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BlackBerry Limited (NYSE:BB)
Q4 2018 Earnings Conference Call
March 28, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the BlackBerry Fiscal Fourth-Quarter and Fiscal Year 2018 Results Conference Call. My name is Carrie and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. We will be facilitating a brief question and answer session toward the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing *0. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today's call, Christopher Lee, Vice President of Finance. Please go ahead.

Christopher T. Lee -- Vice President of Finance

Thank you, Carrie. Welcome to the BlackBerry Fiscal Fourth-Quarter and Fiscal Year 2018 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 financial results. We will then open the call for a brief Q&A session. 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 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 a 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.

As is customary during the call, John and Steve will reference non-GAAP numbers in their summary of our quarterly and annual results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release and supplement published earlier today. Also, please note that free cash flow amounts that John and Steve will share for the fourth quarter and fiscal year 2018 are before considering the impact of costs related to restructuring and transition from the hardware business and the net impact of arbitration awards and damages. I will now turn the call over to John.

John S. Chen -- Executive Chair and Chief Executive Officer

Thank you, Chris. Good morning, everybody. As Chris stated earlier, I will reference non-GAAP numbers in my summary and our quarterly and annual results. I am very pleased with the execution in both the fiscal year as well as our fourth quarter. Fiscal year 2018 was a good year. We achieved 14% software and services revenue growth year over year on the strength of all our businesses. These results were at the higher end of our guidance of 10% to 15%. This was the first quarter where all three of our software businesses grew both year over year and quarter over quarter.

In the fourth quarter, year-over-year revenue growth from software and services was 13%, which comprised of the following: 12% came from the Enterprise software, 4% came from licensing and IT, 31% came from BTS. BTS performance was strong in the quarter, particularly for the BlackBerry QNX. We also achieved positive earnings per share and positive free cash flow for both the fourth quarter and the full fiscal year.

As a reminder, it was only 18 months ago that we announced our exit from handset manufacturing. You may recall the outlook at that time we provided -- at the beginning of the fiscal year 2018 -- where we forecast that BlackBerry would shift from a hardware to an enterprise software model while growing software and services revenue at or above the market, achieving profitability on a non-GAAP basis, and generating positive free cash flow. It was complicated and tough work, but we accomplished all those operations and financial objectives and metrics. Our strategy is working. Customer partners and industry analysts alike recognize our innovation as well as our market leadership. This gives us confidence that we can capitalize on the significant market opportunity available today as well as in the future.

Now, let me provide some highlights for the quarter. Total quarter revenue came in at $239 million. Total software and services revenue was $218 million, which was the third quarter of sequential growth and broke the revenue record that we set last quarter. Gross margin came in at 79%, which is another record high. Operating income was $19 million and operating margin was 8%. That's versus 4% a year ago. This is the eighth consecutive quarter of positive operating income. Earnings per share were $0.05. Total ending cash and investment were $2.4 billion.

Next, here are some of our significant highlights by businesses. I'll start with the Enterprise software business first. Revenue grew for the third consecutive quarter. Billings also grew double digits year over year for the third consecutive quarter against a very tough comp. If you guys remember, a year ago, we started this move. Our results were strong across industry verticals as well as products and geographies. We experienced continued strength of the U.S. and German governments as well as broadening our reach in the government sectors globally.

A notable deal in the sector in the past quarter was with the U.S. Air Force, who will be deploying our endpoint management solution. This solution is the only FedRAMP-authorized crisis communication product on the market, which will cover over 1 million personnel and their families in about 200 locations globally. In total, the government verticals delivered more than 40% of our Enterprise software business.

We also experienced good traction in the other industry verticals, where we have traditionally performed well, such as financial services. Recently, we are starting to see an uptick of wins and activities in the medical and healthcare sectors. In the quarter, we had approximately 3,500 Enterprise customer orders.

Last week, we announced a pretty exciting new product: BlackBerry Enterprise BRIDGE, which BlackBerry developed in collaboration with Microsoft. BRIDGE is the industry's first of its kind solution, allowing customers to seamlessly use native Microsoft applications from within the BlackBerry Dynamics container for both Android and iOS devices. Our extended partnership with Microsoft underscores the value we bring to Enterprise clients by providing the highest level of mobile productivity as well as mobile security.

Next, I will discuss our licensing business. Our business continued to grow year over year and perform better than we expected. IP licensing is the largest component within this business. As I noted last quarter, we see the revenue run rate for our IP license to be approximately $100 million on an annual basis. Our software license business showed progress as our Asia-based partners began to ship the BlackBerry KeyOne during the fiscal quarter.

We are also starting to expand our technology licensing business into the consumer electronics sector, broadening our outreach into Enterprise of Things. After the quarter ended, we announced a technology and brand licensing deal for BlackBerry Secure with Punkt Tronics AG, which is a leading Swiss consumer electronics company. Punkt will bring to market a range of highly secure consumer IoT products that embed BlackBerry cybersecurity technology.

Moving on to BlackBerry Technology Solutions business -- BTS -- which includes better software and assets tracking, growth was primarily driven by BlackBerry QNX -- I know a bunch of you were waiting on this; so were we, by the way -- supported by the design wins we previously communicated. Over the last 12 months, we have seen clear proof points of how BlackBerry embedded software is enabling automakers to deliver next-generation connected cars. We're winning because the auto ecosystem is now recognizing the increased importance of safe and reliable software use in connected and autonomous vehicles. Good proof point of this came from the fourth quarter when we announced partnership with Baidu and NVIDIA, who chose our safety-certified QNX operating system.

And, at the North American International Automotive Show, we announced Jarvis, a transformational cybersecurity product. Jarvis is a unique cloud-based binary code scanning solution that efficiently identifies vulnerabilities in software used by automakers. Jarvis is intended to represent a family of cybersecurity toolsets which BlackBerry could offer in the future and generate a recurring revenue stream. Jarvis is ideal for complex programming and code integration. Jarvis has the potential to expand into other verticals like healthcare and other consumer markets.

After the quarter end, we were chosen by Jaguar -- or Jag-yoo-ar, depending on which part of the continent you come from. I'll use "Jaguar," being from the West Coast. We were chosen by Jaguar Land Rover to develop technology for their next-generation vehicle. Jaguar Land Rover will license BlackBerry QNX and Certicom technology. BlackBerry QNX will assign a dedicated team of engineers to assist. This direct relationship with second auto OEM emphasizes the increased attention and the values that OEM places on ensuring that future vehicle platforms are built with safety-certified embedded software.

Moving on to our asset tracking business, BlackBerry Radar reported its first-ever $1 million revenue quarter. While the quarterly revenue is not yet significant, we did see contributions from partnerships with Fleet Complete and Pana-Pacific that we announced last quarter. We also signed several new deals for Radar in the quarter, including one with Canada Bread, the leading producer and distributor of packaged breads and bakery products in Canada. "Packaged bread" doesn't sound very appetizing. More importantly, the number of opportunities in our pipeline continues to grow, increasing by over 20% from last quarter. We're starting to see the returns on the go-to-market investment we discussed two quarters ago and we are now planning to enter markets beyond North America.

Our business highlights this past year have been positive and are positive indicators, and they are both positive indicators of our progress made toward achieving our vision to secure the Enterprise of Things. The demand for managing a secure and reliable connectivity has increased in line with the number of connected Enterprise endpoints being added.

According to the Gartner December 27th forecast -- I'm forced to tell you the report that it came from. Otherwise, I would be able to use the data. The report from Gartner was called "Internet of Things Endpoints and Associated Services Worldwide." The data was that IoT will grow at a 32% CAGR -- compounded annual growth -- from 2016 through 2021, reaching an install base of 25.1 billion units. We see our unified endpoint management and embedded software business as synergistic with this trend. We believe this vision translates into long-term growth and shareholder value creation. I will now turn the call over to Steve to provide more details on our performance.

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

Thank you, John. My comments on our financial performance for the fiscal quarter and year will be in non-GAAP terms unless specified otherwise. I'm also pleased with our performance in the fourth quarter and for fiscal year 2018. We delivered fourth-quarter non-GAAP total company revenue of $239 million and GAAP total company revenue of $233 million. I will break down revenue shortly.

Fourth-quarter total company gross margin was 79% compared to 77% last quarter and up from 65% a year ago. The gross margin improvement of 14 percentage points over a year ago is attributed to the increase in contribution from software and services to our overall revenue mix. For the full year, total company gross margin was 75%. Our non-GAAP gross margin includes software-deferred revenue acquired -- but not recognized -- of $6 million and excludes restructuring program charges of $3 million, stock comp expense of $1 million, and other expense of $1 million.

Operating expenses of $169 million were up 3% sequentially, driven by our planned investments in sales and marketing. Our non-GAAP operating expenses exclude $25 million in restructuring charges, $22 million in amortization of acquired intangibles, $12 million in stock comp expense, and a benefit of $34 million of fair-value adjustment related to the debentures.

Non-GAAP operating income was $19 million and non-GAAP net income was $25 million. Non-GAAP EPS was $0.05 in the fourth quarter. For the full year, we delivered non-GAAP EPS of $0.14 versus $0.06 in fiscal year 2017. Our adjusted EBITDA was $36 million this quarter excluding non-GAAP adjustments previously mentioned. This equates to adjusted EBITDA margin of 15%.

I will now provide a breakdown of our revenue in the quarter. Total software and services revenue was $218 million, representing 91% of total revenue and up from 65% compared to a year ago. For the full year, we delivered total software and services revenue of $782 million, an increase of 14% year over year. This was at the higher end of our financial guidance provided at the beginning of the fiscal year. Total handset device revenue was $2 million and total SAF revenue was $19 million. Handset device and SAF revenues continue to wind down as expected given our exit from the manufacturing of handset devices.

I will now provide a further breakdown of our software and services revenue in the quarter. Enterprise software accounted for 52%, BlackBerry Technology Solutions accounted for 21%, and licensing IP and other accounted for 27%. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details. Approximately 70% of software and services revenue excluding IP licensing and professional services was recurring in nature. This decrease from approximately 75% in our third fiscal quarter was due to strong nonrecurring government business in the fourth quarter.

Now moving on to our balance sheet and working capital performance, total cash, cash equivalents, and investments were approximately $2.4 billion. Our net cash position was approximately $1.7 billion at the end of the quarter. Aggregate contractual obligations, which include purchase obligations, operating lease obligations, interest payments, and other goods and services utilized in operations, was approximately $305 million at the end of the fourth quarter. This is down from $398 million a year ago.

Moving on to the cash flow statement, free cash flow generated in the fourth quarter was $31 million, which consisted of cash flows from operating activities of $35 million net of capital expenditures of $4 million. Free cash flow generated for fiscal year 2018 was $47 million, which consisted of cash flows from operating activities of $62 million net of capital expenditures of $15 million. As Chris mentioned at the start of the call, the free cash flow amounts I just stated are before considering the impact of costs related to restructuring and transition from the hardware business and the net impact of arbitration awards and damages.

Before I turn the call back to John to provide fiscal year 2019 outlook, let me briefly touch upon ASC 606, which is the new revenue recognition accounting standard. BlackBerry will adopt the new standard for the first quarter in fiscal year of 2019. As such, the fourth-quarter and fiscal year 218 results we shared today are all under the prior accounting standards. The new accounting standard is expected to have minimal impact on our business model.

However, the change to ASC 606 will likely alter the timing of our revenue as an increasing amount of revenue will shift to a subscription basis for our Enterprise business. The impact will not be as substantial as companies shifting to the subscription model for the first time. As a reminder, approximately 75% of our annual business is already recurring in nature. Overall, we see this as positive because ratable revenue streams tend to become more predictable and growth becomes more scalable. We expect to provide additional information under the new accounting standards when we report our first fiscal quarter of 2019. That concludes my comments. I'll now turn the call back to John.

John S. Chen -- Executive Chair and Chief Executive Officer

Thank you, Steve. Before I start, I want to make a correction on what Steve just mentioned. He said that fourth-quarter and fiscal year 218. This shop views long, but not a couple of thousand years long.

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

Okay.

John S. Chen -- Executive Chair and Chief Executive Officer

All right. I have a few things about our outlook in 2019 financials that I'll share with you. First, total company software and services billing we expect to grow into double digits. Second, the non-GAAP EPS will be positive even after the continued investment to capitalize on the growing market opportunities that we spoke about a little earlier. This obviously includes the continued investment into feet on the street, more R&D, and more marketing. Third, we'll deliver positive free cash flow before considering the impact of restructuring and any of the legal proceedings that Steve laid out earlier. So, I would now like to open the call. Carrie, could you please manage the process for us?

Questions and Answers:

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We request that you limit yourself to one question and one follow-up question. We'll take our first question from Trip Chowdhry with Global Equities Research.

Tripatinder Chowdhry -- Global Equities Research -- Managing Director

Hello. Thank you and congratulations for another fabulous quarter. I have a couple questions about the U.S. budget. The Department of Defense has more than $600 billion allocated for new equipment and a lot of technology. Two questions in this: 1). Does QNX have any play in glass cockpits of the fighter aircraft -- anything like that? 2). There's a strong push in the budget regarding cybersecurity and I was wondering if any of those are opening up as an opportunity for you yet.

John S. Chen -- Executive Chair and Chief Executive Officer

First of all, on the QNX side, I don't know the answer to the question of whether we got pushed into the defense equipment, and the reason is our partners from QNX are typically a defense equipment provider. We would not be surprised if they used QNX as some part of the embedded solution, but as far as we're concerned directly, no, I have not encountered that. However, on the cybersecurity question, yes -- as I pointed out, we saw our end-of-year government business sector quite strong, and I referenced the fact that we have 40% of our Enterprise business this past quarter coming from government sectors, mostly in the United States, Germany, and other countries' governments. It is being driven -- not only in the United States, but everywhere else -- by the high awareness and sensitivity to both cybersecurity and crisis management. In both cases, we do pretty well.

Tripatinder Chowdhry -- Global Equities Research -- Managing Director

Excellent. Very good. Congratulations again.

John S. Chen -- Executive Chair and Chief Executive Officer

Thank you, Trip.

Operator

We'll take our next question from Paul Steep with Scotia Capital.

Paul Steep -- Scotia Capital -- Analyst

Good morning. John, could you talk a little bit about how you're feeling about the software organization in terms of go-to-market? I know you invested and we've been investing in the sales field force. What are you thinking about over the next year in terms of the buildup of that field force? I've got one quick follow-up. Thanks.

John S. Chen -- Executive Chair and Chief Executive Officer

Okay. We just had our Enterprise sales group kickoff last week. Spirits are very high. Obviously, that coincides with the Microsoft BRIDGE announcement, so the sales guys feel very good about our prospect. We'll continue expanding it because two major geographies -- EMEA and North America -- year-over-year growth for both is quite impressive. The EMEA team won. We had a little friendly competition over the last year, but they both beat and exceeded their numbers. There was a little jabbing back and forth here, but functionally, it's quite strong. We're adding selectively but we're adding feet on the street. We're trying to make bigger hubs in Europe and going after some very focused business, especially related to the new customer we have in NATO and the customers we have in government, financials, and healthcare. So, we'll continue to expand it and see the results now.

Paul Steep -- Scotia Capital -- Analyst

The final question from me would be your view on the M&A environment. Since '18 ended up being a good year and a cleanup year, it looks like you're on track organically. Should we now be thinking as a group about more M&A coming into BlackBerry? Thanks.

John S. Chen -- Executive Chair and Chief Executive Officer

Yes. So, it continues to be a priority of a small group of people, and we make it very visible with the board and in discussing potentials. But, as I always point out, if the market valuation is still quite high, we want to be very cautious about how we spend money. But, we will. If I had to bet on this, I think something is going to happen in 2019. I'm not saying this because I know exactly that we have something right now, but we are certainly talking to enough people.

Paul Steep -- Scotia Capital -- Analyst

Thank you.

Operator

We'll take our next question from Gus Papageorgiou with Macquarie.

Gus Papageorgiou -- Macquarie Capital Partners -- Director

Thanks. Congratulations on a nice quarter. Just a couple questions. For Radar, you said you hit your first $1 million quarter. Is that in both hardware and the recurring service fee or just recurring service fee? Could you clarify that? And then, on the recurring nature of your business, you said 70% of the software is recurring. Could you give us a clearer picture by group -- VMM, the IP, BTS -- how much of each of those segments is recurring?

John S. Chen -- Executive Chair and Chief Executive Officer

I could give you a general idea of that. Let me answer the first question about the $1 million. The $1 million is actually a good thing. It's mostly hardware because the recurring revenues start coming every time they turn it online, so it's actually good news because you can see there's a tail and the tail will continue to grow. So, from a business perspective, it's the right thing. So, mostly hardware because of timing -- not enough time. There's a little bit of software in there, and it will grow. As far as the recurring -- the recurring are mostly in the Enterprise group. It's also the Enterprise group that has these perpetual ones because the customers -- like a lot of government agencies, they still want to make procurements based on perpetual because of the way they budget.

After 606 gest kicked in -- technically, it already got kicked in on March 1 -- it doesn't matter now whether they want perpetual or ratable because we're going to have to take it ratable. Anyway, the other ones are royalty-based. BTS and QNX are very strongly royalty-based. As you can see, we're making our Radar business recurring because of the monthly, and we're trying to make the IP business predictably recurring, and they are also trying to -- in the case of handsets, we get X dollars of phone handsets being delivered or sold. You could call it royalties, you could call it recurring, but it's certainly not on a perpetual basis. So, gradually, all our business is going to be ratable or recurring.

Gus Papageorgiou -- Macquarie Capital Partners -- Director

Okay, great. Thank you very much. Again, congrats on the quarter.

Operator

We'll go to our next question from Daniel Chan with TD Securities.

Daniel Chan -- TD Securities -- Analyst

Hi, guys. I was wondering if you could comment about some of the things you'll be working on with Jaguar. Should we expect something similar to the systems that you worked on with the Jaguar concept car that you launched last year?

John S. Chen -- Executive Chair and Chief Executive Officer

Say some more about that. I'm not quite sure...

Daniel Chan -- TD Securities -- Analyst

You guys had a Jaguar concept car last year -- I think you launched it at CES -- where you showed the instrument cluster, hypervisor, infotainment system. Are these some of the things you're going to be working on with Jaguar? What's the scope?

John S. Chen -- Executive Chair and Chief Executive Officer

Yes. It actually goes beyond that. That particular one -- we're using the Jaguar platform to demonstrate our product with the one you saw. Jaguar is now taking a lot of our technology and trying to design a new concept car, new-generation cars. I wouldn't be surprised if it comes up a little differently because engineers and designers are always coming up with something different, but if you think about the Jaguar concept car you saw, it was really for us to demonstrate virtual cockpit, for example. We used that platform to demonstrate it. I could easily use a BMW, which we have in our lab. We could use an MKZ, which we have in our lab. We could do that, but it doesn't mean that Jaguar will take that particular -- what you saw -- and turn it into a product. They might, but that now depends on -- it's all their car now, obviously.

Daniel Chan -- TD Securities -- Analyst

Okay, that's helpful. Any early takers of Jarvis?

John S. Chen -- Executive Chair and Chief Executive Officer

Yes, there are. I know there are six POCs going.

Daniel Chan -- TD Securities -- Analyst

That's great. And then, just one follow-on. This has been another quarter of a good license line-item beat. Can you give us some color around what was the source of that beat and whether we can expect that to be recurring or not?

John S. Chen -- Executive Chair and Chief Executive Officer

Well, we're hoping that -- so, the billings growth -- I like to focus on billings right now. The billings growth is strong. We've been strong in the last three quarters. We're not strong four quarters in a row. From our sales team, we do expect the billings to grow by double digits in FY '19. So, that really was the source. It wasn't something sudden, major, or a one-time thing. The base of the business seems to be much stronger.

Daniel Chan -- TD Securities -- Analyst

Okay, great. Thank you.

Operator

We'll take our next question from Paul Treiber with RBC Capital Markets.

Paul Treiber -- RBC Capital Markets -- Analyst

Thanks so much and good morning. With regard to the outlook for 2019, in the past -- as in last year -- you commented on the revenue growth outlook relative to the market. I'm just hoping you can provide an update on where you see that going.

John S. Chen -- Executive Chair and Chief Executive Officer

Steve already warned me that one of you would ask me that question. The reason why I like to focus on billings right now is because I want to see how the 605/606 will be sorted out. We feel good from a quantitative perspective. We know our teams are winning. We have goals that are better than what other people had stated publicly, although those are internal goals. So, I think the best thing to do is give us a quarter, let us sort out 605/606, and hopefully, by then, we can give you a little more color on that. But, you can take it to the fact that we expect to have billings growth year over year in double digits.

Paul Treiber -- RBC Capital Markets -- Analyst

Okay, that's helpful. More broadly, in regard to autonomous, there's been a lot of news on autonomous and you put up that blog post. Have you heard anything from partners or customers in terms of changing timelines in terms of expectations for production launches of autonomous or autonomous features? And then, related to that, how should we think about the timing of revenue for QNX for BlackBerry from autonomous?

John S. Chen -- Executive Chair and Chief Executive Officer

Good question. Let me first state that BlackBerry QNX makes money in two categories. One is connected cars and the other is autonomous cars. Everybody likes to focus on autonomous because it's a little more sexy in the last number of years, but we built most of our business on the connected cars. So, if you just look at our last quarter results, QNX actually grew 31% year over year. That comes not from the autonomous platform, but from the connected platform, and it comes from the connected platform beyond infotainment, which has always been our strategy, and we stated that strategy at the beginning of last year in San Ramon.

So, I'm really glad that team is executing to what we said, and here are the results. QNX actually looks to having reasonable quarters going forward also. So, to go back to the autonomous, there seems to be in the industry -- we always thought the most aggressive people were BMW and Honda that wanted to get an autonomous vehicle on the road by 2021 so you and I could buy it. Lately, I started hearing 2025, but it does not affect BlackBerry as much as long as I continue to win the design wins. I have development seeds, and hopefully, they will use Jarvis. We could have revenue for autonomous on a continual basis, but we definitely will get good revenue from the connected car. Does that help?

Paul Treiber -- RBC Capital Markets -- Analyst

Yeah, that's helpful. Thank you. I'll pass it on.

Operator

We'll take our next question from Todd Coupland with CIBC.

Todd Coupland -- CIBC Capital Markets -- Managing Director

Good morning. I had a question on self-driving as well. John, when you look across the competitive landscape, it seems to be quite fragmented for different offerings. I know your argument is security. If you look out a couple of years, how do you see the market landing? Do you think design wins are going to be concentrated in a few hands or will the market stay fragmented? Just give us your view on that.

John S. Chen -- Executive Chair and Chief Executive Officer

I think from the look of things, there will be a number of Tier 1... Today, I could name you about ten Tier 1s around the world. I'm sure there are a lot more than ten Tier 1s, but the ten Tier 1s are the names that we all talk about. Either they're my customers or OEM is their customers. There are about ten of them -- the Harmans and Bosches of the world. I suspect those Tier 1s will shake out to be a handful, maybe three or four, and become the industry standard platform that automotive companies will build on. So, our strategy -- as long as we are the component provider to those four or five, then BlackBerry will do pretty well. I don't see any reason why we wouldn't be. We've been talking to them. They don't look at us as competitors.

Now, the Tier 1s have to deal with a dividing line between that and Google's and Apple's aspirations, and whether they want the data layer, the presentation layer, the maps layer, or beyond that. Again, I'm a component provider. I seldom run into a Google car, and Waymo is definitely not my competitor. They could be my customer. Apple -- we don't run into each other. They could definitely have a secret project and also try to provide the components, but I think the Tier 1s are more comfortable dealing with me because I will never get into their space. I'm not going to get into the integration of technology or putting a cockpit together. Sorry to ramble on a little bit, but it's a very complicated market. It's one that has a lot of players in it, but I think we found our niche pretty well.

Todd Coupland -- CIBC Capital Markets -- Managing Director

That's helpful color. And then, my second question has to do with Enterprise software. You're calling out double-digit growth. It kind of feels like a flat market. Will it continue to be further penetration in government in 2019? Talk about the sources of growth in that business.

John S. Chen -- Executive Chair and Chief Executive Officer

Government financials still have a lot of growth in them. Obviously, we have to innovate to have new products, but as I said earlier, we started to field healthcare and the analytics sector, which is the gas and energy sector. It seems to have a lot of opportunities -- lots of activities. So, cybersecurity and protection of cybersecurity in the mobile infrastructure is important. So, I feel that's a source of growth. Another source of growth is geographic. Part of our planned investment is to add increased resources in Japan, Korea, and China, as well as India. In India, we actually have a new country manager. So, that is another potential source because it's a pretty green field out there.

And then, in addition to that, we readied ourselves with some new product upgrades to add on or upsell in crisis management, in secure file sharing, and in the BRIDGE app we talked about, which is -- people ask me why it's a big deal. It's a big deal because Microsoft and us got together because we could use our container, which is the most secure way to wrap their code, and everything would look native to the users, which is something people want today but can't get. They could get native, but they can't get the security of the containers, but now they can get both. And so, we believe that our customer base would like to upgrade to that. Anyway, we have product potential growth, vertical expansion growth, and geographical growth. Not everything will work perfectly -- I know that -- but if we work at it, you might see a good run there.

Operator

Once again, if you'd like to ask a question, it is *1 to signal. We'll take our next question from Vijay Bhagavath with Deutsche Bank.

Brian Yun -- Deutsche Bank -- Analyst

Hello. This is Brian Yun on for Vijay. Can you hear me?

John S. Chen -- Executive Chair and Chief Executive Officer

Yes.

Brian Yun -- Deutsche Bank -- Analyst

Thanks for taking the question. Can you help us understand gross margins in FY 2019 and the out years now? With the majority of your handset business out of the model, is it reasonable to assume gross margins in the 70s range, and what could impact that to the upside or downside?

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

If we look at our gross margins, there's a cost of goods sold which is relatively stable. As you look at the gross margins, if our revenues are in the $200 million range, it should fall in the low 70s, and at $225 million, it starts to move to mid, and it starts to ramp to the high 70s with the numbers you've seen this last quarter. So, part of that is some fixed costs and moving on. There'll be some downward pull on the margin related to professional services, which has high margins for the industry, but not necessarily overall. Naturally, Radar brings some hardware with it, but given the size of those numbers, it should not be substantial. So, net net, I would see the beginning of the year being in the low 70s moving up through the high 70s, but once we work through the year, I think it'll be in the high 70s going forward.

Brian Yun -- Deutsche Bank -- Analyst

Thank you.

Operator

We'll take our next question from Steven Li with Raymond James.

Steven Li -- Raymond James -- Senior Vice President

Hello. John, the QNX growth in Q4 -- the connected platform wins you referred to -- I can assume it's recurring, right? So, $46 million is your new quarterly base and you grow from there?

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

There is some consulting there. There's obviously consulting and one-time licenses, but John...?

John S. Chen -- Executive Chair and Chief Executive Officer

The base is higher. Capelli will try to pull you back down. But, he's right. There are one-time catchups in there. He's absolutely correct. There are some professional services and consulting, but we have a higher base -- we expect a higher base. So, don't crazy with the same number, but modify it a little bit.

Steven Li -- Raymond James -- Senior Vice President

Okay, perfect. And then, on Radar, to set our expectations, can it become 10% of BTS revenues this year, or is it more likely targeted in 2020?

John S. Chen -- Executive Chair and Chief Executive Officer

Can it be what?

Steven Li -- Raymond James -- Senior Vice President

10% of BTS.

John S. Chen -- Executive Chair and Chief Executive Officer

Let me see.

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

He's taking the $45 million and multiplying it by 4.

John S. Chen -- Executive Chair and Chief Executive Officer

So, $220 million...hmm. Probably not 10%, but close.

Steven Li -- Raymond James -- Senior Vice President

Okay, very helpful. Thank you.

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

Particularly as you move to the later quarters as it starts to ramp up with its own recurring model.

Operator

We'll take our next question from James Faucette with Morgan Stanley.

John S. Chen -- Executive Chair and Chief Executive Officer

Hi, James. How are you?

James Faucette -- Morgan Stanley -- Executive Director

I'm well. Thank you for your question. Just a follow-up question on the previous one. When you say the base is higher, was it higher than previously or higher than the revenue you hit this quarter?

John S. Chen -- Executive Chair and Chief Executive Officer

No, higher than previously. The last couple of years, there was a certain base on QNX, and we believe the base is now going to go higher. To follow up from the last question also, if I said -- and, it's true -- Steven pointed out there are some one-times in there. There is a one-time catchup, one royalty, and a little bit of consulting services in there. The consulting services could actually be continued -- not that particular account, maybe, but there will be consulting services revenue. And, catchup is probably harder to predict, so even if you moderate that a little bit, we do have a stronger base business now versus a year ago on QNX.

James Faucette -- Morgan Stanley -- Executive Director

Sure. I also want to be sensitive to the fact that there are some accounting-related changes, but how should we think about the timing and the ramp as we go through the year, particularly with new models beginning to launch and that kind of thing? I just want to make sure we're not messing up our modeling and assumption sets as we go through the year.

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

What I've described previously -- let's take one step back on the last question. So, we were running in the high $30 millions on a quarterly basis for a period of time, then the low 40s, and now we're kind of in the mid-40s. Steven Li's question really was if we looked at Q3, Q4 was a little higher than Q3, and while it was not significantly higher, it starts to move the new base into the $45 million range. I think what we've said all along was we expected in the second half to have another uptick, and part of that was from other design wins. Now, that uptick may not be $5 million, but the uptick you'll see in the second half from the first half is because of new cars coming out with design wins that we had won a couple years ago.

John S. Chen -- Executive Chair and Chief Executive Officer

James, are you talking about the company or are you talking about QNX?

James Faucette -- Morgan Stanley -- Executive Director

I'm talking about QNX. Thank you.

John S. Chen -- Executive Chair and Chief Executive Officer

Okay. That's absolutely correct.

James Faucette -- Morgan Stanley -- Executive Director

Yeah, you got it. My last question is it looked like restructuring charges were a little bit higher this quarter than the same quarter last year. Is that something that we should continue to expect as a matter of business, particularly in the fourth quarter, or is there something unique this year?

John S. Chen -- Executive Chair and Chief Executive Officer

No. It should start ramping down over time. These are mainly getting out of facilities globally when we don't manufacture handset, so it's really related to those. That's the biggest change of them all. We're not really doing "restructuring" anymore.

James Faucette -- Morgan Stanley -- Executive Director

That's great. Thank you so much.

Operator

It appears there are no further questions at this time. I'd now like to turn the call back over to Mr. John Chen for any additional or closing remarks.

John S. Chen -- Executive Chair and Chief Executive Officer

Thank you. Before closing the call, I'd like to mention our upcoming Analyst Summit on April 24th in the Bay Area. As you remember, a year ago, we talked about the strategy of QNX and how it moved forward. I'm very pleased with the fact that we were able to deliver the growth. We talked about the Enterprise strategy and had a customer come in to testify -- "testify" is the wrong word -- to support us and how important it is for cybersecurity that is embedded into our UEM. You heard that, and I hope that you are satisfied with our growth. We are very pleased with the growth we had. And so, this coming year, since we're going to do it once a year, we will discuss the synergies between the UEM group and the embedded software group, so don't miss that, and the roadmap to make our company even stronger in products and in competition. So, please don't miss that. I look forward to seeing you there. Have a good day.

Operator

This concludes today's call. Thank you for your participation. You may now disconnect.

Duration: 51 minutes

Call participants:

John S. Chen -- Executive Chair and Chief Executive Officer

Steven M. Capelli -- Chief Financial Officer and Chief Operating Officer

Christopher T. Lee -- Vice President of Finance

Tripatinder Chowdhry -- Global Equities Research -- Managing Director

Paul Steep -- Scotia Capital -- Analyst

Gus Papageorgiou -- Macquarie Capital Partners -- Director

Daniel Chan -- TD Securities -- Analyst

Paul Treiber -- RBC Capital Markets -- Analyst

Todd Coupland -- CIBC Capital Markets -- Managing Director

Brian Yun -- Deutsche Bank -- Analyst

Steven Li -- Raymond James -- Senior Vice President

James Faucette -- Morgan Stanley -- Executive Director

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