John Chen - Chief Executive Officer Joe del Callar - Head-Investor Relations James Yersh - Chief Financial Officer

Scott Penner - TD Securities Maynard Um - Wells Fargo Tim Long - BMO Capital Markets Daniel Chen - Scotiabank Richard Tse - Cormark Securities Amitabh Passi - UBS Steven Li - Raymond James Rod Hall - JP Morgan Michael Kim - Imperial Capital Brian Prohm - Cowen and Company Mark Sue - RBC Capital Markets

Good day and welcome to the BlackBerry Fourth 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, BlackBerry's CEO. Please go ahead sir.

Thank you, Kim. Good morning everybody and I would like to start with Joe first. Joe please go ahead.

Welcome to BlackBerry's fiscal 2015 fourth quarter and year-end results conference call. With me on the call today are Executive Chairman and CEO John Chen and Chief Financial Officer, James Yersh. After I read our cautionary note regarding forward-looking statements John will provide a business update and James will then review the fourth quarter results. We will then open up the call for questions. Our Q&A will be slightly shorter today given pre-existing 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 tablet. A replay of the webcast will also be available on the blackberry.com Web site. 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 and good morning everybody and thank you for joining us this morning. Earlier today we announced the earnings per share of $0.04 on non-GAAP and with the revenue of 660 million. This past quarter we remain disciplined in our expense management and increasing our free cash flow to 190 million which is 12% up sequentially and reversing the over $0.5 billion cash used in the prior year same quarter. Our software business had a particular strong quarter going 24% quarter-over-quarter and 20% on a year-over-year basis. With the fourth quarter in our belt we are now half way through our two year turnaround effort and I'm very pleased to report that our financial house is in order. Our cash balance reach 3.27 billion now matches the highest balance in the company history which we last achieved in May of 2010, and an increase of 608 million compared to the end of FY14. Our financial viability is no longer in questions. We are now turning our attention to revenue stabilization, while staying cash flow positive and achieving sustainable profitability sometime starting this fiscal year. So we will accomplish this by growing our high margin software business and focus on profitability in the in the device business. Let me take you through some of the highlights that we're seeing in our business that give us some level of confidence. I'll put it in five different buckets. First, we are the recognized leader in mobile security and privacy technology and we'll continue to investment in our leadership position and market this as our differentiation. Secondly we're seeing traction with our new handset and we expect the average sell price ASP to trend up and continue to work hard in the cost of goods sold to lower the cost of goods sold. Therefore we do expect the device to become increasing profitable as we move into the second half of the year. Third, we are witnessing good momentum in enterprise software and services BBM and IOT, we believe we can sustain this momentum with the investment we're making in products and distribution and we'll continue to make them. Fourth, our technology licensing program which we started a little while ago will begin contributing to revenue in the second half of the fiscal year '16. Last but not least we are renewing our traditional channels with carriers such as AT&T, Vodafone and Sprint and distributors such as Bright Star and Ingram Micro. Many of these resellers are picking up our software products. We are also broadening our partner base with industry leader such as Samsung, Google and Salesforce.com and with many partners industry such as healthcare and transportation. So I'll take you through a little bit of detail with these points before I turn over to James for the financial details. So starting with the hardware on the quarter over 90% of the product shipped in the quarter with newer generation higher margin products. Secondly, in order to minimize exposure we have been successful in managing inventory to closely match the demand. Last but not least AT&T launched the Passport and the Classic in store on February 28th, and Verizon launched the Classic in the first week of March, so early reports of those sales are encouraging. The dynamic of late quarter release at carrier stores are preciously why James has been suggesting that Q4 was a transition quarter. So today the Classic and Passport are carried by over 160 carriers and over 7,000 retail store in 86 countries and this number will continue to uptick. This is the best carrier retail support worldwide we have seen in a number of years. And based on the very positive discussion I have with carriers at the Mobile World Congress in March around our new product portfolio, I think the momentum will increase over time. Just as importantly while ramming up distribution, we’re profitable on a gross margin basis third quarter in a row. As part of this commitment we'll continue to drive margin improvement and to manage our inventory levels. We don't have any old device inventory; our channel inventory is down 37% year-over-year. This disciplined execution will underscore our commitment to bringing the device business to operating profitably. So let's spend a minute on the software business; software revenue was 67 million, this was 24% increase over Q3, in the enterprise we're seeing really good traction in our efforts. So I was somewhat surprised by a few negative statement regarding channel checks some you have done during our quiet period, because our quiet period I couldn't have responded. We had 2,200 customer win in a quarter, including competitive wins. I'll give you a list of some of the key wins -- key account wins in the quarter. Delta Air Line, First Great Western Trains, Tarpon Energy Services, the Government of Canada, the Social Service Administration of Columbia, the Australia Transportation Safety Bureau, the ESA Group one of the largest conglomerate in India, the Dignity Health, IMS Health, Synova, Quest Labs, and Kyocera-Mita. We had also very good quarter in the financial vertical, with wins such as SAIC, Citizens Property Insurance, ERGO Insurance in Germany, [Credit Cramilia] South America, HSBC just to name a few. Let me highlight two key areas of investment going forward to drive growth. One is distribution and the other one is product. So on the distribution side we just rolled out our SIM based licensing technology with carriers and expanding our traditional partner network. So the SIM based license technology less carrier build and bundle BlackBerry services with the airtime and data plan making this very easy with carriers to work with us and monetize our solution and be part of the revenue, a share part of the revenue. This technology is a key differentiator that separate BlackBerry from all our other competitors. To date we have total of 10 carriers that have announced they will resell our software using the SIM based licensing. Some of those include Vodafone Germany, Hong Kong Telecom and Chunghwa Telecom in Taiwan. This morning we are pleased to announce I think we've got our press release -- we're pleased to announce that China Mobile and Hutchison in Hong Kong will be also adopting our SIM based licensing technology as well. In the more traditional reseller programs, resellers we have announced since November selling our software that is, includes Orange, Deutsche Telecom, Ingram Micro, Bright Star and Samsung. At the Mobile World Congress we also announced that Sprint is now starting to resell our software and we announced that Vodafone Germany is rolling out our secure core technology on cost platform iOS, Windows as well as Android. In addition to that list we're also in the process of qualifying over 300 resellers that have expressed interest in selling our BES server and our value added services. So let's move on to the second set of software initiative, our investment in our end price product especially the investment in security, in cross-platform capabilities and also developing a technology partner network. First we're stepping our investment in security and privacy area, we're hiring a number of people, we just closed the acquisition of Secusmart. We also name a Chief Security Officer, David Kleidermacher, a respected security veteran. Obviously I pointed out earlier we'll be adding headcounts and launching new projects in this area. Second we're expanding the platform and deployment options to our products. At the Mobile World Congress we announced BES12 cloud deployment to bring BES to a broader market, mostly aimed at SME space. We also announced BlackBerry Experience which will make our best in class security, communication and collaboration solutions available on Android, Windows and iOS. This will take some time in engineering to road out; there is more details to come. Lastly we're developing a network of partners to expand the reach and broadening the scope of our products, during the quarter we announced BES support for Google Android for work program. This of course will allow the BES to manage any Android device running the latest android operating system Lollypop, I guess its L and any operating systems. We also have broadened our product offering with Samsung KNOX support, KNOX support was announced I think November of last year, November 12 in San Francisco. We added at Mobile World Congress to support Samsung Galaxy S6 launch, the WorkLife virtual SIMS and the SecuSUITE. In healthcare, we announced partnership at Mobile World Congress, I think we are now uniquely 38 different healthcare partners, application partners name such as interRAI, Maestro, [Madeline], Vocare, Care Social and many others, 38 of them. Healthcare is not -- by the way is only one of the area of focus we are looking at bundling partnerships, building partnerships we're bundling software providers in other regulated industry. For example our relationship with Salesforce.com is aimed at the public sector vertical. So to some of the enterprise many good things are happening. We are all very pleased with the progress we’re making in the first full quarter since the introduction of BES12 and our value added solutions. I'll spend a minute on BBM, where the focus is definitely on monetization. We have three key initiatives in the consumer arena, the ads, the BBM money and virtual goods. So in ads, we’re generating revenue from over 20 billion ad request per month, BBM Money has over 200,000 registered users already heading into our commercial release over the next couple of months -- next few months, it could be three I guess. We have just introduced virtual goods and premium subscription for the vanity pins and the no ad, the channel is now generating monthly subscription fees. On the BBM in the enterprise space since launching the BBM Protect and BBM Meetings, we’re starting to see the pick-up of strong interest there. In the quarter, we signed a deal with the Inland Revenue Service of the United States, one agency that I am very familiar with for BBM Protected. And we are pleased to report that there are nearly 400 customers now trying the BBM Meetings, as well as many careers around the world in addition. A quick look on our BTS unit, and they of course drive mostly the Internet of Things initiative. We have unveiled our Internet of Things initiatives at CES, beginning of the year in Las Vegas and Mobile World Congress in Barcelona. We have laid out the IoT road map, we leverage many of the BlackBerry assets such as the global network we have, the security, QNX, embedded software, over the year updates, the BES12 device management. We’re now looking to add secure enterprise messaging into the portfolio. During the quarter, we released our QNX wireless framework API that allows third-party developers to right code that connects embedded system to endpoints. In a quarter, design wins included Volkswagen, LG Vehicles and warehouse automation and robot providers were part of the win, [Euro In Piante]. That's pretty good, I am sorry about that, everybody is thumbs up by the way in the room, glad to having trouble with announcing this. Furthermore, we announced a milestone the QNX has now deployed in 50 million cars worldwide. As our IoT suite works its way into more products, we anticipate that our IoT subscription will grow and we believe the IoT market has the potential to be a significant contributor to our software revenue growth in the future. So to some of the overall, the software overall, we are still on track with our enterprise business. The BBM slightly behind in monetization, the BTS is doing a little bit better than expected and together we will expect a total 600 million in revenue for FY16 for these businesses. Now talk about numbers, so I am going to hand the call over to James for some details on our financial.

Thank you, John. First a couple of financial highlights from the quarter. Adjusting for items not part of normal operations, we have positive cash flow of 76 million; we also turned in a non-GAAP net profit of 20 million or $0.04 per share. These results were largely attributable to disciplined management of margins and expenses while investing in our growth initiatives. Now let me discuss the income statement, revenue for the fourth quarter was 660 million. Overall currency had a negative $12 million impact on total revenue. Hardware represented 42% of revenue, lower than last quarter. We recognized revenue related to approximately 1.3 million devices in the fourth quarter. Handset ASP was roughly 210, up from 180 last quarter. We expect our ASP to continue to increase on the back of our product releases and increase scarcity of our legacy devices in the channel. Service revenue represented 47% of revenue, consistent with last quarter. Service access fees declined by 16% compared to last quarter. Service revenue was negatively affected 1% by currency fluctuation. On a constant currency basis, the SAF decline is in line with our expectations of 15% quarter-over-quarter reduction. We continue to model a decline of approximately 15% for the next quarter. Software represented 10% of revenue. Software revenue grew 24% quarter-over-quarter and 20% year-over-year. Non-GAAP gross margin was 48.3%, compared to 43.1% in the prior year same quarter. GAAP gross margin was 48.2%. Hardware gross margins remain positive for the third quarter in a row. Non-GAAP operating expenses were 317 million down from 394 million last quarter, we expect a minor uptick in the coming quarters as we invest in distribution and in growth. GAAP operating expenses were 424 million, included in GAAP operating expenses were 57 million in restructuring charges as well as a non-cash charge of 50 million for our convertible debt. This non-cash charge has no impact on the face value of our debt, on our liquidity or on our operations and cash flow. Amortization expense was 68 million in Q4. The GAAP tax recovery in the quarter was 29 million, GAAP net income which includes the impacts of the RockStar sale the debt revaluation and restructuring was 28 million or approximately $0.05 per share. Now moving on to our balance sheet and working capital performance. Our cash balance increased by 156 million compared to last quarter. Aggregate contractual obligations amounted to approximately 1.3 billion down from 1.6 billion last quarter. Purchase orders with contract manufacturers represented approximately 394 million of the total down from 565 million last quarter. Total cash, cash equivalents and investments ended at 3.27 billion. With this and excluding the impact of foreign exchange on cash we achieved positive operating cash flow of 205 million, CapEx spending totaled 16 million in the quarter. Looking forward we expect to remain cash flow positive and continue to forecast sustainable non-GAAP income statement profitability sometime in the fiscal year '16. That concludes my comments and I’ll turn the call back to John.

Thank you, James. So before we start the Q&A let me provide some thoughts on the FY16 and maybe talking about our focus area is the best way to go ahead. Number one focus is some time in the FY16 quarters we will start making sure that we have profitability and be able to sustain it, that’s number one. Number two as James just pointed out we intend to generate cash flow from operations or free cash flow every quarter in the FY16. And last but not least all our effort is now spent on stabilizing the revenue. So, I have seen the models and your current non-GAAP EPS expectation of a minus $0.08 to minus $0.13 a share loss are somewhat reasonable but you could be assured that we do intent to do better. With that operator we are now ready for questions. Kim?

[Operator Instructions]. And we’ll take our first question from Scott Penner of TD Securities.

Just maybe John on the expenses I mean obviously quite a step down in Q4. Just broadly how you suggest we kind of reconcile that sort of expense cuts that we’ve seen over the past year with the need now to invest in distribution on the new and growth on the new software platforms? And then James just on the number of specifically is the Q3 level of expenses is that a better indication for what should be the norm going forward?

Let me answer the first question and you answer the second question James. What I have been doing and will continue to do and I still probably had a couple of two or three quarters to do, is to shift the company resources. It’s not so much as spending more some area we have to spend more, we'll talk about security there is some expertise in the area that we need to recruit and we have a very strong college recruiting effort going literally around the growth. And so those we will -- so it’s modest, this is why we said it will be a modest uptick. But the majority is about shifting some resources inside the company into areas by helping other distribution helping other partners.

Scott its James. In terms of the overall number, as John had said or in my remarks I said modest uptick so I don’t think in the short-term that gets you back to the Q3 levels. There is some reallocation that John said can happen but we were helped a little bit by FX in the quarter as well which would kind of take your natural level up a little bit. But I think the investments happen gradually over time as revenue grows because we also have to get back to our objective of profitability as we talked about.

And we’ll take our next question from Maynard Um of Wells Fargo.

Can you break out the 67 million in revenue between software and other which you typically do in your MD&A filings because if we assume other revenue was flat from last quarter at about 10 million implies that the software number was only up slightly which seems low since EZ PASS kicked in. So can you just talk us through that and what gives you comfort in the 600 million software outlook and what quarter should we start seeing the material ramp in that software line?

We’re looking for the so called -- I know the numbers are very small, the others like --. Let me talk about the so called confidence of that, I know most people are somewhat skeptical in the numbers I read those. I could understand that because this is really a huge jump of that and it will come from a number of areas. I think we will -- as I said the BTS will do a little better. We also, by the way would do inorganic investment as far as organic investment. So, we will have some growth there. And the carrier selling our software is very important part of our distribution channel than of course the EZ PASS conversion. So it's really a combination of a number of areas and there will be a little bit of BBM increase also that we talked about. I think I still believe that it's a reachable target and I'm not willing to give up on the target yet.

Maynard its James. And just to confirm the software revenue itself for the quarter 67 million I think that’s important piece, on an annual basis we group the other number with devices the way that their financial statements come out, but I want to be clear that 67 is the software.

Yes, I know I see another number --.

So it's 67.

But when should we start to expect that software line to start seeing that material ramp up? If you're investing in distribution at the moment, is it another two quarters away before we start to see the ramp? So next quarter sees a modest increase and then starts to ramp up, or what's the time line on how we should think about that?

Yes, I expect about mid-year, I think two quarters are good, give us two quarters that are good because I got to get the carrier trained. They already signed the agreement, like Sprint signed the agreement to distribute -- to resell our software. And so we talk about the SIM based licensing now they're 12, that will number go up. So it needs a little bit time to ramp.

And we'll move to our next question from Tim Long of BMO Capital Markets.

Just wanted to follow-up on customers and licensees. You mentioned the 2,200 customer wins, an impressive number. Could we bring that back to some of the metrics we had been looking at? Maybe could we talk about maybe in past quarters you've talked about how many EZ PASS subscribers were added I know that would only go through December. So on top of that, if you can talk about the following two months, how many BES12 subscribers were added? So maybe give us a quarterly total and somewhat of a split between while under the EZ PASS program and after the EZ PASS program?

First of all after the -- the EZ PASS program ended at 6.8 million licenses, no, I don’t have that number with me and I will have to look at some metrics. What I didn't wanted to do is to have metrics that kind of overlaps, so it's hard to separate out which comes from the EZ PASS which come from what? So the 2,200 customers are people that buy extra, they ranges from people buying extra licenses to brand-new wins, to upgrade the BES10 to BES12. A lot of our base is still on BES10 ready to go upgrade to BES12 that’s our major effort going on right now. So it's really a combination everything, some people are now starting to buy BES10 you may see why is that? Because they're now getting ready to pay the support and then go upgrade to the BES12, it's a matter of the -- because it's enterprise, enterprise tends to take their transition time in most programmatic way. So I have seen quite a bit of BES10 purchases with the intention of going to BES12 because we have BES12 so the reason Tim said because it's really like that because I look at the numbers the other day and I saw a huge number in BES10 license uptick and I asked the question, because it was already to go to 12. So those are the -- that kind of the -- I didn't answer your question specifically directly, because I actually don’t have the numbers here with me.

Maybe just more broadly, how do you think you've been adding some non BlackBerry converts over, how do you think that trend went this quarter, compared to prior quarters?

It went pretty good, what I decided not to do is originally my script; there were wins that specifically targeted some of my competitors. I thought that now starting to get silly because I realize that their earnings call they're doing a tit for tat and so I just didn't want to get into that anymore. So I took out the -- rest assured that in some of the names that I just mentioned, they replaced our competitors.

And we'll move to our next question from Daniel Chen of Scotiabank.

John, you've done a great job at launching a number of products, to give your sales team something to approach customers with. Can you talk a little about what changes you have made to the sales team since you took over? How have the number of employees in that team changed, and how do you incentivize them differently? And similarly, it also looks like you're making it back in with the carriers for both hardware and software. However, distributors also carry your competitors' products, both in the smartphone and EMM space. So can you talk a little bit about how you convince your distributors to push your products over the competitors?

Well you have to be, first of all the product has to make sense, I mean just start with that. It's an effort, I could say a while back maybe our relationship with the carrier and the distributors were little slightly broken I would say it. So it was a strong effort to our -- on all of our part that we go back and we engage them unfortunately the carriers around the world and the distributors, the major ones even technology provider like the Samsung and the Salesforce.com. Some of them we have personal relationship with, they trust us that we were able to start doing business together again. So there is a whole range of reason why, but it is a big push of us. So the enterprise sales force right now roughly above I'd say 11% of our company headcount is in sales, direct sales or partner sales organization. That number has actually, believe it or not had gone up for like 5%, 6% in the last year to 11%. I think to reach good parity out there I need to get it up to at least 15% to 20% of our total headcount and that’s one of the thing that I used to talk about earlier that we’re going to start shifting some of our internal resources. We already are doing it, we now have organization that helps -- train sales people. We have a plan to set up ISR call center, I mean -- it's a very standard technique, but it's really outreach to customers and the channel. The carriers is the bright spot, we’re presently surprise that they are very receptive to BlackBerry being successful and doing business with us. As I said, we have the SIM based licensing which is a little different from others, it gets more seamlessly easier for them to resell our product and put it in their phone bill. So the billing systems are integrated because of this -- by the because of the fab because we think advantage of the SAF knowhow which this company has for a very, very long time. So there are various things, but it all came back to whether your product makes sense, and they could make money out of it, so we could help each other. By the way I like to comment a little bit about, yes a lot of them resell a lot of peoples product, so that goes back to my comment whether the product makes sense. But some of them because of security stuff, we’re very unique. So I’ll give you, one, I think Samsung we’re in a different tier. Everybody -- Samsung resell this, resell that, partner with this person, partner with this. But we’re one of the three wireless or mobile platinum level partner, I think the other one SAP and Cisco and BlackBerry. So only the three of us, even if the partnership they are cheering in that, so that’s just one example.

And we’ll take our next question from Richard Tse of Cormark Securities.

Just quickly, what's the split between your existing enterprise base, between BES10 and BES12 right now?

Right now as I said earlier, mostly 10, but there are lot -- a lot of them go into 12. And all the carriers are taking up 12. So they are all ready to move to 12, but they are mostly 10 right now.

And of the ones that have gone to 12, have they gone for the silver or gold program? Maybe give us a bit of color on that?

It's both, I have seen both, it varies. And by the way the people that gone to 12 are very happy with 12.

Our next question comes from Amitabh Passi of UBS.

I just wanted to follow up on the last question. Sorry, John. Can you give us some sense of how many of your 6.8 million people licenses that were in the EZ PASS program are actually active customers now? And can you give us what the split of silver versus gold is? And then I had a follow-up.

I don’t have that number and honestly speaking I don’t want to go down that path, I know this is something that you’d be very interested. Let me give you one data prices everybody is so interested on EZ PASS situation. The $13 million of our license in the quarter are either motivated or related or part of the EZ PASS convert. But we only started it with small portion.

And then I just had a quick follow-up. And I guess this is maybe a bigger picture question. You've got a great partnership with Samsung. You're also part of the EMM ecosystem tied to Android for Work. But the two seem to be on two separate paths the Samsung KNOX initiative versus Android for Work. How do you see this evolving in the marketplace and how do you see a relative position with working with Google as well as Samsung?

That’s a great question. So one of the major strategy that we put forward last year, year and half was to make sure that we do cross platform. And so we will embrace both of them and as far as what customer wants, the customer wants KNOX, we could use the BES12 to manage this, if customer wants the any of the L Series devices from HTC, LG, Sony or anybody else as long as they are L Series space we use with our BES12 now manage all those, so it’s really a choice of the customer, so it’s kind of like the check mark. Now in the case of the KNOX we are collaborating a little bit much closer on the security side, so that’s kind of basic theory -- we like to make sure that we could serve the entire ecosystems but we’re not picking up well this is a better technology versus that, we have our own container technology we said SWS. So we will present that to customer as choices and we do have we do some time advise and recommend. Well not necessary advise or recommend our own stuff only, we would like to but it’s really a cross platform play. Our whole concept is we want to manage all your devices and endpoints in your shop.

And we’ll take our next question from Steven Li of Raymond James.

John any metrics if you could share on your value added services maybe size of pipeline at this time?

The size of pipelines are pretty good but the conversion are not so good at this point it’s because it’s early. So, right now it’s still very dominated by BES licenses, in fact it's pretty good. Go ahead.

And other words would you say BBM Meeting is the one showing the highest interest amongst your enterprise customers?

Yes, among all those -- well, WorkLife -- I would say WorkLife is showing the highest interest I would say BBM Meeting is probably less than follow that.

And on WorkLife is that the bundle -- what is in that bundle John?

Well, WorkLife is we call it a soft SIM technology, it’s just like the one physical SIM card with two number one number assigned to the work container and the other number assigned to the personal container. Let the individual have the users the two numbers, two set of billing systems the carrier will have two numbers that they could bill that seems to be the highest level of interest.

We’ll take our next question from Rod Hall of JP Morgan.

So I guess I've got two questions. One is, I wanted to ask you, John and James, you guys either one can comment on this, I guess, but the R&D number continues to drop off pretty rapidly. And on the positive side of course, you guys are controlling cost, but on the negative, at some point you need to stabilize that, I guess to keep your road map going and so on. So can you talk to us a little bit about where that R&D number stabilizes at? And then just bigger picture, John, can you just talk about employee morale and how you keep people motivated, considering you continue to cut costs pretty aggressively. The market always loves that. But then again, it has repercussions in the business. Just talk to us a little bit about that. And then James, can you just clarify the 1%, the FX impact. I mean are you guys at 15% down on software this next quarter, does that -- what currency rate are you marking that at? Can you just clarify that answer?

Just on that I think you said software next quarter down Rod you meant service?

I mean services, yes, I’m sorry.

You scared me by the way.

I have to resuscitate John here. Well basically we’re somewhere in and around 110 I would say where we are today Rod, so really it was euro that’s ultimately driving that. We’ve got euro based revenue that we’re collecting from the European carriers and that’s what’s driving that so that was the driver of the 1% for the most part.

So from -- you’ve got some really great question on the morale. So I think let me address the morale side. The company needs to financially be stable, I don’t know of any way to improve the morale of a company and the people if the company is not doing well. And so all the people here are professionals the company doesn’t do well they know some negative thing is going to happen down the road. The number one thing we want to do is to stabilize the company financials and people understand it. And so I think as we do better financially and having a good roadmap which we did, we have a good roadmap and we're delivering these products, my experience is the morale will gradually turn positive. And I would say obviously this is the middle stage because I see it from different lens, I would say today the morale of the company is a lot better than a year ago. It probably still need to be a lot better than today but call I did my teams are listening to and my folks are listening to this and they will understand it so I appreciate your questions. As far as R&D is concerned, we are looking at various different way of spending money very wisely. For example we have been increasing some offshore investment where the dollar goes a little further especially nowadays dollar goes in further. We have small teams in Ukraine. We got small teams in India and we will increase in other market that we actually serve, that’s part of the plan. So you see the numbers there doesn't mean the effort is not there on top of that we rationalize lot of our technology development that we don’t actually chase a lot of different stuff. So you see a lot of good delivery from the company. For example we put out our four phones last year. We got the BES12 done and all of these partnerships. We've got the BBM monetization launch. All in an environment that's being cut back, but it was really more about focus of our delivery and we don’t confuse ourselves in doing a lot of different stuff. So, it's a day-to-day thing. The good news is the management gets it and we're working that. So I'm comfortable with our productivity. It will be nice to have more money to spend -- but not necessary always better.

John, are you -- how far through the process of rationalizing R&D are you? Do you feel like you're pretty much down now, or do you feel like you've still got --?

I'd say 90%, 95% done I'm done -- we have a road map where we're working on to what's delivering side it's pretty much done.

We'll take our next question from Michael Kim of Imperial Capital.

You talked about a little back QNX earlier, and certainly QNX has established a pretty strong presence in the automotive space. Are there other verticals where you see similar scale, especially I think there has been certainly a lot of comments about Internet of Things and how you might see that translate into the software revenue line?

Yes, so there are number of ways one is embedded, we embed QNX in a lot of devices. I will give you immediate yes, but we well know about the automotive but we also are in the medical equipment and control systems, in manufacturing system, not at the same scale that we are in but in the medical and transportation area we're looking to increase our effort there. So, those two are kind of the major FY16 effort that we're going to put in. At the end of the call I mentioned the call and the API that we released on the platform, on the wireless platform that is to encourage application develop on our QNX software and so we also are going to build some application and so that we could do subscription base charging. So those are two areas. That is a brand new initiative. So we haven't had any revenue yet but we have the framework done and delivering those products. So those are the two ways of monetizing but we are branching more than just automotive.

Is it your sense that the software content would see better revenue pricing than you would in the automotive sector?

Say that again please.

Would you expect pricing to be above what you're seeing in the automotive sector?

Well, it all depends on application. So in the automotive sectors for example the company started a long time ago this is way before my time here. It's doing very well in infotainment systems and then we're now gradually getting the telematics and controls. So each of those areas is revenue associated with it. So it's really about how many application, especially like car base. So again really compare that with this app, kind of depend what you're apps doing. We're embedded in for example in the medical equipment -- embedded in medical equipment typically you probably would be able to charge a little bit more. So I think it's all varies depends on the apps maybe I would answer that question.

We'll go to our next question from Brian Prohm of Cowen and Company.

A couple quick questions one on hardware. I think you said 90% of revenue was from the new devices?

I said, we ship 90 plus percent of the shipment in the quarter are new products Passport, classic type.

Digging into that a bit then. Can you give us any incremental color on the Classic split of those shipments, and whether the demand dynamics for that product are consistent with your expectations?

Look I have always am caution with that -- the statement. But look as I said the early numbers looks encouraging, so I think Classic is doing reasonably well.

And any update on the service outlook for 2016 through the balance of the year. It sounds like consistent 15% declines on a quarterly basis?

Yes, that’s why we are modeling, yes, I think that’s a reasonably good number.

And we’ll take our final question from Mark Sue of RBC Capital Markets.

John, are you seeing the -- you're seeing very good customers and competitive wins. Are you starting to see indications or inclinations for higher ASP trends in some of your early adopters? Are some customers indicating future additional purchase for more security and more privacy? What I'm trying to get at is, I'm trying to project a profile of early BES12 adopters as indicators for this mass of BES12 customers, and what they might do in the future.

Yes, so I can only tell you that the customer I've spoken that uses BES12 or started with BES12 are quite happy with BES12. I don’t get any negative pushback or I don’t see any customer issues with BES12. They want here and there from time-to-time they want more features that we’re working on. But I don’t -- it seems a very solid product I could tell you that. The market in the channel checks are good on those, carriers likes it. So from an ASP perspective, it kind of -- obviously because we do two areas the gold and silver that’s one area and the area of support we have we have Advantage and Premium, the two type of supports. The Premium actually has account managers or support account manager tied to it, this is a new concept, a lot of the enterprise customer likes that, because we have guaranteed response time, an individual you could call, and so forth. So these are all the stuff that I learn from my enterprise days. So we feel pretty good about. So if you add all that together the ASP will be better.

If I look at conceptually the next four quarters from a quarterly basis and a revenue basis, the rate of decline in services is slowing. I guess the thought is we're pretty close to the trough in terms of revenues to rebuild upon?

So that means you can take that one.

Go back to the concept that we’re focusing on stabilization and growth marketing, you are color and your comments are kind of focused on reiterating what John said.

So, yes I expect this year entirely focused on -- two things that are important to us, we will grow our software and related services business, support business to cover the SAF decline, that’s number one. We’re still on that path and secondly to stabilize a total revenue and if we get lucky then it's good, but that’s what we plan to do. A - John Chen: Let me wrap up. Thank you, though there is a lot of good questions. So I have, I'd like to give you three key takeaways and just kind of warp up everything and the number one key takeaway is that since we reported the second quarter with positive cash flow earnings and positive cash flow, the financial house, I hope you agree with me that financial houses in order and by the way this is a very important message that I need the customers and partners to embrace and so this will be our continued effort to take that message out. As we pointed out we’ll continue to invest modestly in both the organic part and the inorganic part of the growth. Secondly, we’re seeing traction in devices and our product road map is actually quite well received by the carriers. Last but not least, we could sustain the software momentum, but we do have to make investment so we spoke a little bit about that and the investment will be in both product side as well as the distribution side. So I like to remind everybody sometimes taking a look at this we are little ahead of our turnaround milestone. So like to remind everybody that we’re only halfway through. Our focus now is turning to stabilizing revenue and I am mindful that the transition like this are never easy and never just quite smooth and I am very grateful for all of your support. So thank you for joining us for our fourth quarter and year-end. We'll talk again in 90 days. Have a good day.

And that does conclude today’s conference. Thank you for your participation.