Earnings Call: Q2 2019

Sep 28, 2018

Good morning, and welcome to the BlackBerry Fiscal Year 2019 Second Quarter Results Conference Call. My name is Lisa, and I'll be your conference moderator for today's call. During the presentation, all participants will be in a listen only mode. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today's call, Christopher Lee, Vice President of Finance. Please go ahead. Thank you, Lisa. Welcome to the BlackBerry fiscal year 2019 Q2 results conference call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen and Chief Financial and Chief Operating Officer, Steve Capelli. After I read our cautionary note regarding forward looking statements, John will provide a business update and Steve will then review the financial results. We will then open the call for a brief Q and A session. This call is available to the general public via call in numbers and via webcast in the Investor Information section at blackberry.com. A replay will also be available on the blackberry.com website. Some of the statements we'll be making today constitute forward looking statements and are made pursuant to the Safe Harbor provisions of applicable U. S. And Canadian securities laws. We'll indicate forward looking statements by using words such as expect, will, should, model, intend, believe and similar expressions. Forward looking statements are based on estimates and assumptions made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward looking statements, including the risk factors that are discussed in the company's annual information form, which is included in our annual report on Form 40 F and in our MD and A. You should not place undue reliance on the company's forward looking statements. The company has no intention and undertakes no obligation to update or revise any forward looking statements except as required by law. As is customary during the call, John and Steve will reference non GAAP numbers in their summary of our quarterly and annual results. For a reconciliation between our GAAP and non GAAP numbers, please see the earnings press release and supplement published earlier today. I will now turn the call over to John. Thank you, Chris. Good morning, everybody. And as Chris stated, I will reference non GAAP number in my summary. In today's discussion, I will try to include more comments on BlackBerry comparative etch in the software markets we played in. We are executing against our fiscal 2019 financial and operational plan. This quarter was a record high for total software and services billings. We see solid customer demand for our safety and security focused products, resulting in double digit year over year software and service billing growth for the 2nd consecutive quarter. The business that showed the best year over year momentum in the quarter is BlackBerry Technology Solutions, which reports its highest ever quarterly revenue. Additionally, our enterprise software business experienced sequential quarterly growth. I will provide more color on both of these later. Let me provide some highlights for the quarter. Total revenue came in at $214,000,000 Total software and services revenue was 197,000,000 dollars Gross margin was 78%, operating income was $17,000,000 and operating margin was 8%, an increase of 2 percentage point from last quarter. EPS was 0.4 dollars Total ending cash and investment came in at 2,400,000,000 dollars Next, here are some of the significant highlights by businesses. In our Back Battery Technology Solutions business, which include embedded software and asset tracking. VTS revenue increased 29% year over year, driven primarily by BlackBerry QNX. This is the 3rd consecutive quarter around 30% year over year revenue growth. Software development license, services and royalty revenue have all grown from the increase in the number of design wins. Revenue growth has been broad based across various different types of applications. Our infotainment system business grew year over year and our non infotainment system business such as ADAS, advanced driver assist and instrument cluster grew at an even faster rate year over year. A notable design win in the quarter was for next generation digital cockpit for a multinational auto OEM through our Q1 partners, Yanshan with Xian. It's probably give you a hint, it's a Chinese company. The competitive edge of QNX is its highest because of its highest safety certification, security capabilities and reliability. In addition to our design wins, the number of qualified worldwide channel partners for BlackBerry QNX increased to 48, which represent a 20% increase from the start of the fiscal year. In the quarter, we added new partners in China, Japan, South Korea and the United States. As you may recall, we started at the beginning of the fiscal year that one of the BlackBerry QNX business goals was to expand our sales channel and the BTS team has done a good job to achieve that objective. Moving on to BlackBerry Radar, our access tracking business. We're making progress, adding new customers, receiving repeat orders and growing our pipelines. Radar is differentiated from our competitors due to, number 1, the high volume of collection, up to 100 times more data than other solutions in the market. 2, it's designed for cloud based, cloud hosted business analytics application and reporting in 1 integrated and scalable platform and finally, it has long lasting battery, module architecture and the ease of installation. Customer consistently cite the deposit return on investment they obtained when they utilize BlackBerry radar. The two main reasons are improved asset utilizations and time as a result in higher driver satisfaction. However, our revenue growth has been slower than expected as we invested in partners and personnel to address the many opportunities we have. We believe the investment we have been and will be making will enable us to reach our goal of $100,000,000 in cumulative revenue over the next 3 years. Next, I would like to spend a few minutes on the licensing business. Our licensing business performed well in the quarter, even against a pretty tough comparison to last year. I'd like to spend a couple of minutes to explain our licensing business because it may not be as well understood. Our licensing business actually comprises of 2 major parts. 1 is in technology licensing and the other one is in IP licensing. On the technology side, we provide our secure embedded handset operating system and related security software to OEMs and BlackBerry Messenger for the consumer. On the IP side, we have over 37000 patents with an average life of 10 years, which is rather young. On an annual run rate basis, our total licensing business currently is at least $200,000,000 in revenue. Of this amount, about $60,000,000 to $80,000,000 currently relates to technology licensing and the remainder relates to IP licensing. Currently, well over half of our total licensing revenue is recurring and our quarterly run rate for total recurring license revenue is somewhere between $40,000,000 to $45,000,000 Our licensing business is a key component of our total software and services revenue mix, and we anticipate our licensing business to continue to grow steadily over time. Now I would like to spend a minute on the enterprise software business. We do have sequential double digit billings growth. We saw that in the total enterprise revenue increased 11% from Q1 of 2019. As you recall from last quarter, more of our enterprise revenue is recognized on a ratable basis under the ASC 606. Concurrent with this accounting change, we modified our sales model and increased our focus to sell subscription license rather than perpetual licenses. In the quarter, enterprise business experienced sequential growth in 4 areas: the endpoint management, the crisis communication software, the secure communication software and professional services. The reason we win is because we offer an integrated and scalable mobile first solution that helps secure our customer entire ecosystem and can be managed on a one single platform. These results reinforce our position as one of the market share leaders. IDC noted our number 2 share position in the worldwide EMM market share in 2017 reports published several months ago. That share position was unchanged from IDC 2016 report. BlackBerry was also recognized for its innovation as we were named as the leader in both the 2018 Guardant Unified Endpoint Management Magic Quadrant as well as the IDC Marketscape. We continue to build a stronger presence in various regulated industry segment. In Financial Services, we increased our market share through a combination of new logo wins, including a leading global investment bank headquartered in New York and Absa Bank, a South African financial services provider as well as expanding our product footprints with an existing customer such as Leusbank in UK and KSW in Germany. In government, our products are chosen by government agency from countries around the world. I'd like to highlight several wins in the quarter. The U. S. Department of Justice chose BlackBerry on premise solution covering all the 150,000 plus employees and contractors worldwide. Welcome to BlackBerry's virtual meeting room. Operator, am I are we still okay? You're still okay. Thank you. Okay. Thanks. Actually, let me continue. The Department of Veteran Affairs chose BlackBerry solution under a multiyear FedRAMP cloud license. FedRAMP cloud is growing very fast, faster than on prem solutions and we do offer both. With a win at the VA, the number of U. S. Government agencies we have FedRAMP cloud authority to operate the ATO will increase has been increased to 6 and the number of BlackBerry FlatRAM cloud users doubled to about 1,000,000. 1 of our European government customers also bought more of the secure voice solution, expanding our share of that with our nation. In Canada, we also expanded our footprint with repeat orders and helping the Canadian government monitoring the entire mobility environment and detect issues before they impact a user base of about 100,000 employees. In the quarter, we also expanded our channel network by entering into a multiyear reseller agreement with AT and T. This agreement will offer BlackBerry's suite of secure enterprise software and services to the AT and T business customer base in the United States. The agreement provides BlackBerry an opportunity to take advantage of this vast customer base. At our Analyst Day earlier this year, I announced our goal to utilize all our technology assets to create an end to end platform that will secure and manage the multitude of enterprise endpoints expecting in the future enterprise of things. That's very long, a long sentence. On September 12, we took a major step towards achieving that goal with our announcement of BlackBerry Spark, which is an enterprise of things platform designed and built to address 2 very significant and intersecting global needs, one being hyper connectivity of things and the other cybersecurity requirements. BlackBerry has the technology and DNA to play in a very substantial market influenced by these trends. Per industry analysts, IoT endpoints will grow from a mid single digit $1,000,000,000 install base in 2017 to potentially a $75,000,000,000 in store base in 2025. Spending is estimated to be in 1,000,000,000,000 of dollars. A substantial portion of this installed base and related spend is expected to be in the enterprise sector. Our customer and partners will be able to build and deploy new product and solution with this BlackBerry data security and privacy as the foundation. We believe this platform will afford BlackBerry compelling growth opportunity in the years to come. We're developing a number of vertical solution, which will become available in September 2019, calendar that is obviously. I will now turn the call over to Steve to provide more details about our financial statement and our quarterly performance. Thank you, John. My comments on our financial performance for the fiscal quarter will be in non GAAP terms unless specified otherwise. We delivered 2nd quarter non GAAP total company revenue of $214,000,000 and GAAP total company revenue of 210,000,000 dollars I will break down revenue shortly. 2nd quarter total company gross margin was 78%, up 2% from a year ago. Our non GAAP gross margin includes software deferred revenue acquired but not recognized of $4,000,000 and excludes stock compensation expense of 1,000,000 dollars and restructuring expense of $1,000,000 Operating expenses of $115,000,000 were down 3% sequentially as we continue to maintain financial discipline by optimizing our resources, becoming more efficient and improving our bottom line. Our non GAAP operating expenses exclude $22,000,000 in amortization of acquired intangibles, dollars 20,000,000 in stock comp expense, dollars 2,000,000 in restructuring charges, a benefit of $2,000,000 for acquisition and integration costs and a benefit of $70,000,000 related to the fair value adjustment on the debentures. Non GAAP operating income was $17,000,000 and non GAAP net income was $21,000,000 dollars Non GAAP EPS was $0.04 in the 2nd quarter. Our adjusted EBITDA was $33,000,000 this quarter, excluding non GAAP adjustments previously mentioned. This equates to adjusted EBITDA margin of 15%. I will now provide a breakdown of our revenue in the quarter. Total software and services revenue was $197,000,000 representing 92% of total revenue and up from 79% compared to a year ago. Total SaaS revenue was $12,000,000 and total handset device revenue was 5,000,000 dollars SaaS revenue continues to wind down as expected. Handset revenue resulted from the release of balance sheet credits, which had a small benefit to EPS. I will now provide a further breakdown of our software and services revenue in the quarter. Enterprise software accounted for 47%, BlackBerry Technology Solutions accounted for 25% and Licensing IP and Other accounted for 28%. Please refer to the supplemental table in the press release for the GAAP and non GAAP details. I would now like to make several comments to provide further clarity. As reported, enterprise software revenue declined approximately 10% year over year. This is an improvement from the 18% year over year decline we reported last quarter. After implementing ASC 606 at the beginning of this fiscal year, I want to remind you that the revenue from the majority of our perpetual licenses is no longer recognized immediately. In general, revenue from perpetual licenses is now recognized ratably over a 4 year period. In FY 2018, perpetual licenses accounted for between 20% 30% of enterprise software revenue. If we were to account for the Q2 of last year in the same way as this fiscal quarter, then enterprise software revenue would have experienced low single digit growth. While there are other factors contributing to this year over year comparison, it is clear that we have made progress in the enterprise software business as evidenced by 11% sequential revenue growth, double digit billings growth and deferred revenue growth. We anticipate the headwind from this accounting and sales model changes to impact enterprise software revenue for the remainder of fiscal year 2019. We expect better year over year comparisons in fiscal 2020 as we lap the accounting and sales model changes. Recurring software and services revenue was approximately 81% in the quarter, consistent with the definition we have previously used. As we mentioned last quarter, a primary benefit of recurring revenue is that it is more predictable. Therefore, if we include perpetual licenses that are now recognized ratably in the calculation, then recurring revenue would have been over 90% in both Q1 and Q2 of this year. Now moving on to our balance sheet and working capital performance. Total cash, cash equivalents and investments were $2,400,000,000 which increased by $17,000,000 from May 31, 2018. Our net cash position was $1,700,000,000 at the end of the quarter. Moving to the cash flow statement. Free cash flow before considering the impact of restructuring and legal proceedings was positive $37,000,000 Cash generated in operations was $31,000,000 and capital expenditures were $4,000,000 That concludes my comments. I'll now turn the call back to John to provide our financial outlook. Thank you, Steve. We have financial outlook before our Q and A, first we reaffirm our fiscal year 2019 financial outlook, which have 4 highlights: 1, the total company software and services billings grow to be in double digit 2, the total software and services revenue annual growth between 8% to 10% 3, non GAAP EPS to be positive and finally, to deliver positive free cash flow before considering the impact of restructure and legal proceedings. This, by the way, has been consistent from previous guidance. Our annual guidance is based on the following premises: number 1, BTS revenue to continue its double digit growth throughout the year, although the growth may be closer to 20 percent rather than 30% due to a tougher comparison in the next 2 fiscal quarters. Licensing revenue to perform better than we originally planned. Enterprise billing and revenue to continue its sequential growth for the remaining of 2019. For the full year, we anticipated enterprise billing to be relatively flat year over year and enterprise revenue to be down high single digit to low double digit year over year because of the 606 implementation. Similar to fiscal 2019, total software and services revenue to be weighted towards the back end, which is a lot more towards the 4th fiscal quarter. Recurring software and services revenue are expected to be in the low to mid-eighty percent range in fiscal 20 19 as Steve just has outlined it. So I will now open the call for Q and A. Lisa, can you please administrate that? Thank you. And we will now begin the question and answer session. Our first question comes from the line of Daniel Chan from TD Securities. Your line is open. Hi, good morning guys. Good morning. So the enterprise revenue was better than expected and billings continue to be strong. Thanks for the color on the year over year comparisons given the different accounting rules. But just to simplify things, were there any perpetual license deals in this quarter that helped those numbers come in so strong? Yes, we have perpetual license. Most of them are taking over ratably over 4 years. And there are very limited of them we're taking upfront because of the accounting rules that we are not allowed to take it over for years. Yes. We did have a very small number of perpetual licenses. I want to remind you that when we made the switch from ASC 606, Dan, you may recall that we said we were going to basically not offer perpetual licenses only in rare cases, and those numbers were very small. Okay. So just to summarize, the strength or the outperformance in ESS and the billings is primarily driven from subscription licenses? Yes. Okay. We have the licenses, which is the same. Okay, great. And then just switching gears to the IP licensing side. It looks like Facebook just recently bought 5 of the 6 patents they're asserting against you. Is there any read through from the timing of these purchases? We are advised not to make any comments on an ongoing legal proceeding. You're going to have to make your own judgment on that. All right. Thank you. Thanks, Dan. Our next question comes from the line of Mike Walkley from Canaccord Genuity. Your line is open. Great, thank you. Good morning. One last question. Good morning. Question just on the radar business. You shared that you expected to reach $100,000,000 cumulative revenue over the next 3 years. Can you just talk about how you're seeing your channel development build out? Also, I believe 3 of your larger cargo tracking companies are for sale. So do you see opportunities in the competitive environment maybe to gain share with some customers potentially for sale? And then who do you see as your leading competitors? Thank you. I missed your last part, Mike, your last question. Just saying who do you see as your leading competitors in the market currently? Okay. I think so first of all, in our $100,000,000 cumulative for the next 3 years, we lay out an operational plan that does not and I'd emphasize, does not include acquisition of any sorts in this area. I wouldn't say we're not open to it, but it's not a high priority item for us on acquisition in this area. We believe that the product strength is there. We know it works well. The customers start rolling it out. We have some very good names and big names that are customer that are taking advantage of it and they are gradually buying more. Our win rates are quite high compared to the industry. I think we win about half of all the POC that we completed. So combination of that, we're quite encouraged to the competitiveness of our product. Again, it's because it was designed for the cloud, for the analytics and now we are trying to tie that into our Sparks platform so that you could be managed by the UEM and the security side. So there are a lot of good things there. At this point, we don't believe we need any help inorganically. Great. Just a clarification, you're just investing to scale up your own sales channels and platforms. That's where you're going to invest in that. And with competitors' potential for sale, do you see any competitive dynamics that's helpful to BlackBerry in your win rates? I don't know what area you're referring to. I mostly just focus on the reach, which are the channel, which that's just why we've been spending a lot of time and energy on building up channels and getting these big resellers to resell products. And again, from a product to product specific, the fact that this is a modular design and the design that are again more of the modern architecture, I would say. And the hardware is not really an important part. It's relatively simple component unlike the competitors being more proprietary based. So we have some built in advantage because of that, but I'm not sure exactly which area you're referring to. Okay, great. You guys for my questions. Sure. Absolutely, Mike. Our next question comes from the line of Paul Steep from Scotia Capital. Your line is open. Hey, good morning. Hi. John, can you chat a little bit about with UEM and the EMM market, how you've seen your market share maybe progress over time and what you view as sort of the health of the base? And then my quick follow-up, I guess, would be to either you or Steve, in terms of the sales force transition, what the early response has been and how settled in people are with the new program? Thanks. Okay. Let me take the first one then. We are very strong in from a UEM side of the equation, we're very strong in 2 verticals, the financial and the government verticals. And as we want to build more and more solutions that is geared towards cybersecurity and a platform of endpoint protection and management. So, we have a lot of opportunity there, especially in the government sectors that we've been in a lot of discussion, a lot of different projects. We need to probably broaden ourselves in channel reach and into other verticals that are also being regulated. There are opportunities in transportation that ties to radar and QNX. We think there is some encouraging opportunity there. There could be opportunity in the healthcare side of the equation. So we're not very big in the healthcare side, but it's something that a lot of the healthcare customers and prospects would like to work with us on. So I think we have expansion in vertical and also a kind of a moving up the stack on the UEM with our existing customer base. And I'll take the second part of your question, which is related to how is the sales force responding. And over the course of the year, there'll be continued improvement on the response. For individual salesperson, it's not until they have the opportunity of really closing large deals that they see the emphasis on subscription model versus perpetual. So we'll be working through. But I think it's gone according to plan and we haven't had any surprises as a result. I think I'd like to add something to that. From what I could gather, the sales force is not the problem, because our compensation doesn't differentiate whether you're because we count people on billings. So, how we take revenue from an accounting point of view, it doesn't really affect them individually. Maybe the sales management team is a little different. But I believe that changing the customer way of wanting to buy things may be a little bit more challenging than my sales team. Your customers, especially in government, tend to buy it from a program on a program basis. So they tend to want us to acquire in a perpetual way. Thank you. Sure. Our next question comes from the line of Gus Papageorgiou from Macquarie. Your line is open. Hi, thanks for taking my question. Just want to focus on the IP Licensing business. Can you give a couple of questions there? Just can you give us an idea of a sense of why that business is doing better than you expected? And secondly, I mean, obviously, you've been flexing your legal muscles going after some big players. I'm just wondering, what are the prospects there of negotiating licenses versus one time payments? And in the event that I think most companies would resist licenses and rather just cut your check, how do you encourage them to take on a license versus just cutting a one time check? Do you want to take that? Well, yes, I can take that, Gus. Well, the first case is that we think it's doing better because, a, we have a better base of predictability. As we mentioned earlier, in the IP licensing as well as our other licensing within the category, we're running $40,000,000 to $45,000,000 So two factors will come into play. One is what you mentioned is getting more of a recurring revenue from our discussions around IP licensing. But the other one is one time events. So there will be some our expectation is that there will be some one time events in the later half of this fiscal year. And you're a one time event. It just takes place in the negotiations through the volume and we have to be receptive to both models and we have been. Our preference naturally is more longer term volume based. And I assume that longer term is when the negotiations are hospitable versus confrontational? Well, okay. So Gus, let me you used the word legal muscle. Compared to some of the people we go after, we really don't have that much of a muscle. But I believe that our duty is to make sure that our investor get a reasonable return on the investment made and maintaining and creating an IP portfolio of our size and complexity and continue adding IP innovation into it, it's a pretty costly proposition. So because of that, we believe that we need to go after company that uses our intellectual property and also offer to company that may take maybe we'll take advantage of our intellectual property. So it comes in all sizes and shapes. It comes in all types of reactions. Some of them are very receptive, some really want to do this. Some are a little bit more redrawn. We don't absolutely do not like to sue people. I think this is really a waste of time and waste of money in my personal opinion. But on the other hand, if people are just either ignoring us or not providing a reasonable resolution, then we have no other choice for our shareholders. We believe we wanted we need to do with the minimum. So therefore, we use the legal side very, very carefully and very limited. And we like to we prefer to have a business solution rather than a legal solution. So now as regarding to recurring versus a professional, this is one a professional one time meaning, sorry. This is one of those situation where people want to obviously wants to pay only one time. And then you will just don't have to remember it anymore or deal with it anymore. And we obviously want a recurring and the tug of war is part of like Steve said, it's part of the negotiation and this is why sometimes it's so unpredictable whether it's this quarter and next quarter and we won't just gave up because of the quarterly boundary and that's how we think about the business. Great. Thank you very much. Sure, Alex. Our next question comes from the line of Steven Fox from Cross Research. Your line is open. Thanks. Good morning. Good morning. Good morning. I was wondering if first of all, you could expand on one of the bullets in your slide where you talked about building out your JAVA sales team a little bit more in terms of we needed Sorry. You broke up a little bit, you said about the Jarvis team? Yes. So why are you why is there a dedicated sales team being put in place? And can you give us some an update on how that innovation is moving for commercializing? Yes, yes. No, we don't really have a jobless sales team. We currently we're offering jobless to the OEM and Tier 1 in the auto sector. And we're using the existing QNX team. So we don't I don't think I have said that we're building a jobless sales team. It may be in the future that might be that need, but currently that's not in our plan. And then how close do you think you are to sort of seeing meaningful commercialization around Jarvis? We have one customer already and we have one that we believe will sign up very, very soon. These obviously when we talk about these customers, they're pretty big name customers that you will recognize. And this is really about getting more and more of the developer and the development process, the qualification process using it. As time progresses, we'll get more and more revenue out of it. And so we have it commercialized. We are building refinement, next generation upgrades and to it. So, it's more engineering than sales. Got it. And then just on the quarter you just reported, can you give us some more color on QNX's mix? How successful you've been in with the recent wins and revenues and moving out of infotainment? It's a great question. We our non actually, as I said earlier, our infotainment business grew year over year, but our non infotainment business grew even much faster. And they are we have some really strong wins in advanced driver assist as well as instrumentation cluster. So and obviously we have ongoing business in over the air and hypervisor. So things are looking touchwood. Things are looking pretty good and these design wins in the last couple of years finally starting to yield some results for us. Thank you very much. Sure. Absolutely. Our next question comes from the line of Gabriela Borges from Goldman Sachs. Your line is open. Hi, good morning. Thank you for taking my question. I wanted to follow-up with Steve on the earlier commentary on perpetual license mix being relatively small. Just wanted to reconcile that with the mix of recurring going down quarter over quarter to 81 from 86. Could you just explain what the factors are driving that? Sure. The first thing is that the recurring is based on consistent methodology, which includes total software and services, less professional services, less IP licensing, so from a definition standpoint. But during the quarter, we could have a mix difference where under 606, if we achieve all the performance obligations for our sale, then we have to take the revenue, which is proper accounting, we take the revenue on an immediate standpoint. So there are instances of that. One example could be our Secu Smart software. Gabriela, you recall that what turns immediate revenue into more ratable revenue is a lot of cases services that we have to continue to perform because of our knock. So it's really the mix between the type of software that we're selling quarter to quarter. That makes sense. And the follow-up is for John, if I may, on the QNX business. We talked a little bit about the longer term design and pipeline. I'd appreciate it if you could also comment on your visibility into the second half of the year. How do you feel about that revenue ramp and your comment on closer to 20% growth versus 30% growth. Just wanted to confirm that's just because of the comps and nothing's changed internally with respect to your own expectations? Thank you. It's just a matter of the magnitude of the comp, the magnitude of the numbers, the base number of the economy. So now the business are the good thing about the QNX business is quite predictable. And the best thing is it take a while to make it predictable because every time we win, we win a design win. You got the initial batch of development seats, the licenses, these are not very big, it's probably 6, a lot of time it's about 6 figures numbers in 100 of 1000. But that's pretty much a one time thing. There might be some ongoing professional services to take the engineers for the Tier 1 or the OEM to use our platform. And then once they start delivering the product, then we got a royalty check and it's rather steady in that sense. So it takes a while to get a steady stream of revenue. And what you are seeing or we are all seeing right now this year is the wins that we have accumulated within the last few years starting to pay dividend and they're starting to either step up the developments in some cases or they're shipping the product. So and then therefore we're getting the ongoing. So we don't have any fundamental issues with the business. My comment of more 20% than the 30% is because of the fact that the numbers are bigger in the second half of last year. Understood. I appreciate the color. Thank you. Sure. Our next question comes from the line of Todd Coupland from CIBC. Your line is open. Hi, Todd. Good morning, everyone. Good morning, Todd. I also had a QNIC's question. So I guess the 20% in the second half of the year, what does the beyond the next couple of look like? You had had a string of wins that have built up this base that you're now benefiting from, but what is visibility in a little bit longer term pipeline for the next fiscal year? Thanks. We should continue to see growth. I don't have the numbers or exactly what percentage it might be, but I mean, I'm recently comfortable with double digit. So another question is, is the double digit with 1 or a 2 or a 3. But with the bids are pretty good. In general, I know you folks are I'm sorry if I somehow get you out of concern about it's been growing at 29%, 30% in the 1st 2 quarter and now we're going to say we're going in the lower 20s. Again, it's strictly because of the numbers, the comps and we have no issue with the business. The visibility is quite good. The visibility is quite good actually beyond. In fact, we have high hopes of this business continue to grow in the next couple of years in a reasonable fashion because of the design win we have. And a lot of the design wins, the big design wins we have, some of them are starting to yield results, but some of them are whether we see NVIDIA's or the Baidu and all that, they're yet to come. And so they will add to the growth in the future years. Okay. And just on that point, it seems like you did call out ADAS, but it seems like it's still tilted towards infotainment and there's a lot of competition in the ADAS side of the business. Can you just give us an update on your views of your competitive position specifically for ADAS features? Yes. Every quarter we win some ADAS design. So I don't get the feeling from any of our people that ADAS is very competitive. I'm sure that we don't win every opportunity out there, but we win a number of the opportunity that don't seem to be a concern of that. Did you hear anything out there that I should be aware of? Are you asking me or your staff? Yes. No, no, I'm asking you. I mean, I haven't heard. You're the first person who asked me about whether our ADARs is just that every quarter we win some ADAS and then we're in a number of conversation. I don't hear my sales force saying that ADAS are overly competitive. Usually, it's a co word for that situation you're pointing out. But we know infotainment is competitive and infotainment pricing is competitive, infotainment pricing is competitive, partly because of the auto grade Linux, but we still win infotainment The year over year revenue is still going up. So ADAS actually has been growing pretty nicely. So I didn't know why you did you hear anything that I should be aware of? No. It's just that there's a lot of people interested that your market share and footprint has been firmly established there yet. So it's more along that line than sort of specific wins with other players. I see. I see. No, we win some really big ADOS. I mean, I just told you that we won a big account in the past quarter. I want to add one thing to this. It's a good question. Why we win? We win because every of those solutions we talk about ADAS or clusters, OTA or safety, everything we win is because of the ISO safety certification that we have. And this is where Tier 1 wants work with us and OEM want to work with us. And the reason is it's quite simple. It's a bigger question. The bigger question is the trend of the OEMs and the Tier 1 are going to less the high performance component, the computer HPC or people call it ECN, I mean different people call it different names. The idea is there are a number of computers in the car, whether it's a connected cars or a autonomous surfing platform. So as you get less number more integrated and less number of HPCs, the safety of each of the HPCs become more important. ADAS is part of that. And so we win because of that. And currently, we're the only that ISO certification standard, highest standard is safety. We're the only provider of that. So this is why everybody wants to work with us. I don't want to be overly bullish about we win every deal and stuff, but any safety oriented components, we have a very high chance of winning. Okay. That's great, John. Appreciate the color. Sure. Our final question for today will come from the line of Paul Treiber from RBC Capital Markets. Your line is open. Hi, Paul. Thanks very much and good morning. I just want to follow-up on the questions on QNX and automotive. And just to there by 3 to 5 times over the next 3 to 5 years. Is that still a reasonable outlook for that business? Yes. Yes. With the comments related to ARPU. And so the answer to your question, yes, we are still gunning for that and we don't have any reasons to believe that we should back up on it. I feel quite encouraged with the auto business. Just last couple of weeks, I have spoken to many of the Tier 1 OEM CEOs. Feel good about how they view what we offer, the collaboration that they would want, the deals that we are bidding. I don't see any slowdown or any reason to be concerned about auto business. In fact, we're probably going to step up more investment in QNX. We're going to add more engineers around the world and especially in Canada. We have a number of announcement that comes out that will come out to just kind of confirm our investment level that will increase our investment level in this area. And in addition, the OEM, the operating system could be used in many different areas including medical equipment and so forth and we are looking at that too. So in addition to the auto, which we will grow and invest in heavily, there is also other verticals that could use it. And this is why I feel good about our Spark platform because we could secure more endpoints beyond just the cars. Okay. Thanks for clarifying that. Just one last question for me, and it's a problem that you have, but probably a good problem, is just on the cash and potential uses of cash. You've talked about M and A and share buybacks to potentially offset the dilution. Do you have any updates on that particularly in regards to M and A with valuations are where they are and then also maybe share buybacks? Yes. We're not really doing much buyback. This is really the reason is when we do our calculation, we believe that cash for our shareholders return is best use on expanding the business and expanding the capability. I'm a very cautious guy and you could use the word cheap, but I don't think I'm cheap. I'm just value seekers. What I don't want to do is to buy a very, very high multiple. There are a number of interesting opportunities out there. We have a team of people that they go around and they try to understand the landscape and the company and so forth. So acquisition has continued to be a high priority item for us. We will be very careful not to be not to overpay. This market as you will agree is going higher sometime for very little reasons that I could understand, but then I'm not you guys and it's not my day job. But because of that, I'm a little cautious of jumping in and paying high multiples. So I guess I'm doing a wait and see there a little bit. So in the meantime, we have plenty of things to do ourselves organically. We're building our ISS technology and next week, we're going to announce some new stuff. And so we're quite busy on the sell, but we will do some acquisition. Buyback is currently at the back burner. Okay. Thanks for taking my questions. Absolutely. Okay. I think that was it, right? That's it. Okay. Thank you. So thank you. Before I close the call, I'd like to put a pitch for our marketing group that we have our security summit in New York next week. And I think it's next Thursday, Friday, if I'm not correct remember correctly. But I hope that I could see some of you there and most of you there. Thank you for the time that you spent with us today and have a good day. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.