Earnings Call: Q4 2018

Mar 28, 2018

Good morning, and welcome to the BlackBerry Fiscal 4th 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. 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 4th quarter 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 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. Also, please note the free cash flow amounts that John and Steve will share for the Q4 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 Q4. Fiscal year 2018 was a good year. We achieved 14% software and services revenue growth year over year on the strength of our businesses. These results were at the higher end of our guidance of 10% to 15%. This was the Q1 where all three of our software businesses grew both year over year and quarter over quarter. In the Q4, 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 Q4 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 on the hardware to an enterprise software model, while growing software and services revenue atorabovethemarket, achieving profitability on a non GAAP basis and generating positive free cash flow. It was complicated and tough work, but 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 gives us confidence that we could significant market opportunity available today as well as in the future. Now let me provide some highlights for the quarter. Total quarter revenue came in at $239,000,000 Total software and services revenue was $218,000,000 dollars which was the 3rd 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 $19,000,000 and operating margin was 8%. That's versus 4% a year ago. This is the 8th consecutive quarter of positive operating income. Earnings per share was $0.05 Total ending cash and investment were $2,400,000,000 Next, here are some of our significant highlights by businesses. I'll start with the enterprise software business first. Revenue grew for the 3rd consecutive quarter. Billings also grew double digits year over year for the 3rd consecutive quarter against a very tough comp if you can remember a year ago, we kind of 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. The solution is the only this solution is the only FedRAMP authorized crisis communication product in the market, which will cover over 1,000,000 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 3,005 100 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 application from within the BlackBerry Dynamics container and for both Android as well as iOS devices. Our extended partnership with Microsoft underscore 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 $100,000,000 on an annual basis. Our software license business showed progress as our Asia based partners began to ship the BlackBerry KEY1 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 Pungtronics AG, which is a leading Swiss consumer electronics company. Pungt will bring to market a range of highly secure consumer IoT products that embed BlackBerry 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. So will 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 Q4 when we announced partnership with Baidu and Innovidio, which shows our safety certified QNX offering system. And at the North America 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 toolsets, which in the future BlackBerry could offer and generate recurring revenue stream. Jialis is ideal for complex programming and co integration. Java 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 which part of the continent you came from. I'll use Jaguar being from the West Coast of the United States. 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 order OEM emphasized the increased attention and the values that OEM placed our OI placing on ensuring that the future vehicle platforms are built with safety certified embedded software. Moving on to our asset tracking business. BlackBerryRadar reported its first ever $1,000,000 revenue quarter. While the quarterly revenue is not yet significant, we did see contributions from the partners with Free Completes and Pana 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, I don't know, distributed 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 2 quarters ago, and we are now planning to enter markets beyond North America. Our business highlight this past year has been positive and are positive indicators and they are both all positive indicators of our 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 in and out of things, endpoints and associated services worldwide. The data is that IoT will grow at a 32% CAGR compound annual growth, sorry, compound annual growth from 2016 through 2021, reaching an installed base of 25,100,000,000 units. We see our unified endpoint management and embedded software business as synergistic with this trend. We believe that 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 year will be in non GAAP terms, unless specified otherwise. I'm also pleased with our performance in the Q4 and for fiscal year 2018. We delivered 4th quarter non GAAP total company revenue of $239,000,000 and GAAP total company revenue of $233,000,000 I will break down revenue shortly. 4th 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 sulfur deferred revenue acquired, but not recognized of $6,000,000 and excludes restructuring program charges of $3,000,000 stock comp expense of $1,000,000 and other expense of $1,000,000 Operating expenses of $169,000,000 were up 3% sequentially, driven by our planned investments in sales and marketing. Our non GAAP operating expenses exclude $25,000,000 in restructuring charges, dollars 22,000,000 in amortization of acquired intangibles, $12,000,000 in stock comp expense and a benefit of $34,000,000 of fair value adjustment related to the debentures. Non GAAP operating income was $19,000,000 and non GAAP net income was $25,000,000 Non GAAP EPS was $0.05 in the 4th quarter. For the full year, we delivered non GAAP EPS of $0.14 versus $0.06 in fiscal year 2017. Our adjusted EBITDA was $36,000,000 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 $218,000,000 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 $782,000,000 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 $2,000,000 and total SaaS revenue was $19,000,000 Handset device and SaaS 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 decrease from approximately 75% in our 3rd fiscal quarter due to strong non recurring government business in the 4th quarter. Now moving on to our balance sheet and working capital performance. Total cash, cash equivalents and investments were approximately 2 approximately $1,700,000,000 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 $305,000,000 at the end of the 4th quarter. This is down from $398,000,000 a year ago. Moving on to the cash flow statement. Free cash flow generated in the Q4 was $31,000,000 which consisted of cash flows from operating activities of $35,000,000 net of capital expenditures of $4,000,000 Free cash flow generated for fiscal year 2018 was $47,000,000 which consisted of cash flows from operating activities of $62,000,000 net of capital expenditures of 15,000,000 dollars 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 and 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 Q1 fiscal year 2019. As such, the Q4 fiscal year 2018 financial results we shared 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 shift into 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 1st 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 on what Steve just mentioned. He said that Q4 fiscal year 2018, I mean, this job feels long, but it's not a couple of 1000 years long. Okay. Okay. All right. Let's I have a few things to and then outlook in 2019 financials. So I'll share with you. Number 1, total company software and services billing, we expect the growth to be in double digit. 2nd, the non GAAP EPS to be positive even after the continued investment to capitalize on the growing market opportunities that we spoke about a little earlier. This obviously includes the continued investment on feet on the street, more R and D and more marketing. 3rd, to deliver positive free cash flow before considering the impact of restructuring and any of the legal proceeding that Steve had laid out earlier. So I would now like to open the call. Carrie, could you please manage that process for us? Thank you. And we will now begin the question and answer session. And we'll take our first question from Trip Chowdhury with Global Equities Research. Good morning, Tripp. Thank you and congratulations for another fabulous quarter. A couple of questions. First, the U. S. Budget. The Department of Defense has more than $600,000,000,000 allocated for new equipment and lot of technology into it. Two questions in this. Number 1 is, does QNX have any play in, say, glass cockpits of the fighter aircrafts or anything like that? Secondly, there's a strong push in the budget regarding cybersecurity. And I was wondering if any of those are opening up as an opportunity for you yet? Okay. 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. And the reason is our partners from QNX are typically the defense provider, the equipment provider. So it will not be surprising that they will use QNX in some part of the embedded solution. But as far as we're concerned directly, no, I have not encountered that. However, on the cybersecurity question is, yes, as you as I pointed out, we see our end of the government business sector quite strong. And I think I referred reference the fact that we have 40% of our enterprise business this past quarter actually came from government sectors, mostly in the United States and Germany and then and also other countries, governments. It is being driven not only in the United States, but everywhere else being driven to high awareness of the sensitivity to both cybersecurity and crisis management. And so in both cases, we do pretty well. Excellent. Very good. Congratulations again. Thank you, Akshay. And we'll take our next question from Paul Steep with Scotia Capital. 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? And then I got one quick follow-up. Thanks. Okay. So we just had our sales Enterprise Group sales kicked off last week. Spirits are very high. Obviously, we coincide that with the Microsoft Bridge announcement. So the sales guy feels very good about our prospect. And we're expanding it. We'll continue expanding it because 2 major geography, the Mayor and North America geography, they year over year growth are both quite impressive. By the way, the EMEA team won. So we have a little friendly competition last for the last year. So but they both beat and exceed their numbers. So that was a little jabbing back and forth here. But it seems to be a very functionally is quite strong. We are 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 like the new partner we have in NATO or new customer we have in NATO and the customers in government and financials and healthcare. So we will continue to expand it and see the results now. And I guess the final question for me would be maybe your view on the M and A environment since 2018 ended up being a good year, clean up year, it looks like you're on track organically. Should we now be thinking as a group here about more M and A coming out of BlackBerry? Thanks. Yes. It's continued to be a priority of a small group of people. And we make it also very visible with the Board and in discussing potentials. But 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, but 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, but we certainly are talking to enough people. Thank you. Sure. Thank you. And we'll take our next question from Gus Papageorgiou with Macquarie. Thanks. Hi, congratulations on a nice quarter. Just a couple of questions. For Radar, you said the $1,000,000 you hit your 1st $1,000,000 quarter. Is that both hardware and the recurring service fee or just recurring service fee, if you could clarify that? And then just on the recurring nature of your business, I know you said 70% of software is recurring. Can you kind of give us a bigger picture, a clear picture on by group, so of EMM, the IP, BTS, how much of each of those segments is recurring? I could give you some general idea of that. So let me answer the first question about the $1,000,000 The $1,000,000 are actually a good thing is they're mostly hardware because the software the recurring revenues start coming every time they turn it online. So it's actually a good news because you could see there's a tail and the tail will continue to grow. So from a business perspective, it's the right thing. So mostly hardware because of timing, not enough time, it's a little bit of software in there and then it will continue, it will grow. And as far as the recurring, the recurring are mostly in the enterprise group and it's also the enterprise group that has these perpetual ones that because the customer like a lot of the government agency, they wanted to buy they still wanted to make procurement based on perpetual because the way they budget. And so after 606 got kicked in or the 606 already kicked in, by the way, technically on March 1, our 606 kicked in, it kind of now doesn't matter whether it is they want perpetual or ratable because we're going to have to take a ratable. And so anyway, so the other ones are royalty base, like BTS is a strong QMX are very strong royalty base. As you could see that we're making our radar business to be recurring because of the monthly. And 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 of phone that being delivered or being sold. And so then you could call it royalty, you could call it recurring, but it's certainly not a perpetual base. So gradually, all our business is going to be ratable or recurring. Okay, great. Thank you very much and again congrats on the quarter. Thank you. Thanks, Gus. And we'll go to our next question from Daniel Chan with TD Securities. Hi, Daniel. Hi, guys. 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 that you launched last year? Something say some more about that. I mean, you guys had a Jaguar concept car last year. I think you launched the CES where you showed instrument cluster, hypervisor, infotainment system. 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 go beyond that. So that particular one is we're using a Jaguar platform to demonstrate our product with the one you saw. And Jaguar now it's taking a lot of our technology and try to design their new concept car, new generation cars. And so I wouldn't be surprised it will come up a little differently because engineers and designers always come up with something different. But you think about the Jaguar thing you saw, the concept car you saw was really for us to demonstrate, for example, virtual cockpit. We use that platform to demonstrate. I could easily use a BMW, which we have in our lab. You can use MKZ, which we have in our lab. So we could deal with that. And 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 depending on it's all their call now, obviously. Okay. That's helpful. And any early takers of Jarvis? Yes. There are I know there are 6 POC going. Okay. That's great. And 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 so the billings growth is I'd like to focus on billings right now. The billings growth are strong. We've been strong in the last three quarters. And yet so we're not strong in the 4th quarter in a row. We do expect from our sales team that the billings growth will grow by double digit in the FY 'nineteen. And so that really is the source. It was not any kind of something sudden major or one time thing. It was really a the base of the business seems to be much stronger. Okay, great. Thank you. Yes. And we'll take our next question from Paul Treiber with RBC Capital Markets. Hi. Thanks very much and 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? Yes. Steve already warned me that one of you will ask me that question. The reason why I like to focus on buildings right now because I want to see how the 605, 606 sorted out. And we feel good from a, I guess, a quantitative perspective. We know our teams are winning. We have goals that are better than what other people have stated publicly. So but those are internal goals. So I think the best thing to do is give us a quarter, let us sort out the 805 605, 606 and then hopefully by then we could give you a little bit more color on that. But you could take it to the fact that we expect to have billings growth year over year in double digit. Okay. That's helpful. And then just more broadly, just in regards to autonomous, I mean, 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? And then related to that, how should we think about the timing of revenue for QNX for BlackBerry from Autonomous? Good question. So let me first state, BlackBerry QNX are in 2 category. We make money in 2 category. 1 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. But we build most of our business on the connected car. So if you just look at our last quarter results, QNX actually grew 31% year over year. And so that comes not from the autonomous platform, but it comes from the connected platform. So and 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. So 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. So then I 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 a autonomous vehicle on the road by 2021, so you and I could buy. Then lately, I start hearing this 2025 number, But 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 Javas. And so we could have revenue for their autonomous on a continued basis, but we definitely will get good revenue from the connected car. Does that help? Yes, that's helpful. Thank you. I'll pass it on. Yes, Joe. Thank you. And we'll take our next question from Todd Coupland with CIBC. Hi, Todd. Yes, good morning. I had a question on self driving as well. So 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 like 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 there will be 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're my customers or my OEM being their customers. So there's about 10 Tier 1 of them. And these are the Harman, the Bosch of the world. And I suspect those Tier 1s will shake out to be a handful, maybe 3 or 4 and become kind of the industry standard platform that automotive build company built on. So my strategy or our strategy is as long as we are the component provider to all those 4, 5, 3, then BlackBerry will do pretty well. And 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. Now 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. And again, I'm a component provider. I seldom runs into Google Cloud Play or and Waymo definitely is not my competitor, they could be my customer. And Apple, we don't run into each other. Now they definitely could have a secret project, try to provide all the component also. But I think the Tier 1 are more comfortable dealing with me because I will never get into a desk space. I mean, I'm not going to get into the integration of technology or putting a cockpit together. So anyway, sorry, I ramble on a little bit because it's a very complicated market. It's one that has a lot of player in it, but I think we found our niche pretty well. Yes. No, that's helpful color. And then 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. And as I said earlier, we started 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. So as the cybersecurity and protection of cybersecurity in the mobile infrastructures is important. So I feel that is a source of growth. There's another source of growth. There's another source of growth, which is geographic. And part of our planned investment is to add increased resources in Japan, Korea and China, as well as India. India, we're actually now a new country manager. So that is another potential source because there's clearly a pretty greenfield out there. And then in addition to that, we ready ourselves with some new product upgrades or add on or upsell in crisis management, in secure file sharing and in the Bridge app that we talk about, which is a 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 don't they can't get it. So they can't they could get native, but they can't get the security of the containers, but now they could get both. And so we believe that our customer base would like to upgrade to that. Anyway, so we have product potential growth. We've got vertical expansion growth and we've got geographic growth. Not everything will work perfectly. I mean, I know that, okay? But if we work at it, you might see a good run there. We'll take our next question from Vijay Bhagavath with Deutsche Bank. Hey. Hi Vijay. Hi. This is actually Brian Yoon on for Vijay. Hey, can you hear me? Yes. We can hear you. Thanks for taking the question. Can you help us understand gross margins in FY 2019 or 2019 and 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? And what could impact that either to the upside or to the downside? Sure. So if we look at our gross margins, there's a cost of goods sold, which is relatively stable. So as you look at the gross margins, if our revenues were in the $200,000,000 range, there'll be they should fall in the low 70s. And if they were in the 225, it starts to move to mid and then and it starts to obviously ramp to the high 70s with the numbers that you've seen this last quarter. So 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. And actually, radar brings some hardware with it. But given those the size of those numbers, it should not be substantial. So net net, I would see the beginning of the year being in the low 70s moving up through the high 70s. But once we work through the year, I think it will be in the high 70s going forward. Thank you. And we'll take our next question from Stephen Lee with Raymond James. John, the QNX growth in Q4, the connected platform, which you referred to, I can assume it's recurring, right? So $46,000,000 is your new quarterly base and new growth on There is some consulting in there. I just want to say, it's obviously consulting and one time licenses. But John, you want to The base is higher. Yes. Capaldi tried to pull you back down. But he is right. He is right. No, no, no, no, no, he is right. I mean, there are one time catch up in there. That's he's absolutely correct. And there are some professional services consulting that's absolutely correct. But we have a higher base. We expect a higher base, correct. So don't go crazy to say number and modify it a little bit. Okay, perfect. And then on radol, to set our expectations, right, so can it become 10% of BTS revenues this year or it's more likely target in 2020? Thanks. Could it be what 10% of BPS? 10% of BPS. Let me see. So he's taken the 45 and he's multiplying by 4. Right. 4 and 2 20, 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. And we'll take our next question from James Faucette with Morgan Stanley. Hi, James. How are you? Well, thank you. 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 the previously because last year last year, last couple of years, there was a certain base on QNX, and we believe now the base is going to go higher. And just follow-up on the last question with Stephen also, as I said, and which is true that Steve had 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. And catch up are probably harder to date. So 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, sure. And 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 kind of 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, so let's take one step back and really on your last question. So we were running in the high $30,000,000 on a quarterly basis for a period of time, then the low 40s and now we're kind of in the mid 40s. And I think, Stephen Lee, in 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 like that $45,000,000 range. And 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. Now that uptick may not be $5,000,000 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 from a couple of years ago. I don't think, James. James, I think you are you talking about the company or you're talking about QNX? I'm talking about QNX. Thank you. Okay, good. All right. Thanks. Okay. Yes. And then That's when we got it. Absolutely correct. Yes, yes, you got it. And then sorry, and then my last question is you had 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 kind of a matter of business? Is that particularly in the Q4, is that there will be some restructuring? Or is there something unique this year? No. It should start ramping down over time. These are getting our facilities mainly around globally when we don't do manufacturing handset. So it's really related to those. That's the biggest chunk of them all. We're not really doing any 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. Thank you. Before closing the call, I'd like to mention our upcoming Analyst Summit on April 24 in the Bay Area. As you remember, what I just referred 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 talk about the enterprise strategy and we have customer came and device test device is a wrong word to support us about how important it is for cyber security that is embedded into our UEM. You heard that and you saw our I hope that you are satisfied with our growth. We are quite pleased with the growth we had. And so 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. So don't miss that. So and the roadmap to kind of take our company, making it even more stronger in new product and in competition. So please don't miss that. I look forward to seeing you there and have a good day. Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.