Good morning ladies and gentlemen, and thank you for standing by. Welcome to the BlackBerry first quarter 2014 results conference call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the presentation over to Paul Carpino, vice president of investor relations. Please go ahead, sir.

Thank you, operator. Welcome to BlackBerry’s 2014 first quarter results conference call. With me on the call today are Thorsten Heins, our chief executive officer; and Brian Bidulka, our chief financial officer. After I read our cautionary note regarding forward-looking statements, Thorsten will provide a business update, and Brian will then review the fourth quarter results. We will then open up the call for questions. This call is available to the general public via call-in numbers and via webcast in the Investor Relations section of blackberry.com. The webcast can be accessed through your BlackBerry 10 smartphone, your personal computer, or your BlackBerry PlayBook. A replay of the webcast will also be available on the blackberry.com website. We plan to wrap up the call around 9:00 a.m. Eastern this evening. In order to let as many people as possible ask questions, please limit yourself to one question. Some of the statements we will be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. These include statements about our plans, strategies, objectives, and expectations, and the anticipated opportunities and challenges in 2014; our plans and expectations relating the BlackBerry 10 platform including BES 10 and its impact on our business; our vision regarding the new world of mobile computing; our product development sales and marketing initiatives, including other investments in the BlackBerry 10 platform; our plans regarding new service offerings and strategy, including with respect to [CBM and BBM] channels and assumptions regarding our new service revenue model; our assumptions regarding future revenue recognition for services in Venezuela; our plans regarding Playbook; our anticipated financial results for Q2; our anticipated cash position and sufficiency of financial resources; and other statements regarding our plans, objectives, and expectations. We…

Thank you, Paul. During the first quarter, BlackBerry continued to move forward with its transition, and I’m encouraged that three of our four regions returned to sequential revenue growth as BlackBerry 10 continues its rollout. I will let Brian take you through the quarter details shortly, but I would like to focus my remarks on how we are positioning the company in fiscal 2014. BlackBerry 10 is still in the early stages of its transition. In fact, we’re only five months into what is the launch of an entirely new mobile computing platform. We are five months into our platform transformation that we anticipate will drive future smartphone devices, greater enterprise efficiencies, and new mobile computing opportunities for many years to come. We’ve never been a device-only company, as we are also running a global secure data network and services business. And we don’t plan to run the company with a short term device-only strategy. What is exciting about BlackBerry today is that we are getting very comfortable with who we are as a company, and where we will fit in the market. Embracing our heritage of mobility first is very important as we build our culture and go through this transition. We don’t have to be all things to all people and all markets, and embracing this focus allows us to drive efficiency, be flexible and agile, and to ultimately drive best-in-class innovations. We’re continuing to focus on improving all areas of the business, as we work towards our near term objective of making BlackBerry a leading ecosystem and the number one in enterprise. Specifically, let me discuss the company in terms of our hardware business, enterprise mobility services, BBM platform, and finally our strong financial position and our continued commitment to driving efficiency and reducing costs. The BlackBerry…

Thank you, Thorsten. Revenue for the first quarter of fiscal 2014 was $3.1 billion, up 15% from the fourth quarter, and up approximately 9% from one year ago. Three of our four regions grew sequentially in the first quarter. Europe, Middle East, Africa, our largest region, represented 43% of revenue in Q1, and was up 9%. North America represented 25% of revenue, and was up 30%. Asia-Pacific represented 17% of revenue, and grew 35%, and Latin America represented 15% of our revenue, but was down 6% due to service revenues in Venezuela, which I will explain further in a moment. We shipped 6.8 million smartphones in the first quarter, compared to 6 million in the fourth quarter, which represented a 13% increase. Approximately 40% of these devices were BlackBerry 10 devices. Estimated sell-through in the quarter was approximately 6.8 million units. As expected, our channel inventory reflected declines in BlackBerry 7 products, while BlackBerry 10 channel inventory saw increases on the back of continuing launches of BES 10, Q10, and early volumes of Q5. Looking at our revenue mix, hardware revenue grew by 33% when compared to the fourth quarter, and was approximately $2.2 billion. This represented 71% of revenue compared to approximately 61% of revenue in the fourth quarter. Service revenue was approximately $794 million, or 26% of revenue, and was down $153 million, or 16% from the fourth quarter. This decline reflects three factors: a $72 million decline in service revenues earned from Venezuelan carriers that could be not recognized for U.S. GAAP due to foreign currency restrictions in the region and the challenges for carriers to remit U.S. dollars to BlackBerry for payment; mix shift to low-tiered service plans in our customer base; and the lower number of subscribers this quarter. As to the currency controls in…

[Operator instructions.] Your first question today comes from Gus Papageorgiou with Scotia Bank. Please go ahead.

Fundamentally, part of your success in the near term depends on demand for BlackBerry 10 devices. I’m just wondering if you can characterize how demand has been versus your expectations. And with the launch of the Q5, and lower tiers, do you expect to see your sales improve in the developing world, where you’ve been clearly losing some subscribers?

If you look at where we’re at today with the BlackBerry 10 product launches, as I said in my report, we’re five months in. The BES 10 launch, the Q10 launch, just came to the U.S. in the last week. Q5is just launching in Dubai. We’re in the middle of launching all of these products in all of our various markets in the region. Certainly the Q5 is geared to those selected markets in Asia-Pacific. And it’s too early to say how it will be doing, but we see strong demand, we see a good reception of the device, and we’ll see how it does in those selected markets where we’re pushing it.

Your next question comes from Maynard Um with Wells Fargo. Please go ahead.

I know you don’t provide gross margin by the segments, but if I look at the mix of your hardware, you had a greater BlackBerry 10 mix, which I presume is higher margin, lower BlackBerry 7, which is lower margin. And if I run the math and make some assumptions, it actually looks like the implication is the hardware gross margin declined sequentially. Could you just maybe walk us through why that is, despite the mix? I am a little surprised that despite the number of operators you have, the number of shipments per operator still seems pretty small, particularly in light of the sales and marketing dollars that you’re putting out there. If you could just kind of walk us through that as well, I’d appreciate it.

Just on the gross margin, as it relates to the overall mix, it’s obviously dependent upon the mix of hardware, and even inside hardware, and then the mix of hardware relative to service revenue. So we’re continuing to focus on that cost management and make sure we’ve got the right efficiencies, procurement, manufacturing, supply chain. So as we look through the mix of our hardware side, with Q5 coming on, it does have a different margin [stock] than the other products, but we are working to drive those efficiencies. And it’s early in the cycle, and we’re looking to get BES 10 deployed and rolled out as well.

You were asking about the marketing spend relative to results. I think if you look at the launch schedule that we had, Q10 isn’t even available in all markets yet. We just went to the U.S. last week. So I think it’s really early to say. And as you know, you have to provide these marketing spends earlier to create the promotional windows around the various product launches. Also, it is a very competitive market, so yes, we have to take the measures that we have to take to be successful. But all in all, I think it’s pretty early days still, as we still haven’t even completed the entire portfolio. One more element of this, by the way, is that we are just launching BES 10 into the market, and as you know there is a correlation between numbers of BES 10 out there, then testing in enterprises, then purchasing the devices. So from that perspective, I think it’s too early to really say there is some sort of stable, predictive way of predicting the future. But what we see so far in terms of BES 10, I gave you the numbers in my script, and on Q10, is encouraging.

Your next question comes from Peter Misek with Jefferies. Please go ahead.

One, you said you sold through 6.8 million total smartphones. Any way you could give us what you sold through of BlackBerry 10? You shipped in 2.7 million, and you said you built some inventory, but I’d love to understand what sell-through was. And then really quickly, on MDM, your mobile device management opportunity, any metrics you have? Or how should we think about the success of you managing iPhones and Android devices?

We’re not going to provide the split on sell-through on the BB10 versus BBOS. I think just relating to channel inventory, we’re expecting that we would see BBOS come down and channel build on BB10, as with BlackBerry 10, as we start launching it across the integral launch.

On the metrics for MDM, we have an installed base that we are working into, and as I just stated, we’re just launching BES 10, with its cross-platform capability. Very excited about the Secure Work Space. I myself met a lot of customers. What I can tell you, qualitatively, is that I received very, very good feedback. Those deployment cycles take time, because we have to run it through the IT department of our customers. We’re helping them, we’re assisting them. So the metric is really is kind of like a typical Fortune 500 metric, what’s the penetration there? We’re looking at our installed base, how much coverage of the installed base will we be able to achieve. And also, frankly, how many new customers are we able to win. So we’re working customer by customer by customer and that’s what you will be seeing us do throughout the quarter.

Your next question comes from Todd Coupland with CIBC. Please go ahead.

On services, are you saying that we should use $800 million now as the base, and then continue to decline that in the single digit range?

Yes, that’s correct. As we get more information and we have any updates on Venezuela, we’ll provide those as appropriate.

Your next question comes from Simona Jankowski with Goldman Sachs. Please go ahead.

You cited a more competitive environment as one of the contributors to your expectation for an operating loss this quarter. Can you just expand on that and just let us know specifically what you mean there? Are you seeing an impact from pricing, or you having to do the more marketing promotions, [counter] revenues, anything of that nature?

This is mostly due to if you look at BlackBerry 10 being a whole new platform. We will be investing and really making sure this platform penetrates the market. So it’s really the penetration play that we need to do, and for that, we need to invest in marketing, we need to invest in promotion, whatever kind of nature they take. There’s very different instruments you can bring into play here. And we still haven’t launched all of our products yet. We’re building our portfolio. There’s more to come, more exciting products to come. And they will also require investment in order to really manage a broad and high enough penetration of BlackBerry 10 into all the various global markets that we’re in.

Your next question comes from Richard Kramer with Arete Research. Please go ahead.

Thorsten, you mentioned several times that you’re not a device-only company, and that you want to get into this mobile computing space. I guess the question is now, with such a difficult and competitive environment in devices, could you see BlackBerry pivoting away from making devices and trying to become, over the next couple of years, just an enterprise software services company? And I guess the key question for Brian, for all of us, is will there be any material services revenues from BES 10 or BB10 in FY14, or is that something that is going to take another year to build up the base of that we see it only in FY15?

That’s a long term strategic question, and as you can imagine, we’re also working with our board on our long term strategic view. However, I mentioned that I was visiting with a lot of corporate customers and corporate clients, and I’m really talking big, large companies. And for them, it was very, very obvious, in all of these meetings, that they don’t look at BlackBerry as elements toward a solution. They actually look at BlackBerry as an end-to-end solution that includes the device. As for high end security, the device plays a major part in delivering that best of breed security to the market. Right now, I will not break that logic. I need to provide my customers what they require. They require best and highly innovative security, and that, for the time being, needs the device to be part of that end-to-end solution. But what we also do is, in order to address the BYOD trend, that’s why we launched the Secure Work Space. It’s not as secure as BlackBerry, as you would a BlackBerry device, but you know, it is paying tribute to what’s going on in the market, and positioning BlackBerry as a strong cross-platform security player.

Just on the services question, we’re just starting to roll out these services as everyone knows, so our focus is on building these out. We need to invest in them. We need services in BES 10, BBM. And I think with our financial positioning, it allows us to invest in a long term strategy, execution. So it is going to take some time for those to develop, and we’re also looking to mitigate that exposure that Thorsten referenced in his script about the declining service revenue.

Your next question comes from Ehud Gelblum with Morgan Stanley. Please go ahead.

A couple of questions, just for clarification. The 72 million subs, Brian, that you said that you have right now, I think you said you’re not going to be repeating that number going forward. Just want to make sure that with the lack of being able to recognize cash out of Venezuela that 72 million does or does not include the subscribers in Venezuela? Just a clarification.

Yes, it does include Venezuela.

One of the the things I didn’t hear, and may have missed, was, in terms of units, if you can give us a sense as to guidance for next quarter, how are you looking at units for next quarter, both on the BB10 side and BB7, and total, whichever you feel comfortable with? And then during the quarter - going back to the previous question about gross margin on the hardware side - was there any adjustment in prices to any of the BB10 devices that you’ve been selling in the quarter? Or did they pretty much sell at the same price points that you initially entered them into the market with?

First, we are not providing really specific guidance at the moment. I think we all understand why. It’s a very competitive, very volatile market. So many dynamics going on here. So it is really really hard to predict, even with a three-month outlook, where we’re going to be. And what we’re doing right now is, again, we’re pushing the whole portfolio into a global market. That’s what we’re focusing on. We’re focusing on driving the sell-through so our customers get the devices in their hands. And when they get them in their hands, they seem to be really happy with what they see, and what they can experience with the new user experience on BlackBerry. But that’s what we’re focusing on, and that’s what we will be driving. And we will report back by the end of Q2 on how things are going. But full focus is on penetrating the market, the global market, and full focus is on expanding the portfolio.

And just in terms of pricing, we don’t give any specifics on price moves on our BB10 devices. So as we’ve mentioned, we are looking to invest with carrier partners on driving and improving that adoption of BB10 as we move forward.

Your next question comes from Amitabh Passi with UBS. Please go ahead.

Brian, a question for you. If I look at the core elements of working capital, receivables, inventory, payables, it looks like the three items were down over a use of cash about $355 million. You actually generated cash from working capital, and there’s a big movement on the other current asset line. I was wondering if you could clarify what that was, and just your expectations for working capital, [uses of or sources of cash] as we move into the next quarter.

I mentioned in my comments that we were in receipt of a corporate tax refund, so that was the one offset to the use of cash related to building out our inventory and the sequential increase in our revenue quarter on quarter. So as we continue to move forward, we’re looking at every way we can to more efficiently manage working capital. And we’re seeing that we’re going to be investing in the Q10, Q5 launch, more launch activities. So we’re going to see continued pressure on inventories, and just building out to support the launches.

Your next question comes from Rod Hall with JPMorgan. Please go ahead.

I understand the strategic logic on enterprise. I just wonder if you could comment on how interlinked you see the consumer business with the enterprise business. Obviously there’s quite a bit of opex going out, or marketing and so on, distribution in consumer. Just wondering if you think you need that consumer business to lower component costs so that your enterprise devices are more competitive. Can you just help us understand what the interlinkage between consumer and that enterprise business might be in your mind, or if there’s no linkage, let us know that too. And then on the BlackBerry Messaging app, on iOS and Android, just wondering how open you guys are to a full blown BlackBerry app on those platforms, iOS now providing background processing. So it seems like it would be possible for you to go more full-bore on those platforms and provide a full user experience. I’m just wondering how open you are to that.

So, first one, how much is consumer and enterprise linked, I think we all have seen the BYOD trend that has basically been going on for about probably two years or a bit longer. And yes, it’s kind of a little bit of a dichotomy that you have to be good in consumer to be good in enterprise, because right now it is actually also the employee in the enterprise deciding which device makes it into the enterprise. So from that perspective, there is segmentation in the enterprise, which is where can I deploy consumer devices without having too much of a security concern? And where do I really need the full-blown BlackBerry security? So you’ve got to be good in consumer [audio dropped out]…you know, based on our experience in security, to bring a good level of security to iOS and Android devices, which gives peace of mind to CIOs, but that absolutely the full management experience and the security experience on BlackBerry is unmatched. That’s the way we look at it at the moment. And as I said, customers look at us to provide an end-to-end solution still, and we [can’t] break that paradigm.

Your next question comes from Kulbinder Garcha with Credit Suisse. Please go ahead.

Just a couple of clarifications. Brian, one thing I’m struggling with is on the cash flow side. If it wasn’t for the income tax receivables benefit you had, you would have burned probably $400 million or $500 million of cash. And given the launches you’ve got ahead, can you actually not burn cash in the next couple of quarters? That’s my first question. And the second question, for Thorsten, is I understand that you’re in the midst of this launch on BlackBerry 10, but the numbers that it is producing at the moment seem to have fallen short of a lot of people’s expectations, including our own. And I’m kind of wondering, is there anything when you look at the launch that you think hasn’t gone as well, you could have done better? Or is it just a timing thing, and you’re comfortable with that. Because I guess unless the volumes pick up quite soon, you’re going to become a very niche player in the smartphone business.

Just on your comment, we fully anticipated that with the launch of these products we were going to, as it relates to working capital, consume some working capital as it relates to investing in these launches. And as we move forward, we think we have the right financial strength for the long term execution on the launch of these products. So as we work through it we’ll continue to look at how do we optimize and manage our working capital going forward.

For the second question of how do we feel about BlackBerry 10 and the launch, I think I said this in my script. We’re doing what we said we would do, right? We are launching BES 10, Q10, Q5, more to come. We’re in the middle of it, right? So it’s really too early to say. We’re building a portfolio right now. Against what my expectation was in Q1, we are performing, and from that perspective, I’m confident in the future of BlackBerry 10. But there’s lots of work to do, there’s lots of new products to be built, there are lots of new products to be launched. There’s lots of marketing campaigns to be generated. So it’s going to be ongoing effort. It’s not automatic. I know sometimes you guys look at, you know, where is this one product that kills everything else? I tell you, it’s not out there. It is a very competitive market, it has several players. And you’ve got to be on your tippy toes all the time to perform, and that’s what we’re doing. But we’re not ignoring competition either. And what we have done with BlackBerry 10 is build a fantastic, differentiated user experience that users now latch onto. And that doesn’t happen from one week to the other. It doesn’t happen from one month to the other. And it actually doesn’t happen from one quarter to the other. This a marathon, right? And we are ready, with the financials that we have under our belt, and we’re ready to run that marathon. And that’s what we’re doing. So I’m not looking at the short term. It’s important for me how the BB10 penetrates. It’s important for me how the BES 10 penetrates, and it’s important how is the BBM cross-platform coming along. And I think all of these three initiatives are very very exciting growth initiatives. And what we have decided as a company, we will be investing in them and we will drive them hard and there will be a time we will see, and our shareholders will see, the value and the benefit of those initiatives.

Your next question comes from Richard Tse with Cormark Securities. Please go ahead.

I know you’re early here, but obviously you can’t continue at the current run rate. So how long has the board given you to get some meaningful traction BB10 before you kind of pivot to something else, or consider some kind of strategic review? Because the uptake that you’ve had now - and again, I know it’s early - it looks like it’s been pretty soft here. So what’s the timeframe for that?

I love my board, but it’s the C levels in BlackBerry that run the operations. And you know, we’re absolutely bang-on with what we wanted to do with the product. We’re executing as we speak. And, you know, whatever’s being discussed in the board room, I probably wouldn’t discuss that on public earnings call. But I can tell you that we are in sync with our board. We all know what we’re up for here. We’re all together in this fight. And you know, we’re executing, and the last quarter has shown that we execute against what we say we would do in that very quarter. And that’s the only thing that matters at the moment to the board and to the executive management of BlackBerry.

Your next question comes from Jim Suva with Citigroup. Please go ahead.

We’re starting to already see carriers do price cuts on the Z10, which has not been out very long. Net subs is also [unintelligible] and is concerning, and you’re opening up BlackBerry Messenger to be free. And it seems like the marketing support so far, even though you’ve increased, just really hasn’t taken off. And I don’t know if customers aren’t catching the message, or carriers aren’t catching the message, or the product is not sticking. But can you just kind of help us understand about where the marketing spend is going? And last quarter you had mentioned an increase of 50%. Should we expect that again going forward? It just seems like all these things you’ve thrown out there, it just seems not really to be sticking. Or we’re just simply too early in the story to just know, and see the fruits of those efforts.

If you talk about where we spend marketing and how we drive adoption of the portfolio, there’s a plethora of different activities that we’re actually running and that we’re also funding. And this is not just what you see, probably, in above the line and on TV. It goes way further than that. It’s really training of the sales reps, it’s video assets that we deploy in order to get people familiar with the great BlackBerry experience. It’s in traditional media, it’s in carrier promotion. So there’s lots of activities going on. And then we do this product by product, and we do this region by region. So it’s a huge variety within those marketing initiatives. But again, as I said before, these initiatives need to be planned, they need to be well executed upon, once time comes to execute on them. And our carriers are with us, and they’re helping with promoting BlackBerry 10. But certainly there’s also, as I said, it’s a new experience, it’s a new platform, it’s a plethora of new products coming out, and you don’t do this in step function. This is stuff that takes a bit of time, and takes some investment. But, again, we are happy that customers are buying our product. We’re getting great reviews on the user experience being different than what’s out there. And I think I said this on the last call, I’m so proud, and I’m so happy, that we’ve built our own platform with BB10 that allows us to be different, to be differentiated, to be segmented, to clearly understand who we’re targeting as BlackBerry. Not to be a me-too, based on an open OS and based on an open application framework. That matters to us. That matters to our customers. That’s what we’ve expressed in our marketing campaigns. That’s what we’re focusing on. We’re seeing good traction with it.

And just on the [quantum] that you were asking about for Q2. It would be similar to Q1, but again, it fluctuates based on different launch activities.

And we will do what it takes to make this successful. This is not a static number. We will not sacrifice long term success for short term numbers. It’s important we get the platform out there, we get it penetrated, and then we build on it with additional services, with the combination of BES, BB10, and BBM platforms.

Your last question will come from Ben Bollin with Cleveland Research. Please go ahead.

A two-part question. The first part, looking again at this cash flow benefit in the quarter, driven by working capital efficiencies, Brian, how much longer do you anticipate to see benefits from noncore working capital metrics? And then the second part is, looking at BES10 and BBM on a go forward basis, can you give us some specific examples of how you’re going to monetize each of those, looking at BES10? Is it [cal/key] support? And then BBM, how do you monetize the social networking aspect?

So just on the working capital, I wouldn’t put a timeframe on how we’re efficiently managing this. So we’ll continue to look at ways to maximize what we can do within working capital, and that includes all aspects of inventory management and our receivable balances and other aspects of working capital.

On your second question, about how to monetize on BES, the way I look at this, and what we’re building with BES, is not just a cross-platform mobile device management system. What we’re actually building is a mobile enterprise service platform. And if you look at what I just talked about in the script, you can imagine this sitting there as a platform that will be monetized by itself by whatever means, but they you put these additional services on top of that platform, one of which then will be cross-platform mobile device management, one of which will be security, and then one of which will be secure work space for third-party devices. So we will monetize through the platform but also through services sitting on top of that. And one of the examples was over the air software download into the automotive sector. So we’re working on initiatives that are not just within the classical enterprise workforce or productivity environment. We’re working with examples, and on projects, where we actually help vertical industries to get much more productive and efficient and being capable of doing things they couldn’t do today on an extremely reliable and secure data network.