Earnings Call: Q3 2018

Dec 20, 2017

Good morning, and 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 Q3 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 Capella. After I read our cautionary note regarding forward looking statements, John will provide business updates and Steve will then review the 3rd quarter results. We will then open up the call for a 30 minute Q and A session. 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 the 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. I will now turn the call over to John. Thank you, Phil. Good morning, everybody, and welcome to the BlackBerry fiscal 2018 Q3 results conference call. As in customary, during the call, I will reference the non GAAP numbers in my summary of our quarterly results and there is a reconciliation table of GAAP to non GAAP in the press release. We had a very strong quarter and I'm very pleased with our results. We delivered record software and services revenue of $199,000,000 which represent 85% of our total company revenue and led to a record gross margin on a company level of 77%. We make progress 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 continue 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 assets tracking, we again delivered key design wins. We will obviously translate these with the design wins in future revenue. I will share additional details of our business accomplishment in the quarter later on the call. First, I will provide a summary about Q3 results. You have the press release in front of you. Total company revenue came in at 235,000,000 dollars Total software and services revenue was a record in $199,000,000 which represents 16% year over year growth and broke the record the revenue record that we set last quarter. Gross margin reached a record high of 77% and broke the record that we again broke the record that we set last quarter of 76%. Operating income was 16,000,000 dollars and operating margin was 7% versus 4% a year ago. This is the 7th consecutive quarter of positive operating income. EPS came in at $0.03 Total ending cash was $2,500,000,000 Now I will cover a few of our significant business accomplishments. In Q3, we maintained our track record on delivering good progress on our strategy across all our 4 synergistic growth area. Let me remind everybody what they are. 1, obviously 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. And the 4th one is technology and IP licensing. In enterprise, we delivered double digit billings growth, as I mentioned earlier, year over year for the Q2 2nd 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 Treasury, U. S. Department of Justice, U. S. Health First Representative, U. S. Senate, U. S. Capitol Police, U. S. Library of Congress, U. S. Agency of 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 headquarter 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 $100,000 of which 7 deals were larger than $400,000 and 7 deals were over 1,000,000 dollars Our FatRamp business continues to gain traction. In Q3, we added 3 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 agencies 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 Department of Defense, sorry, uses to securely to secure distribution software certificates. We have the only solution that support PureBrain 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 7 new enterprise channel partners in India in the quarter. With one of them Tata Communications, we closed a endpoint management deal for 1 of the largest public sector banks in India. In Indonesia, we added 2 new enterprise channel partners, which led also led to a subsequent UEM win in the quarter with Saki Energy, a national oil and gas company. And Telkomsel, a long time partner for ours, a key technology is a key technology provider to the government of Indonesia launches an enterprise plan, which include our UEM bundles. Additional wins with enterprise customer include Deutsche Bank, Austria National Bank, Hydro One, Ashurst, Wisconsin 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 2 points for 2 key points about the win. In September, some of you may recall, the Deutsche Bank had came public stating that they're moving from away from BlackBerry smartphones. Today 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 3rd consecutive year, Forrester named BlackBerry a leader in the EMM Wave report. Garner 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. Now, let me move on to the embedded software. We signed 3 very important partnership, 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 closed, we announced in partnership with Danso 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 Danso will be the world's first, as I was told. The solution will appear in costs scheduled for release after 2019. Intel is a collaborating partner in the development of this product. In India, the 3rd announcement, in India, we announced a partnership with Tata Alexi 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 with design wins, resulting with a partnership with all the top 3 Tier 1 automotive suppliers, namely Bosch, Danso and Magna. Early in the quarter, we conducted 1st 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 and Control System as also as embedded technology partners with QNX. Now a brief update on the asset tracking business. We signed 4 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 closed, we announced that Free Complete has purchased radar for their Big Road Freight program. FREECOMPLETE was announced as a radar reseller in Q3 in Q2, sorry, that was wrong, right, that's in Q2. BigWorld is a fleet company with over 500,000 drivers and 30,000 fleets on their platform. Our new sales team continues to build rate our 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 Teletree. With that agreement, Teletree can sublicense a range of BlackBerry patents to the majority of the smartphone manufacturer worldwide. We chose SATA III because of the 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 3 new channel partners in the quarter, 1 in Asia and 2 in the Middle East. The partner has a significant footprint across Asia, Africa and the Middle East, and will launch BlackBerry security device across their market in collaboration with Equus, which we announced last quarter as a design house in Switzerland. We have approval to name 2 of the partners, our Seattle Group headquarters in Malaysia and Global Enterprise Mobility Alliances headquartered in the UAE. 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 in 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 Amtech, BB Mariputte, TCL, OPTIMOS and NTD, just to name a few. According to IDC in 2018 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 $200,000,000,000 in next calendar year. In Q3, we built on our foundation in Asia and wins 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 $226,000,000 and non GAAP revenue of $235,000,000 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 Q3 was 2 $35,000,000 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 $9,000,000 and excludes restructuring program charges of $2,000,000 and stock comp expense of $1,000,000 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 $164,000,000 up from $161,000,000 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 $23,000,000 amortization of acquired intangibles, dollars 18,000,000 in restructuring charges including patent abandonment, dollars 11,000,000 in stock comp expense, dollars 1,000,000 in business acquisition and integration charges, dollars 70 $7,000,000 of fair value adjustment related to the debentures and a one time charge of $132,000,000 related to the Nokia arbitration outcome. Non GAAP operating income was a positive $16,000,000 and non GAAP net income was $16,000,000 which excludes $17,000,000 in interest related to the Nokia arbitration outcome. Non GAAP EPS was a positive $0.03 Our adjusted EBITDA was $35,000,000 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 $199,000,000 representing 85% of total revenue and up from 57% compared to a year ago. Handset device revenue was $9,000,000 representing 4% of revenue. In Q4, our handset device revenue is expected to be between $3,000,000 Total SaaS revenue for the 3rd quarter was $27,000,000 representing 11% of revenue. SaaS revenue was down 27% quarter over quarter. Based on our current model, we expect SaaS to be approximately $15,000,000 to $17,000,000 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, cash equivalents and investments was approximately $2,500,000,000 Our net cash position was approximately $1,900,000,000 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 $331,000,000 at the end of Q3. This is down from $505,000,000 a year ago. Moving to the cash flow statement. Use of free cash was $9,000,000 which consisted of net cash used in operating activities of $4,000,000 and capital expenditures of $5,000,000 Free cash flow before taking into account the impact of costs related to restructuring and transition from the hardware business was a positive $12,000,000 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. All right. Thank you, Steve. Now 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 $920,000,000 to $950,000,000 versus the current consensus of 928,000,000 dollars Given the strength of our 1st three quarters and our outlook for the full year fiscal 2018, we expect to come in, in the mid to higher end of that revenue range. In our software and services business, we continue to expect growth in the 10% to 15% range. We expect to report non GAAP profitability for the full year, and we expect to be free cash flow positive before taking into 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, and it will be continued to increase investment in go to market. I would now like to open for Q and A, please. Operator? And our first question comes from guys Papageorgiou of Macquarie. Your line is now open. Hey, good morning, guys. Good morning. Just quickly on the Telstra deal that you signed for the IP, can you just kind of tell us what kind of impact you think it's going to have on your IP licensing revenue? I mean, it going to make it more consistent? Is it going to increase the total IP licensing revenue? Just kind of give us some color on what kind of impact you expect from that deal? Yes. We actually expect both. Obviously, it depends a little bit about how well they do, but 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 should be roughly about $100,000,000 a year for Cure IP licensing. And so and again very much That's a good go to model. Okay. And you can't really, I guess, in terms of consistency, it's not be $25,000,000 a quarter, but No, no, I wish it's that consistent. But it will not will be smoother than in the past. Correct. Okay. Thank you very much. Sorry that I couldn't give you any more than that. Thank you. And our next question comes from Daniel Chan of TD Securities. Your line is now open. Hi, guys. Good morning. Good morning. Congratulations on the Denso win. Can you just give us some color on what you're doing with Denso prior to this program win? And then with this new program win, where do you expect ASPs to go? Woah. Okay. The first part is easy. Danfel has always been an infotainment partner or user of the QNX. As you know that one of the Danfel biggest customer is Toyota. I think they're the company related in some way. So it's been a long standing relationship. And so 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. And now we're into integration, not only with infotainment, but in all different parts of communications in the car. And then so we want to build the HMI, our human machine interface, which is really a data platform, a visual data platform. So 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. And 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 1, 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 what the changes are being done is really the transfer from the U. S. Outgoing intercompany type transactions. And since we're going the other way, we think the impact while there will be some impact, it will not be a major impact that others may see. Great. Thank you. Thank you. And our next question comes from Paul Steep of Scotia Capital. Your line is now open. Hey, Paul. Good 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. Can 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? Yes. Good question. We still see the pipeline or the needs outpaced. We've been doing as much as we possibly can by augmenting even with our own internal people from our IT organization. So, 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. And we are intending to expand that. We're working on that. But it's a slower process than we like. Okay. So to that last point, just as a final follow-up, how would you think about augmenting it within M and A to selectively expand capacity? A very good question. That's obviously one path that we looked at. And there are a lot of company out there. In order to take advantage of our installed base, our installed base are mostly in the clear world, which is government agency world. So we have to be cautious, I mean the right word, to pick the right targets, so to speak. And all another strategy will be do a investment in the 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. And our next question comes from Paul Treiber of RBC Capital Markets. Your line is now open. Okay. Thanks very much. Good morning. Hi. I just wanted to 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 into the automotive further into the automotive market, as opposed to going directly through the auto OEMs? Yes, that's a good question. So it depends a little bit on 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 we had a as you know that we have a recent both sides contract agreement signed with Ford a year ago. And Ford intended to augment the Tier 1 relationship also with their own development. So then we have to work directly with them. And most of our strategy rely on working with Tier 1, integrating stuff into various component parts of the car. So that will still remain to be a robust channel for us. So we could actually do both and we have done both. I don't know whether I answer 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 2, 3 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 Danso, Delphi, Bosch, Visteon and all very fresh relationship on an autonomous driving vehicle. We'll continue to build more. And then the chip manufacturers, we're already working with the number of very big ones. So stay tuned. This is going to this strategy will continue to be developed. And 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? Or should we think of it as more of back end loaded, maybe flat until growth picks up maybe into 2019 or so? Those isn't those two description about the same, which is we are going to see a slower ramp, but it will be a ramp. And as we go into 2019, some of the design wins we have last year, it will turn into revenue in 2019. And the wins that we're having right now is going to turn into a win in 2020. So it's about the same. The question is the slope. I expect it and I will prefer it to be a steady ramp. Okay. And just lastly, just on I believe in the summer, good 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. Yes. Some of the good products right now are like because it's integrated in the UEM. So this is why our UEM business is quite robust. Customers are very happy with our new platform. So we're building a pretty good pipeline right now. Okay. Thank you. I'll pass the line. Sure. Thank you. And our next question comes from Stephen Lee of Raymond James. Your line is now open. Thank you. John, on the double digit billings growth for Q3, is it slow double digit or high double digit? High double digit. Okay. But I can't guarantee high double digit goes forward though. What do you say about high double digit doesn't mean 99 It doesn't mean 10% either, but it's not 99%. It's actually it's in the 20%. Okay. That's fine. I won't don't ask me this question again, please. And also on the licensing, so 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, Chip? Thank you. Yes. So far, it's still in the minimum because everybody is really in the beginning stage of launching. And so I can't really give our number our partners' number to you all, But it's still in the minimum stage. Next year, we're going to see some hopefully, we're going to see some uptick as everybody launch, OPTIMO's and everybody launch. And so the minimums would go on into next year? Yes. Minimum is an annual minimum. Okay. All right. Thank you. Thank you. And 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? And is there a longer term target for OpEx as a percent of revenue? Well, right now, we see just small incremental movements in that. We have not looked at next we have not closed off on next year's plan. But I will say the following. There are 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. So I would say that while we're doing 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. And as we look out to next year, we will the philosophy should be that revenue will grow faster than the the revenue growth percentages 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 and A in organic in addition to the organic growth. So we got to be careful not to just overloaded on the organic expense side. And because we do the inorganic, we are need to do some work to over there. Correct. Good point. Okay. That's helpful. And just a follow-up question. Just on Raider, 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? And then lastly, just maybe the economics when you work through a VAR like PANA Pacific versus going direct to yourself to the customers, kind of economics of the deal? Thank you. Yes. Okay. So first of all, it's not AD trials. It's the pipeline an active pipeline for AD deals. We could only capacity wise, we could probably only do we do 6 or 8 trials a quarter. That's usually what we do. And now that's a good point, you point. The reason why we go to a free complete and the Pana Pacific is not only because of their vast network because they could pick up the trial too. So with that, we could scale our trial without having to put in too many people or too many resources into it. So that's the reason. And so the economics are from a margin side are quite good for us going through Pana Pacific and free complete and other value added reseller. Obviously, the revenue line we have to share in some forms. So I'm actually more interested and focused on the ongoing monthly revenue than the initial bunch of revenue. So from there, we work out a kind of reasonable arrangement. Great. Thank you. Sure. Thank you. And 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 signed deals with already? Thank you. Smartphone vendors, wow, every quarter we have let's say the major ones we have about 5, 4 or 5. And then now those people are signing up like the design house that we announced to win with Equis and NTD. Now they are signing up distribution like telecom company around the world. So I just announced another free. So I would say about 10 ish is the neighborhood of that. And what was the first question on IP? The question was related to IP business. So we have some residual business that comes from past quarters and we have some business related to our efforts with the Teletree. Yes. Yes, both. All right, great. Thank you. Congrats on the quarter guys. Thank you. Thank you. And our next question comes from Anil Dorolda 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? And 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? Yes. This is a good question. We have very good momentum in the 5i country and especially in the United States and Canada government and Germany, sorry, I shouldn't forget that. And partly because mostly because of our security certificate or certifications. If you look at the reason why I mentioned FedRAMP, I do the math I could do the math for you. We announced FedRAMP certification about 2 quarters ago, less than 6 months through operation in our security operations center. We built a security operations center outside of DC, certified by the United States government using our cloud technology. And these are not things that is a long committed high resources process. But the business, I will tell you the momentum of the business, we grew 40% quarter to quarter. So only are in operation for 2 quarters. We have now over 400,000 licensees that United States government employees that are using our technology on a day in and day out basis and through that system. So we expect to continue to build momentum on that. There are a mixed set of products that will get into that SOX and that will also continue to build. So this is a requirement for the U. S. Government at the secure level and it will have a snowball effect. So and I only particular pointed out this, we win a lot of 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 as reasonably ridiculous because this is why I made an effort in 2 quarters to provide you all the name of all the agency that have recently signed up new project with us and they allow us to use their names. Some of the agency we signed up the project were unable to secure the permission to use their names publicly. So that's about all I could describe to you at this point. Great. Thank you. Sure. Thank you. And our next question comes from Vijay Bhagavath of Deutsche Bank. Your line is now open. Hi. Hi. This is Brian Yoon on for Vijay. Okay. Thanks for taking the question. I just wanted to dig in on the enterprise software and BTS businesses. So 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? And 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? And I guess my real question is, any color on the size of revenues or growth rates and how you're thinking about it over the next few years would be helpful. Let's see. The size relative, I think, in terms of their contribution to our business, Steve already laid out. So the majority of our business now is in the it's over about 60% 50 some percent, 60% in enterprise business, which you stated as UEM and workspace. And they are not single products. UEM, it represents all five level of the suites, which Workspace is part of the collaborative suite. So they are all one platform interrelated that you should enter into a platform at various level with us. And then therefore, we could also upsell our existing customers with various different capabilities. So that we're seeing double digit growth in billings. In some quarters, it actually translate to double digit growth in revenue. Some quarters it doesn't. And I know Steve got a lot of question on that on your 1 on 1. So and 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. So that's kind of where we're going and we expect that not to slow down in both the business as well as the additions of our technology. So that's one aspect there. The other so back to the DBTs 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. And this is why Tier 1 is important to us, the relationship that the ad design wins is important. I'd get into there early on. We also are winning our relationship with the chip manufacturer, like we talked about Qualcomm in this quarter. And it's important that we expand that relationship because they will be a major supplier of chip to the auto sectors. And it's important that our designs and our capabilities embedded in it. So I think that's a 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, it will be about 2%, 3% also, but it gives us the window to enter to win this design win. So when the auto business start picking up again in the autonomous platform vehicle, then we are right there and then we will be benefited from those design wins over time. As in radar, radar is an area because its numbers are so small and the needs are so huge out there. I mean, there are literally tens of millions of targeted, whether it's the trailer track 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 trial start converting into wins, we will see a reasonable revenue ramp. So 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 to when John made the comment that the auto is down because we he and I have 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 out would 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 costs being sold. Yes. Okay, great. Thanks. Thank you. And 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. So I'm just trying to gauge how you're thinking about what that medium to long term growth rate should look like. And I can appreciate like the time lag on new wins, etcetera. So if you can just kind of 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. And then my second question and just quickly, my second question is just quickly, can you explain the $9,000,000 associated in the non GAAP revenue associated with recognition on deferred revenue from acquisition? I'm just want to get a little more clarity there. Thanks. Okay. All right. So the first one, the focus is, like you said, my focus is on design wins. And so in the next couple of years, some of these design wins will convert into revenue and then it will start ramping. And the reason I said it ramping slowly is really more of a near term phenomenon. Longer term phenomena, as you know, we're working we're trying to work on ASP increase. Where we are in infotainment, infotainment is a handful of dollars apiece. We're trying to enhance that with higher 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. So we're making progress and you could see all the design wins, whether it was with Danso or with Delphi, they are all in these areas that's beyond just the traditional infotainment systems. So this is why I feel bullish about the overall business on the longer term in terms of growth, but the shorter terms, I'm focusing more on the design wins part of it. In addition to that, you know that we're talking we've always been talking about surfaces in the auto sector. That will be forthcoming too. And you could see some of our solution if you visit CES. And I'm actually presenting at the Detroit Auto Show in January. We will talk a little bit about that also. So those are that's you think about it in the midterm and versus a short term versus a midterm versus a longer term, but we do see growth. And then I think it's that I'll answer the second part of your question, which is really around the $9,000,000 the difference in the revenue between GAAP and non GAAP. So each quarter we've reported that difference and that's really software deferred revenue from acquisitions that wasn't recognized. So it's deferred revenue. Most of the push would 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. And I understand that. I guess, my question is, it seemed like it was maybe my memory is poor, but it seemed like there's a little more of this quarter, but perhaps more importantly, at what point should we expect that to have rolled off completely? Okay. So two things. So actually, we've had larger differences in prior quarters and those differences have been flattening out. So it's becoming the difference over year over year as well as the aggregate number. There will still be some portion that will be in next year as well. The following year will be almost 0. Okay, great. So next year, this is kind of the run rate we should expect and then by the year after next is it should be down to almost 0. And 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. Okay. I think we need to wrap up our Q and 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. And I also we're going to make a presentation at the auto show in Detroit, where we're going to talk about rumor headset. I'm going to make it a product announcement. Then you will have to come and see whether the rumor is true or not. So with that, I would 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 and you may all disconnect. Everyone have a great day.