Welcome to BlackBerry's fiscal 2018 second quarter conference call. Please note that all participants have been placed in a listen-only mode. I'll now turn the call over to Charlie Chen , Vice President of Investor Relations for BlackBerry.
Thank you, operator. Welcome to BlackBerry's fiscal 2018 second quarter results conference call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen, and Chief Financial Officer, Steve Capello. After I read our cautionary note regarding forward-looking statements, John will provide a business update, Steve will then review the second quarter results. We will then 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 relations section at blackberry.com. The replay will also be available on the blackberry.com website. Some of the statements we will 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 will 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 on 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, Charlie. Good morning and welcome to BlackBerry Fiscal 2018 second quarter results conference call. As in customary, I will reference non-GAAP number in my summary of our quarterly results, there is a reconciliation table of GAAP to non-GAAP results in the press release. I am pleased with our execution in Q2. We established historical highs in software and services revenue and gross margin. We make great progress on all our key growth initiatives, which includes unified endpoint management, the connected car, the IoT, licensing, as well as cybersecurity. We again deliver strong software billings growth. We secure important design wins in auto. We invested in our sales channel for Radar. Our licensing pipeline is growing, we were recognized again as the leader in mobile security. All of these accomplishments position us well for future growth.
First, I will start with a brief summary of our Q2 results. Total revenue came in at $249 million. Total software services revenue was a record of $196 million. This represents a year-over-year growth of 26%. Gross margin for the quarter was also a record high at 76%, up from 67% last quarter and 62% a year ago. Operating income was $29 million. Operating margin was 12%. This compared to 6% last quarter and 5% a year ago. This is also the highest operating margin in over five years. EPS was $0.05 positive. Total ending cash was $2.5 billion. Let me cover some of the key business accomplishments in the quarter. Let me start with the enterprise. Our UEM, Unified Endpoint Management business, continues to perform well. Billings performance was strong, up 19% year-over-year.
This is our third consecutive quarter of solid billings growth, starting with double-digit growth in Q4 and high single-digit growth in Q1. This quarter put us back on double-digit billings growth year-to-date, which we do expect to continue for the balance of this fiscal year. We saw notable strength in our regulated industry business, particularly in government and banking globally. Some notable names that we're allowed to mention include UBS, which was a platform consolidation play, the Fifth Third Bank, the Development Bank of Singapore, and the National Commercial Bank in Saudi Arabia, just to name a few. This is my favorite part. One of the smaller competitors recently suggested on their conference call that they are making headway against us in our federal business. We find that very puzzling. I asked around, by the way, when I heard that.
I would like to provide some statistics and highlight our strengths and call those claims into question. In our U.S. federal business this past quarter, we had 23 transactions over $100,000, of which seven of them were larger than 500K, and five deals were over $1 million. These deals went across numerous federal agencies, and a number of these represent very highly competitive wins. We also see strong contribution in other areas of our public sector business outside of the U.S., as well as at national, state, and local levels. Our FedRAMP business is seeing solid traction. This is the cloud version of that. We have the only cloud services for crisis management certified by the United States government. In Q2, we added four new U.S. federal customers on the platform.
We now have over 300,000 licensed FedRAMP users, which happen to be an increase of 162% over the prior quarter. During the quarter, we achieved NIAP certification for the SecuSUITE for Government, which brings an end-to-end solution for encrypted voice call, text messaging, as well as text messaging to the U.S. and the Canadian governments. Proof of Concept has started with multiple U.S. government agencies. SecuSUITE is the only NIAP-certified voice solution supporting iOS, Android, and BlackBerry 10 smartphones and tablets, meaning cross-platform. Additional wins with enterprise customers in the quarter include Scotiabank, Hogan Lovells, and The University of Sydney. We also see good traction on the security front. Last month, Gartner published its annual report on critical use cases for high security mobility management, and BlackBerry received, yet again, the highest score in all six categories for the second straight year.
Gartner also recently released its content collaboration critical capability report. BlackBerry Workspaces, which is part of our enterprise UEM solution, was ranked first in two categories, workforce productivity and centralized content protection. We were ranked number two or second in two other categories, extended collaboration and lightweight workflow. Out of the total of five categories, BlackBerry beat all the major players like Box, Google, Microsoft, and Dropbox. We were also named a leader in IDC 2017 EMM MarketScape report that was published this last month. This was based on our strong security features and overall well-integrated suite of capabilities for mobile device application as well as content management. An enterprise spot in our UEM business is our cybersecurity consulting practice. Awareness is growing with our large enterprise customer, and we continue to see the pipeline develop very nicely.
In particular, we're seeing both the number and the size of the deals increasing. For example, we recently closed a seven-figure cybersecurity deal in the Middle East. Total professional services revenue grew over 40% year-over-year. I have to add that our professional services numbers are of a small base. Nevertheless, the growth was impressive. I'd like to move on to the embedded software. We have important design wins in our automotive industry business. After the quarter, as many of you probably know, Delphi announced that it chose BlackBerry QNX for the project called CSLP. It stands for Centralized Sensing, Localization and Planning platform. This particular platform is a fully integrated autonomous driving solution. Some of you may have heard of Delphi initiative earlier this year in collaboration with Mobileye and Intel.
We are pleased to be providing the software infrastructure for this particular platform, and obviously based on our ability to enhance safety, security, as well as performance. Another major win is with Visteon, and they are also Tier 1 doing cluster, who is adopting our technology for ADAS, Advanced Driver Assist, I apologize for all the jargon, instrument cluster and functional safety. In the quarter, we have additional design wins in advanced driver assist, which I talked about, ADAS, digital instrument cluster and functional safety platform, Hypervisor, as well as autonomous driving. These wins should drive longer term high margin revenue growth, but it will take some time for the royalty to start kicking in because of design lead time for new cars.
In the past quarter, we have also ramped up our investment in BTS channel expansion, most notably in China and Japan, where we signed several new selling partners. These partners will support both our automotive and general embedded business. Moving on to Radar and our IoT business. In the past two quarters, we have talked about ramping up our go-to-market effort and we have made great strides in Q2. We were successful in hiring a seasonal general manager for this business and added four experienced direct salespeople. We have added two new resale partners, Fleet Complete and Pana-Pacific. Based in Toronto, Fleet Complete is a leading global provider of IoT solution for fleet, assets, and cloud-based mobile workforce solution. They serve over 10,000 customers worldwide. They are recognized as one of the fastest-growing providers of fleet and assets tracking technology.
Radar is also in trial with Pana-Pacific, based in Fresno, California. Pana-Pacific is one of the largest value-added reseller in the U.S. They specialize in mobile applications, safety, and other applications for commercial vehicle manufacturers. If the trials are successful, Radar could be distributed through their 2,800 dealers nationwide. In the quarter, we launched Radar Lite on schedule. Actually, not in the quarter, early this month, or just passed the quarter. We launched our Radar Lite on schedule early this month. As a reminder, this version of Radar is a cost-optimized version and will significantly expand the total addressable market for Radar from 8 million units to a market of 28 million devices or platform.
I'm pleased to announce that we received our first customer order, and we shipped yesterday, by the way, with that, for Radar-L, Radar Lite, for Titanium, although first order came from Titanium. Titanium uses Radar-M, the first model of the Radar. What was that called? Radar. Anyway, full features Radar for approximately 1,200 trailers. With this order of the Radar-L for its flat beds and chassis, Titanium entire fleet now utilize the BlackBerry Radar platform. With the investment in Radar, both in channel and product development, we are positioned to ramp up this business going forward. Currently, we have a total of 16 POCs in progress, and for both Radar-M and -L, including six that started in Q2. The new sales team is building the pipeline, which now includes over 60 opportunities. Lastly, I want to comment on our licensing business. It also performs quite well.
The main source of revenue are in three buckets. As a reminder, one is for the device software licensing, second one is the IP licensing, and the third one is the technology licensing. I'll cover each of them. In device software licensing, two of our three hardware partners, TCL and BB Merah Putih, started shipping BlackBerry branded devices. This quarter, we expect Optiemus in India to start selling devices as well. After the quarter, we entered into a partnership and signed a new licensing agreement for our BlackBerry Secure Android operating systems. The partnership is with NTD of Shenzhen, China, who will manufacture and distribute smartphone devices, as well as EQUIIS, based in Switzerland, who will provide application functionality. The partnership, that is NTD and EQUIIS, and of course, ourselves, will deliver white label smartphone to carrier customers in Africa, Asia and Latin America.
The first device is planned to ship in the first half of calendar 2018, and four carriers are already line up. The partnership will expand to include additional carriers and devices. Since our last earnings call, we have recognized revenue from three IP licenses, Ford, BLU, and Timex. We have a good pipeline of opportunities. We expect additional monetization opportunity in the second half, though it will likely be more back-end loaded to Q4. Our technology licensing is steady, with the main source of revenue coming from the BBM consumer platform, which we licensed to Emtek. I will now turn the call over to Steve for a detailed look at our financials.
Thank you, John. Today, we reported Q2 GAAP revenue of $238 million and non-GAAP revenue of $249 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 Q2 FY 2018 income statement results. Our total revenue for the second quarter was $249 million. Our consolidated gross margin was 76%, compared to 67% last quarter and 62% a year ago. Our non-GAAP gross margin includes software deferred revenue acquired but not recognized of $11 million and excludes restructuring program charges of $3 million and stock comp expense of $1 million.
The gross margin improvement of 1,400 basis points over a year ago is attributed to the increase in contribution from software and services to our overall revenue mix. We continue to model consolidated gross margin of approximately 70% for the full year. Operating expenses were $161 million, up from $149 million last quarter. We expect Q3 OpEx to modestly increase over Q2, largely based on plans for increased investment in sales and marketing. GAAP net income for the quarter was $19 million. Basic GAAP EPS was positive $0.04. Fully diluted GAAP EPS was a $0.07 loss, which assumes conversion of our convertible debentures. Our non-GAAP operating expenses exclude $24 million in amortization of acquired intangibles, $26 million in restructuring charges, $11 million in stock comp expense, $1 million in business acquisition and integration charges, and a benefit of $70 million of fair value adjustment related to the debentures.
Our non-GAAP operating income was a positive $29 million, and non-GAAP net income was $26 million. Non-GAAP EPS was a positive $0.05. Our adjusted EBITDA was $50 million this quarter, excluding non-GAAP adjustments previously mentioned. This equates to adjusted EBITDA margin of 20%. I will now provide a breakdown of our revenue. Total software and services revenue was $196 million, representing 79% of total revenue. Handset device revenue was $16 million, representing 6% of revenue. In Q3, our handset device revenue is expected to be $0-$5 million. Total SaaS revenue for the second quarter was $37 million, representing a 15% of revenue. SaaS revenue was down 2% quarter-over-quarter. The sequential decline in SaaS was lower in prior quarters due to an increase in collections of approximately $9 million related to overdue balances for cash-basis customers.
We continue to model a normalized sequential decline in SaaS revenue of roughly 25% next quarter. Therefore, we're modeling SaaS of around $20 million for Q3. I will now provide a further breakdown of our software and services revenue. The largest contributor was enterprise software and services at 52%. BlackBerry Technology Solutions accounted for 19%, and 29% came from licensing IP and other. Please refer to the supplemental table in the press release for GAAP and non-GAAP details. Roughly 79% of software and services revenue, excluding IP license services, was recurring in nature. Now moving on 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 $353 million at the end of Q2. This is down from $761 million a year ago. Moving to the cash flow statement. Reported free cash flow was break even in the second quarter. Reported cash flow from operations was $3 million, and CapEx was $3 million. Free cash flow before taking into account the impact of costs related to restructuring and transition from the hardware business was positive $22 million. We expect free cash flow to be positive for the full 2018 fiscal year before the impact of those costs and the benefit of the Qualcomm arbitration award. We also expect positive adjusted EBITDA for the full 2018 fiscal year. That concludes my comments. I'll now turn it over to you, John.
Okay. Thank you, Steve. Before we start it, our Q&A, let me comment on our updated outlook. For the full year, we anticipate total revenue in the range of $920 million to $950 million, versus the current analyst consensus of $919 million. In our software and services business, we continue to anticipate growth in the range of 10%-15%. We continue to expect to be profitable for the full year. Last, we expect to be free cash flow positive for the full year before taking into account, like Steve has said, the benefit of Qualcomm, the arbitration award, and the costs related to restructuring and hardware transition. Now I'm ready to open for Q&A. Candice?
Thank you. Ladies and gentlemen on the phone lines, if you would like to ask a question at this time, you may press star followed by the 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. Our first question comes from the line of Daniel Chan of TD Securities. Your line is now open.
Hi. Good morning, guys.
Good morning, Daniel.
Hi. What drove the strength in the licensing revenue? Was it stronger licensee handset sales, or was there any more recurring IP revenue?
We have licensing handset sales start coming in. It was literally the first time. Let's see. We had some a quarter ago, right? Small.
Yes.
That grew. The IP was strong for the quarter.
Tech.
-stat flat.
Yep.
Right. It's both the IP and the handset.
On the IP side, is that recurring, or are those one-time license costs?
It's not recurring, I say. It's usually, well, usually is the wrong word. The model that we like to go see is a upfront payment with some back-end royalty.
Okay.
It would not be just recurring like you think about every year or something.
Okay. Then on the enterprise software services, looks like bookings were strong the last few quarters, and it continued to grow this quarter, yet the enterprise software revenue was flat year-over-year. Can you just give us an understanding of why we're not seeing that revenue grow with the strong bookings? Does it have to do with the migration to subscriptions from perpetual?
That could have a partial impact, Dan, a lot of that is with the deferred acquisition revenue accounting. If you recall, last quarter, we had this number is coming down, so we'll start to see it approach. Last quarter, that delta was $15 million, and this quarter, it was $7 million. That's really the primary piece.
Okay. Then just a final one. Looks like you're starting to get a bit of traction in China with a few deals there. This region typically has been a challenging market for BlackBerry, can you talk about what's driving some of the traction there?
More of a commercial partnerships over there. It's still early stage. A couple of quarters ago, enterprise group won a major deal with the State Council, but it's about agricultural distributions. They partner with China Mobile or Shanghai Mobile, which is part of China Mobile. We're bidding with partners on various deals. Of course, we are also focusing very much on the UEM software, which isn't as sensitive as providing solutions to the government
Great. Thank you.
Sure.
Thank you. Our next question comes from Paul Steep of Scotia Capital. Your line is now open.
Hi, Paul.
Great. Good morning.
Good morning.
Hi. John, could you talk a little bit, just, you touched on it, in terms of the design wins around QNX.
Obviously, not names, but just more the systems. Are these traditional infotainment wins that we've seen, or are we branching largely in terms of the volume of wins in other markets?
Other areas like advanced driver-assist hypervisors, safety clusters. We already talked, everybody knows that the infotainment, where we actually holds a pretty big market share, is a saturating market. We've seen that a couple years ago, so we have developed all these new modules, which I just named. Now our concentration of the team is to go focus on the design win in this other area, so a much higher growth and much higher output.
Okay. The other thing we talked about a lot in the past is sort of your view of maybe where the employee base is at.
Yeah.
Could you talk, from a capacity point of view, you talked about hiring some people into radar, where the focus is and how close you think you sort of are at the moment to today, where you need to be.
It's a good question. Our enterprise software business are pretty much a global footprint. We're strong, we have pretty good concentration in North America and Europe. We're focusing much more expansion in Middle East and Asia. That's some of the wins, like the Saudi Arabia, not Saudi Arabia, the Middle East deal in cybersecurity, the Saudi Arabia bank, the Development Bank of Singapore, the China thing we just talked about with Daniel. We're signing up other distributors across that part of the world. It has not been traditionally our strength, our concentrated area. From an enterprise perspective, we're going to maintain our concentration or strength in North America and Europe, but we're also going to start seeing seeding and building relationship out there. On auto, because the auto is global, we already have global team across.
What we are doing now is to get ourselves both in the auto as well as more in the embedded opportunities. I spoke about last quarter, we start concentrating on Japan and China. These are early thing, but I just want to give everybody a sense that we are developing market, we're hiring, investing, and our distribution capability. That part of the business. It depends on which part of business we talk about. Now, Radar, right now it's still very much North American centric. For the time being, I think it's going to be North American centric. I have not looked at all 60 of the opportunities that I referred to, but I could probably bet that they're mostly all in the U.S. or in Canada. That's kind of where we are.
Great. Just one final clarification, I'll pass the line. On the services side, John, do you feel like you've got the capacity you need to deliver potentially larger projects across multiple verticals, or do you still think you need to add significantly in the professional services or the BTS area? Thank you.
It's a very good question. On cybersecurity, it looks like that my pipeline right now is outpacing what we could deliver. On cybersecurity practices and some of the professional practices, we need more people. Now, we are trying to repurpose some of our internal technical people for it, and we're going to continue to hire more, it's a good problem to have, but we don't have enough.
Okay. Thank you very much.
Sure.
Thank you. Our next question comes from Gus Papageorgiou of Macquarie. Your line is now open.
Hey, Gus. We're now going to have a three part of a question that Charlie referenced, right?
Okay. It's pretty easy. You touched on the ASPs for QNX.
suggesting they're going to go higher. I'm wondering if you can quantify that. Currently, I think you suggested that the ASPs per car is somewhere in the $1.50-$5 range with the recent wins at Delphi, them adopting the entire OS. Can you talk about what you expect the trend to be on ASP for QNX per car?
Well, Gus, I can't tell you about what our deal with Delphi is, but let's think about, and I still maintain our focus is to be able to get to anywhere from $5-$25 a car. By selling them multiple modules and all these latest modules. It's still a good goal. It's still a very achievable range.
Can you give us a sense of timing, like when do you expect to see the bump in the ASPs?
Yeah. Unfortunately, if you look at the Delphi thing, and again, it's not giving you any particular business plan with Delphi, of which of course we have one, but if you look at a new design win, and let's go back to earlier wins like Ford and stuff. We take them 18 months to get designed into the car and get it rolled out. Earliest you could see is probably a 18 months to 24 months window. Once you see it, you see it pretty steady.
The Delphi would be roughly the same kind of around 18 months.
Yeah, probably. I'd probably say 18 to 24 months window.
Okay, great. Thank you.
All right. Thanks, Gus.
Thank you.
Go ahead, sorry.
Our next question comes from Mike Walkley of Canaccord Genuity. Your line is now open.
Hey, Mike.
Hey, great. Thank you. Just on the strong gross margin in the quarter, 70% for the year, can you talk about maybe what drove the upside this quarter and why the mix might change, for lower gross margin for the second half of the fiscal year?
Well, yeah, Steve could answer that.
Yeah. Hey, Mike. Obviously, the stronger growth was the large amount of software and services, and a lot of that came from licensing, which is our highest margin. If we look to the second half of the year when we said we're looking at 70% for the entire year, we said about. I do expect that Q3 and Q4 would be above the 70% mark.
Great. That's very helpful. Just a follow-up question. Just on the Radar solution with your growing channel base, what's kind of the feedback from the channel, why they're choosing you, and what features and capabilities are they going to market with versus your competitors that the feedback is for Radar, helping you win some deals? Thank you.
We have many use cases with customers, like Caravan and Titanium. They love it. It's a cloud-based solution, most of the existing install out there in this world is not a cloud-based solutions. It is easy to install, is much more higher sampling rate, because the battery lasts much longer. If you think about what we have done was to take the company capability in making phones with long battery life, good antennas, and security, and put it onto a device that you can install it and literally talk about probably 10, 15 minutes on each of the truck and flatbed and chassis, which are very expensive, and be able to do geo-fencing and show everything on the cloud and look at all the environmental elements of the devices that are being tracked.
I mean, it's really functional features and price, and the ability to be a cloud-based solution. The feedback's been wonderful. I met with Pana-Pacific myself. They, of course, is finishing up the trial. The fact that they allow me to mention their name here, it's a good indicator. Of course, Fleet Complete already signed with us.
Great.
Mike, these all lead to productivity improvements. That's the other key functionality, is that people are getting more productive services out of each and every unit that's being managed.
Great. Thank you.
Sure.
Thank you. Our next question comes from Steven Li of Raymond James. Your line is now open.
Thank you. Hi, John. On the licensing business, the device software, anyone above their contract minimums at this point?
No, not at this point. No. There's one close.
Okay, that's good. Both TCL and BB, they were already there in Q1, right?
Yes. One of them were in Q1. We got revenue from one of them in Q1, I believe.
Okay.
In Q2, I got two.
Okay, good. The Delphi partnership, is there any professional services you expect to generate as you're getting design into the car in the next 18 months?
Yes. That's a good question. We also have both design, the professional services to help use the technology, to help OEMs, which are car manufacturer and so forth, use technology. We also have the ability to sell them developer seats.
Okay. Is it going to be about the same magnitude as the professional services boost you had last year?
No. That was a very special case. You're talking about the infamous $27 million that has been haunting me. No. Okay. I want to make sure of that. No, not in that magnitude. I wish it could be, but you never know, right? If there is a particular car manufacturer who want to completely use all our technology and chose Delphi as a tier 1 partner and so forth. You never know. I wouldn't say never, but that's not our plan.
Okay. That's great, John. With Delphi, you expect those PS revenues to start this year?
Delphi will probably take. This is a Delphi question, really. I think normally they probably would take six to nine months to integrate our technology into their platform. I don't know their platform release time. Once they released it and they start selling to car manufacturers, I know a couple of them are already very interested, then we come in.
All right. Thank you, John.
Sure. Absolutely.
Thank you. Our next question comes from Todd Coupland of CIBC. Your line is now open.
Hi, John.
Hey. Good morning, John.
Good morning. I wanted to get your thoughts on what kind of growth over the next year or so we should expect from QNX. With some of the infotainment falling off, will we see that business be flat, or could that business actually come in some before the automotive starts to kick in?
Well, as I said earlier, I think if our tier 1 partners starting to win deals or we have direct wins with the OEM, you will start seeing revenue coming in. The current revenue are literally majority-wise based on royalty, as you correctly pointed out. The royalty on IVI, which is infotainment, it's flat, and this is why you're seeing flat, because the majority of them comes from there. We have many design wins in the last few quarters. Now it's kind of picking up the speed. We see development seats, we see professional services. Of course, the bulk of the revenue is going to come in when they start shipping cars. These are all pipelined. We should see uptick of QNX revenue overall because of that dynamics.
Okay. I get the Delphi when they've got to go out and sell the platform, we'll see how it goes.
Right.
What about specific OEM wins where you actually give visibility to revenue now? What kind of pipeline is there, and what should we expect over the next little while of direct to OEM?
As you know, our biggest direct to OEM in the last year has been Ford. As I said also, a number of earnings call, I said we are working on others, and we are working on others. Some, in particular, one of them are quite close. There are some very strong efforts behind it. It just takes a very long time.
Okay. Does the Lyft announcement of the other day, does that impact your relationship with Ford at all?
No, I have not heard any negative of our relationship with Ford. We have a lot of engineering to engineering. I don't know the answer to your question, but no, I don't believe that. This is probably a Ford question, but I have got no indication and no information about that we're being affected. I doubt very much that's the case because Ford and us are working extremely closely together. I would have heard.
Okay. Yeah. Thanks for the color. Appreciate it.
Absolutely.
Thank you. Our next question comes from Paul Treiber of RBC. Your line is now open.
Thanks very much, good morning.
Good morning.
In regards to the outlook for the 10%-15% software growth this year, should we continue to expect the growth from the licensing line, or do you think we should begin to see enterprise software and perhaps BTS pick up towards the second half of the year?
Our concentration on enterprise has been focused on billings growth. Our focus on QNX or BTS is focused on design wins. We should see some revenue growth on design wins, both from our QNX as well as the Radar portion, especially the Radar portion of BTS. I believe, notwithstanding on the so-called acquisition deferral runoff that Steve Capello had mentioned, our people think that they should be able to grow in Q4 in enterprise side. There will be some modest growth there. You should see licensing growth. I'm expecting, for example, when Optiemus starts shipping, I should see some more device software license growth.
Okay. That's helpful. I was wondering if you could bridge your comment about the $5-$25 ASP per car with one of the slides in the investor day back in January, where it mentioned a two to three times ARPU opportunity in automotive.
Right. Two to three times. At that time, we're talking about $1.50 to two to three times $1.50 was kind of $3-$5. I think as we release more modules, as the architecture have more redundancy, especially the Hypervisor, who are able to accommodate other people's software module in it. We also have one, as you know, a number of chip manufacturers designing our Hypervisor into their chipset like Qualcomm and Nvidia. We're hoping that we'll see a better ARPU going forward.
Okay, that's good to know. Just lastly, on BTS, when you start shipping the units, and this is more of an accounting question, will you recognize the revenue upfront on the hardware, or will that be recognized ratably over the life of the agreement?
The hardware gets recognized upon the shipment, and then we have ratable revenue from the monthly fees.
There are two models.
Thank you.
There are two models. Another model is if the customer wants to bundle it, then we do charge them a monthly fee, and then we take it on monthly basis. That meaning the hardware cost is being bundled into the monthly fee.
The hardware costs will be included in the BTS line?
Yes.
Correct.
Yeah, within the BTS line.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Daniel Bartus of Bank of America Merrill Lynch. Your line is now open.
Hi.
Hey, guys.
Hi, Daniel. Hi.
Good morning. Yeah, thanks for taking my question. I wanted to ask again about the enterprise software and I thought you guys gave that non-GAAP number previously for a better apples to apples comparison on growth. If the market is growing probably 10%-15% year-over-year, I just got to ask again, why are you guys growing more flattish there?
Right.
Last quarter, we had double-digit growth on a GAAP basis, this quarter, I believe, was 8%. When you say the market's growing-
The market's not growing at that number, but that's okay.
Yeah. We hear that the number had grown 8%.
Yeah.
The billings growth is-
Yeah, the competitor is growing a lot less, smaller than that. Go ahead.
Our billings growth is 19%.
Okay. Okay, great. Then a clarification, John, it sounded like you said maybe some of the IP revenue may be back-en d loaded in 4Q this year. Did I hear that correctly, or did you mean front-e nd loaded? I guess what I'm getting at too, is there any way to help us think about the real baseline for IP licensing revenue as we go in the second half?
I think I made a reference that, if you look at our first half number, I hope, we're going to see a pretty much a mirror image of that in the second half. What I've been trying to gun for is, I'm always worried about giving you folks numbers because you're going to come back and keep asking me the same question, I'm hoping that we're going to get to $100 million or so in IP revenue this year. We obviously are on pace to do that. That's why I'm saying that the transaction that we're working on seems more reasonable to expect in Q4, you will never know. It may come in Q3. I prefer to treat it as a second half target.
Okay, great. Thanks for the color, guys.
Absolutely.
Thank you. Our next question comes from Michael Kim of Imperial Capital. Your line is now open.
Hi there.
Hi, good morning, guys.
Good morning.
Just going back to Radar, and specific to the container intermodal use case, are you starting to see customers viewing Radar L as sufficient versus Radar M, and how are you seeing that shift show up in your POCs?
Yeah, great question. No. Notice that I carefully and purposely put in the application of Radar L. Radar M is ideal for the container. The Radar L is ideal for the chassis, the flatbed, and the trailer part of it. They are more complementary than replacement of each.
Got it. Are you seeing upselling opportunities for Radar L customers, or are you tending to see them separated?
Radar-L at this point is just brand new. Probably hard for me to answer that question, but logically, yes. I would answer the question in the other direction. As you know, Titanium, which is one of our really good customers, they started with Radar-M, and they have it now for all their trailers, and I think they have 1,200 or 1,400 containers. Now they started with Radar-L for the chassis and the flatbed. Their entire fleet and all their assets are now managed by Radar, both Radar-L and Radar-M. You could see that I started, in that case, with a Radar-M win, we've done a good job there and good work there, and they expanded to cover other assets with the Radar-L.
Got it. Great. Well, thanks so much.
Sure.
Thank you. Our next question comes from James Faucette of Morgan Stanley. Your line is now open.
Hi there.
Hi. This is Meta Marshall for James.
Yeah.
Just a quick question on the Delphi deal from last week. Understanding the question was kind of asked about Ford already, but would you be precluded from kind of signing future agreements with going direct with other car manufacturers? Does the relationship have to go through Delphi just a little bit on, are there any contingencies there about restrictions on signing future agreements?
No, not exclusive.
Okay, thanks. Just a small follow-up question on, do we have a sense of number of handsets that the licensing partners that you've signed up with, of number of handsets that they have been selling or producing?
Yes, I have a sense because we send them royalty.
Yeah.
Not only we have a sense, we better know the exact number. Since I'm no longer in the handset hardware business, I don't think it's good for me to review my partner's business progress. That's probably inappropriate.
Got it. All right. That's it for me. Thanks.
Sure.
Thank you. Our next question comes from Gabriela Borges of Goldman Sachs. Your line is now open.
Hi. Hello there.
Great. Good morning. Thank you for taking my question.
Good morning.
Charlie, you touched a little bit on the competitive environment in UEM, specifically on the federal side in the prepared remarks. I wanted to ask a little more detail. When you look at your opportunity on the regulated side for UEM. How do you think about that opportunity in terms of greenfield versus competitive displacement or upsell? Any broader color on the competitive environment in general on the UEM side would be helpful. Thank you.
There are only a handful of competitors in the so-called UEM space that are established. Given the fact that we have all these wins in terms of business, as well as we have won a lot of consolidation play, meaning to us, a lot of the customers have maybe multiple environment, two or three environments. They are now all coming to us. The reason I took a while to go over in my script, Gartner, the award that we won, the accolade that we have, IDC and everybody else, is to make sure that you all know that, while we're going through a consolidation phase in the market, that BlackBerry is not only winning, but we're extremely strong. It's been recognized by both customers as well as the industry analyst world.
I'm very keen on that, and I'm positive about it.
That's helpful. Thank you. A follow-up on the Radar business, if I could. We've talked a little bit about the pricing for Radar-M and Radar-L at the customer level. To the extent you're willing to share any color on what the economics look like for BlackBerry and how much of that is essentially passed back to P&L for BlackBerry and any directional color on how that would differ between when you go direct to customers versus via resellers such as Fleet Complete, that'd be really helpful. Thank you.
I see. The hardware has okay margin. We go through our partners, we pretty much share that margin, and we'll both be making a little bit of money. The monthly fee, if we go direct, of course, it's basically a high percentage of margin. The partner also share in some, not to the same magnitude of the hardware side.
Great. Thank you very much.
Absolutely. Okay. All right. I'm running out of time, I apologize for that. I'd like to provide a closing statement, and my marketing department asked me to do some advertising here, to mention our upcoming Security Summit events, which many of you attended in the prior years. Based on our strong interest this year, we're going to do two of them now. The first one is planned for London on October 24th, and the second one is on November 14th in New York City. They promise to be a very good show, and a lot of information is provided on cybersecurity stuff. We hope to see you there, and thank you very much for joining the call. We'll chat in 90 days.
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.