BlackBerry Limited (BB) Q1 2022 Earnings Call Transcript

BlackBerry Limited (NYSE: BB) Q1 2022 earnings call dated Jun. 24, 2021

Corporate Participants:

Tim Foote — Senior Director of Finance

John Chen — Executive Chairman and Chief Executive Officer

Steve Rai — Chief Financial Officer

Analysts:

Daniel Chan — TD Securities — Analyst

Michael Walkley — Canaccord Genuity — Analyst

Paul Treiber — RBC Capital Markets — Analyst

Trip Chowdhry — Global Equities Research — Analyst

Paul Steep — Scotia Capital Inc. — Analyst

Presentation:

Operator

Good afternoon, and welcome to the BlackBerry First Quarter and Fiscal Year 2022 Results Conference Call. My name is Jesse, and I’ll be your conference moderator for today’s call. During the presentation, all participants will be in listen-only mode. You will be facilitated question-and-answer session towards the end of the conference. [Operator Instructions] 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. Sir, please go ahead.

Tim Foote — Senior Director of Finance

Thank you, Jesse. Good afternoon, and welcome to BlackBerry’s first quarter fiscal 2022 earnings conference call.

With me on the call today are Executive Chair and Chief Executive Officer, John Chen; and Chief Financial Officer, Steve Rai. After I read our cautionary notes 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&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. 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 US and Canadian securities laws. We will 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. These factors include the risk factors that are discussed in the company’s annual filings and MD&A, including the COVID-19 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 their 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, SEDAR, and blackberry.com websites.

And with that, I’ll turn the call over to John.

John Chen — Executive Chairman and Chief Executive Officer

Thank you. Thank you, Tim. Good afternoon, everybody, and thank you all for joining us today. The main headline for this quarter is that we have organized our software and services business around our two biggest market opportunities, namely IoT and Cybersecurity. In the past few years, we have done a good job in product development. Last year, we launched 50 new products and a year before over 30. Later, I’ll discuss about more about the XDR product that we have launched this quarter, and I will provide you an update on BlackBerry IVY.

As you all know, at the same time that we are delivering our products, many of you know that we’ve been investing in our go-to-market as well. We have been in last number of years, especially the last few quarters turned up the noise with our marketing, expanded our channel and partnerships, and invested in more feet on the street.

Now, we are pivoting the organization more heavily towards the market by creating two business units, Cybersecurity and IoT. By aligning the Cybersecurity and IoT business unit to the main market opportunities, where we drive more focus and accountability, we will also improve our agility, being able to react to the fast-changing needs of the market and even say both of those be used at their own business dynamics. In order to accomplish this, we have recruited a number of new talents especially with deep IoT experience. This includes Mattias Eriksson who joined us from HERE Technologies as the President of the IoT Business Unit. Mattias brings over two decades of relevant industry experience and we focused on strategy, operations, and driving growth in the IoT business. BlackBerry President and Chief Operating Officer, Tom Eacobacci who focused on leading the Cybersecurity business unit. Tom has deep enterprise software experience and is a perfect person to engineer the growth of this new business.

From a financial reporting perspective, beginning this quarter, we will provide revenue and gross margin by business unit as well as other selected metrics. We believe that this additional color will help investor gain better understanding of the underlying performance of the business units, ultimately driving shareholder value.

So, let me start by reviewing with you, the IoT business unit. This business, which is primarily QNX, but also includes IVY, Certicom, Jarvis, Radar had a good strong quarter. Revenue came in at $43 million with increasing 48% year-over-year. Of course, a year ago, there was the pandemic, a hard hit quarter, gross margin was 84%, IoT ARR was $86 million. This growth in both revenue and ARR was achieved despite the fact that we have global chip shortage. The shortage continues to be a significant factor in the auto market in the near term, and it’s no doubt currently impacting the production-driven revenue of QNX. The scale of the impact varies by region and by OEM. The impact looks to be greatest in North America and less so in Europe and Asia. One of our largest customer in North Americas has indicated that production in Q2 will be impacted, or may be impacted by up to 50% but others are less severe.

Generally speaking, Q2 appears to be a low point with Q3 improving and Q4 further slow. The impact also looks to be smaller than that of the pandemic last year. So currently, we don’t see a need to change our revenue outlook for the year, but we will continue to assess the impact with our customer, and we’ll update you again next quarter. Just as a reminder, our IoT revenue outlook remains at $180 million to $200 million for the fiscal year.

In contrast to the production-based royalties, however, revenue from design activities, i.e., the developer seat and professional services is strong. Unlike Q1 of last fiscal year when COVID was becoming a major issue, confidence from our OEM appears high and we’ve seen a lot of design activities in progress. We are particularly pleased with two design wins this quarter. First one was with Volvo Group, who selected QNX autos and hybrid devices that stand for Real-time Operating System — sorry, guys, and hypervisor on a whole truck basis, meaning that our technology will power multiple easy use throughout the truck. Second, we further strengthen our position in the EV market with a design win with the Shanghai-based WM Motor. The QNX OS, the Autos, the QNX OS, and hypervisor will power their all-electric W6 SUV vehicle.

In total, this quarter we had 28 new design wins with 17 in auto and 11 in the GEM, the General Embedded Market. In auto along those we just mentioned notable design wins also includes Bosch and Visteon. These design wins span hypervisor, digital cockpits, multiple socket ADAS platform and high definition maps.

On the GEM front, the wide range of application won in the quarter with surgical robotic arm, industrial 3D printers as well as nuclear power station. So design wins such as the Volvo demonstrate two key secular trends that QNX business benefits from. The first one is the consolidation of lower compute power easy use towards a fewer number higher power chipset such as the ARM version V8 and the x86 64-bit chipsets. It is on these higher power chips that the QNX operates and as this consolidation continues, it gives QNX ever more opportunity in the car.

Secondarily, there is a — the second point, second trend that is. There is a trend of increasing software content per vehicle, particularly in safety-critical system such as ADAS, Gateway and Digital Cockpits. This is of course where QNX shine with the highest level of safety certification and has a strongest competitive advantage.

Our strategy to focus on safety-critical system which we put in place a number of years ago has allowed the business to benefit from these trends, ultimately leading to a higher average revenue per car. This strategy is delivering higher value design wins and will benefit the royalty revenue backlog. The backlog metrics is calculated using contracted price and future production volume estimates provided by the customer when the design is awarded. It is important to know that this is a customer’s estimate. The backlog increased from $450 million last Q1 to $490 million this first quarter. This is a 9% increase year-on-year, despite the pressure on new auto designs over the last 12 months. Strategy Analytics, a leading independent research firm recently published our QNX software is now embedded in over 195 million vehicles, that is up from a 175 million confirmed a year before.

Now for a brief update on progress with IVY. Driving the IVY opportunity forward remains one of our key priorities and we’re working closely with AWS to achieve this. Product development remains on track and in line with the roadmap. We remain on target for the Early Access version to be available in October and for the production versions we start shipping next February. Customer discussion and workshops are continuing, and we remain positive about how things are progressing. This quarter an additional five automakers engaged to explore IVY. This means that we are now engaged with almost all of our major QNX customers.

We recently announced the launch of the IVY Advisory Council, industry leaders on a number of key verticals have signed up including TELUS, telecommunications, one of the big three telephone company in Canada, GEICO Insurance, you see a lot on TV with their commercial, HERE apps and Cerence, which is the voice recognition auto business. Development of relevant and exciting new used cases for IVY platform remains a key priority and we believe that the council could greatly assist us with this. Delivering rather than maps and experience provide a higher engagement model with both the consumer as well as the enterprise.

Last quarter we launched the IVY Innovation Fund established to invest in start-ups adopting the IVY platform. Since then, we had a great response from the market and we have reviewed over 200 prospective customers. We recently announced our first investment in an exciting start-up called Electra Vehicle. Unlike most other start-ups in the battery management space, Electra aim to not only analyze activity, but to also actively manage the battery operations using artificial intelligence. Vehicle Sensor Data on IVY will feed their AI-driven platform, dynamically determining factors such as driving behavior and environmental condition to optimize battery performance. In summary, IVY is progressing well and we remain very focused on the various elements to need to make this a strong growth business and success.

Now, let me move to our Cybersecurity business units. These business units include our Spark Endpoint Security and Endpoint Management Products, UEM as well as AtHoc, the Critical Event Management software and Secusmart, secured voice and text product. GAAP revenue for the quarter was $107 million. As mentioned during the last earnings call, we now switch to GAAP-based revenue only. Gross margin was 57%. ARR was $364 million, and dollar-based net retention was 94%.

Over the last couple of years, the prevailing narrative has been that detection and remediation are the most important part of Cybersecurity. However, the founding principle of Cylance and one of our main reasons that we acquired is that prevention is far better than cure and that’s why we are market leader in EPP. Stopping threats before they execute and start doing harm is clearly a better strategy than trying to shut them down afterwards. This quarter we demonstrated strategy clearly with our next generation AV product named Protect, blocking the DarkSide Ransomware, believed to have been the cause of the Colonial Pipeline cyber incidents. In fact, the 2015 version of Protect also block most of the variants of the same ransomware, obviously six years ahead of its time.

We do have the most matured AI engine in this space and the ability to block ransomware years ahead of time without the need to update [Technical Issues]. This show the power of our prevention-first strategy. Protect has also shown to prevent other high-profile threats, such as Conti Ransomware, NOBELIUM, REvil and others. In addition to large enterprise customers, this AI-driven automated protection also resonate with small and medium-sized customer that don’t have the resources to establish the SOCs meaning the security operation centers. We see strong sequential growth in SMB new business pipeline of around 18%.

In the quarter, we announced two significant new products, both of which are part of the extended detection and response or XDR strategy, kind of the latest evolved market from EDR. The first product is BlackBerry Gateway with employee base remotely and not in the office as well as mobile becoming more prevalent, the traditional moat and castle model of network assets is no longer efficient or effective. In fact, VPN users once authenticated [Technical Issues] to the entire network, including on-prem and other SaaS applications for the length of their session.

BlackBerry Gateway is a Zero Trust Network Access product that uses to finance AI to continuously authenticate network activity. The cloud AI evaluate over 30 risk factors or we name as factors such as downloading behavior, DNS, query, time of day etc to determine unusual activity.

The second product released this quarter is Optics 3.0. Its our latest version of our Endpoint Detection and Response market or namely, EDR. With this new version, the AI driven engine remains at both the edge and in the cloud, allowing near real time responses both offline and online. This continues to be a differentiator for us. However, importantly, this new cloud enabled products will allow event data to be stored centrally in a cloud-based data lake. This together with a new search engine and a query language allow threat hunters to gain greater visibility.

Switching to the sales front, UEM revenue in Q1 was down year-over-year, in part due to the work from home ramp-up that we have saw last year but didn’t repeat. Let me reassure you that the UEM remains a important part of our cyber business and we remain fully committed to it.

In the quarter, we continue to secure business of highly regulated customers, maybe start with financial services. And financial services included Mitsubishi UFJ, Bank of China, Bank of France, and the Union Bank of India.

In the government and healthcare sector, we conducted business with the Government of Canada, the UK NHS Health Services, University Health Network, Canada, the United States Department of Energy and Department of Commerce, the Netherlands Ministry of General Affairs, the Australian Department of Environmental and Energy, also the White House Communication Agency, US Department of State, Department of Treasury, and the United States Department of Defense. Also in Government, in the United States Federal Government, we have increased the number of AtHoc cloud FedRAMP users by 6% sequentially.

From a market perspective, this quarter we gained new business through partnership, we recently announced with Verizon, Vodafone, as well as Telus. With Microsoft, we have integrated our critical event management product, Alert with Microsoft teams. Further, as we’ve communicated in the past, our Cyber Suite our UES platform is on target to integrate with Intune by the end of August.

This quarter we significantly stepped-up on our sales hiring. The market for high quality talent is competitive. And it has taken a little longer to [Technical Issues]. But we have currently expect to end Q2 with around 23% more sales rep than at the start of the year. This expanded reach will help BlackBerry to be in more competitive take-offs, where our product stands up well. With the recent increase in sales hiring, many of which started during Q2, billings score is slightly to be more heavily weighted to the back half of the year, therefore revenue is likely to be at the lower end of our $495 million to $515 million range that we gave last quarter.

Moving onto licenses. Revenue for the quarter was $24 million, which is better than expected because some business came in early. Gross margin was 75%. The negotiation for the sale of a large portion of the patent portfolio are ongoing and good progress has been made. In fact, we have started negotiating the definitive agreement. Revenue for Q2 is likely to be in the range of $10 million to $15 million for the IP as stated last quarter. So this has not changed. This is due to the monetization activities being limited by ongoing negotiations. In terms of the full year outlook for the licensing business should the sales not complete, we expect revenue to be around $100 million.

Let me now hand the call over to Steve.

Steve Rai — Chief Financial Officer

Thanks, John. So, 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. As John mentioned earlier, starting this quarter we are no longer adjusting GAAP revenue for deferred revenue acquired. This means the GAAP and non-GAAP revenue will be the same going forward and comparatives have been confirmed accordingly.

We delivered first quarter total company revenue of $174 million. First quarter total company gross margin was 66%. Our non-GAAP gross margin excludes stock compensation expense of $1 million. First quarter operating expenses were $138 million. Our non-GAAP operating expenses exclude $32 million in amortization of acquired intangibles, $6 million in stock compensation expense, and a $4 million fair value adjustment on convertible debentures which is a non-cash accounting adjustment, largely driven by market conditions. First quarter non-GAAP operating loss was $23 million and the first quarter non-GAAP net loss was $27 million. GAAP earnings per share was a $0.05 loss in the quarter and our adjusted EBITDA was negative $6 million for this quarter, excluding the non-GAAP adjustments previously mentioned.

I will now provide a breakdown of our revenue in the quarter. Cybersecurity revenue was $107 million and IoT revenue was $43 million. Software product revenue remained in the range of 80% to 85% of the total with professional services comprising the balance. The recurring portion of software product revenue was approximately 90%. Licensing and other revenue as John mentioned was $24 million, this is a little higher than expected as deals came in early. The monetization activity remains limited, while negotiations for the potential IP sale continue.

Now, moving to our balance sheet and cash flow performance. Total cash, cash equivalents, and investments were $769 million at May 31, 2021, a decrease of $35 million during the quarter. Our net cash position decreased to $404 million at the end of the quarter. First quarter free cash flow was negative $35 million, cash generated from operations was negative $33 million, and capital expenditures were $2 million. Bear in mind, the first quarter of our fiscal year typically has a higher cash requirement due to payment of annual bonuses and other demands at this time.

That concludes my comments, and I’ll now turn the call back to John.

John Chen — Executive Chairman and Chief Executive Officer

Thank you, Steve. Before the Q&A, I’d like to update everybody a few things. Although we have organized along the go-to-market lines, there are a number of future high growth opportunities that our BlackBerry lab is working on, that actually harness the power of all the entire technology portfolio. The first is supplying our AI/ML engine in IoT. One good example of this is using Cylance in the car. You may or may not remember at CE a couple of years ago we demonstrated an early version of how our Persona technology that identifies an appropriate assets for the user behaviors can be applied to drivers of vehicles.

We also demonstrated how our Protect EPP can be used to protect the connected cars from cyber threats. There are just two of the number of potential use cases that we are currently looking at.

The second is our data lake. Drawing data for an ever-increasing number of sources allow for greater visibility and determination of the real level of risk across an organization, this is obviously essential to Zero Trust applications. This applies not only to XTR but also the increasing sensor rich auto environment, autonomous drive and smart cities. This centralization of data insights for our data lake can enable a whole new business model in the future.

The third area is related to the recent US SBOM, Software Bill of Materials, the executive orders that aim to secure the software supply chain. This comes in light of the recent incidents including solar wind and the Colonial Pipeline threat — intrusions. Combining products from our IoT products, including our Jarvis code scanning tools, our QNX embedded operating system and our Certicom cryptology with our prevention first AI-driven cybersecurity product and services means BlackBerry offers a comprehensive approach to this issue. We have begun working closely with various government and standard setting bodies.

So, before we open the line for Q&A, I’d like to summarize the key messages again. I felt software and services business are our key market opportunity, strengthening our management team in the process. QNX made solid progress this year — this quarter, sorry. We are pleased with the strong design activities and the pipeline of new design wins, plus our royalty revenue backlog increase year-over-year. We continue to demonstrate real progress of IVY with tangible step [Technical Issues] such as the launch of the Advisory Council and then as well as the first investment by the Innovation Fund. We launched two new important products as for our XDR strategy and the AI-driven prevention first approach continues to be our focus. We are also increasing sales headcounts and pipeline is growing particularly for our new UES products. Our main focus is on growing the top line and therefore we continue to increase investment in both our software business unit as we see double-digit billings growth this year. Finally, we remain optimistic about the successful conclusion to the negotiation of the patent portfolio itself.

And with that, I would like to ask Jesse to open the line for Q&A, please.

Questions and Answers:

Operator

Thank you, speakers. Participants, we will now begin the question-and-answer session. [Operator Instructions] Speakers, our first question is from the line of Daniel Chan of TD Securities. Your line is now open.

John Chen — Executive Chairman and Chief Executive Officer

Hi, Dan

Daniel Chan — TD Securities — Analyst

Hi, John. So, you stated that your QNX royalty revenue backlog increased to $490 million from $450 million last year. Over what period of time, do you expect that backlog to be recognized over?

John Chen — Executive Chairman and Chief Executive Officer

Typically, the highest — usually four to seven years, and typically its peak at four and then it start moving down towards the end of the life cycle of a car. Sometime, it extended more beyond that.

Daniel Chan — TD Securities — Analyst

Okay. That’s helpful. Thanks. And then you also talked about the IVY Advisory Council. Can you talk about the level of commitment partners have agreed to as part of this council and whether you plan to include major OEMs on it?

John Chen — Executive Chairman and Chief Executive Officer

Yeah. It’s a great question. But before I answer that question let me make one more comment on backlog, because I have also got some feedback regarding that our backlog number is very conservative. I would tell you that it is on a conservative side. And we get it from directly from the OEM when we win the design win and they gave us the estimate. We also have not included professional services backlog and developer seat backlog. So, in the future, when we have a very solid methodology, so that we just don’t kind of do much of the guessing and we get a very grounded set of math, you will see that backlog number to go up and show you all that we are going to include that. But that may take a couple of quarters.

And to go back to answer your question regarding the Advisory Council. They are there to help us to define used cases, particularly in the vertical that they operate in that the IVY could be of great help and I don’t want to exclude any OEM but I don’t think OEM would want to do that. They tend to do it one on one with us directly, because this is obviously value add that they don’t want to share. So our proprietary do themselves. I hope that makes sense.

Daniel Chan — TD Securities — Analyst

It does. Thank you.

John Chen — Executive Chairman and Chief Executive Officer

Sure.

Operator

Next question is from the line of Mike Walkley of Canaccord. Your line is now open.

John Chen — Executive Chairman and Chief Executive Officer

Hi, Mike.

Michael Walkley — Canaccord Genuity — Analyst

Hey, John. Thanks taking my question. Yeah, I was hoping you could update us on BlackBerry’s UEM strategy? I know there are some tough big comps because of the pandemic from last year, but at least update us on the strategies, is it still a large piece of your cybersecurity business unit?

John Chen — Executive Chairman and Chief Executive Officer

Yeah, that’s a good question. So, let’s see, our Spark platform just composed of UEM and UES and UEM is very strategic to us because it is our gateway to a lot of our major customers who completely rely on us on security. So our strategy is continue to expand our footprint in the regulated industry and we’re on the more price sensitive and kind of the non-regulated industries, we want to make sure that our UES platform, which is our endpoint security platform also connect to run on it and obviously one of the largest installed base outside of MySpace here, outside the regulated is Microsoft Intune. So this is why that we’re excited about the fact that we’ll have Intune released — connected release in end of August, I believe, yes — and end of August.

So basically, the strategy is continue to expand the footprint that we have in the vertical like financial, healthcare, and government. That’s very important to us with the UEM, with its roadmap. The roadmap is highly geared towards security and certifications and compliance and so forth and then to bring your own device of BYOD environment and that’s still kind of the roadmap of UEM focused on. And then the UES is of course expanding on the cybersecurity antiviral stuff. So that’s our strategy of how we approach the market.

Michael Walkley — Canaccord Genuity — Analyst

Okay. Now that’s very helpful. And just my follow-up question. Just on the gross margin by division, thanks for the updated business metrics. How should we think about growth and trends for the businesses over-time, particularly on the cybersecurity business? Where could those gross margins get to over-time as the business ramps and any reason why it might have fallen a bit sequentially?

John Chen — Executive Chairman and Chief Executive Officer

Yeah. I think the best way to answer the question is that, especially cybersecurity, we’re trying to go to the enterprise software timeless model. And so we have not deviated from that. So the gross margin ought to be maybe heightened competitive but they have the high volume growth somewhere between 75% to 80%. I think that will be a very good target to shoot for the cyber business.

Michael Walkley — Canaccord Genuity — Analyst

And what might need to happen to maybe get there from where you are today? What would be that timeframe you think?

John Chen — Executive Chairman and Chief Executive Officer

Timeframe, I think probably a year out. You want me to guess that, like based that on, because if you recall, we actually have a lot of increase of headcount feet on the street this quarter. In fact, our quarter ends in August. In fact, some of them has committed to sign on and is yet to start. And with that, if I give them the time for nine to 12 months, six to nine months getting up to speed and at the same time, cultivating the pipeline to make the sales cycle work, I think about a year out, I should see some good results from this class of incoming team members there.

Michael Walkley — Canaccord Genuity — Analyst

Great. That’s helpful. Thanks for taking my questions.

John Chen — Executive Chairman and Chief Executive Officer

Sure.

Operator

Next question is from the line of Paul Treiber of RBC Capital Markets. Your line is open.

John Chen — Executive Chairman and Chief Executive Officer

Hey, Paul.

Paul Treiber — RBC Capital Markets — Analyst

Hi. Thanks, and good afternoon. First of all, follow-up question on sales. When you mentioned in the outlook the prepared remarks that you expect bookings, double-digit bookings growth for the year, how should you think about the ramp or the trajectory over the year?

John Chen — Executive Chairman and Chief Executive Officer

I actually didn’t get. Paul, I missed some part of your words.

Paul Treiber — RBC Capital Markets — Analyst

Yeah, bookings growth. How should we think about bookings growth over this coming year? How should we think about the ramp over the year relative to where we are now?

John Chen — Executive Chairman and Chief Executive Officer

Yeah. As I said earlier also, we just recently have a lot of increase of headcounts in sales. So the booking need to be back-ended this year and then continue on for next year, obviously. So I don’t know whether that’s the question you were asking.

Paul Treiber — RBC Capital Markets — Analyst

In the rate of growth there like, where do you kind of — where do you expect to go to?

John Chen — Executive Chairman and Chief Executive Officer

Yeah. On bookings we do expect it towards the end of the year. We do expect to see a double-digit percentage growth.

Paul Treiber — RBC Capital Markets — Analyst

Okay. That’s helpful. On cybersecurity revenue for this quarter based on the numbers, the historical numbers and GAAP numbers did take a step down, I think you mentioned UEM. Can you just elaborate on what you saw customers doing, I mean I imagine they purchased last year. Do they churn off? Can you just elaborate on what happened there?

John Chen — Executive Chairman and Chief Executive Officer

No, I think it is quite — in general, it is quite steady and stable. We didn’t see the growth that we’re hoping for, but it will be forthcoming because we just released the EDR products. We talk about cloud version, the latest Optics 3.0. We just released all these new products a couple — a quarter ago, actually a quarter ago. So we are seeing that pipeline being build up and just looking for them to come into being billings and business. So we don’t — I don’t see any major movement one way or the other. But if people are interested in EDR, I believe that they should be interested more in Protect. That’s our job to make sure that, that message come across and the benefit of that could be demonstrated and I definitely could demonstrate. One thing you can look at the BlackBerry, the BlackBerry-Cylance product combo, none of these major viruses, yes, none of these major viruses had actually hit our user base, touchwood. And so any way, that tells you the power of our product.

Paul Treiber — RBC Capital Markets — Analyst

Okay, thank you. I will pass the line.

John Chen — Executive Chairman and Chief Executive Officer

Sure.

Operator

Next question is from the line of Trip Chowdhry of Global Equities Research. Your line is now open.

John Chen — Executive Chairman and Chief Executive Officer

Hi, Chowdhry.

Trip Chowdhry — Global Equities Research — Analyst

Thank you. Very good execution on the product front.

John Chen — Executive Chairman and Chief Executive Officer

Thank you.

Trip Chowdhry — Global Equities Research — Analyst

Two quick questions. First, regarding the battery management system. I was wondering, this is definitely an incremental market for you. There are three parts of the business model the way I look at. There could be a design win [Technical Issues] production part of it in the software, and there [Technical Issues] subscription part of the software that is running or managing the batteries. So among these three things, is it all the three components or is it only the software and subscription regarding the battery management software that QNX is running?

John Chen — Executive Chairman and Chief Executive Officer

Yeah. So, thank you, Trip. So first of all, it’s a little early for me to answer the question. I have a preference. The preference is a usage-based revenue or a monthly subscription type revenue. That would be my preference. Of course, that would have to be in agreement with the OEM. So, demonstrating that an IVY, as an IVY use cases is one of the most important thing that we need to do in the next three to six months. There is a demo being put together. It will not be available until probably the end of this calendar year as full engineering team just started working on it. And in the meantime, we’ll try to figure out the question, the answer to the question that you posed. Again I have a strong presence for this to be either usage based or monthly recurring based.

Trip Chowdhry — Global Equities Research — Analyst

Wonderful. The second question I have is regarding your exceptional machine learning models you have and definitely currently your Cylance machine learning AI models work with only your product. Are you exploring or do you think it makes a business sense to open-up your machine learning models to say other OEMs or to other ISVs and then such poor connection or charge per like an APIs, because your product which is gateway security, I think that is very normal and again, that’s another incremental revenue opportunity you can get over period of time. So I was just thinking you know since you have the best training models available, just licensing them or any other business model that can give more revenues for you, your thoughts on that we really appreciate and again, very good execution on the product front.

John Chen — Executive Chairman and Chief Executive Officer

Thank you. We haven’t thought about licensing those models to other application. Maybe I’ll say that. However we are licensing that — well, licensing is a wrong word, sorry. We are embedding the lightweight agent in IoT devices including like medical equipment and industrial equipment and some of those other technology we have like the mobile threat detection and prevention also uses the model. So it’s being used in a different way. From a business perspective, we didn’t think about the licensing where I could explore that but we are more focused on doing embedding in endpoints.

Trip Chowdhry — Global Equities Research — Analyst

Very good. Thank you very much, John.

John Chen — Executive Chairman and Chief Executive Officer

Sure, Trip. Thank you.

Operator

Next question is from the line of Paul Steep of Scotia Capital. Your line is now open.

John Chen — Executive Chairman and Chief Executive Officer

Hi, Paul.

Paul Steep — Scotia Capital Inc. — Analyst

Hi, John. Can you maybe either just on maybe for both you and Steve. I’ll just make it one question. You can first up as you like here. Can you give us some context around the cost base, obviously disclosed last quarter that you had 3,497 employees globally. And then earlier in this call, you talked about increasing the number of reps by 23% at the end of Q2. So I’m just trying to square up how we want to think about your cost base maybe going forward whether you’ve just incrementally shifted resources or is this like net new ads that we shall be thinking that are temporarily going to get added and then come to productivity as you pointed out earlier?

John Chen — Executive Chairman and Chief Executive Officer

Yeah. We have not done any major or even minor reduction in force. We have moved some resources around more of a functional investment reasons, not for reduction of people. So it’s probably best for you to think about it as incremental.

Paul Steep — Scotia Capital Inc. — Analyst

That’s helpful. Maybe just the last one as well. In terms of new cybersecurity products, obviously, you’re talking about given the team time to ramp up, but maybe talk to us a little bit about what you’re seeing from inbound client interest because you’ve launched — a significant number of products been on a bit of a role here in terms of new product launches. That’s it. Thanks.

John Chen — Executive Chairman and Chief Executive Officer

I assuming you’re talking about the cyber side?

Paul Steep — Scotia Capital Inc. — Analyst

Yeah. Sorry, cyber.

John Chen — Executive Chairman and Chief Executive Officer

Okay. Right. Probably most of the conversation center around the Protect product. I would say if I think about in the larger opportunities and sites that we have, one, the key winning product it is the Protect. So this is why you heard me say a number of times on this call today and we’re going try to double down on the Protect side because this is a differentiator for us. And in addition to that, the AI-ML model that we have could be embedded and embedded without having to be updated, it’s been valid for a very long time. So that’s probably the largest opportunities when you think of our large installations. And now, what we’re trying to do is to position the XDR product we talk about the new one for gateway, and that provide a Zero Trust architecture. So enterprise, especially like government, was extremely interested in that — those two areas.

Paul Steep — Scotia Capital Inc. — Analyst

Thank you.

John Chen — Executive Chairman and Chief Executive Officer

Sure. Thank you.

Operator

Thank you, participants. I will now turn the call back over to John Chen, Executive Chair and CEO of BlackBerry for closing remarks.

John Chen — Executive Chairman and Chief Executive Officer

Thank you, Jesse. Thanks everybody for joining us. I know it’s late in the East Coast. So I wanted to just — hopefully you all are doing well. And thank some of you who have attended our Annual Shareholder Meeting yesterday. And I’m looking forward to speaking with you folks soon. Have a great evening.

Operator

[Operator Closing Remarks]