BlackBerry Ltd (BB) 2018 Q2 法說會逐字稿

Welcome to BlackBerry's Fiscal 2018 Second Quarter Conference Call.

(Operator Instructions) 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 Capelli.

After I read our cautionary note regarding forward-looking statements, John will provide a business update, and Steve will then review the second quarter results.

We will then open up the call for a 30-minute Q&A session.

(Operator Instructions)

This call is available to the general public via call-in numbers and via webcast in the Investor Relations section at blackberry.com.

A 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, and there's 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 made great progress in all our key growth initiatives, which includes Unified Endpoint Management, the connected car, the IoT, licensing as well as cybersecurity.

We again delivered strong software billings growth.

We secured important design wins in auto.

We invested in our sales channel for Radar.

Our licensing pipeline is growing.

And 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 summary -- 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 represent 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 5 years.

EPS was $0.05 positive.

Total ending cash was $2.5 billion.

Now let me cover some of the key business accomplishment in the quarter, and we 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 a notable strength in our regulated industry business, particularly in government and banking globally.

Some notable names to -- 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.

One of our -- this is my favorite part.

One of my -- 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, so when I heard that.

And I would like to provide some statistics and highlight our strength and call those claims into question.

In our U.S. federal business this past quarter, we had 23 transactions over $100,000, of which 7 of them were larger than 500k and 5 deals were over $1 million.

These deal wins 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 4 new U.S. federal customers on the platform.

We now have over 300,000 licenses -- 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 -- and as well as text messagings to the U.S. and the Canadian governments.

Proof of concept has started with multiple U.S. government agency.

SecuSUITE is the only NIAP-certified voice solution supporting iOS, Android and BlackBerry 10 smartphone and tablets; meaning, cross-platform.

Additional wins with enterprise customers in the quarter, include: Skadden, Arps; Hogan Lovells; and University of Sydney.

We also see good traction on the security front.

Last month, Gartner publishes annual report on critical use cases for High-Security Mobility Management, and BlackBerry received yet again the highest score in all 6 categories for the second straight year.

Gartner also recently released its content collaboration, Critical Capability report.

BlackBerry Workspace, which is part of our enterprise UEM solution, was ranked first in 2 categories: Workforce Productivity and Centralized Content Protection.

We were ranked #2 or second in 2 other categories: Extended Collaboration and Lightweight Workflow.

Out of the total of 5 categories, BlackBerry beat all the major players like Box, Google, Microsoft and Dropbox.

We will name a leader -- we were also named a leader in IDC 2017 EMM MarketScape report that was published just 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.

And enterprise spot in our EMM business -- on our UEM business is over -- 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 7-figure cybersecurity deal in the Middle East.

Total professional services revenue grew over 40% year-over-year.

Although, I have to add that our professional services numbers are off a small base.

But nevertheless, the growth was impressive.

I'd like to move on to the embedded software.

We have important design wins in our automotive industry -- or 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 fully -- is a fully integrated autonomous driving solution.

Some of you may have heard of Delphi's 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 it with Visteon, and they are also Tier 1 doing cluster, with 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 it's functional safety platform, Hypervisor, as well as autonomous driving.

These wins should bring -- 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 2 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 General Manager, a seasonal General Manager for this business and added 4 experienced direct salespeople.

We have added 2 new reseller partners, Fleet Complete and Pana Pacific.

Based in Toronto, Fleet Complete is a leading global provider of IoT solutions for fleet assets and cloud-based mobile workflow 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 United States.

They specialize in mobile application, safety and other applications for commercial vehicle manufacturers.

If the trial is successful, Radar could be distributed through their 2,800 dealers nationwide.

We launched in the quarter -- we launched Radar Lite on schedule -- as you know in the quarter, early this month or just past the quarter.

So 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 or what was that called?

Radar -- but anyway, full features Radar for approximately 1,200 trailers.

With this order of the Radar-L for its flatbed and chassis, Titanium's 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 in both Radar -- for both Radar-M and -L, including 6 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 3 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, 2 of our 3 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 the smartphone devices as well as Equiis based in Switzerland, who will provide application functionality.

The partnership, that is NTD and Equiis and, of course, ourself, 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 4 carriers is already -- are already lined up.

The partnership will expand to include additional carriers and devices.

Since our last earnings call, we have recognized revenue from 3 IP licenses: Ford, Glu and Timex.

We have a good pipeline of opportunities, so we expect additional monetization opportunity in the second half, though it would be, 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 Amtech.

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 on 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 '18 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 investments 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 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 to $5 million.

Total SAF revenue for the second quarter was $37 million, representing a 15% of revenue.

SAF revenue was down 2% quarter-over-quarter.

The sequential decline in SAF 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 SAF revenue of roughly 25% next quarter.

Therefore, we're modeling SAF 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 licensing and professional services, was recurring in nature.

Now moving on to our balance sheet and working capital performance.

Total cash, 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 breakeven 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 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% to 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?

(Operator Instructions) And our first question comes from the line of Daniel Chan of TD Securities.

Can you -- what drove the strength in the licensing revenue?

Was it stronger licensing handset sales?

Or was there any more of recurring IP revenue?

We have licensing -- handset sales started coming in, it was the first -- literally, the first time.

Let's see, we had some a quarter ago, right, but smaller.

So that grew.

The IP was strong for the quarter and then the [BBM] is steady, right.

So it's both the IP and handset.

And then on the IP side, is that recurring?

Or are those onetime license costs or license fees?

It's a little bit of a mixture of -- it's not a recurring, I'd say, it's usually -- well, usual is a strong word, the model that we'd like to go see is an upfront payment with back-end -- some back-end royalty.

So it will not be just recurring, like you think about every year or something.

Okay.

And then on the enterprise software and services, it 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.

So can you just give us some -- 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, but a lot of that is with the deferred acquisition revenue accounting.

If you recall last quarter, we had -- and this number is coming down, so we'll start to see it approach.

But last quarter, that delta was $15 million, and this quarter, it was $7 million.

So that's really the primary piece.

Okay.

And 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.

So 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 1, they made a major deal with the State Council that is about agricultural distributions, and they partnered with China Mobile or Shanghai Mobile, which is part of China Mobile.

So we're bidding with partners on various deals.

And of course, we're, also, are focusing very much on the UEM software, which isn't as sensitive as providing solutions to the government.

The next question comes from Paul Steep of Scotia Capital.

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 of 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, the Hypervisors, safety clusters.

We already talked -- I mean, everybody knows that the infotainment, where we actually hold a pretty big market share, is a saturating market.

So we've seen that a couple of years ago, so we have developed all these new modules, which I just named.

And now our concentration of the team is to go focus on the design win on -- in these other areas, so much higher growth and much higher ARPU.

Okay.

And then the other thing we talked about a lot in the past is sort of your view of maybe where the employee base is at?

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?

So it's a good question.

So a different business have different -- our enterprise software business are pretty much a global footprint.

We're strong, we have pretty good concentration in North America and Europe, and so we're focusing much more with the expansion in Middle East and Asia.

So that's some of the wins like the Saudi Arabia -- not Saudi Arabia, the Middle East deal in cyber security, the Saudi Arabia Bank, the Bank of Singapore -- Development Bank of Singapore, the China thing we just talked about with Daniel.

So we're -- and then we're signing up other distributors across that part of the world.

It has not been traditionally our strength, our concentrated area, so 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 was global, we already have global teams across.

And what we are doing now is to get ourselves, both in the auto as well as more in the embedded opportunities.

So I spoke about last quarter, we start concentrating on Japan and China.

These are early things, but I just want to give everybody a sense that we are developing markets, we're hiring, investing our distribution capability.

So that part of the business.

So it depends on which part of business we talk about.

Now Radar is -- 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 their mostly all in the United States or in Canada.

But that's kind of where we are.

Great.

Just one final clarification, and 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?

It's a very good question.

On cybersecurity, it looks like that my pipeline right now is outpacing what we could deliver.

So on cybersecurity practices and some of the professional practices, we need more people.

Now we're trying to repurpose some of our internal technical people for it, and we're going to continue to hire more.

So it's a good problem to have, but we don't have enough.

And our next question comes from Gus Papageorgiou of Macquarie.

You touched on the ASPs for QNX, assuming it doesn't go higher.

I was wondering if you could quantify that.

So currently, I think you suggested that the ASPs per cars somewhere in the $1.50 to $5.

With the recent wins at Delphi and adopting the entire west, can you talk about what you expect the trend to be on ASP for QNX per car?

Gus, I can't tell you about what our deal with Delphi is.

But let's think about -- I still maintain our focus is to be able to get to anywhere from $5 to $25 a car, so if -- by selling them multiple modules and all these latest modules.

So it's still a good goal.

It's still a good, a very achievable range.

And can you give us a sense of timing?

Like when do you expect to see the bump within the ASPs?

Well, yes.

So unfortunately, if you look at the Delphi thing, and again, this is 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 we know -- let's go back to early wins like Ford and stuff.

It took them 18 months to get designed into the car and get it rolled out.

So earliest you could see is probably 18 months to 24 months window.

But then once you see it, you'll see it pretty steady.

And that Delphi would be roughly the same, kind of around 18 months?

Yes, probably.

So probably 18 to 24 months window.

And our next question comes from Mike Walkley of Canaccord Genuity.

Just on the strong gross margin in the quarter but then 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 for the fiscal year?

Well -- yes, Steve could answer that.

So -- hey, Mike.

The -- 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.

And so if we look to the second half of the year, when we said we're looking at $0.70 -- 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.

And just a follow-up question.

Just on the Radar solution, which are 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?

So we have many use cases with customers like Caravan and Titanium.

They loved it.

It's a cloud-based solution, so most of the existing install out there in this world is not a cloud-based solution.

It's easy to install.

It's much more higher sampling rate because the battery last much longer.

So 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 on to a device that you're going to install it in 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 control everything on the cloud and look at all the environmental elements of the devices that are being tracked.

So I mean it's really functional features and price and the ability to be a cloud-based solution.

So I'm -- the feedback has been wonderful.

I met with Pana Pacific myself.

They, of course, is finishing up the trial.

So the fact that they allowed me to mention their name here is a good indicator.

And of course, Fleet Complete already signed with us.

And Mike, these all lead to productivity improvements.

That's the other key functionality.

It's that people are getting more productive services out of each and every unit that's being managed.

And our next question comes from Steven Li of Raymond James.

John, on the licensing business, the device software, any one building the contract minimums at this point?

No, not at this point, no.

But there's 1 close.

Okay, that's good.

And TCL -- both TCL and BB were -- they were already there in Q1, right?

Yes.

They -- one of them were in Q1.

There -- we got revenue from one of them in Q1, I believe.

So Q2, I got 2.

Okay, good.

And then the Delphi partnership, is there any professional services you expect to generate as you're getting designed into the car in the next 18 months?

Yes.

We -- yes, it'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 the technology.

We also have the ability to sell them developer seats.

Okay.

And is it going to be about the same magnitude as the professional services boost you had last year?

No, no.

That was a very special case.

You're talking about a 20 -- the infamous $27 million that has been haunting me.

But no, no, no.

So I want to make sure that -- no, not in that magnitude.

I mean, I wish it could be.

But I -- but you never know, right?

If there is a particular car manufacturer who wants to -- completely uses all our technology and chose Delphi as their Tier 1 partner and so forth and so forth, you never know.

I wouldn't say never, but that's not our plan.

Okay, that's great, John.

And then with Delphi, you expect it to boost the EPS revenues to start this year?

Delphi will probably take in excess of -- this is the Delphi question, really.

I think they -- normally, they probably would take 6 to 9 months to integrate our technology into their platform.

I don't know their platform release time.

So once they release it, and they start selling to car manufacturers, I know a couple of them are already very interested, then we come in.

And our next question comes from Todd Coupland of CIBC.

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.

Would we see that business be flat?

Or could that business actually come in some before the automotive start to kick in?

Well, I think, as I've said earlier, I think if we -- our partners, our Tier 1 partners, are starting to win deals or we have direct wins with the OEM, you will start seeing revenue coming in.

The current revenue of, literally, majority-wise is 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 -- 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, and then, of course, the bulk of the revenue was going to come in when they start shipping cars.

So and they -- these are all pipelined.

We should see uptick of QNX revenue overall because of that dynamics.

Okay.

And I guess the Delphi win, they got to go out and sell the platform, so we'll see how this goes.

Yes, correct.

But what about specific OEM wins, where you actually get visibility to revenue now?

What kind of pipeline is there?

And what should we expect over the next little while direct to OEM?

So as you know, our biggest direct to OEM in the last year has been Ford.

And as I've said also in 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.

So there are some very strong effort behind it, just takes a very long time.

Okay.

And 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 I don't -- no, I don't believe that.

But this is probably a Ford question.

But I have yet no indication and no information about that we're being affected.

I've been very -- I doubt very much that's the case because Ford and us are working extremely closely together.

I mean, I would have heard.

And our next question comes from Paul Treiber of RBC.

Just in regards to the outlook for the 10% to 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 pickup towards the second half of the year?

I think you will see -- so our concentration on enterprise has been focused on billings growth.

Our concentration -- our focus on QNX or BTS is focused on design wins.

Now so 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.

And so I believe, notwithstanding on the so-called acquisition deferral runoff that Steve has mentioned, our people think that they should be able to grow in Q4, in the enterprise side.

So there will be some modest growth there.

You should see licensing growth.

I'm expecting, for example, when Optiemus start shipping, I should see some more software -- device software license growth.

Okay, that's helpful.

Just I was hoping if you could bridge your comment about the $5 to $25 ASP per car with one of the slides in the Investor Day back in January, where I mentioned a 2 to 3x ARPU opportunity in automotive.

Right, 2 to 3x, at that time, we're talking about $1.50, so 2 to 3x $1.50 was $3 to $5.

I think as we released more modules, as the architecture have more redundancy, especially the Hypervisor who were able to account the other people's software module in it, we also have won, as you know, a number of chip manufacturers designing our Hypervisor into their chipset, like Qualcomm and NVIDIA.

So we're hoping that we will 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.

The -- 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 2 models.

There are 2 models there.

The other model is if the customer wants to bundle it, and 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.

And that the hardware costs will be included in the BTS line?

Yes.

Yes, it will be in the BTS line.

And our next question comes from Daniel Bartus of Bank of America Merrill Lynch.

So I wanted to ask again about the enterprise software.

And I thought you guys gave that non-GAAP number previously for better apples-to-apples comparison on growth.

So if the market is growing probably 10% to 15% year-over-year, I've just got to ask again, why are you guys growing more flattish there?

Go ahead.

Last quarter, we had double-digit growth on a GAAP basis, and this quarter, I believe, it was 8%.

And when you say the market's growing...

The market's not growing at that number, but it's okay.

We hear that the number is growing.

It's growing.

Yes, you have -- your competitive growing is a lot less smaller than that.

Our billings growth is 19%.

Okay.

Okay, great.

And then a clarification.

John, it sounded like you said maybe some of the IP revenue may be back-end loaded in 4Q this year.

Did I hear that correctly?

Or did you mean -- do you mean front-end loaded?

And I guess, where I'm getting at, too, is there any way to help us think about the real baseline for IP licensing revenue as we go into the second half?

I think I made a reference that you look at our first half number, and we're going to see a pretty much a, I hope, we're going to see a pretty much mirror image of that in the second half.

What I've been trying to gun for is -- now this don't -- I'm always worried about being -- giving you folks numbers because you're going to come back and keep asking me the same questions.

And I'm hoping that when we get to $100 million or so in IP revenue this year, so we, obviously, are on pace to do that.

So that's why I'm saying that the transaction that we're working on seems more reasonable to expect in Q4.

But you will never know, it may come in, in Q3.

So this is -- but so I prefer to treat it as a second half target.

And our next question comes from Michael Kim of Imperial Capital.

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 shifting -- show up in your POCs?

Yes, great question.

No, no.

Notice that I carefully and purposely put in the application of Radar-L.

Radar-M is ideal for the trailer -- the container.

The Radar-L is ideal for the chassis, the flatbed and the trailer part of it, and they are more complementary than replacement of each.

Got it.

And are you seeing upside opportunities -- upselling opportunities for Radar-L customers?

Or are you tending to see them separated?

Radar-L, at this point, is just brand new.

So I probably -- it's hard for me to answer that question, but logically, yes.

But I would answer the question in the other direction.

As you know, that Titanium is one of our really good customers.

They started with Radar-M, and they have it now for all their trailers.

And I think there are 1,200, 1,400 -- or, container, sorry.

And now they started with Radar-L for the chassis and the flatbed.

So that now, the entire fleet and all the assets are now managed by Radar, both L and M. So you can see that, I started in that case was a Radar-M win, and then we've done a good job there and good work there, and they see -- and then they expanded to cover other assets with the L.

And our next question comes from James Faucette of Morgan Stanley.

This is Meta Marshall for James.

Just a quick question on the Delphi deal from last week.

I understand 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?

Or 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.

And then just a small follow-up question on, do we have a sense of number of handsets that you're kind of the licensing partners that you've signed up with, the number of handsets that they have been selling or producing?

Yes, I have a sense because we send them royalty.

Yes, not only we have a sense, we know the -- we better know the exact number.

But since I'm no longer in the handset hardware business, so I don't think it's good for me to review my partner's business progress.

So that's probably inappropriate.

And our next question comes from Gabriela Borges of Goldman Sachs.

John, you touched a little bit on the competitive environment in UEM, specifically in 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?

And then any broader color on the competitive environment in general on the UEM side would be helpful.

Yes.

There are only a handful of competitors in the so-called UEM space that are established.

And 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 environments, 2 or 3 environments.

They are now all coming to us.

And given the fact that we've got -- the reason I took a while to go over in my script, Gartner, the award that we won, the accolade that we have, and 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 are extremely strong.

And it is being recognized by both customers as well as the analysts world -- the industry analyst world.

So I'm very keen on that, and I am positive about it.

That's helpful.

And 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 either direct to customers versus via resellers such as Fleet Complete, that would be really helpful.

Oh, I see.

I see.

Okay.

So the hardware has okay margin.

And when we go through our partners, we pretty much share that margin, which we both will be making a little bit money.

The monthly fee, if we go direct of course, it's a very -- place basically a high percentage of margin.

But the partner also sharing some, not to the same magnitude of the hardware side.

All right.

I'm running out of time, so I apologize for that.

So 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, actually, of you attended in the prior years.

Based on our strong interest this year, we're going to do 2 of them now.

And the first one is planned for London on October 24, and the second one is on November 14 in New York City.

And they promised to be a very good show and a lot of information is provide on cybersecurity stuff.

So we hope to see you there, and thank you very much for joining the call.

And we'll chat with you 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.