenue growth for BTS.

BlackBerry QNX licenses, services and royalty revenue all grew year-over-year as we continued to be selected for designs by our customer in both the automotive and general embedded markets.

In the quarter, we had a total of 17, 1-7, 17 design wins, of which 13 were in automotive and 4 were in general embedded market.

Of the -- among the automotive wins, 11 were in applications, like digital cockpits and digital instrument cluster; 2 of the 13 were infotainment wins.

One of our wins in the quarter was with LG Electronics, a growing innovative partners to automotive OEM.

BlackBerry QNX will be the preferred choice of all next-generation automotive design that LG provides to multiple OEMs.

This design includes infotainment systems, digital instrument cluster, digital consolidated cockpits as well as telematics systems.

With these types of partnership, what these types of partnership will bring us -- will bring to BlackBerry is the opportunity to reach new OEMs and increase our content per vehicle, thereby yielding a higher average revenue per car to BlackBerry.

Looking ahead, BTS expects to have a very busy year of exciting new product launch or launches.

There are 2 main ones: the safety-certified hypervisor, which we will start shipping in November 2019, November this year; and integrated digital cockpit available in [beta] starting at the same time, which is November 2019.

I would like to highlight a little bit about the digital cockpits.

BlackBerry QNX platform for digital cockpits integrates a number of our technology, namely BlackBerry digital instrument cluster, infotainment as well as hypervisor technology, all managed in real time for the safety and security requirements, and they will come in as 1 platform, 1 system.

Our platform will also enable Android and Linux operating system in a secure manner.

Of course, we continue to support Android Auto as well as Apple CarPlay.

This creates yet another opportunity for BlackBerry to have more content in a vehicle, leading to the higher average revenue per car.

Based on the strong growth we've experienced in both infotainment and non-infotainment application over the last several years, BlackBerry QNX is now embedded in over 150 million cars, up from the 120 million cars that we reported last June.

This statistic has been validated by Strategy Analytics, an independent third party.

Before I move on to the ESS, let me briefly talk about our Radar business.

In the quarter, we added 20 new customers, 2-0, 20 new customers, including one of the top 3 U.S. retailer specializing in home improvement.

I apologize we did not have the permission to name the individual customer.

The customer placed a 2,500 units order.

Our Radar business is gaining more traction in the market.

We're seeing increased activity both directly and through the channels, with reference coming from many existing customers and partners.

Now let me walk through ESS, and I'd like to make 3 key highlights.

Let me have a sip of water first.

First, we are executing upon the strategic priorities for ESS we shared at the beginning of the fiscal year.

We remained strong with customers in regulated industry.

This group of customers represent a healthy majority of our revenue generated in ESS.

We increased revenue year-over-year in these -- in this customer segment, added new customers such as the SMBC Nikko Securities as well as government agency in Canada, Germany and UAE.

Our Government Mobility Suite, which is based on UEM, has achieved a FedRAMP-ready status.

This is a key milestone because our cloud-based solutions had demonstrated it has met the core security and process requirements of the United States government.

Also, we are now listed on the FedRAMP marketplace, highlighting the availability of our solution to the federal community.

We anticipate our product being fully authorized and help to increase our market share within the U.S. government.

We're also seeing returns in our go-to-market investment in AtHoc, our crisis communication system, and Secusmart, our secure voice solution.

In the quarter, AtHoc won a number of new customers even outside of the United States federal governments.

A key win in the quarter that we'd like to celebrate was with United Nations.

We're also seeing new demand for Secusmart, our secure voice capability, which historically has been a product for government agency, is now seeing demand from multinational companies that do business in politically sensitive countries.

We have over 15 pilots underway across both government and nongovernment sectors today.

Second, we are investing in new products.

We will launch our first security solution for Spark, our secure communication platform for the IoT.

One month -- it will be 1 month ahead of our original schedule.

This will be unveiled at the Black Hat conference in August.

Addresses 2 security concepts that are currently top of mind of customers.

These 2 are the continuous authentication and zero trust.

As noted earlier, we are on track to integrate BlackBerry Cylance into UEM.

This integration will add mobile threat detection capabilities using AI onto our endpoint management solution.

This will be a very differentiated product in the endpoint market.

Current and prospective customer tells us they are very interested in these products, and they are waiting for these releases.

Our innovation will allow us to be even more competitive in the market and drive future revenue growth.

Third, we are investing in our organization, adding sales rep and channel coverages while making necessary operational changes to promote future growth.

After reviewing the ESS pipeline for fiscal 2020 and noting the business is seasonally weighted towards the second half of the fiscal year, we anticipate quarterly sequential revenue growth in this segment -- or in this category, sorry, it is not segment, category throughout the fiscal year.

With that, I would like to turn the call to Steve to provide some details about our financial performance.

Thank you, John.

Note, my comments on our financial performance for the fiscal quarter will be in non-GAAP terms, unless specified otherwise.

Please refer to the supplemental table in the press release for the GAAP and non-GAAP details.

We delivered first quarter non-GAAP total company revenue of $267 million and GAAP total company revenue of $247 million.

I will break down revenue shortly.

First quarter total company gross margin was 75%.

Our non-GAAP gross margin includes software deferred revenue acquired but not recognized of $20 million and excludes stock compensation expense of $1 million and restructuring cost of $1 million.

Operating expenses of $194 million were up sequentially by $42 million, primarily due to the inclusion of BlackBerry Cylance for a full fiscal quarter.

Our non-GAAP operating expenses exclude $35 million in amortization of acquired intangibles, $16 million in stock comp expense, $5 million for software deferred commissions expense acquired, $1 million in acquisition and integration costs, and a benefit of $28 million related to the fair value adjustment on the convertible debenture.

Non-GAAP operating income was $5 million and non-GAAP net income was $5 million.

Non-GAAP EPS was $0.01 in the quarter.

Our adjusted EBITDA was $23 million this quarter, excluding non-GAAP adjustments previously mentioned.

This equates to an adjusted EBITDA margin of 9%.

I will now provide a breakdown of our revenue in the quarter.

Total software and services revenue was $260 million representing 97% of total revenue.

Other revenue is now comprised of service access fees, commonly known as SAF.

Service access fees were $7 million, down from $16 million or 56% year-over-year.

Total handset device revenue was $0, down from $8 million or 100% year-over-year.

Both service access fees and handset device revenue were expected to decline given the continued wind down of these legacy businesses.

I will now provide a further breakdown of our software and services revenue in the quarter.

The IoT business accounted for 53%, the BlackBerry Cylance business accounted for 20% and the licensing business accounted for 27%.

Recurring software and services revenue, including BlackBerry Cylance, was above 90% in the quarter.

Based on our current assumptions, we modeled recurring revenue to be within the range of 85% to 90% throughout the remainder of fiscal 2020.

Now moving on to our balance sheet and cash flow performance.

Total cash, cash equivalents and investments was $935 million, which decreased by $70 million from February 28, 2019, due to a combination of funding BlackBerry Cylance's operations and the payment of fiscal 2019 bonuses during the quarter.

Our net cash position was $330 million at the end of the quarter.

Free cash flow before considering the impact of acquisition and integration expenses, restructuring costs and legal proceedings was negative $49 million.

Cash used in operations was $64 million and capital expenditures were $2 million.

This concludes my comments.

I'll now turn the call back to John to provide our financial outlook.

Thank you, Steve.

I'll provide the financial outlook before we do our Q&A session.

As I said earlier, we reaffirm our financial outlook for the fiscal '20 for the total company year-over-year.

Year-over-year revenue growth will come in between 23% to 27%, driven by double-digit percentage increase in billings.

Revenue growth, according to our model, is -- will break down as follows: IoT year-over-year revenue growth will come in between 12% to 16%; BlackBerry Cylance year-over-year growth is expected to be in the range of 25% to 30%; licensing year-over-year will decline by about 5%; service access fee to be between $10 million and $20 million of revenue in the total year of fiscal year '20.

We also reaffirm total company profitability for fiscal 2020.

I will now open the call for Q&A.

Operator -- Lisa?

Lisa, please proceed with that.

(Operator Instructions) And our first question comes from the line of Daniel Chan from TD Securities.

John, any early surprises from the Cylance integration, either positive or negative, that you hadn't anticipated 7 months ago?

The positive -- there are a lot of good positive things.

The most positive thing is the technology side.

The team works extremely well together.

We've put our integration plan in putting the technology together, wonderfully putting AI capability onto UEM endpoint to differentiate ourselves.

That goes very well, progress made.

We set up the team on pole brands, and things are just moving along very nicely.

And as I said earlier in my script, we expect that to be done within this fiscal year.

To be done, meaning, to be released as a product, so that's reasonably record time.

The next team that has launched is to look into putting Cylance AI technology onto the automotive platform on the QNX.

That's going on very well, too.

Lots of idea exchange.

A little behind in terms of launching that probably because QNX has a pretty full schedule for the 2 products that I mentioned earlier.

And that will come shortly after that.

So I think on the technological side, it's very, very positive.

The sales, we're starting slow.

As I said a couple of quarters ago, BlackBerry is a mobile-first company.

So all our product wins are mobility.

Cylance is more of a progress on PC and routers and servers in fixed plan assets.

So it's important that we align our product road map to cover end-to-end from mobile all the way to server and routers.

And when we do that, which is, again, within a year we're talking about, then I think there will be a lot more synergy kicked in on the sales side -- on the revenue side.

That sounds good.

I'm also wondering if you had any thoughts on what you think might be weighing on the stock price.

We've seen the shares underperformed the overall market, and I think the CrowdStrike IPO had some positive read-through for you.

Does anything come up in your discussions that may explain it?

Good question.

We obviously pay attention to the stock price.

Especially, it seems that we could end better than the market.

And in discussing with our shareholders, I think there are -- their concerns -- one concern has been eliminated by the CrowdStrike IPO.

Their concerns, A, has BlackBerry overpaid Cylance -- paid too much for Cylance?

And B, could BlackBerry really integrate the business?

And this is a good opportunity, and thanks for asking the question.

Number one, I think this is a completely undervalued asset.

If you look at what we paid for Cylance, you will see that it will be slightly under 7x, if you think -- if you do the -- follow the math from the bar, up to 25% to 30% revenue growth, you will see that it will probably come in at 6.6 or 6.7, in that range.

And while I don't know where CrowdStrike is today, but at one point in time, not too distant in the future, they're trading at 40x revenue.

So I think this is great news for BlackBerry.

That's number one.

Integration.

This is one of the reasons why we spend a little bit more time on our script in covering integration.

The back office is all covered.

System will be covered by the end of this quarter, which is in the next 2 months.

We started the engineering thing we talked about.

And we also started the synergy between the market calling on common customers jointly together, and so all calling on the big banks and the governments that BlackBerry has and bringing Cylance into that.

Cylance has a good assembly channel.

We're trying to get BlackBerry products, traditional BlackBerry products through the Cylance channel.

So it will all help.

And so I think the integration is well ahead, and I wouldn't be overly concerned about it.

Our next question comes from the line of Steven Fox from Cross Research.

First off, John, I was wondering a little more detail on Cylance.

So you mentioned, for example, 100%-plus net retention rates.

Can you provide a little bit more color on directionally where that could go and how that might compare to some others out there in similar business models?

And also, given the first quarter sales growth, I'm curious why the full year for Cylance can't be a little bit better than we originally thought?

And then I had a follow-up.

So it's easy to answer your first question, the retention rate.

It looks like, speaking to the Cylance customers, once they install the product, they really like it, and they buy more.

And so this is why the retention rate -- dollar retention rate is up.

And I -- there are really 2 comps out there, Carbon Black and CrowdStrike.

And I would say from what I understand and, again, my understanding of this is an early knowledge based.

But from what I understand comparing those 2, now they got public, we'll see the numbers, we are kind of in between.

It seems like we're doing better than Carbon Black, and we're not doing as well as CrowdStrike.

And looking that from a number point of view, how long could CrowdStrike sustain that kind of craziness number is for you guys to decide.

That's your job, not mine.

But I feel very good about the company because when I look at it, it's really -- is the customer staying with you and are they buying more.

And the answer to both of those questions, with both talking to them and looking at the numbers, is affirmative.

So those are good things.

We typically a little bit more conservative, and so you could think about us between 25% to 30%.

We definitely are focused more on the high end of that range.

And if we could do better, we will report better.

Okay.

Great.

And then just in terms of the sales force reorganization, it seems like you had a little bit of a drag on Q1 sales.

Was that about as expected?

Or was there a little bit difference in terms of how it impacted your business during the quarter and where is it done, et cetera, for looking...

Thanks, Steve.

Yes, it's done.

It's completed.

We have made some management changes.

I think it's necessary for the business, given the phase we're in, and our phase we're in is in the growth -- is more in the growth phase.

So we brought Bryan in, and he is very focused on enterprise and building the enterprise sales force.

He brought in a couple of very talented executives who have been in the business for a long time, both in sales and in field marketing.

And then we have moved some of -- promoted some of our internal people to run bigger theater, who have proven that they could grow.

So I -- but the good news is these were all planned as Bryan came in, and it's all done right now.

And so we're not executing.

There's no more major changes that we anticipate.

Our next question comes from the line of Mike Walkley from Canaccord Genuity.

Just on the QNX portion of the business, you expect it to grow at the higher end of that 12% to 16% growth.

Can you talk about the growth in the royalty piece of the business?

I imagine you have some pro services ramping ahead of new projects.

And also, with your 2 new products coming to market, can you help us think about what that could do in terms of dollar content per vehicle once those platforms end up in automobiles?

Yes.

Actually, the growths are rather even between royalty, professional services because the gestation period for revenue was so long and sticky.

Long is one problem and sticky is one benefit.

Because they are so long and sticky, you don't really get all of a sudden a big chunk of professional services.

Now with LG win, we might see some uptick in ProServ in the coming quarters, but that's just my own speculation, and it was not a confirmed fact yet.

But we see uptick in all 3 segments.

Development seat, that usually comes when you have a design win, and professional services that depends a little bit on the customer.

So some of the customers, especially like the Tier 1, for example, they already have a lot of engineering resources.

So they know what they wanted to do with the technology, and they are familiar with the technology.

We don't seem to get a lot of ProServ from them.

But if it's more than OEM, then we could -- we definitely, because auto OEMs are ramping up their technological skill set.

We seem to have a lot more over there.

And then of course, the royalty will come later.

So I don't really see any major uptick in any one of the 3 buckets, only could tell you that in this past quarter compared to a year ago, all 3 of those revenue growth.

So regarding the ARPU because we got into a lot more on new cycle products, like the digital cockpits and the clusters, the ARPU is measurably higher per car.

Now -- but I have to be -- I have to own the fact that the whole -- a lot of our current base royalty are still coming from the infotainment wins that we have done in the last 3 to 5 years.

And so this is not a sudden sea change of ARPU, it will be a gradual change of ARPU -- gradual uptick of ARPU.

So we feel good about the business.

You're right, we expect it to be on the high end.

This particular quarter, it came in on the high end at 16%.

Just a follow-up question just on the licensing business with strong start to the year relative to your full year guidance.

Should we just kind of think about that kind of flattish in the mid-60s the rest of the year?

Or do you expect maybe a seasonal close to the year strong like last year?

Just trying to think about the cadences, how you're thinking about that down 5% for the year.

I'd like to answer that one.

I'm pretty close to it.

I believe the second half will be stronger than the first half and that the -- so you might have a similar number as Q1 or slightly down from that number in Q2, but I expect that Q3 and Q4, the combined number will be greater than the first half and that we will make the estimates that we've already guided you to.

Well, it's easy for him to make the estimate when you go year-over-year minus 5%, but Steve is very close to this part of business.

That's true.

Our next question comes from the line of Paul Steep from Scotia Capital.

John, could you talk a little bit -- you put the announcement out just before yesterday's AGM about the total installed base of QNX cars.

You've given us little hints around it today.

Maybe talk about that net 30 million in vehicles shipped growth in terms of where it generally was in sort of the uptick in, I guess, I would call, non-infotainment design wins.

How that's starting to ramp into the base?

And then I've got one quick clarification.

Yes, we are seeing -- so let's back off a second.

I think that in the last few years, the design wins, starting to see a lot of them in Asia.

And so when I look at the detail of 150 million breakdown, I am seeing an uptick in the Asian market.

Asia is now -- represent about 37%.

They might be manufactured in Asia and being driven somewhere in other part of the world, we only count the manufacturer as source.

So that just tell you a little bit about that part of the auto market over in Asia is very healthy and is growing.

And Europe continue to be a big sector and, obviously, U.S. So we are -- on a dollar basis, because of these design wins, recent design wins in the last 3 to 5 years, are a little bit higher ARPU than the infotainment, so we continue to see that uptick of revenue, and it's now also biased towards Asia and Europe.

Great.

That's helpful.

And just on the ESS sales realignment, just to be clear, is this centered more around the UEM business?

I'm assuming rightly or wrongly that this isn't touching AtHoc or Secusmart and that those businesses are more or less still executing.

And then you just talked about leadership going through.

Have all the reps that were going to be changed out been changed out?

I guess the question is around your confidence in seeing that uptick in the rest of the year.

We know that, usually, new people do bring some other change with them some time.

So...

That's a good question.

It's actually getting UEM ready for Spark.

We're making this change.

And yes, AtHoc and Secusmart and, particularly, AtHoc continue to perform well, and that is not an issue for us.

What we need to do with the new team is to make sure that they do -- they get ready for Spark, they continue the UEM-regulated industry business, and they're more focused on adding other vertical to it so that we're not going back -- I mean we love our customers, don't get me wrong, but we're not going back to the same customers over and over and over again, and we need to have a much newer source of revenue, much broader reach to the channel.

By the way, the management change are mostly management change.

We don't have any intention to change our reps.

That's not the point.

The new management people who comes in will bring in new reps.

But in addition, we're not thinking about who so changing our reps.

Our next question comes from the line of James Faucette from Morgan Stanley.

I just wanted to ask a couple of follow-up questions on Cylance.

First, your growth rates that you're anticipating for the rest of the year would imply that you expect a little bit of incremental deceleration from maybe what the business was doing before.

Just want to get a sense of where you think that those growth rates will bottom out.

And then more broadly, clearly, if -- you feel like you've got a pretty good deal on the Cylance acquisition, especially compared to some of the other assets, the way they're being valued.

What do you think are the key things that you are focused on operationally that will allow the market to assign a better value to Cylance inside of BlackBerry than what you were able to pay?

That's interesting.

First question, James, you always have a way to turn a positive question -- a positive situation into a little bit of a negative swing.

So I don't anticipate these...

I'm just asking where you think growth rates are going to bottom out.

I don't anticipate deceleration.

They're doing well.

The team that runs the sales over at Cylance are very highly qualified gentlemen.

We have RSA for a very long time, and he has a really good set of plans to expand with the help of the BlackBerry team and the BlackBerry base.

The most important thing is to get the joint product done.

When you get the joint product done, then both teams will have a lot more things to sell in the bag.

So I don't -- I think for this year -- because it will take us a year to get the integrated product with UEM and AI.

So I believe that for this year, I'm being modest, about 25% to 30%.

And remember, the keyword that I used when I made the guidance was, this is our model.

And so -- and that means that I'll miss some and I'll beat some.

And so if there's -- if you want me to bet money on, which one I'll beat and which one I'll miss, I'm probably going to bet money on beating Cylance number.

That will be my guess.

I mean I don't know what my colleagues thinks, but judging from the momentum and the differentiation out there, I feel pretty good about that.

And the market, as you know very well, is quite robust itself.

So as far as an operational concern is, this is why I kept Cylance separate and report directly to me because as much as I like the integration and the synergy, I also want Cylance to continue their expansion in the channel business.

They have, literally, over 1,000 channel partners, and they are mostly focused on SME.

And so -- and I wanted that business.

And they started to make some inroads on the consumer side of the equation by working with OEMs, like laptops OEMs and desktop OEMs, and I wanted to continue that, too.

So you will then see the number like we showed today, a separate number.

And I hope through that, we give visibility to the shareholders of the business and how well the business is doing.

I also adopted the industry metrics, standard metrics, as I said, ARR and the retention rate and like that stuff.

And just to make sure that people know that although this is part of BlackBerry, although there is a lot of synergy between the BlackBerry business and Cylance business, especially in products, technology and maybe go-to-market, they are also going to go after the traditional business and to continue that growth.

So I hope that through that visibility to the shareholders, I get valuation and probably need help from somebody like yourself to highlight that.

Our next question comes from the line of Paul Treiber from RBC Capital Markets.

Just in regards to the ESS, I think last quarter, there was a couple of large term license deals that were delayed.

Did you -- did any of those close this quarter?

Did you expect them to close in coming quarters?

I think majority of them will close.

Okay.

The second question is on automotive.

And this is where you've been very successful in design win side, but then the question is really around the time frame for design wins converting to revenue.

Have you seen any change in that time frame?

Is there any way you can estimate it?

And then do you look at backlog for that business?

And how has that been tracking?

Good question.

Yes, some of our people, I mean, our QNX management always look at the backlog.

And so the part of the QNX business that's good is quite predictable because of that backlog.

And the gestation period, unfortunately, doesn't really change a lot.

We would always like it to be shorter.

And the reason it doesn't change a lot, it takes -- once we have the design wins -- and the design wins usually, by the way, takes anywhere from 6 months to a year.

And once you've got the design wins, you get some early revenue from maybe ProServ we talked about and definitely developer seats.

And once you get -- but those are in 6 figures, typically.

We talk about couple hundred thousand dollars here and there.

And then the design got kicked in.

I am, for example, intimately kind of working on -- well informed on a couple of the OEMs, especially Jaguar, the Jaguar Land Rover.

I speak to the CEO on a very regular basis to make sure that we get that new car ready and go.

And I've been talking to him for the last couple of years.

We have products that's about to come out probably in the year or 2. So you could see that the design period of themselves is roughly about a 3-year cycle.

And then once that happened, then they start production ship.

And they usually -- that production ship is 2, 3 years.

And if they continue a family, like the Daimler group does, when they do a family, they don't change the family for at least 10 years.

So you could see the tail is quite long.

And then a lot of our current royalty enjoyed -- is enjoying that tail.

And the margins, of course, is very high.

And when you look at the BTS business, the growth rate of that business, do you think that -- where do you think we are in the S curve?

And do you think -- honestly with that, where do you think we are in the S curve?

We expect growth to continue and to increase.

We probably will not see a step function, but we will see a trend up.

We are in the mid-teens at this point.

And if you remember, last year, we had a tremendously good year.

We grew 25% year-over-year.

We expected to be 16% or above this year and -- but you should expect double-digit growth, that percentage, I mean.

Our final question today comes from the line of Todd Coupland from CIBC.

I am not piling on, on this question, but I do wonder about it and certainly a lot of investors ask about it is, is -- there is an obvious difference in growth rate between Cylance and CrowdStrike.

You're more or less 30%, and they're plus 60% this year, more or less.

And I'm just wondering, when you look at that and then relative to the market, how do you think about the differences and how should we be thinking about that?

Well, it's a great question.

So we, of course, will not be satisfied until we get parity or better than CrowdStrike.

Now CrowdStrike does -- I mean -- by the way, I'm new to this industry, okay?

So just take it with a grain of salt.

When people get ready for the IPO, you are even more experienced in this area.

You know that they're spending enormous amount of money, they're losing enormous amount of money, they're spending enormous amount of cash, to get to this coming-out party.

And so the sustainability of their growth rate is what I'm very interested in.

I mean I wish they could sustain it.

That means the market is there, and we could then do better in our own growth way.

But I'm a little bit doubtful.

Those numbers are very, very high.

Now we being in the business, our retention rates are great.

As I said, between the people buying from us and buying more, we have over 100% of revenue -- 100%.

So you could sense that our customers are loyal to us and they're buying more and they're using more, and we will get more new customers and -- because we have 30% net new customers for the quarter.

So I -- we, obviously, tried to do better than 30% and get to a market rate that both CrowdStrike and us could enjoy.

We are, however, I want to point out, doing better than our other competitor in terms of growth rate, and I don't know they don't do retention rate.

I don't think, they don't announce that, and so I can't tell you whether they have the same retention advantage.

But anyway, I wouldn't take a one -- I think we should take it as a little bit of a longer game.

I would now like to turn the call back to John Chen for closing remarks.

Very well, Lisa.

Thank you.

As I said earlier at the start of the call, BlackBerry is off to a pretty good start here in 2020.

We talked a lot about Cylance this year on this call.

It is a strategic asset, not because it's just a -- it's seller business that is growing and doing well, but we have overwhelming positive response from our customers and partners, and we're very pleased with the technology being able to help out and differentiate our existing technology in UEM and QNX.

We have a lot of products coming out this year.

And although it may not fully affect this year's result, but it will help set us up good for next year in terms of growth.

I think we have over 30 products across the entire company scheduled to launch this year.

We have 2 main operation priorities, one is to step up our investment to sustain that future growth.

We are -- some of us are already working on the next fiscal year.

So only Bryan works in the current fiscal year.

Bryan's probably on the call and that put a little bit more pressure on him.

And we will focus on integrating Cylance, which will yield a much longer-term shareholder value.

And we're off to a really good start on integration, products, people.

So I'm very pleased with that.

I thank you very much for your time today.

I hope to talk to you guys soon.

Have a great day.

This concludes today's call.

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