John Chen - CEO James Yersh - CFO

Tim Long - BMO Capital Markets Colin Gillis - BGC Financial Maynard Um - Wells Fargo Ehud Gelblum - Citi Simona Jankowski - Goldman Sachs Mark Sue - RBC Capital Markets Rod Hall - JPMorgan Amitabh Passi - UBS Richard Tse - Cormark Securities

Good day and welcome to the BlackBerry Third Quarter 2015 Results Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. John Chen, CEO of BlackBerry. Please go ahead sir.

Thank you. Thank you very much and good morning everybody and welcome. And before we start I'm going to turn over to Joe for the Safe Harbor language.

Thank you, John. So after I read our cautionary note regarding forward-looking statements, John will provide a business update and James Yersh will then review the third quarter results. We will then open up the call for questions. Our Q&A will be slightly shorter today given preexisting commitments. In order to let as many people as possible ask questions, please limit yourself to one question. The call is available to the general public via call-in numbers and via webcast in the investor relations section at blackberry.com. The webcast can be accessed through your BlackBerry 10 smartphone, your personal computer or your BlackBerry PlayBook tablet. A replay of the webcast will also be available on the blackberry.com website. Some of the statements we will be making today constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian Securities Laws. We will indicate forward-looking statements by using words such as expect, plan, anticipate, estimate, may, will, should, forecast, intend, believe, continue 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 appropriate in the circumstances. Many factors could cause the company’s actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements, including the risk factors relating to the company that are discussed in the Risk Factors section of our Annual Information Form, which is included in the company’s annual report on Form 40-F and the company’s MD&A, copies of which filings may be obtained at www.blackberry.com. These factors should be considered carefully and 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, whether as a result of new information, future events or otherwise, except as required by law. I will now turn the call over to John.

Thank you, Joe. Well I'm sure you have the results in front of you and again I welcome you all to our call here. I, together with my team are extremely pleased with the management of our finances. We turned in $0.01 on a non-GAAP profit and a positive cash flow from operation of $43 million for the first time in two years. Operating expenses and margins were managed extremely well, while we were able to launch and deliver very important new products. I will get into that a little later, the detail of those products. We expect to remain cash flow positive and continue to expect to achieve sustainable profitability sometime in the FY '16 timeframe. Now that the team has a pretty good handle on content margin, I myself and a number of our senior executives are spending most of our time on improving and expanding our distribution. It is my belief that we can grow and stabilize the revenue or stabilize and grow the revenue of the company in FY '16 and while we will make every attempt to stay profitable going forward, sustainable profitability only comes from revenue growth and that is certainly our strategy here. To see this revenue growth we probably need a couple of quarters and I will explain that a little later. One of the things that we’ve already done is to have -- has been aligning internal resources to support the field and a couple of 100 employees have been commissioned into the field to drive this, to help drive this growth. I see about one more transition -- we call it a transition quarters, the one that you just saw in Q3, in terms of revenue as we ramp up the volume in Classic, which we just announced, followed by revenue stabilizing and sequential growth sometime in FY '16 as some of our investments start to gain traction. I’d like to spend a few minutes on the revenue side, is a number that obviously to us is not satisfying. We understand the makeup of the number and as we all said a number of times our focus have always been in this year of our margin and cash flow. We achieved that but now we're going to turn our attention to revenue. So to give you a little bit of color on the revenue; on the hardware side the quarter was completely and entirely focused on clearing out our old inventory. I'll give you some stat -- numbers behind it. This obviously weighted on the ASP of the quarter. Going forward, because of the new products, we expect the ASP to start picking back up again. We're able to fulfill about 200,000 Passport orders that was preordered at the time we announced it, while reducing the manufacturing lead times to roughly now between four to six weeks. However, because we have sold our stock out a number of times in the quarter waiting for the fulfillment, we were only able to fulfill order backlog of Q3 by December 12. So that was clearly already into Q4. And I also want to remind everybody that our revenue of these devices are all recognized on a sell-through basis. So not every one of those units, in fact most of those units revenue are not recognized in Q3. And we obviously will recognize as they lead [ph] up in throughout the next few quarters. I spoke about inventory, cleaning out old inventory. I'm very pleased to announce that or to report that our inventory level, on the old inventory, old device inventory level is down 93% year-over-year since the 13 months that this team have taken over. So now literally we have very few prior devices left that we could provide. Despite of all this we achieved our second quarter in a row with positive hardware gross margin. And so that's the old products and where our focus is in. And then of course we just launched our Classic. I could report the fact that the Classic has been extremely well received. The orders are ahead of where the Passport was at the time of the launch a few months ago. Finally we did turn away a number of, I would call, low margin and simply negative margin deals in the quarter and we will continue to do that, by the way as a practice going forward. We will not do deals that we know the margins are hurting to our bottom line. Moving onto the SAF, the SAF revenue was down about 13% quarter-over-quarter, which pretty much in the middle of range that we expected. With the launch of the Classic we are modeling a little bit more aggressive SAF decline, which is no different from what we showed you in San Francisco on November 12 which was that we are modeling a 15% sequential decline. On software, recall that the Enterprise Software product we released in November, which I just referred to, and the typical enterprise software sale cycles are roughly about six to nine months for the Enterprise. However we have seen the BES 12 gain a lot of traction and partly because of the EZ program, EZ Pass program that we had in place and the beta program we have placed and we already have made a number of very notable wins to date for that matter. I’ll report on some of the names later. Now on update to our progress in returning to the growth part of the story, first on the device side, on the device side on the Passport was successfully rolled out to 48 different countries in the last couple of months, including Canada, U.S., South Africa, Saudi Arabia and India. North America and Europe account for 61% of the Passport sales. On the Z3 that we rolled out about maybe 10 months-11 months ago is still going reasonably strong and has been rolled out to over 54 countries to-date total. We continue to see a reasonable demand for this product at least for the next couple of quarters, two to three quarters. Lastly we’ve referred to the Classic that launched a few days ago. As I reported we have very strong support and traction of the product. People like it. We have also very strong support from the operators on a worldwide basis. So initially the carriers that have the Classic at the retail stores, so this is, as those of you that follow us reasonably closely that, this has not been something that we have enjoyed for a while. So there are a number of carriers that have put us on their retail stores, including AT&T, Rogers, Bell, Telus, Deutsche Telekom, Orange, Telefonica, Singtel, China Mobile and more, as well as many local operators in Europe, Africa and Middle East. The list will expand and we are working on that aggressively right now. We have a pretty strong device roadmap going forward and we will discuss this at the Mobile World Congress in March. So I invite you to make sure you don’t miss that. I think you will find that interesting and exciting. I’d like to move to the Enterprise Software side, BES 12 and our value-added solutions, services solution launched last month. We are committed to making the BES 12 the leader in the cross platform EMM, the Enterprise Mobility Management segment. This commitment is highlighted with our support for the Samsung KNOX solutions. In fact I wasn’t able to stay, I understand from my colleagues that there was a pretty good reception at the NASDAQ when we had a joint event with Samsung in New York, this Wednesday and the one that we saw James Yersh has been seven storey tall [ph]. Unfortunately I had to attend -- come back to attend a Board meeting. Anyway this commitment is highlighted with our support of the Samsung Knox that we talked about. And we also made two major announcements today to reinforce our cross platform commitment; the first we are pleased to announce the support of Lollipop, the codename version of the latest Android, and I guess it’s known as the L Series. Second we are pleased to announce that Boeing is collaborating with BlackBerry to provide secure mobile solution for Android devices utilizing our BES 12 platform. That’s by the way is all they allow me to say. So sorry it seems like I am reading it word for word. I am committed and my -- I’m true to my commitment here. Okay we believe this cross platform message is resonating with customers, I will give you some wins and just a month into the BES 12 release we announced or we are pleased to announce that firms all around the world such as Tata Energy, McKenzie Health, Bombardier the trusted source of unit of Unit Automatic [ph] in Singapore and more have decided to go with the BES 12. And these are wins that we already recorded. And then in addition to that Ocean Capital Investment, which is an affiliated unit of Irving Oil is moving away from MobileIron and will be our first BES 12 hosted customers. Air Canada has also been testing our BES 12 hosted solution and is planning to deploy it. So that’s already a number of wins and I am sure the wins obviously we have a longer list of that but I think I’ll just stop right there. We have a successful BES 12 beta program with 89 customers already fully deployed, only one month after we launched our BES 12. 174 more beta customers have planned to roll out the BES 12 within the next 12 months. And by the way of all these beta customers 70% of that -- of the number of the beta customers are on mixed OS environment. That means that they are cross platform, managing Windows and iOS devices and Android devices in addition to BlackBerry devices. Our BES 12 seating program the EZ Pass now has over 4,900 total customer registrations, which is about 1,300 more than last quarter when we reported. As of today we have 6.8 million licenses turned in, 100% growth over last quarter. So very, very well received. Of these licenses about one-third were traded in from competitors. With this uptake exceeding our goal, obviously somewhat way exceeded my goal, our attention is now turning to monetizing it for FY’16. So we have decided to end the EZ Pass sign up at the end of this month, at the end of December. Launch of the value-added services; on Wednesday when we launched our Classic in New York at Frankfurt and Singapore, we also launched two bundles. First our secure productivity bundles, which include VPN solution, BBM Protected and Blend for $6 a user a month. Second, the second bundle is the Enterprise Communicator Bundle which includes the BBM Protected and BBM Meetings for $12 per user per month and I think some of you who have been to our launch event have seen the power of that and we have done a good demo. Those of you who haven’t seen it and would like to see it, I'm sure that calling our team, we’ll make sure that we can arrange to show you that. Lastly we successfully completed our acquisition of Secusmart, which is the encrypted voice solution; encrypted voice and encrypted text solutions in Germany as well as Movirtu, which is a soft SIM company in UK. On the distribution front we also have made good progress and we’re going to make more of that. We are deploying our -- as I pointed out earlier internal resources to boost our effort there already and on the in-direct channel side we have signed a couple of new agreements including Ingram Micro and Brightstar and they by the way are not only in the hardware side of the equation as well as the software side, they are reselling some of our software solutions. Carrier, who had also agreed to resell our software included Vodafone, Verizon, China Mobile and India Idea Cellular and more. But we picked Airtel because they have pretty broad reach. We are one of the first and the only company that we know of that provide the so called enhanced SIM based licensing billings for the enterprise software and this means that software could be charged to the phone bill. And this really facilitate how businesses does -- or do buy our software or use our software through carriers and our partners. We are on that solution, the enhanced system-based licensing, we are now live with not only the Idea Cellular India but we’re also live with Vodafone in Germany. And then we of course we intend to roll out to more carriers in more countries over the next 12 months. I’d like to spend a minute on the online side. We’ve been stepping up our effort on the online channels and this will be a strong continued focus of ours going forward. There are now over a 170 websites selling our products around the world, in addition to our initial core of the Amazon and blackberry.com we’ll have more on our way. It’s -- we’ve been doing very good business on both the Amazon as well as the BlackBerry and Amazon of course you all know that it has stocked out a number of times so has blackberry.com. So receptivity has been very strong. We also have on the vertical partner side and application partner side we have expanded our ecosystem to embed some of our solutions in some of these partnerships like NantHealth, on the human genome projects, cancer research projects and Samsung of course we talked about helping each other on the KNOX space. Salesforce.com and more and stay tuned, there are more to come. Last but not least I’d like to spend a minute on the BlackBerry Technology Solutions, that’s called BBM. I believe the investments that we made in our technology portfolio, which are devices, BES 12 messaging, BBM software, along with our very extensive carrier relationship as well as the investment we already made in the security and infrastructure will serve as probably the most industry most completed, as well as most integrated platform for managing and securing Internet of things platform, or the most completed IOT platform. We are intending to review the platform roadmap, the IOT platform roadmap and the technology behind it, at our CES in January. Some of you I think already have the invitations from us and please do come and I think you’ll find that pretty exciting. I find it pretty exciting for the future and you could also see how everything that we do actually integrate together as one and we certainly hope to see you there. And you will also see by the way the BBM roadmap in addition to the IOT roadmap. So I'd now like to turn the call over to James who will provide you the detail and some color on the quarter.

Thanks John. I am going to start with a couple of financial highlights from the quarter. In the quarter we did have positive cash flow of $43 million, adjusting for items not part of normal operations, meaning that we achieved our first financial milestone that John and I started talking about a year ago. In the quarter we also turned in a non-GAAP net profit of $6 million or $0.01 per share. These results were largely attributable to disciplined management of margins and expenses. Now turning to the income statement, revenue for the third quarter was $793 million. Hardware represented 46% of revenue, the same as last quarter. We recognized revenue related to approximately 2 million devices in the third quarter consistent with the previous quarter. Legacy BB10 and BBOS product inventory is down 93% year-over-year as John mentioned previously. ASP in the quarter was roughly $180 and we expect this to increase on the back of our new product releases. Service revenue represented 46% of revenue, consistent with last quarter. Service access fees declined 13% compared to last quarter's SAF revenue and we continue to model a SAF decline of approximately 15% for the next quarter. Software and other revenue represented 8% of revenue. Both GAAP and non-GAAP gross margins were 51.7%. Hardware gross margins were positive for the second quarter in a row. We continue to model gross margins to be in the high 40% range for the next couple of quarters. Non-GAAP operating expenses were $394 million, down from $433 million last quarter. GAAP operating expenses were $549 million and included in GAAP OpEx were $5 million of restructuring charges as well as the non-cash charge of $150 million for our convertible debt, which as I have explained in prior quarters, GAAP requires that we record a charge as the value of our debt increases. This is a non-cash charge, has no impact on our face value of the debt, on our liquidity, on our operations or cash flow. In the quarter, amortization expense was $74 million. The GAAP tax recovery in the quarter was approximately 8%. GAAP net loss, which includes the impact of debt and restructuring was $148 million or $0.28 per share. Now moving on to our balance sheet and operating working capital performance, our cash balance increased by $12 million quarter-over-quarter. Purchase obligations and other commitments amounted to approximately $1.6 billion relatively flat to last quarter. Purchase orders with contract manufacturers represented approximately $565 million of the total. This is up 64% quarter-over-quarter due to our new product launches that will occur over the next couple of quarters. These purchase commitments are still ramping up and are backend loaded. Total cash, cash equivalents and investments amounted to $3.1 billion. Looking forward we expect to remain cash flow positive and continue to forecast a non-GAAP income statement profitability at some point during FY ‘16. That concludes my comments and I'll send it back to John.

Very good. Thank you. All right, operator, do help by polling the Q&A please.

Thank you. [Operator Instructions]. We'll go first to Tim Long with BMO Capital Markets.

We'll take Colin Gillis with BGC Financial Next.

We'll go next to Maynard Um with Wells Fargo.

We’ll go next to Ehud Gelblum with Citi.

We'll go next to Simona Jankowski with Goldman Sachs.

We will go next to Mark Sue with RBC Capital Markets.

We’ll go next to Rod Hall with JPMorgan.

All right we'll go next to Amitabh Passi with UBS.

We’ll take our next question from Richard Tse with Cormark Securities.

Thank you. Okay. Let me wrap because I am sorry I have to go and do my town hall meeting so I have all my employees waiting for me. So I appreciate that you all tuning for today and so I could summarize the fact that we are very proud of the fact we delivered a profitable quarter, very positive cash flow. We now have work to do on revenue and then we have got number of goal mentioned. We talked about that in hardware and software and value added service, QNX and the like and then we are going to talk about IOT at CES, we’re also going to give you our BBM technology roadmap at CES for those people who are planning to join us and please do make sure you come and get the time and day and locations from our team. And we’re also going to review our handset strategy at Mobile World Congress just like last year. We did the handset strategy review in last year and we’ll see in Barcelona that’s I guess is the first week of March in Barcelona. So with that I wish you all a happy and safe holidays and thank you very much for tuning in.

And that concludes today’s conference call. Thank you for your participation.