Please stand by. We're about to begin. Good morning, welcome to the BlackBerry fiscal fourth quarter and fiscal year 2018 Results Conference Call. My name is Carrie, and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. We will be facilitating a brief question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing star zero. 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, Carrie. Welcome to the BlackBerry fiscal fourth quarter and fiscal year 2018 Results Conference Call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen, and Chief Financial Officer and Chief Operating Officer, Steve Capelli. After I read our cautionary note regarding forward-looking statements, John will provide a business update. Steve will then review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via call-in numbers and via webcast in the investor information section at blackberry.com. 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&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. Also, please note the free cash flow amounts that John and Steve will share for the fourth quarter and fiscal year 2018 are before considering the impact of costs related to restructuring and transition from the hardware business and the net impact of arbitration awards and damages. I will now turn the call over to John.
Thank you, Chris. Good morning, everybody. As Chris stated earlier, I will reference non-GAAP numbers in my summary and our quarterly and annual results. I am very pleased with the execution in both the fiscal years as well as our fourth quarter. Fiscal year 2018 was a good year. We achieved 14% software and services revenue growth year-over-year on the strength of all our businesses. These results were at the higher end of the guidance of 10%-15%. This was the first quarter where all three of our software businesses grew both year-over-year and quarter-over-quarter. In the fourth quarter, year-over-year revenue growth for software and services was 13%, which comprised of the following: 12% came from the enterprise software, 4% came from licensing and IP, 31% came from BTS. BTS performance was strong in the quarter, particularly for the BlackBerry QNX.
We also achieved positive earnings per share and positive free cash flow for both the fourth quarter and the full fiscal year. As a reminder, it was only 18 months ago that we announced our exit from handset manufacturing. You may recall the outlook at that time we provided, or at the beginning of the fiscal year 2018, where we forecast that BlackBerry will shift from the hardware to an enterprise software model while growing software and services revenue at or above the market, achieving profitability on a non-GAAP basis, and generating positive free cash flow. We accomplished all those operation and financial objectives and metrics. Our strategy is working. Customer partners and industry analysts alike recognize our innovation as well as our market leadership.
This give us confidence that we could capitalize on the significant market opportunity available today as well as in the future. Now let me provide some highlight for the quarter. Total quarter revenue came in at $239 million. Total software and services revenue was $218 million, which was the third quarter of sequential growth and broke the revenue record that we set last quarter. Gross margin came in at 79%, which is another record high. Operating income was $19 million, and operating margin was 8%. That is versus 4% a year ago. This is the eighth consecutive quarter of positive operating income. Earnings per share was $0.05. Total ending cash and investment were $2.4 billion. Next, here are some of our significant highlights by businesses. I'll start with the enterprise software business first. Revenue grew for the third consecutive quarter.
Billings also grew double digits year-over-year for the third consecutive quarter against a very tough comp, if you can remember, a year ago. We started this move a year ago. Our results were strong across industry verticals, as well as products and geographies. We experienced continued strength with the U.S. and German governments, as well as broadening our reach in the government sectors globally. A notable deal in the sector in the past quarter was with U.S. Air Force, who will be deploying our endpoint management solution. This solution is the only FedRAMP-authorized crisis communication product in the market, which will cover over 1 million personnel and their families in about 200 locations worldwide, globally, obviously. In total, the government verticals deliver more than 40% of our enterprise software business.
We also experienced good traction in the other industry vertical, where we have traditionally performed well, such as the financial services. Recently, we are starting to see an uptick of wins and activities in the medical and healthcare sector. In the quarter, we have approximately 3,500 enterprise customer orders. Last week, we announced a pretty exciting new product, BlackBerry Enterprise BRIDGE, which BlackBerry developed in collaboration with Microsoft. BRIDGE is the industry's first of its kind solution, allowing customers to seamlessly use native Microsoft applications from within the BlackBerry Dynamics container, and for both Android as well as iOS devices. Our extended partnership with Microsoft underscores the value we bring to enterprise clients by providing the highest level of mobile productivity as well as mobile security. Next, I will discuss our licensing business. Our business continued to grow year-over-year and performed better than we expected.
IP licensing is the largest component within this business. As I noted last quarter, we see the revenue run rate for our IP license to be approximately $100 million on an annual basis. Our software license business showed progress as our Asia-based partners began to ship the BlackBerry KEYone during the fiscal quarter. We are also starting to expand our technology licensing business into the consumer electronics sectors, broadening our reach in the enterprise of things. After the quarter ended, we announced a technology and brand licensing deal for BlackBerry Secure with Punkt Tronics AG, which is a leading Swiss consumer electronics company. Punkt will bring to market a range of highly secure consumer IoT products that embed BlackBerry's cybersecurity technology. Moving on to BlackBerry Technology Solutions business, the BTS, which include embedded software and asset tracking. Growth was primarily driven by BlackBerry QNX.
I know a bunch of you are waiting on this. Were we, by the way, supported by the design wins we previously communicated. Over the last 12 months, we have seen clear proof points of how BlackBerry embedded software is enabling automakers to deliver next-generation connected cars. We're winning because the auto ecosystem is now recognizing the increased importance of safe and reliable software use in connected and autonomous vehicles. Good proof point of this came from the fourth quarter when we announced partnership with Baidu and NVIDIA, who chose our safety-certified QNX operating system. At the North American International Automotive Show, we announced Jarvis, a transformational cybersecurity product. Jarvis is a unique cloud-based binary code scanning solution that efficiently identifies vulnerabilities in software used by automakers.
Jarvis is intended to represent a family of cybersecurity tool sets, which in the future BlackBerry could offer and generate a recurring revenue stream. Jarvis is ideal for complex programming and code integration. Jarvis has the potential to expand in other verticals like healthcare as well as the consumer markets. After the quarter end, we were chosen by Jaguar or Jaguar, depending on which part of the continent you came from. I'll use Jaguar, being from the West Coast of the U.S. Jaguar Land Rover to develop technology for their next-generation vehicle. Jaguar Land Rover will license BlackBerry QNX and Certicom technology. BlackBerry QNX will assign a dedicated team of engineers to assist. This direct relationship with second auto OEM emphasizes the increased attention and the values the OEMs are placing on ensuring that the future vehicle platforms are built with safety-certified embedded software.
Moving on to our asset tracking business. BlackBerry Radar reported its first-ever $1 million revenue quarter. While the quarterly revenue is not yet significant, we did see contributions from the partners with Fleet Complete and Pan Pacific that we announced last quarter. We also signed several new deals for Radar in the quarters, including one with Canada Bread, the leading producer and distributor of packaged bread. Packaged bread. Oh, no. Distributor of bread and bakery products in Canada. Packaged bread doesn't sound very appetizing. More importantly, the number of opportunities in our pipeline continues to grow, increasing by over 20% from last quarter. We're starting to see the returns on the go-to-market investment we discussed two quarters ago, and we are now planning to enter markets beyond North America.
Our business highlight this past year has been positive, and they're all positive indicators of progress made towards achieving our vision, our vision to secure the enterprise of things. The demand for managing secure and reliable connectivity have increased in line with the number of connected enterprise endpoint being added. According to the Gartner December 27 forecast, now I'm forced to tell you the report that it came from, otherwise I wouldn't be able to use the data. The report was from Gartner, was called the Internet of Things, Endpoints, and Associated Services, Worldwide. The data is that IoT will grow at a 32% CAGR, Compound annual growth from 2016 through 2021, reaching an install base of 25.1 billion units. We see our Unified Endpoint Management and embedded software business as synergistic with this trend.
We believe this vision translate into long-term growth and shareholder value creation. I will now turn the call over to Steve to provide more details on our performance.
Thank you, John. My comments on our financial performance for the fiscal quarter and year will be in non-GAAP terms unless specified otherwise. I'm also pleased with our performance in the fourth quarter and for fiscal year 2018. We delivered fourth quarter non-GAAP total company revenue of $239 million and GAAP total company revenue of $233 million. I will break down revenue shortly. Fourth quarter total company gross margin was 79% compared to 77% last quarter and up from 65% a year ago. The gross margin improvement of 14 percentage points over a year ago is attributed to the increase in contribution from software and services to our overall revenue mix. For the full year, total company gross margin was 75%.
Our non-GAAP gross margin includes software deferred revenue acquired but not recognized of $6 million and excludes restructuring program charges of $3 million, stock comp expense of $1 million, and other expense of $1 million. Operating expenses of $169 million were up 3% sequentially, driven by our planned investments in sales and marketing. Our non-GAAP operating expenses exclude $25 million in restructuring charges, $22 million in amortization of acquired intangibles, $12 million in stock comp expense, and a benefit of $34 million of fair value adjustment related to the debentures. Non-GAAP operating income was $19 million, and non-GAAP net income was $25 million. Non-GAAP EPS was $0.05 in the fourth quarter. For the full year, we delivered non-GAAP EPS of $0.14 versus $0.06 in fiscal year 2017. Our adjusted EBITDA was $36 million 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 $218 million, representing 91% of total revenue and up from 65% compared to a year ago. For the full year, we delivered total software and services revenue of $782 million, an increase of 14% year-over-year. This was at the higher end of our financial guidance provided at the beginning of the fiscal year. Total handset device revenue was $2 million, and total SAF revenue was $19 million. Handset device and SAF revenues continues to wind down as expected, given our exit from the manufacturing of handset devices. I will now provide a further breakdown of our software and services revenue in the quarter. Enterprise software accounted for 52%, BlackBerry Technology Solutions accounted for 21%, and licensing IP and other accounted for 27%.
Please refer to the supplemental table in the press release for the GAAP and non-GAAP details. Approximately 70% of software and services revenue, excluding IP licensing and professional services, was recurring in nature. This decreased from approximately 75% in our third fiscal quarter due to strong non-recurring government business in the fourth quarter. Moving on to our balance sheet and working capital performance. Total cash equivalents, and investments were approximately $2.4 billion. Our net cash position was approximately $1.7 billion at the end of the quarter. Aggregate contractual obligations, which includes purchase obligations, operating lease obligations, interest payments, and other goods and services utilized in operations, was approximately $305 million at the end of the fourth quarter. This is down from $398 million a year ago. Moving on to the cash flow statement.
Free cash flow generated in the fourth quarter was $31 million, which consisted of cash flows from operating activities of $35 million, net of capital expenditures of $4 million. Free cash flow generated for fiscal year 2018 was $47 million, which consisted of cash flows from operating activities of $62 million, net of capital expenditures of $15 million. As Chris mentioned at the start of the call, the free cash flow amounts I just stated are before considering the impact of costs related to restructuring and transition from the hardware business. The net impact of arbitration awards and damages. Before I turn the call back to John to provide fiscal year 2019 outlook, let me briefly touch upon ASC 606, which is the new revenue recognition accounting standard. BlackBerry will adapt the new standard for the first quarter in fiscal year 2019.
As such, the fourth quarter and fiscal year 2018 financial results we share today are all under the prior accounting standards. The new accounting standard is expected to have minimal impact on our business model. However, the change to ASC 606 will likely alter the timing of our revenue as an increasing amount of revenue will shift to a subscription basis for our enterprise business. The impact will not be as substantial as companies shifting to the subscription model for the first time. As a reminder, approximately 75% of our annual business is already recurring in nature. Overall, we see this as positive because ratable revenue streams tend to become more predictable and growth becomes more scalable. We expect to provide additional information under the new accounting standards when we report our first fiscal quarter of 2019. That concludes my comments. I'll now turn the call back to John.
Thank you, Steve. Before I start, I want to make a correction of what Steve just mentioned. He said that fourth quarter in fiscal year 2018. This job views long, but it's not a couple of thousand years long.
Okay.
I have a few things to, and then outlook in 2019 financials. I will share with you, number 1, total company software and services billing, we expect the growth to be in double-digit. Second, the non-GAAP EPS to be positive even after the continuing investment to capitalize on the growing market opportunities that we spoke about a little earlier. This obviously includes the continuing investment on Feet on the Street, more R&D and more marketing. Third, to deliver positive free cash flow before considering the impact of restructuring and any of the legal proceeding that Steve had laid out earlier. I would now like to open the call. Carrie, could you please manage that process for us?
Thank you. We will now begin the question and answer session. To ask a question, you may press star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We request that you limit yourself to one question and one follow-up question. We'll take our first question from Trip Chowdhry with Global Equities Research.
Good morning, Trip.
Thank you, hello. Thank you, congratulations for another fabulous quarter.
Thank you.
A couple of questions. First, the U.S. budget. The Department of Defense has more than $600 billion allocated for new equipment and lot of technology into it. Two questions in this. Number one is, does QNX have any play in, say, glass cockpits of the fighter aircraft or anything like that? Secondly, there's a strong push in the budget regarding cybersecurity, I was wondering if any of those are opening up as an opportunity for you yet.
First of all, on the QNX side, I don't know the answer to the question whether we got strong push into the defense equipment. The reason is, our partners from QNX are typically the defense equipment provider. It would not be surprising that they will use QNX as in some part of the embedded solution. As far as we're concerned directly, no, I have not encountered that. However, on the cybersecurity question is, yes, as I pointed out, we see our end up in the government business sector quite strong, and I think I referenced the fact that we have 40% of our enterprise business this past quarter actually came from government sectors, mostly in the U.S. and Germany and also other countries' governments.
It is being driven not only in the U.S., but everywhere else, being driven to high awareness of the sensitivity to both cybersecurity and crisis management. In both cases, we do pretty well.
Excellent. Very good. Congratulations again.
Thank you, Trip.
We'll take our next question from Paul Steep with Scotia Capital.
Hi.
Good morning. John, could you talk a little bit about how you're feeling about the software organization, I guess, in terms of go-to-market? I know you invested, and we've been investing in the sales field force. What you're thinking about over the next year in terms of the buildup of that field force? I got one quick follow-up. Thanks.
Okay. We just had our enterprise group sales kicked off last week. Spirits are very high. Obviously, we coincide that with the BlackBerry Enterprise BRIDGE announcement. The sales guy, he was very good about our prospect. We're expanding it. We'll continue expanding it because two major geography, the EMEA and North America geography, their year-over-year growth are both quite impressive. By the way, the EMEA team won, so we had a little friendly competition for the last year. They both beat and exceed their numbers, so that was a little jabbing back and forth here. It seems to be, functionally, is quite strong.
We're adding selectively, but we're adding Feet on the Street where we're trying to make bigger hubs, like in Europe, and going after some very focused business, especially related to the new partner we have in NATO, or new customer we have in NATO, and the customers in government and financials and healthcare. We'll continue to expand it and see the results now.
I guess the final question from me would be maybe your view on the M&A environment since 2018 ended up being a good year, a cleanup year. It looks like you're on track organically. Should we now be thinking as a group here about more M&A coming out of BlackBerry? Thanks.
Yes. It's continued to be a priority of a small group of people. We make it also very visible with the board and in discussing potentials. As I always pointed out, as the market valuation is still quite high, we want to be very cautious about how we spend the money. We will. If I have to bet on this, I think something is going to happen in 2019. I'm not saying this because I know exactly that we have something right now. We certainly are talking to enough people.
Thank you.
Sure. Thank you.
We'll take our next question from Gus Papageorgiou with Macquarie.
Hi, Gus.
Thanks. Hey, congratulations on a nice quarter. Just a couple questions. For BlackBerry Radar, you said you hit your first $1 million-dollar quarter. Is that both hardware and the recurring service fee or just recurring service fee? If you could clarify that. Just on the recurring nature of your business, I know you said 70% of the software is recurring. Can you kind of give us a bigger picture, a clearer picture by group? UEM, the IP, BTS, how much of each of those segments is recurring?
I could give you some general idea of that. Let me answer the first question about the $1 million. The $1 million are actually a good thing. They're mostly hardware because the software, the recurring revenues start coming every time they turn it online. It's actually a good news because you could see there's a tail, and the tail will continue to grow. From a business perspective, it's the right thing. Mostly hardware because of timing, not enough time. There's a little bit of software in there, and then it will go. The recurring are mostly in the enterprise group, and it's also the enterprise group that has these perpetual ones there because the customer, like a lot of the government agency, they still wanted to make procurement based on perpetual because the way they budget.
Now, after ASC 606 got kicked in, or the ASC 606 already kicked in, by the way, technically on March 1. Our ASC 606 kicked in. It kind of now doesn't matter whether they want perpetual or ratable because we're going to have to take it ratable. Anyway. The other ones are royalty-based, like BTS, QNX, are very strong royalty-based. As you could see that we're making our Radar business to be recurring because of the monthly. We are trying to make our IP business to be predictably recurring, and they are also tied to, like in the case of the handset, we get X dollars a phone that being delivered or being sold. You could call it royalty, you call it recurring, but it's certainly not a perpetual base. Gradually, all business is going to be ratable or recurring.
Okay. Okay, great. Thank you very much, and again, congrats on the quarter.
Thank you.
We'll go to our next question from Daniel Chan with TD Securities.
Hi, Daniel.
Hi.
Hi.
I was wondering if you could comment about some of the things you'll be working on with Jaguar. Should we expect something similar or the systems that you worked on with the Jaguar concept car that you launched last year?
Say some more about that. I'm not quite sure.
You guys had a Jaguar concept car last year. I think you launched at CES where you showed-
Right
the instrument cluster, hypervisor-
Right
infotainment system.
Right.
Are these some of the things you're going to be working on with Jaguar? Like, what's the scope of this?
Yes. It actually has go beyond that. That particular one is, we're using a Jaguar platform to demonstrate our product with the one you saw. Jaguar now is taking a lot of our technology and trying to design their new concept car, new generation cars. I wouldn't be surprised it will come up a little differently because engineers and designers always come up with something different. You think about the Jaguar thing you saw, the concept car you saw, was really for us to demonstrate, for example, virtual cockpit. We used that platform to demonstrate. I could easily use a BMW, which we have in our lab. We could use MKZ, which we have in our lab. We could do that, but it doesn't mean that Jaguar will take that particular, what you saw, and turn it into a product.
They might, but that's now It's all their call now, obviously.
Okay, that's helpful. Any early takers of Jarvis?
Yes. I know there's six POC going.
Okay, that's great. Then just one follow on. This has been another quarter of a good license line item beat. Can you give us some color around what was the source of that beat and whether we can expect that to be recurring or not?
Well, we're hoping that. I'd like to focus on billings right now. The billings growth are strong. We've been strong in the last three quarters, and we're now strong in the fourth quarter in a row. We do expect from our sales team that the billings growth will grow at double-digit in the FY 2019. That really is the source. It was not any kind of something sudden major or one-time thing. The base of the business seems to be much stronger.
Okay, great. Thank you.
Sure.
We'll take our next question from Paul Treiber with RBC Capital Markets.
Hi.
Thanks very much. Good morning. Just with regards to the outlook for 2019. In the past, or the last year, you commented on the revenue growth outlook versus relative to the market. Just hoping if you can provide an update on where you see that going.
Steve already warned me that one of you will ask me that question. The reason why I like to focus on billings right now is because I want to see how the ASC 605, ASC 606 sorted out. We feel good from a quantitative perspective. We know our teams are winning. We have goals that are better than what other people have stated publicly. Although those are internal goals. I think the best thing to do is give us a quarter, let us sort out the ASC 605, ASC 606, and hopefully by then we could give you a little bit more color on that. You could take it to the fact that we expect to have billings growth year-over-year in double digits.
That's helpful. Just more broadly, just in regards to autonomous, there's been a lot of news on autonomous, and you put out that blog post. Have you heard anything from your partners or customers in terms of changing timelines, in terms of expectation for production launches of autonomous or autonomous features? Related to that, how should we think about the timing of revenue for QNX for BlackBerry from autonomous?
Good question. Let me first state, BlackBerry QNX are in two category. We make money in two category. One is connected cars, and the other one is autonomous car. Everybody like to focus on autonomous because a little bit more sexy in the last number of years. We build most of our business on the connected car. If you just look at our last quarter results, QNX actually grew 31% year-over-year. That comes not from the autonomous platform, but it comes from the connected platform. It comes from the connected platform beyond infotainment, which has always been our strategy, and we stated that strategy beginning of last year in San Ramon. I'm really glad that the team are executing to what we said, and here are the results. QNX actually looks to having reasonable quarters going forward also.
You go back to the autonomous. Yes, there seems to be an industry. We always thought that the most aggressive people were BMW and Honda that wanted to get an autonomous vehicle on the road by 2021, so you and I could buy. Lately, I start hearing this 2025 number. It does not affect BlackBerry as much. As long as I continue to win the design win, I have development seats and hopefully they will use Jarvis and we could have revenue for the autonomous on a continued basis, but we definitely will get good revenue from the connected car. Does that help?
Yeah, that's helpful. Thank you. I'll pass it on.
Sure. Thank you.
We'll take our next question from Todd Coupland with CIBC.
Hi, Todd.
Yeah, good morning. I had a question on self-driving as well. John, when you look across the competitive landscape, it seems to be quite fragmented for different offerings. I know your argument is security. If you sort of look out a couple of years, how do you see the market landing? Do you think design wins are going to be concentrated in a few hands, or will the market stay fragmented? Just give us your view on that.
I think from the look of things, there will be a number of Tier 1. Today, there are probably, I could name you about 10 Tier 1s around the world. I'm sure there are a lot more than 10 Tier 1s, but the 10 Tier 1s are the names that we all talk about. Either they are my customers or my OEM being their customer. There's about 10 Tier 1s of them, and these are the Harman, the Bosch of the world. I suspect those Tier 1s will shake out to be a handful, maybe three or four, and become kind of the industry-standard platform that automotive company built on. My strategy or our strategy is, as long as we are the component provider to all those four, five, three, then BlackBerry will do pretty well. I don't see any reason why we wouldn't be.
We've been talking to them. They don't look at us as competitors. They, the Tier 1, had to deal with a kind of a dividing line between that and the Google and the Apple aspiration, and whether they wanted the data layer or they want the presentation layer, the maps layer, or do they want beyond that. Again, I'm a component provider. I seldom runs into Google CarPlay, and Waymo definitely is not my competitor. They could be my customer. Apple, we don't run into each other. They definitely could have a secret project, try to provide all the component also. I think the Tier 1 are more comfortable dealing with me because I would never get into their space. I'm not going to get into the integration of technology or putting a cockpit together. Anyway.
Sorry, I ramble on a little bit because it's a very complicated market. It's one that has a lot of players in it, I think we found our niche pretty well.
Yeah, no, that's helpful color. My second question has to do with enterprise software. You're calling out double-digit growth. Kind of feels like a flat market. Will it continue to be further penetration in government in 2019? Talk about what are the sources of growth in that business. Thank you.
Right. Government financials still have a lot of growth in it. Obviously, we have to innovate to have new products. As I said earlier, we're starting to feel healthcare and another sector, which is gas or energy sector, seems to have a lot of opportunities, I'd say. Lots of activities, I'd say. As the cybersecurity and protection of cybersecurity in the mobile infrastructures is important. I feel that is a source of growth. There's another source of growth, which is geographic. Part of our plan investment is to add increased resources in Japan, Korea, and China, as well as India. India, we actually now have a new country manager. That is another potential source because it's pretty green field out there.
In addition to that, we ready ourselves with some new product upgrades or add-on or upsell in high-trust management, in secure file sharing, and in the Bridge app that we talk about, which people ask me, why is it a big deal? It's a big deal because Microsoft and us got together, and we could use our container, which is the most secure way to wrap their code, and everything will look native to the users, which is something that today people want it, but they can't get it. They could get native, but they can't get the security of the containers, but now they could get both. We believe that our customer base would like to upgrade to that. Anyway, we have product potential growth. We got vertical expansion growth, and we got geographic growth. Not everything will work perfectly.
I know that, okay. If we work at it, you might see a good run there.
Once again.
Okay.
If you'd like to ask a question, it is star one to signal. We'll take our next question from Vijay Bhagavath with Deutsche Bank.
Hey. Hi, Vijay.
Hey, this is actually Brian Yun on for Vijay. Hey, can you hear me?
Sure.
Yeah.
We can hear you.
Thanks for taking the question. Can you help us understand gross margins in FY 2019 or 2019 and then sort of the out years? Now with the majority of your handset business out of the model, is it reasonable to sort of assume gross margins in the high 70s range? What could impact that either to the upside or to the downside?
Sure. If we look at our gross margins, there's a cost of goods sold, which is relatively stable. As you look at the gross margins, if our revenues were in the $200 million range, they should fall in the low 70s. If they were in the $225 million, it starts to move to mid, and it starts to obviously ramp to the high 70s with the numbers that you've seen this last quarter. Part of that is some fixed cost and moving on. There'll be some downward pull on the margin related to professional services, which we have high margins for the industry, but not necessarily overall. Naturally, Radar brings some hardware with it. Given the size of those numbers, it should not be substantial.
Net-net, I would see the beginning of the year being in the low 70s, moving up through the high 70s. Once we work through the year, I think it'll be in the high 70s going forward.
Thank you.
We'll take our next question from Steven Li with Raymond James.
Thank you. John, the QNX growth in Q4, the connected platform, which you referred to, I can assume it's recurring, right? $46 million is your new quarterly base and you grow from here?
There is some consulting in there, I just want to say. It's obviously consulting and one-time licenses, John, you want to.
The base is higher.
Yes.
Capelli tried to pull you back down. He's right. He's right. There are one-time catch-up in there.
He's absolutely correct. There are some professional services and consulting, that's absolutely correct. We have a higher base. We expect a higher base. Correct. Don't go crazy to the same number.
Modify.
Modify a little bit.
Okay, perfect. On BlackBerry Radar, to set our expectations, can it become 10% of BTS revenues this year, or it's more likely target in 2020? Thanks.
Can it be what?
10% of BTS.
10% of BTS.
Let me see.
He's taken the 45, and he's multiplying it by four.
By four, and [two twenties], so they're probably not 10%, but close.
Okay. Very helpful. Thank you.
Particularly as you move to the later quarters, as it starts to ramp up with its own recurring model.
We'll take our next question from James Faucette with Morgan Stanley.
Hi, James. How are you?
Well, thank you for your question. Just a follow-up question on the previous one. When you say the base is higher, are you speaking about, was that higher than previously or higher than, I guess, the revenue you hit this quarter?
No, higher than previously, because last year, last couple of years, there is a certain base on QNX.
Right
We believe now the base is going to go higher. To follow up on the last question with Steven also, as I said, and which is true, that Steven pointed out, there are some one-time in there. There was one-time catch-up, one royalty, and there was a little bit of a consulting services in there. The consulting services could actually be continued. Not that particular account maybe, but there will be consulting services revenue. Catch-up are probably harder to take. If you moderate that a little bit, even if you moderate that a little bit, we do have a stronger base business now versus a year ago on QNX.
Sure. I also want to be sensitive to that there are some accounting-related changes, but how should we think about the timing and the ramp as we go through the year, particularly with new models beginning to launch and that kind of thing? I just want to make sure we're not messing up our modeling and assumption sets as we go through the year.
I think what I've described previously, let's take one step back and really on your last question. We were running in the high $30 million on a quarterly basis for a period of time, then the low $40s, and now we're in the mid $40s. I think, Steven Li, and your question really was, if we looked at Q3, Q4 was a little higher than Q3, and while it was not significantly higher, it starts to move the new base into that $45 million range. I think what we've said all along was we expected in the second half to have another uptick, and part of that was from other design wins.
That uptick may not be $5 million, but the uptick, you'll see an uptick in the second half from the first half, and that's because of the new cars coming out with design wins that we had won from a couple of years ago.
James, are you talking about the company, or are you talking about QNX?
I'm talking about QNX. Thank you.
Okay, good.
All right, thanks.
Okay.
Yeah.
Understood.
Absolutely correct.
You got it. Sorry. My last question is, it looked like restructuring charges were a little bit higher this quarter than the same quarter last year. Is that something that we should continue to expect in just matter of business, is that particularly in the fourth quarter, is that there'll be some restructuring, or is there something unique this year?
No. It should start ramping down over time. These are getting out of facilities, mainly around globally when we don't do manufacturing handsets. It's really related to those. That's the biggest chunk of them all.
That's great
restructuring anymore.
Okay. That's great. Thank you so much.
Got you. Thanks.
It appears there are no further questions at this time. I'd now like to turn the call back over to Mr. John Chen for any additional or closing remarks.
Thank you. Before closing the call, I like to mention our upcoming analyst summit on April 24th in the Bay Area. As you remember, we might just refer to a year ago, we talked about our strategy of the QNX and how we move forward. I'm very pleased with the fact that we were able to deliver the growth. We talked about the enterprise strategy, and we have customer came and testified is the wrong word, to support us, and about how important it is for our cybersecurity, that is embedded into our UEM. You heard that, and you saw our-- I hope that you're satisfied with our growth. We are quite pleased with the growth we had. This coming year, since we're going to do it once a year, we will discuss the synergies between the UEM group and the embedded software group.
Don't miss that. The roadmap to take our company, making even more stronger in product and in competition. Please don't miss that. I look forward to seeing you there. Have a good day.
Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.