Good morning, welcome to BlackBerry's fiscal 2018 third quarter conference call. Please note that all participants have been placed in a listen-only mode. I will now turn the call over to Phil Kurtz, Vice President, Deputy General Counsel, and Assistant Corporate Secretary for BlackBerry.
Thank you, operator. Welcome to BlackBerry's fiscal 2018 third quarter 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 review the third quarter results. We will open up the call for a 30-minute Q&A session. In order to let as many people as possible ask questions, please limit yourself to one question. This call is available to the general public via call-in numbers and via webcast in the investor information section of 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. I will now turn the call over to John.
Thank you, Phil. Good morning, everybody, welcome to the BlackBerry fiscal 2018 third quarter results conference call. As is customary during the call, I will reference the non-GAAP numbers in my summary of our quarterly results, there is a reconciliation table of GAAP to non-GAAP in the press release. We had a very strong quarter, I'm very pleased with our results. We delivered record software and services revenue of $199 million, which represents 85% of our total company revenue and led to a record gross margin on the company level of 77%. We made progresses in expanding our channels across our key growth area. We have significant wins in regulated industry. These accomplishments strengthen our foundation for future growth. In our enterprise business, we continued to see strong momentum in Q3. The enterprise team executed very well and delivered double-digit billings growth year-over-year.
In the BlackBerry Technology Solutions business, which include embedded software and asset tracking, we again delivered key design wins. We will obviously translate these design wins into future revenue. I will share additional details of our business accomplishment in the quarter later on the call. First, I will provide summary of our Q3 results. You have the press release in front of you. Total company revenue came in at $235 million. Total software and services revenue was a record of $199 million, which represents 16% year-over-year growth and broke the revenue record that we set last quarter. Gross margin reached a record high of 77% and, again, broke the record that we set last quarter of 76%. Operating income was $16 million, and operating margin was 7% versus 4% a year ago. This is the seventh consecutive quarter of positive operating income. EPS came in at $0.03.
Total ending cash was $2.5 billion. I will cover a few of our significant business accomplishments. In Q3, we maintained our track records on delivering good progress on our strategy across all our four synergistic growth area. Let me remind everybody what they are. The first one is obviously enterprise, which include our endpoint management business, also known as UEM, and our cybersecurity practice. The second one is embedded software, enabling mobile endpoints such as connected cars. The third one is in asset tracking, which includes Radar. The fourth one is technology and IP licensing. In enterprise, we delivered double-digit billings growth, as I mentioned earlier, year-over-year, for the second consecutive quarter as we guided. We had a great quarter in our regulated industry business, particularly in the government sector. We have been given permission to share the following wins with you.
The United States Department of Defense, U.S. Department of the Treasury, U.S. Department of Justice, U.S. House of Representatives, U.S. Senate, U.S. Capitol Police, U.S. Library of Congress, U.S. Agency for International Development, the Dutch government, Queensland Investment Corporation, which is the Australian government-owned investment company, and the North Atlantic Treaty Organization, obviously known as NATO. NATO organization includes the NATO headquarters have been using BlackBerry software for both the classified and unclassified uses. While I will not make a habit of providing the next data point each quarter, I do want to share that in our U.S. federal business in Q3, we had 36 deals over $100K, of which seven deals were larger than $400,000 and seven deals were over $1 million. Our FedRAMP business continues to gain traction.
In Q3, we added three new U.S. federal customer on this platform and 123,000 new licensed FedRAMP users, which is a 40% increase over the last quarter. We expect to receive additional security authorization from other U.S. federal agency in the quarters to come. In the quarter, we also received U.S. Department of Defense approval on our Purebred implementation. Purebred is the solution that DoD uses, or Department of Defense, sorry, uses to secure distribution software certificates. We have the only solution that supports Purebred across all key platforms used by the DoD, including BlackBerry 10, Android, iOS, and Windows 10 devices. In Q3 also, the German government approved SecuSUITE, our combined offering of secure voice and endpoint management software. The solution is tailored for Samsung Knox and works on both mobile phones and tablets. We saw good progress in our enterprise channel.
We signed seven new enterprise channel partners in India in the quarter. With one of them, Tata Communications, we closed an endpoint management deal for one of the largest public sector banks in India. In Indonesia, we added two new enterprise channel partners, which also led to a subsequent UEM win in the quarter with Sakti Energy, a national oil and gas company. Telkomsel, a longtime partner of ours, is a key technology provider to the government of Indonesia, launches an enterprise plan, which include our UEM bundles. Additional wins with enterprise customers include Deutsche Bank, Oesterreichische Nationalbank, Hydro One, Ashurst, WEC Energy Group, and Change Healthcare, just to name a few. I would like to focus on one particular win in Deutsche Bank for a minute. I'd like to highlight two key points about the win.
In September, some of you may recall, that Deutsche Bank had came public stating that they're moving away from BlackBerry smartphones. Today's announcement that they have selected our endpoint management software is a validation that our strategy is working. Furthermore, part of the deal of the Deutsche Bank includes 5,000 seats in APAC region from a competitor, and they're switching from a competitor to BlackBerry. We continue to be recognized as, by the way, a leader by industry analysts. For the third consecutive year, Forrester named BlackBerry a leader in the EMM Wave report. Gartner also recognized BlackBerry in this quarter again. This time it's on all 8 categories in the Market Guide for Information-Centric Endpoint and Mobile Protection. We were the only vendor recognized in all categories with a single platform offering. Let me move on to the embedded software.
We signed three very important partnerships, in my opinion, in the quarter. The first one, we announced a strategic expansion of our relationship with Qualcomm. The collaboration optimized Qualcomm platforms with QNX for all the next-generation connected and autonomous vehicle. As a result, we are now partnered with all the largest automotive industry chip suppliers. Technology areas in this particular collaboration covered by the expanded relationship includes over-the-air software services, secure credential management service, virtual cockpit controllers, telematics, electronic control gateways, digital instrument cluster, and infotainment systems. After the quarter close, we announced a partnership with Denso that we have started development of an integrated human machine interface platform. They named it HMI. Motor vehicles today have multiple HMI system. The integrated HMI platform developed by BlackBerry and Denso will be the world's first, as I was told. The solution will appear in cars scheduled for release after 2019.
Intel is a collaborating partner in the development of this product. In India, the third announcement, in India, we announced a partnership with Tata Elxsi to develop secure solution for industry such as automotive, industry, medical, and network communication. The solution will embed QNX technologies. Additionally, in the quarter, we added 10 new QNX design wins, resulting with a partnership with all the top three tier-one automotive suppliers, namely Bosch, Denso, and Magna. Early in the quarter, we conducted the first public road test of an autonomous vehicle in Canada. The test was successful and was accomplished through our autonomous vehicle innovation center. Finally, in Japan, we signed Fujisoft and Hitachi Industry & Control System as also embedded technology partners with QNX. A brief update on the asset tracking business. We signed four deals for our Radar in the quarter.
You may recall in Q2, Pana-Pacific started their Radar trial. I'm pleased to report the trial was successful, and we signed Pana-Pacific as a partner in Q3. By the way, Pana-Pacific is one of the largest value-added reseller in the U.S. for the truck industry, with 2,800 dealers nationwide. In addition, after the quarter close, we announced that Fleet Complete has purchased Radar for their BigRoad freight program. Fleet Complete was announced as a Radar reseller in Q3. In Q2, sorry. That was wrong. It was in Q2. BigRoad is a fleet company with over 500,000 drivers and 30,000 fleets on their platform. Our new sales team continues to build Radar pipeline. We have almost 80 opportunities in our active pipeline, which represent a 33% increase in the last 90 days.
Lastly, on our technology and IP licensing business, we signed a patent licensing agreement with Teletry. With that agreement, Teletry can sub-license a range of BlackBerry patents to the majority of the smartphone manufacturer worldwide. We chose Teletry because of their track record in licensing. We retain ownership of our entire patent portfolio, and we'll continue to operate on our licensing program. In our BlackBerry secure licensing business, we signed three new channel partners in the quarter, one in Asia and two in the Middle East. The partner has a significant footprint across Asia, Africa, and the Middle East, and will launch BlackBerry secure device across their market in collaboration with Equiis, which we announced last quarter as a design house in Switzerland. We have approval to name two other partners, Axiata Group headquarters in Malaysia, and Global Enterprise Mobility Alliance headquarter in the U.A.E.
Additionally, in the quarter, one of our existing partner, TCL, started shipping a new BlackBerry-branded device, the BlackBerry Motion. Across our growth engine in Q3, we made good progress across the geographies we operate in. You may have noticed, however, during my comments, that we're seeing growing interest and opportunity in Asia. This is not surprising. Over the past few years, we have laid the groundwork by establishing partnership in the region, including [AnexTEK], BB Merah Putih, TCL, Optiemus, and NTD, just to name a few. According to IDC, in 2018, the largest spending IoT will happen in the Asia region, and particularly China will be leading the way, spending over $200 billion in next calendar year. In Q3, we built on our foundation in Asia and recorded wins in countries such as China, India, Indonesia, as well as Japan.
We plan to continue investing in Asia, adding headcount across the region and recruiting additional channel partners. With that, I would like to turn the call over to Steve for a detailed look at our financials.
Thank you, John. Today, we reported Q3 GAAP revenue of $226 million and non-GAAP revenue of $235 million. My comments on our financial performance for the quarter will be in non-GAAP terms, unless specified otherwise. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today. I will begin with a consolidated review of our Q3 FY 2018 income statement results. Our total revenue for the third quarter was $235 million. Our consolidated gross margin was 77%, compared to 76% last quarter, and up from 70% a year ago. Our non-GAAP gross margin includes software deferred, revenue acquired but not recognized of $9 million, and excludes restructuring program charges of $2 million and stock comp expense of $1 million.
The gross margin improvement of 700 basis points over a year ago is attributed to the increase in contribution from software and services to our overall revenue mix. We are raising our consolidated gross margin forecast to approximately 74% for the full year. Operating expenses were $164 million, up from $161 million last quarter. We expect Q4 OpEx to modestly increase over Q3, largely based on plans for increased investment in sales and marketing. Our non-GAAP operating expenses exclude $23 million in amortization of acquired intangibles, $18 million in restructuring charges, including patent abandonment, $11 million in stock comp expense, $1 million in business acquisition and integration charges, $77 million of fair value adjustment related to the debentures, and a one-time charge of $132 million related to the Nokia arbitration outcome.
Non-GAAP operating income was a positive $16 million, and non-GAAP net income was $16 million, which excludes $17 million in interest related to the Nokia arbitration outcome. Non-GAAP EPS was a positive $0.03. Our adjusted EBITDA was $35 million this quarter, excluding the non-GAAP adjustments previously mentioned. This equates to adjusted EBITDA margin of 15%. I will now provide a breakdown of our revenue. Total software and services revenue was $199 million, representing 85% of total revenue and up from 57% compared to a year ago. Handset device revenue was $9 million, representing 4% of revenue. In Q4, our handset device revenue is expected to be between 0 and $3 million. Total SAF revenue for the third quarter was $27 million, representing 11% of revenue. SAF revenue was down 27% quarter-over-quarter.
Based on our current model, we expect SAF to be approximately $15 million-$17 million next quarter. I will now provide a further breakdown of our software and services revenue. The largest contributor was enterprise software and services at 53%. BlackBerry Technology Solutions accounted for 22%, and 25% came from licensing, IP, and other. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details. Roughly 75% of software and services revenue, excluding IP licensing and professional services, was recurring in nature. Now moving to our balance sheet and working capital performance. Total cash equivalents, and investments was approximately $2.5 billion. Our net cash position was approximately $1.9 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 $331 million at the end of Q3.
This is down from $505 million a year ago. Moving to the cash flow statement. Use of free cash was $9 million, which consisted of net cash used in operating activities of $4 million and capital expenditures of $5 million. Free cash flow before taking into account the impact of costs related to restructuring and transition from the hardware business was a positive $12 million. We expect free cash flow to be positive for the full 2018 fiscal year before the impact of those costs and the impact of arbitration awards. We also expect positive adjusted EBITDA for the full 2018 fiscal year. That concludes my comments. I'll now turn the call back to John.
Thank you, Steve. Let me comment on our outlook. We are maintaining our guidance for the full year. For the full year, we anticipated total company revenue to be in the range of $920 million-$950 million, versus the current consensus of $928 million. Given the strength of our first three quarters and our outlook for the full year fiscal 2018, we expect to come in into the mid to higher end of that revenue range. In our software and services business, we continue to expect growth in the 10%-15% range. We expect to report non-GAAP profitability for the full year, and we expect to be free cash flow positive before taking account into the net impact of arbitration award and damages, as well as costs related to restructuring and transition from the hardware business. We are very much focused on growth.
We will be adding new headcount in sales, marketing, and leadership role, we will be continuing to increase investment in go-to-market. I would now like to open for Q&A, please. Operator?
Ladies and gentlemen on the phone line, if you would like to ask a question at this time, you may press star and then the number 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Gus Papageorgiou of Macquarie. Your line is now open.
Hey, good morning, Gus.
Good morning. Just quickly on the Teletry deal that you signed for the IP, can you just tell us what kind of impact you think it's going to have on your IP licensing revenue? Is it going to make it more consistent? Is it going to increase the total IP licensing revenue? Just give us some color on what kind of impact you expect from that deal.
Yeah, we actually expect both. Obviously, it depends a little bit about how well they do. We do expect more consistency, a broader reach, and therefore resulting in higher IP revenue. We do expect that.
I think Steve suggested that your total IP revenue, you think it'll be roughly about $100 million a year for pure IP licensing.
That's a good go-to model.
Okay. You can't really, in terms of consistency, it's not quite going to be $25 million a quarter.
No. I wish it was that consistent. It will be smoother than in the past.
Correct.
Great. Okay. Thank you very much.
Sure. Sorry that I couldn't give you any more than that.
That's okay.
Thank you. Our next question comes from Daniel Chan of TD Securities. Your line is now open.
Oh, hi, guys.
Hi.
Good morning.
Good morning.
Congratulations on the Denso win. Can you just give us some color on what you were doing with Denso prior to this program win? With this new program win, where do you expect ASPs to go?
Whoa. Okay. The first part is easy. Denso has always been an infotainment partner of ours or user of the QNX. As you know that one of the Denso biggest customer is Toyota. I think the company are related in some way. It's been a long-standing relationship. With this that we are now branching into beyond infotainment, as you all know, a year ago, we have laid out that as a strategy for the QNX. Now we're into integration, not only with infotainments, but in all different parts of communications in the car, and Denso want to build a HMI, a human machine interface, which is really a data platform, a visual data platform. ASP obviously will go up. There's no question about that. That's the whole strategy behind it, which is broaden our reach beyond infotainment.
Okay, thanks. Steve, any initial views on impact from tax reductions in the U.S.?
There's obviously a lot of work going on. I think we're fortunate that, number one, we still have the NOLs, and while we may not be able to recoup 100% immediately, we can recoup the benefits of our NOLs, which obviously helps with our tax position. The second piece is really related to, as far as we can tell, a lot of
A lot of what the changes are being done is really the transfer from the U.S. outgoing intercompany type transactions. Since we're going the other way, we think while there will be some impact, it will not be a major impact that others may see.
Great. Thank you.
Thank you. Our next question comes from Paul Steep of Scotia Capital. Your line is now open.
Hey, Paul.
John, morning. John, could you talk a little bit about the services side of the business? In the past few quarters, you've talked about the pipeline outpacing your capacity. Could you maybe talk about where you are today in terms of building that out, and maybe what the next steps are for that component of the cybersecurity strategy?
Yeah. Good question. We still see the pipeline or the needs outpace. We've been doing as much as we possibly can by augmenting, even with our own internal people from our IT organization. Although I have to caution that, as our pipeline grows quite a bit quarter-over-quarter and business also grow quite a bit, the numbers are quite small still. We are intending to expand that. We're working on that. It's a slower process than we like.
Okay, to that last point, just as a final follow-up, how would you think about augmenting it within M&A to selectively expand capacity?
It's a very good question. That's obviously one path that we looked at. There are a lot of companies out there. In order to take advantage of our install base, our install base is mostly in the clear world, which is government agency world. We have to be cautious, maybe the right word, to pick the right targets, so to speak. Another strategy will be, do an investment in a non-regulated industry or at least non-government sector industry, and then move our own people more on the regulated side.
Perfect. Thanks very much.
Sure. Absolutely.
Thank you. Our next question comes from Paul Treiber of RBC Capital Markets. Your line is now open.
Okay.
Thanks so much. Good morning.
Morning.
I just wondered if you could elaborate on the momentum that you're seeing with tier 1 automotive suppliers, and then if you see that as a more productive strategy to get further into the automotive market, as opposed to going directly through the auto OEMs.
Yeah, it's a good question. It depends a little bit upon auto OEMs. There are auto OEMs now that would like to work directly with the technology provider, and they become their own tier 1. As you know that we have a reasonable size contract agreement signed with Ford a year ago. Ford intended to augment the tier 1 relationship also with their own development. We have to work directly with them. Most of our strategy rely on working with tier 1, integrating stuff into various component parts of the car. That will still remain to be a robust channel for us. We could actually do both, and we have done both. I don't know whether I answered your question that way.
Now the good thing that if you notice, I haven't drawn a map, but if you notice in the last couple of two, three quarters or last year, we have been concentrating a lot of design wins with tier 1, as well as design wins with chip manufacturers. I think I cover, in the last three quarters, most of every one of them. We have relationships with Denso, Delphi, Bosch, Lear, and all very fresh relationship on an autonomous driving vehicle. We'll continue to build more. Then the chip manufacturers, we're already working with a number of very big ones. Stay tuned. This strategy will continue to be developed.
Just in regards to the growth trajectory of BTS or more specifically automotive over the next couple of years, should we think about it as a steady ramp up? Should we think of it as more of backend loaded, maybe flat until growth picks up maybe into 2019 or so?
Isn't those two description about the same? Which is we are going to see a slower ramp, but it will be a ramp. As we go into 2019, some of the design wins we have last year, it will turn into revenue in 2019. The wins that we're having right now is going to turn into win in 2020. It's about the same. The question is the slope. I expect it and I would prefer it to be a steady ramp.
Okay. Just lastly, just on, I believe in the summer, Good for Enterprise went end of life. Did you see any sort of upgrades from that or any churn? Can you just comment on that? Thank you.
Yeah. Some of the Good products went out of life because it's integrated in the UEM. This is why our UEM business are quite robust. Customers are very happy with our new platform. We're building a pretty good pipeline right now.
Okay. Thank you. I press one.
Sure.
Thank you. Our next question comes from Steven Li of Raymond James. Your line is now open.
Thank you. John, on the double-digit billings growth for Q3, is it low double-digit or high double-digit?
High double digit.
Okay.
I can't guarantee high double digit going forward, though.
Where do you give a high.
High double digit doesn't mean 99%.
Right.
High double digit
Doesn't mean 10 either, but it's not 99%. It's in the 20.
Okay.
Don't ask me this question again, please.
Also on the licensing, the device software, the contract with minimums with TCL and in India and Indonesia as well, do they expire at some point and revert to actual units shipped? Thank you.
Far it's still in the minimum because everybody is really in the beginning stage of launching. I can't really give our partner's number to you all. It's still in the minimum stage. Next year, hopefully we're going to see some uptick as everybody launch, Optiemus and everybody launch.
The minimums would go on into next year?
Yes. Minimum is an annual minimum.
Okay. All right. Thank you.
Sure.
Thank you. Our next question comes from Mike Walkley of Canaccord. Your line is now open.
Great, thanks.
Hi.
Just for overall operating expenses, given investments to grow your cybersecurity business and some other areas highlighted on the call, how should we think about operating expenses trending over time? Should they start to grow in absolute levels next year? Is there a longer-term target for OpEx as % of revenue?
Well, right now, we see just small incremental movements in that. We have not closed off on next year's plan. I will say the following. There's still opportunities for us with our current employee base. That means that as employees transfer out or they look for other opportunities inside the company, that actually creates some new growth opportunities. I would say that while clearly we're doing incremental growth, that the rate of OpEx will not change dramatically, and I think it'll stay roughly where we have today. As we look out to next year, the philosophy should be that the revenue growth % will be faster than the OpEx growth expenses.
We also, by the way, it's not a secret, that we also are quite interested in M&A, inorganic, in addition to the organic growth. We've got to be careful not to just overload it on the organic expense side. Because we do the inorganic, we obviously need to do some work, too, over there.
Correct. Good point.
Great. That's helpful. Just a follow-up question, just on Radar, I think you talked about 80 customer trials now. Can you talk about maybe how much of those are from your direct sales force and who you see when you're competing for those deals, what kind of competitors you're walking into? Then lastly, just maybe the economics when you work through a VAR like Pana-Pacific versus going direct yourself to the customers, kind of economics of a deal. Thank you.
Yeah. Okay. First of all, it's not 80 trials. It's the active pipeline, but 80 deals. Capacity-wise, we could probably only do six or eight trials a quarter. That's usually what we do. That's a good point you point. The reason why we go to Fleet Complete and the Pana-Pacific is not only because of their vast network, because they could pick up the trial, too. With that, we could scale our trial without having to put in too many people or too more resources into it. That's the reason. The economics, from a margin side, are quite good for us, going through Pana-Pacific and Fleet Complete and other value-added reseller. Obviously, the revenue line, we have to share in some forms. I'm actually more interested and focused on the ongoing monthly revenue than the initial bunch of revenue.
From there, we work out a kind of reasonable arrangement.
Great. Thank you.
Sure.
Thank you. Our next question comes from Dan Bartus of Bank of America Merrill Lynch. Your line is now open.
Hi, this is Kayla Brooks on for Dan Bartus.
I was wondering if you could provide some color around the major IP contributors and approximately how many smartphone vendors you've signed deals with already. Thank you.
Smartphone vendors. Wow. Every quarter we have, let's see, the major ones, we have about five.
Now those people are signing up, like the design house that we announced a win with Equiis and NTD. Now they are signing up distribution like telecom company around the world. I just announced another three. I would say about 10-ish, in the neighborhood of that. What was the first question on IP?
The question was related to IP business. We have some residual business that comes from past quarters, and we have some business related to our efforts with Teletry.
Yes. Both.
All right, great. Thank you. Congrats on the quarter, guys.
All right. Thank you.
Thank you. Our next question comes from Anil Doradla of William Blair. Your line is now open.
Hey, guys, this is actually Arjun Bhatia in for Anil. In your prepared remarks, you talked about the wins in the U.S. federal business. Can you give us a sense of how big this business is in terms of overall revenue? If you can talk about what's driving the strength on the regulated side, is there a snowball effect in play at all? Meaning once you get approved at one agency, is getting wins at others that much easier?
Yeah. That's a good question. We have very good momentum in the Five Eyes country, especially in the U.S. and Canada government. Germany, sorry. I shouldn't forget that. Mostly because of our security certificate or certifications. If you look at the reason why I mentioned FedRAMP, I could do the math for you. We announced FedRAMP certification about 2 quarters ago. Less than 6 months to operation in our security operations center. We built a security operations center outside of D.C., certified by the U.S. government, using our cloud technology. These are not things that it's a long, committed, high resources process. The business, I will tell you that the momentum of the business, we grew 40% quarter to quarter, it's only in operation for 2 quarters.
We have now over 400,000 licensees, the U.S. government employees are using our technology in a day-in and day-out basis and through that system. We expect to continue to build momentum on that. There are next set of products that will get into that SOCs, that will also continue to build. This is a requirement for the U.S. government at the secure level, and it will have a snowball effect. I only particularly pointed out this, we win a lot banks and foreign government and so forth. I point this out because, one of my smaller competitors like to use our name, and suggest that they have picked up momentum on us.
We look at it, we're scratching our head, it's reasonably ridiculous because this is why I made an effort in 2 quarters to provide you all the name of all the agencies that have recently signed up new project with us, they allow us to use their name. Some of the agency we signed up the project, we're unable to secure the permission to use their names publicly. That's about all I could describe to you at this point.
Great. Thank you.
Sure.
Thank you. Our next question comes from Vijay Bhagwat of Deutsche Bank. Your line is now open.
Hi.
Hi, this is Brian Munoz for Vijay.
Okay.
Thanks for taking the question. I just want to dig in on the enterprise software and BTS businesses. I wanted to get your view on sort of the major buckets in each of the businesses. For example, in enterprise software, is it sort of correct to think about the major buckets or near-term drivers as UEM, Workspaces, Dynamics? On the BTS side, are you looking at sort of the majority of the business as QNX, obviously with Radar building over the next few years? I guess my real question is, any color on the size of revenues or growth rates and how you're thinking about over the next few years would be helpful.
Let's see. The size in relative, I think, in terms of their contribution to our business, Steve already laid out.
Yeah.
The majority of our business now, about 60%, at 50 something percent, 60% in enterprise business, which you stated as UEM and Workspaces. They are not single products. UEM, it's representing all 5 level of the suites, which Workspaces is part of the collaborative suite. They're all one platform interrelated, but you could enter into a platform at various level with us. Therefore, we could also upsell our existing customers, with various different capabilities. That we're seeing double-digit growth, in billings. In some quarters, it actually translates to double-digit growth in revenue. Some quarters it doesn't, and I know Steve got a lot of question on that-
Yeah
on your one-on-one. We feel the business will continue to expand, and we will continue to add new features and value to it. You know we're interested in AI and machine learning. You know we're interested in all the different cloud technologies, analytics of the world. That's kind of where it's going. We expect that not to slow down, in both the business as well as the additions of our technology. That's one aspect of it. Back to the BTS business, the concentration on that is about design wins. We want to make sure that we work with all the major auto manufacturers, either directly or through Tier 1. This is why Tier 1 is important to us, the relationship, that design wins is important and get into there early on. We also are winning a relationship with the chip manufacturer.
Like we talked about Qualcomm in this quarter. It's important that we expand that relationship because they will be a major supplier of chip to the auto sectors. It's important that our designs and our capabilities are embedded in it. I think over time, it's a steady ramp, but it's going to be a big market. This auto sector today, the growth rate has been down about 2%, 3%. Next year will be about 2%, 3% also, but it gives us the window to enter, to win this design win. When the auto business starts picking up again in the autonomous platform vehicle, then we're right there, and then we'll be benefiting from those design wins over time. As in Radar is an area because its numbers are so small and the needs are so huge out there.
There are literally tens of millions of targeted, whether it's the containers or the trailer tractor or the flatbed or various components of that transportation system. We have both Radar M and Radar L, and think we could intercept the market pretty well and upgrade the market. This is an area that we're focusing a lot on, and I think for the near-term revenue growth for the next couple, a year maybe, when these partnerships become mature, as well as the design wins start, the trials start converting into wins. We will see a reasonable revenue ramp. This is something that I'm focusing on, that I think that's going to be a good source of growth.
By the way, I want to add too, when John made the comment that the auto is down, because he and I, we've discussed this. This was not referring to our business. He was referring to the automobile market itself, where the growth was roughly 6% a year ago, and now it's down to roughly 2%, and it looks outward go with 3%. That reference point was not for our business per se. I just wanted to highlight that.
That's a good point. This is about the number of cars being sold.
Yeah.
Okay, great. Thanks.
Thank you. Our next question comes from James Faucette of Morgan Stanley. Your line is now open.
Great, thanks. Just a couple of quick clarifying questions, I think partially related to auto and BTS generally is that, John, you made the comment that you expect that BTS revenue to ramp more slowly, I think is how you characterized it. If we look at that segment year-over-year, it was flat. On the other hand, it was up pretty nicely sequentially. I'm just trying to gauge how you're thinking about what that medium to long-term growth rate should look like. I can appreciate the time lag on new wins, et cetera. If you can just expand a little bit on that and give us some more color on how you're thinking about BTS and the appropriate growth rates there.
My second question is just quickly, can you explain the $9 million associated in the non-GAAP revenue associated with recognition on deferred revenue from acquisition? Just want to get a little more clarity there. Thanks.
Okay. All right. The first one, the focus is, like you said, my focus is on design wins. In the next couple of years, some of these design wins will convert into revenue, and then it will start ramping. The reason I said ramping slowly is really more of a near-term phenomena. A longer-term phenomena, as you know, we're trying to work on ASP increase. Where we are in infotainment is a handful of dollars a piece. We're trying to enhance that with high ASP by getting into different components of it. We spoke a lot about that, whether we get into telematics or over-the-air or virtual cockpit and ADAS and all that. We're making progress, and you could see all the design wins, whether it's with Denso or with Delphi, they're all in these areas that's beyond just your traditional infotainment systems.
This is why I feel bullish about the overall business on the longer term in terms of growth, the shorter terms, I'm focusing more on the design wins part of it. In addition to that, you know that we've always been talking about surfaces in the auto sector. That will be forthcoming, too. You could see some of our solution if you visit CES, I'm actually presenting at the Detroit Auto Show in January. We will talk a little bit about that also. You think about it in a midterm and versus a short term, versus a midterm, versus a longer term, we do see growth.
I think that I'll answer the second part of your question, which is really around the $9 million, the difference in the revenue between GAAP and non-GAAP. Each quarter we've reported that difference, that's really software deferred revenue from acquisitions that wasn't recognized. It's deferred revenue, most of the push will be related to Good Technology, deferred revenue that they had not taken, that we take per normal accounting on a non-GAAP basis and adjust our revenue as a result of that.
Right. I understand that. I guess my question is, it seemed like it was, maybe my memory's poor, it seemed like there was a little more of this this quarter, perhaps more importantly, at what point should we expect that to have rolled off completely?
Okay, two things. Actually, we've had larger differences in prior quarters, those differences have been flattening out, it's becoming the difference over year-over-year as well as the aggregate number. There will still be some portion that'll be in next year as well. The following year will be almost zero.
Okay, great. Next year, this is kind of the run rate we should expect, then by the year after next it should be down to almost zero.
In fact, this run rate will be running downward as we get into next year.
All right. That's great. Thank you so much for that.
Okay. I think that we need to wrap up our Q&A. I already talked about that we will be doing Good demo at CES. I would encourage you all to come by and love to see you all there in early January in Las Vegas. We're going to make a presentation at the Detroit Auto Show, where we're going to talk about rumor has it I'm going to make a product announcement, you will have to come and see whether the rumor is true or not. With that, I'd like to take the opportunity to wish you all a very happy and safe holiday season. I'll see you folks next year. Thank you for joining us today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.