Phil Kurtz - Vice President, Deputy General Counsel and Assistant Corporate Secretary John Chen - Executive Chairman & CEO Steven Capelli - CFO

Gus Papageorgiou - Macquarie Research Daniel Chan - TD Securities Paul Steep - Scotiabank Global Banking and Markets Paul Treiber - RBC Capital Markets Steven Li - Raymond James Ltd. Thomas Walkley - Canaccord Genuity Kayla Brooks - Bank of America Merrill Lynch Arjun Bhatia - William Blair & Company J. Yun - Deutsche Bank AG James Faucette - Morgan Stanley

Good morning, and welcome to BlackBerry's Fiscal 2018 Third Quarter Conference Call. [Operator Instructions]. I will now turn the call over to Phil Kurtz, Vice President, Deputy General Counsel and Assistant Corporate Secretary for BlackBerry.

Thank you, operator. Welcome to BlackBerry's Fiscal 2018 Third Quarter Results Conference Call. With me on the call today are Executive Chairman and Chief Executive Officer, John Chen; and Chief Financial Officer and Chief Operating Officer, Steve Capelli. After I read our cautionary note regarding forward-looking statements, John will provide a business update and Steve will then review the third 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 Information section at blackberry.com. A replay will also be available on the blackberry.com website. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. We'll indicate forward-looking statements by using words such as expect, will, should, model, intend, believe and similar expressions. Forward-looking statements are based on estimates and assumptions made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements, including the risk factors that are discussed in the company's Annual Information Form, which is included in our annual report on Form 40-F and in our MD&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 Third Quarter Results Conference Call. As been customary, during the call, I will reference to non-GAAP numbers in my summary of our quarter 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 million, which represent 85% of our total company revenue and led to a record gross margin on the company level of 77%. We made progresses in expanding our channels across our key growth area. We have significant wins in regulated industry. These accomplishments strengthen our foundation for future growth. In our enterprise business, we continue to see strong momentum in Q3. The enterprise team execute very well and deliver double-digit billings growth year-over-year. In the BlackBerry technology solutions business, which including better software and assets tracking, we again delivered key design wins. We will obviously translate these with the design wins in future revenue. I would share additional details of our business accomplishment in the quarter later on the call. First, I will provide summary of our Q3 results. You have the press release in front of you. Total company revenue came in at $235 million. Total software and services revenue was a record $199 million, which represents 16% year-over-year growth and broke the revenue record that we set last quarter. Gross margin reached a record high of 77% and broke the record that we -- again, broke the record that we set last quarter of 76%. Operating income was $16 million and operating margin was 7% versus 4% a year ago. This is the seventh consecutive quarter of positive operating income. EPS came in at $0.03. Total ending cash was $2.5 billion. Now I will cover a few of our significant business accomplishments. In Q3, we maintained our track records of delivering good progress on our strategy across all our 4 synergistic growth area. Let me remind everybody what they are. One, 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 endpoint such as connected cars. The third one is in asset tracking, which includes Radar. And the fourth one is technology and IP licensing. In enterprise, we delivered double-digit billings growth, as I mentioned earlier, year-over-year for the second consecutive quarter as we guided. We had a great quarter in our regulated industry business, particularly in the government sector. We have been given permission to share the following wins with you. The United States Department of Defense, U.S. Department of Treasury, U.S. Department of Justice, U.S. House of Representatives, U.S. Senate, U.S. Capitol Police, U.S. Library of Congress, U.S. Agency 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 users. While I would 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 have 36 deals over 100k, of which 7 deals were larger than $400,000 and 7 deals were over $1 million. Our FedRAMP business continues to gain traction. In Q3, we added 3 new U.S. federal customer on this platform and 123,000 new license FedRAMP users, which is a 40% increase over the last quarter. We expect to receive additional security authorization from other U.S. federal agency in the quarters to come. In the quarter, we also received U.S. Department of Defense approval on our Purebred implementation. Purebred is the solution that DoD, the Department of Defense, sorry, uses to secure distribution software certificates. We have the only solution that support Purebred across all key platforms used by the DoD, including BlackBerry 10, Android, iOS and Windows 10 devices. In Q3 also, the German government approved SecuSUITE, our combined offering of secure voice and endpoint management software. The solution is tailored for Samsung KNOX and works on both mobile phones and tablets. We saw good progress in our enterprise channel. We signed 7 new enterprise channel partners in India in the quarter. With one of them, Tata Communications, we closed an endpoint management deal for one of the largest public sector banks in India. In Indonesia, we added 2 new enterprise channel partners, which also led to a subsequent UEM win in the quarter with Saka Energi, a national oil and gas company. And Telkomsel, a long-time partner of ours is the key technology provider to the government of Indonesia launches an enterprise plan, which include our UEM bundles. Additional wins to the enterprise customer include Deutsche Bank, Austria National Bank, Hydro One, askfirst, 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 would like to highlight two points about the win. In September, as some of you may recall that Deutsche Bank that came public stating that they're moving away from BlackBerry smartphones. Today's announcement that they have selected our endpoint management software is a validation that our strategy is working. Furthermore, part of the deal of the Deutsche Bank includes 5,000 seats in APAC region from a competitor, and they're switching from a competitor to BlackBerry. We continue to be recognized as, by the way, a leader by the industry analysts. For the third consecutive year, Forrester named BlackBerry a leader in the EMM Wave Report. Gartner also recognized BlackBerry in this quarter, again. This time is 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 a partnership with DENSO that we started development of an integrated human-machine interface platform. They named it HMI. Motor vehicles today have multiple HMI system. The integrated HMI platform developed by BlackBerry and DENSO will be the world's first, as I was told. The solution will appear in cost schedule for release after 2019. Intel is the collaborating partner in the development of this product. The third announcement, in India, we announced a partnership with Tata Elxsi to develop secured solution for industry such as automotive, industry, medical and network communication. The solution will embed QNX technologies. Additionally, in the quarter we added 10 new QNX design wins, resulting with a partnership with all the top 3 Tier 1 automotive suppliers namely Bosch, DENSO and Magna. Earlier in the quarter, we conduct the first public road test of the autonomous vehicle in Canada. The test was successful and was accomplished through our Autonomous Vehicle Innovation Center. Finally, in Japan, we signed Fujisoft and Hitachi Industry & Control System as also as embedded technology partners with QNX. Now a brief update on the assets 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 see 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 Fleet Complete has purchased Radar for their BigRoad Freight program. Fleet Complete was announced as a Radar resell in Q2, sorry, I was wrong. It was in Q2. BigRoad is a Fleet Complete company, with over 500,000 drivers and 30,000 fleets on their platform. Our new sales team continues to build Radar pipeline. We have almost 80 opportunities in our active pipeline, which represent a 33% increase in the last 90 days. Lastly, on our technology and IP licensing business. We signed a patent licensing agreement with Teletry. With that agreement, Teletry can sublicense a range of BlackBerry patents to the majority of the smartphone manufacturer worldwide. We chose Teletry because of their track record in licensing. We retain ownership of our entire patent portfolio, and we'll continue to operate on our licensing program. In our BlackBerry Secure licensing business, we signed 3 new channel partners in the quarter, one 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 the market in collaboration with EQUIIS, which we announced last quarter as a design house in Switzerland. We have approval to name 2 other 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 Emtek, BB Merah Putih, TCL, Optiemus and NTD just to name a few. According to IDC, in 2018, the largest spend in IoT will happen in the Asia region. And particularly, China will be leading the way spending over $200 billion next calendar year. In Q3, we build on our foundation in Asia and recorded wins in countries such as China, India, Indonesia as well as Japan. We plan to continue investing in Asia, adding headcount across the region and recruiting additional channel partners. With that, I would like to turn the call over to Steve for a detailed look at our financials.

Thank you, John. Today, we reported Q3 GAAP revenue of $226 million and non-GAAP revenue of $235 million. My comments on our financial performance for the quarter will be in non-GAAP terms unless specified otherwise. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today. I will begin with a consolidated review of our Q3 FY '18 income statement results. Our total revenue for the third quarter was $235 million. Our consolidated gross margin was 77% compared to 76% last quarter and up from 70% a year ago. Our non-GAAP gross margin includes software deferred revenue acquired, but not recognized of $9 million, and excludes restructuring program charges of $2 million and stock comp expense of $1 million. The gross margin improvement of 700 basis points over a year ago is attributed to the increase in contribution from software and services to our overall revenue mix. We are raising our consolidated gross margin forecast to approximately 74% for the full year. Operating expenses were $164 million, up from $161 million last quarter. We expect Q4 OpEx to modestly increase over Q3, largely based on plans for increased investments in sales and marketing. Our non-GAAP operating expenses exclude $23 million in amortization of acquired intangibles, $18 million in restructuring charges including patent abandonment, $11 million in stock comp expense, $1 million in business acquisition and integration charges, $77 million of fair value adjustment related to the debentures and a onetime charge of $132 million related to the Nokia arbitration outcome. Non-GAAP operating income was a positive $16 million, and non-GAAP net income was $16 million, which excludes $17 million in interest related to the Nokia arbitration outcome. Non-GAAP EPS was a positive $0.03. Our adjusted EBITDA was $35 million this quarter, excluding the non-GAAP adjustments previously mentioned. This equates to adjusted EBITDA margin of 15%. I will now provide a breakdown of our revenue. Total software and services revenue was $199 million, representing 85% of total revenue, and up from 57% compared to a year ago. Handset device revenue was $9 million, representing 4% of revenue. In Q4, our handset device revenue is expected to be between 0 and $3 million. Total SAF revenue for the third quarter was $27 million, representing 11% of revenue. SAF revenue was down 27% quarter-over-quarter. Based on our current model, we expect SAF to be approximately $15 million to $17 million next quarter. I will now provide a further breakdown of our software and services revenue. The largest contributor was enterprise software and services at 53%. BlackBerry Technology Solutions accounted for 22%, and 25% came from licensing IP and other. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details. Roughly 75% of software and services revenue, excluding IP licensing and professional services, was recurring in nature. Now moving to our balance sheet and working capital performance. Total cash, cash equivalents and investments was approximately $2.5 billion. Our net cash position was approximately $1.9 billion at the end of the quarter. Aggregate contractual obligations, which includes purchase obligations, operating lease obligations, interest payments and other goods and services utilized in operations was approximately $331 million at the end of Q3. This is down from $505 million a year ago. Moving to the cash flow statement. Use of free cash flow was $9 million, which consisted of net cash used in operating activities of $4 million and capital expenditures of $5 million. Free cash flow, before taking into account the impact of costs related to restructuring and transition from the hardware business, was a positive $12 million. We expect free cash flow to be positive for the full 2018 fiscal year before the impact of those costs and the impact of arbitration awards. We also expect positive adjusted EBITDA for the full 2018 fiscal year. That concludes my comments. I'll now turn the call back to John.

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 are anticipating total company revenue to be in the range of $920 million to $950 million versus the current consensus of $928 million. Given the strength of our first 3 quarters and our outlook for the full year, fiscal 2018, we expect to come into the mid- to high 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 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 growth, and we'll be continuing to increase investment in go-to-market. I would now like to open for Q&A, please. Operator?

[Operator Instructions]. And our first question comes from Gus Papageorgiou of Macquarie.

Just quickly on the Teletry deal that you signed for the IP. Can you just kind of tell us kind of impact you think is going to have on your IP licensing revenue? Is it going to be getting 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.

And I think Steve suggested that your total IP revenue you think will be roughly about $100 million a year for pure IP licensing and -- so and again very...

That's a good go-to model.

Okay. And you can't really -- again, in terms of consistency, it's not quite going to be $25 million a quarter but...

No. No, I wish that's consistent. But will be smoother than in the past.

And our next question comes from Daniel Chan of TD Securities.

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?

Okay. The first part is easy. DENSO has always been a infotainment partner or user of the QNX. And as you know that one of the DENSO biggest customer is Toyota. I think the company are 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 infotainments but in all different parts of communications in the car. And DENSO want to build that HMI or human-machine interface, which is really a visual data platform. So ASP obviously will go up. There's no question about that. That's the whole strategy behind it which has broadened our reach beyond infotainment.

Okay. And Steve, any initial views on impact from tax reductions in the U.S.?

You know there's obviously a lot of work going on. I think we're fortunate that, number one, we still have the NOLs and while we may not be able to recruit 100% immediately, we can recruit 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.

And our next question comes from Paul Steep of Scotia Capital.

John, could you talk a little bit about the services side of the business? In the past few quarters you've talked about the pipeline outpacing your capacity. Could you maybe talk about where you are today in terms of building that out? And maybe what the next steps are for that component, the cybersecurity strategy?

Yes. Good question. We still see the pipeline or the needs outpace. We've been doing as much as we possibly can by augmenting even with our own internal people from our IT organization. So although I do have 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&A to selectively expand capacity?

It's a very good question. We hope that's obviously one path that we looked at. 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, maybe the right word, to pick the right targets, so to speak. And another strategy will be do an investment in a nonregulated industry or at least nongovernment sector industry and then move our own people more on the regulated side.

And our next question comes from Paul Treiber of RBC Capital Markets.

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, going directly through the auto OEMs?

Yes. It's a good question. So it depends a little bit upon auto OEMs. There are auto OEMs now that would like to work directly with the technology provider. And they become their own Tier 1 as we had a -- as you know, that we have a reasonable size contract agreement signed with Ford a year ago. And Ford intended to augment the Tier 1 relationship also with their own developments. 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 answered your question that way. But now the good thing that if you notice -- I haven't drawn a map, but if you notice in the last couple, 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 covered in the last 3 quarters, most of every one of them. We have relationships with DENSO, Delphi, Bosch, Scion and all very fresh relationship on autonomous driving vehicle. We will continue to build more. But -- and then the chip manufacturers, we are 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 it as more of back-end loaded, may be flat until growth picks up maybe in 2019 or so?

Isn't those two a 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 win in 2020. So it's about the same. The question is the slope. I expect it, and I would prefer it to be a steady ramp.

Okay. And just lastly. I believe in the summer, good enterprise when end of life. Did you see any, sort of, upgrades from that or any churn? Could you just comment on that?

Yes. Well, some of the good products right now are alive because it's integrated into 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.

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

John, on the double-digit billings growth for Q3, is this low double digit or high double digit?

High double digit. But I can't guarantee you high double digit going forward though. What do you say about...

High double digit doesn't mean 99%.

Right. So high double digit doesn't mean 10 either, but it's not 99%. It's actually -- it's in the 20. Don't ask me this question, again, please.

No. And also on the licensing, so the device software, the contract with minimums with TCL, I mean, in India and Indonesia as well, do they expire at some point and revert to actual units shipped?

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 partner's numbers 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. Optiemus and everybody launch.

And so the minimums would go on until next year?

Yes. Minimum is an annual minimum.

And our next question comes from Mike Walkley of Canaccord.

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 are longer-term target for OpEx as a percent of revenue?

Well, right now, we see just small incremental movements in that. We have -- we've not looked at next -- we have not closed off our 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 will 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.

By the way, it's not a secret that we also are quite interested in M&A inorganic in addition to the organic growth. So we got to be careful not to just overload it on the organic expense side. And because if we do the inorganic, we have to -- we obviously need to do some work over there.

Okay. That's helpful. And just a follow-up question. Just on Radar, I think you talked about 80 customer trials now. Can you talk about maybe how much of those are from your direct sales force? And who you see when you're competing for those deals? What kind of competitors you're walking into? And then lastly, just maybe economics when you work through a VAR like Pana-Pacific versus going direct yourself to the customers and kind of economics of a deal?

Yes. Okay. So first of all, it's not 80 trials, it's the pipeline -- an active pipeline, about 80 deals. We could only -- in a capacity wise, we could probably only do a -- we've done 6 or 8 trials a quarter. That's usually what we do. And now -- but that's a good point you point, because the reason why we go to a Fleet Complete and 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 more resources into it. So that's the reason. And so the economics from a margin side are quite good for us going through Pana-Pacific and Fleet Complete and other value-added reseller. Obviously, the revenue line we have to share in some forms. Well, I'm actually more interested and focused on the ongoing monthly revenue than the initial bunch of revenues. So from there, we work our way kind of reasonable arrangement.

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

This is Kayla Brooks on for Dan Bartus. I was wondering if you could provide some color around the major IP contributors? And approximately how many smartphone vendors you've signed deals with already?

Smartphone vendors? Well, every quarter we have -- let's see, the major ones we have about 4 or 5. And then now those people are signing up like the design house that we announced, a win with EQUIIS and NTD. Now they are signing up distribution like telecom company around the world. So I just announced another 3. So I would say about 10 -- 10-ish, in 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 territory.

Yes, both.

And our next question comes from Anil Doradla of William Blair.

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 Five Eye country and especially, in the United States and Canada government and Germany -- sorry. I shouldn't forget that. And partly because -- or mostly because of our securities 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? 2 quarters ago. Less than 6 months' full operation in our security operations center. With the only security operations center outside of D.C. are certified by the United States government using our cloud technology. And these are not things that -- it's a long committed high resources process. But the business, I would tell you that the momentum of the business, we grew 40% quarter-to-quarter. So only on operation for two quarters. We have now over 400,000 licensees. The United States government employees are using our technology on a day-in, day-out basis and through that system. So we expect to continue to build momentum on that. There are next set of products that will get into that socks. 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 particularly 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 the momentum on us. It's -- we look at it, we're scratching our head is reasonably ridiculous because that 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 name. Some of the agency we signed up the project, we're unable to secure the permission to use their names publicly. So that's all I could describe to you at this point.

And our next question comes from Vijay Bhagavath of Deutsche Bank. J. Yun: This is Brian Yun on for Vijay. I just want to dig in on the enterprise software and BTS businesses. So I want to get your view on some of the major buckets in each of the businesses. For example, in enterprise software, is it sort of correct to think about major buckets or near-term drivers? Is UEM workspace is 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 over the next few years, it would be helpful?

Let's see. The size in relative -- I think in terms of our debt contribution to our business, Steve already laid out. So the majority of our business now is in the -- is over 6 -- about 60% -- a 50-some-percent, 60% in enterprise business, which you stated as UEM and workspace. And they are not single products. UEM, it represent all 5 levels of the suites which workspace is part of the collaborator suite. So they are all one platform interrelated. But you should enter into the platform at various level with us. And then, therefore, we could also upsell our existing customers with various different capabilities. So there we're seeing double-digit growth in billings. In some quarters, it actually translates to double-digit growth in revenue. Some call it, it doesn't. And I know Steve got a lot of question on that on your one-on-one. So -- and we feel the business will continue to expand. And we will continue to add new features and value to it. We're interested in AI, machine learning. We're interested in all the different cloud technologies, analytics of the world. So that's kind of where it's 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. The other -- so the fact of the BTS business, is that 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, but the ad design wins is important to get into there early on. We also are winning our relationship with the chip manufacturer. Like we talked about Qualcomm in this first -- in this quarter. And it's important that we expand our relationship because they will be a major supplier of chip to the auto sectors. And it's important that our designs and our capability is embedded in it. So I think over time, it's a steady ramp and it's going to be a big market. This auto factor 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 starts picking up, again, in the autonomous platform vehicle, then we are right there and then we'll benefit from those design wins over time. As in Radar, Radar is a area, because its numbers are so small and the needs are so huge out there, I mean, there are literally, tens and millions of target whether it's the trailer -- the containers or the trailer tractor or the flat pad or various components of that transportation system. We have both Radar-M and Radar-L. And think we could intercept the market really well and upgrade the market. This is the area that we're focusing a lot on, and I think for the near-term revenue growth for the next couple of years maybe when these partnership become mature as well as the design wins start -- the trials start converting into wins, we will see a reasonably -- reasonable revenue ramp. This is something that I'm focusing on that I think that's going to be a good -- will 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 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 -- I 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 cars being sold.

Yes.

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

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 the BTS revenue to ramp more slowly. I think it's 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 rates should look like? And I can appreciate like the time lag on new wins, et cetera. 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 the second question. And just quickly -- my second question is just quickly. Can you explain the $9 million associated in the non-GAAP revenue associated recognition on deferred revenue from acquired -- from acquisition? I just want to get a little more clarity there.

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 they're ramping slowly is really more of a near-term phenomena. And a 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 high ASP by getting into different components. So we spoke a lot about that whether we're getting to 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 DENSO or with Delphi. They're all in these areas that's beyond just the traditional infotainment systems. So this is why I feel bullish about the overall business on a longer term in terms of growth, but the shorter term, I'm focusing more on the design wins part of it. In addition to that, you know that we're always being 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, which we will talk a bit about that also. So those are -- that's -- you think about it in the mid-term and it was -- I mean, short term versus the mid-term versus longer term, but we do see growth.

And that I'll answer the second part of your question, which is really around the $9 million, the difference in the revenue between GAAP and non-GAAP. So each quarter, we've reported that difference. And that's really software-deferred revenue from acquisitions that was recognized. So it's deferred revenue. Most of the portion will be related to Good Technology, deferred revenue that they had not taken that we take for 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 seems like there was -- maybe my memory is poor, but it seems like there's a little more 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, it should be down to almost 0?

And in fact, this run rate will be running downward as we get into next year.

Okay. Okay. I think that we need to wrap up our Q&A. I already talked about that we will be doing -- giving a good demo at CES. I will 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 has that I'm going to make a product announcement. And you will have to come and see whether the rumor is true or not. So with that, I'd like to take the opportunity and 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.