BlackBerry Ltd

TSX:BB

Earnings Call Transcript 2019-Q2

[Operator]

Good morning, and welcome to the BlackBerry Fiscal Year 2019 Second Quarter Results Conference Call. My name is Lisa, and I'll be your conference moderator for today's call. [Operator Instructions] 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 Lee]

Thank you, Lisa. Welcome to the BlackBerry Fiscal Year 2019 Second 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 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 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.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.I will now turn the call over to John.

[John S. Chen, Executive Chairman & CEO]

Thank you, Chris. Good morning, everybody. And as Chris stated, I will reference non-GAAP number in my summary. In today's discussion, I will try to include more comments on BlackBerry compared to that in the software markets we played in. We are executing against our fiscal 2019 financial and operational plan. This quarter was a record high for total software and services billings. We see solid customer demand for our safety and security-focused products, resulting in double-digit year-over-year software and services billing growth for the second consecutive quarter. The business that showed the best year-over-year momentum in the quarter is BlackBerry Technology Solutions, which reports its highest ever quarterly revenue. Additionally, our enterprise software business experienced sequential quarterly growth. I will provide more color over these later.Let me provide some highlights for the quarter. Total revenue came in at $214 million, total software and services revenue was $197 million, gross margin was 78%, operating income was $17 million and operating margin was 8%, an increase of 2 percentage point from last quarter. EPS was $0.04. Total ending cash and investment came in at $2.4 billion.Next, here are some of the significant highlights by businesses. In our BlackBerry Technology Solutions business, which include embedded software and assets tracking, BTS revenue increased 29% year-over-year, driven primarily by BlackBerry QNX. This is the third consecutive quarter around 30% year-over-year revenue growth. Software development license, services and royalty revenue have all grown from a increase in the number of design wins. Revenue growth has been broad-based across various different type of applications. Our infotainment system business grew year-over-year, and our non-infotainment system -- business, such as ADAS, Advanced Driver Assistance Systems, and instrument cluster grew at a even faster rate year-over-year.A notable design win in the quarter was for a next generation digital cockpit for a multinational auto OEM through our Tier 1 partners, Yanfeng Visteon, it's probably give you a hint, it's a Chinese company. But compared to that of QNX, it's highest -- because of its highest safety certification, security capabilities and reliability. In addition to our design wins, the number of qualified worldwide channel partners for BlackBerry QNX increased to 48, which represent a 20% increase from the start of the fiscal year.In the quarter, we added new partners in China, Japan, South Korea and the United States. As you may recall, we stated the beginning of the fiscal year that one of the BlackBerry QNX business goals was to expand our sales channel, and the BTS team has done a good job in -- to achieve that objective.Moving on to BlackBerry Radar, our assets tracking business. We're making progress adding new customers, receiving repeat orders and growing our pipelines. Radar is differentiated from our competitors due to: number one, the high volume collection up to 100x more data than other solutions in the market; two, it's design for cloud-based cohesive business analytics, application and reporting in one integrated and scalable platform; and finally, it has long-lasting battery, modular architecture and ease of installation.Customer consistently cite the deposit return on investment they obtain when they utilize BlackBerry Radar. The 2 main reasons are improved asset utilizations and time savings as a result in higher drivers of the section. However, our revenue growth has been slower than expected, as we invested in partners and personnel to address the many opportunities we have. We believe the investment we have been and will be making will enable us to reach our goal of $100 million in accumulative -- in cumulative revenue over the next 3 years.Next, I would like to spend a few minutes on the licensing business. Our licensing business performed well in the quarter even against a pretty tough comparison to last year. I'd like to spend a couple minutes to explain our licensing business because it may not be as well understood. Our licensing business it's actually comprised of 2 major parts, one is in technology licensing and the other one is in IP licensing.On the technology side, we provide our secure embedded handset operating system and related security software to OEMs and BlackBerry Messenger for the consumer. On the IP side, we have over 37,000 patents with an average life of 10 years, which is rather young.On an annual run rate basis, our total licensing business currently is at least $200 million in revenue. Of this amount, about $60 million to $80 million currently relates to technology licensing and the remainder relates to IP licensing. Over half of our total licensing revenue is recurring, and our quarterly -- and quarterly run rate for total recurring license revenue is somewhere between $40 million to $45 million.Our licensing business is a key component of our total software and services revenue mix, and we anticipate our licensing business to continue to grow steadily over time.Now I would like to spend a minute on the enterprise software business. We do have sequential double-digit billings growth resulting in the total enterprise revenue increase 11% from Q1 of '19. If you recall from last quarter, more of our enterprise revenue is recognized on a ratable basis under the ASC 606. Concurring with this accounting change, we modify our sales model and increase our focus to sell subscription license rather than perpetual licenses.In the quarter, the enterprise business experienced sequential growth in 4 areas, the endpoint management, the crisis communication software, the secure communication software and professional services. The reason we win is because we offer an integrated and scalable mobile-first solution that helps secure our customer entire ecosystem and can be managed on a one single platform. These results reinforce our position as one of the market share leaders. IDC noted our #2 share position in the worldwide EMM market share 2017 reports published several months ago, that share position was unchanged from IDC 2016 report.BlackBerry was also recognized for its innovation as we were named as the leader in both the 2018 Gartner Unified Endpoint Management Magic Quadrant as well as the IDC MarketScape. We continue to build a stronger presence in various regulated industry segments. In financial services, we increased our market share through a combination of new logo wins, including a leading global investment bank headquartered in New York and Absa Bank, a South African financial services provider as well as expanding our product footprint with an existing customer, such as Lloyds Bank in U.K. and KfW in Germany.In government, our products are chosen by government agency from countries around the world. I'd like to highlight several wins in the quarter. The U.S. Department of Justice chose BlackBerry on-premise solution covering all their 150,000-plus employees on services provided. Operator, am I -- are we still okay?

[Operator]

Yes, still okay.

[John S. Chen, Executive Chairman & CEO]

Okay, thanks. Let me continue. The Department of Veteran Affairs chose BlackBerry solution under a multiyear FedRAMP cloud license. FedRAMP cloud is growing very fast, faster than on-prem solutions and we do offer both. With a win at the VA, the number of U.S. government agencies we have FedRAMP cloud authority to operate the ATO will increase -- has been increased to 6, and a number of BlackBerry FedRAMP cloud users doubled to about 1 million. One of our European government customers also bought more of the SecuVOICE solution expanding our share there with that nation. In Canada, we extended our expanded -- also expanded our footprint with repeat orders and helping the Canadian government monitoring the entire mobility environment and detect issues before the impact, a user base of about 100,000 employees. In the quarter, we also expanded our channel network by entering into a multiyear reseller agreement with AT&T. This agreement will offer BlackBerry suite of secure enterprise software and services to the AT&T business customer base in the United States. The agreement provides BlackBerry an opportunity to take advantage of this vast customer base.At our Analyst Day earlier this year, I announced our goal to utilize all our technology assets to create an end-to-end platform that will secure and manage the multitude of enterprise endpoints expecting in the future Enterprise of Things. That's a very long, long sentence. On September 12, we took a major step towards achieving that goal with our announcement of BlackBerry Spark, which is an Enterprise of Things platform designed and built to address 2 very significant and intersecting global needs, one being high connectivity of things and the other cybersecurity requirements.BlackBerry has the technology and DNA to play in a very substantial market influenced by these trends. According to industry analysts, IoT endpoints will grow from a mid-single digit billion installed base in 2017 to potentially a $75 billion installed base in 2025. Spending is estimated to be in trillions of dollars. A substantial portion of this installed base and related spend is expected to be in the enterprise sector.Our customers and partners will be able to build and deploy new product and solution with this BlackBerry data security and privacy as the foundation. We believe this platform will afford BlackBerry compelling growth opportunity in the years to come. We're developing a number of vertical solutions, which will become available in September 2019 calendar that is, obviously.I will now turn the call over to Steve to provide more details of our financial statement and our quarterly performance.

[Steven M. Capelli, CFO & COO]

Thank you, John. My comments on our financial performance for the fiscal quarter will be in non-GAAP terms, unless specified otherwise. We delivered second quarter non-GAAP total company revenue of $214 million and GAAP total company revenue of $210 million. I will break down the revenue shortly.Second quarter total company gross margin was 78%, up 2% from a year ago. Our non-GAAP gross margins include software deferred revenue acquired, but not recognized of $4 million and excludes stock compensation expense of $1 million and restructuring expense of $1 million. Operating expenses of $150 million were down 3% sequentially, as we continue to maintain financial discipline by optimizing our resources becoming more efficient and improving our bottom line.Our non-GAAP operating expenses exclude $22 million in amortization of acquired intangibles, $20 million in stock comp expense, $2 million of restructuring charges, a benefit of $2 million for acquisition and integration costs and a benefit of $70 million related to the fair value adjustment on the debentures.Non-GAAP operating income was $17 million and non-GAAP net income was $21 million. Non-GAAP EPS was $0.04 in the second quarter. Our adjusted EBITDA was $33 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 $197 million, representing 92% of total revenue and up from 79% compared to a year ago. Total SAF revenue was $12 million, and total handset device revenue was $5 million. SAF revenue continues to wind down as expected. Handset revenue resulted from the release of balance sheet credits, which had a small benefit to EPS. I will now provide a further breakdown of our software and services revenue in the quarter. Enterprise software accounted for 47%, BlackBerry Technology Solutions accounted for 25% and licensing IP and other accounted for 28%. Please refer to the supplemental table in the press release for the GAAP and non-GAAP details.I would now like to make several comments to provide further clarity. As reported, enterprise software revenue declined approximately 10% year-over-year. This is an improvement from the 18% year-over-year decline we reported last quarter. After implementing ASC 606 at the beginning of this fiscal year, I want to remind you that the revenue from the majority of our perpetual licenses is no longer recognized immediately. In general, revenue from perpetual licenses is now recognized ratably over a 4-year period.In FY '18, perpetual licenses accounted for between 20% and 30% of enterprise software revenue. If we were to account for the second quarter of last year in the same way as this fiscal quarter, then enterprise software revenue would have experienced low single-digit growth. While there are other factors contributing to this year-over-year comparison, it is clear that we have made progress in the enterprise software business as evidenced by 11% sequential revenue growth, double-digit billings growth and deferred revenue growth. We anticipate the headwind from this accounting and sales model changes to impact enterprise software revenue for the remainder of fiscal year 2019. We expect better year-over-year comparisons in fiscal 2020 as we allot the accounting and sales model changes. Recurring software and services revenue was approximately 81% in the quarter consistent with the definition we have previously used. As we mentioned last quarter, a primary benefit of recurring revenue is that it is more predictable. Therefore, if we include perpetual licenses that are now recognized ratably in the calculation, then recurring revenue would have been over 90% in both Q1 and Q2 of this year.Now moving on to our balance sheet and working capital performance. Total cash, cash equivalents and investments were $2.4 billion, which increased by $17 million from May 31, 2018. Our net cash position was $1.7 billion at the end of the quarter. Moving to the cash flow statement. Free cash flow, before considering the impact of restructuring and legal proceedings, was positive $37 million. Cash generated in operations was $31 million and capital expenditures were $4 million.That concludes my comments. I'll now turn the call back to John to provide our financial outlook.

[John S. Chen, Executive Chairman & CEO]

Thank you, Steve. We -- our financial outlook, before Q&A. First, we affirm our fiscal year 2019 financial outlook, which have 4 highlights: One, the total company software and services billings growth to be in double digits; two, the total software and services revenue annual growth between 8% to 10%; three, non-GAAP EPS to be positive; and finally, to deliver a positive free cash flow before considering the impact of restructure and legal proceedings. This, by the way, has been consistent from previous guidance. Our annual guidance is based on the following premises: Number one, EPS revenue to continue its double-digit growth throughout the year, although the growth may be closer to 20% rather than 30% due to a tougher comparison in the next 2 fiscal quarters; licensing revenue to perform better than we originally planned; enterprise billing and revenue to continue its sequential growth for the remainder of 2019. For the full year, we anticipate enterprise billing to be relatively flat year-over-year and enterprise revenue to be down high single-digit to low double-digit year-over-year because of the ASC 606 implementation. Similar to fiscal 2019, total software and services revenue to be weighted towards the -- for the back end, which is a lot more towards the full fiscal quarter. Recurring software and services revenue are expected to be in the low- to mid-80% range in fiscal 2019, as Steve just outlined it.So I will now open the call for Q&A. Lisa, will you please administrate that?

[Operator]

[Operator Instructions] Our first question comes from the line of Daniel Chan from TD Securities.

[Daniel Chan, Research Analyst]

So the enterprise revenue was better than expected and billings continues to be strong. Thanks for the color on the year-over-year comparisons, given the different accounting rules. But just to simplify things, were there any perpetual license deals in this quarter that helped those numbers come in so strong?

[John S. Chen, Executive Chairman & CEO]

Yes. We have perpetual license. Most of them are taking over -- ratably over 4 years, and very limited of them we're taking upfront because of the accounting rules that we are not allowed to take it over 4 years.

[Steven M. Capelli, CFO & COO]

Yes, we did have a very small number of perpetual license. I want to remind you that when we made this switch from ASC 606, then you may recall that we said we were going to basically not offer perpetual licenses, only in rare cases and those numbers were very small.

[Daniel Chan, Research Analyst]

Okay. Just to summarize, the strength or the outperformance in the ESS and the billings is primarily driven from subscription licenses.

[John S. Chen, Executive Chairman & CEO]

Yes. It is the same.

[Daniel Chan, Research Analyst]

Okay, great. And then switching gears to the IP licensing side, looks like Facebook just recently bought 5 of the 6 patents they're asserting against you. Is there any readthrough from the timing of these purchases?

[John S. Chen, Executive Chairman & CEO]

We advise not to make any comments on an ongoing legal proceeding. You going to have to make your own judgment on that.

[Operator]

Our next question comes from the line of Mike Walkley from Cannacord Genuity.

[Thomas Michael Walkley, MD & Senior Equity Analyst]

Question just on the Radar business. You shared that you expect it to reach $100 million cumulative revenue over the next 3 years. Can you just talk about how you're seeing your channel development build out? Also I believe 3 of your larger cargo tracking companies are for sale. So do you see opportunities in the competitive environment maybe to gain share with some customers potentially for sale? And then who do you see as your leading competitors?

[John S. Chen, Executive Chairman & CEO]

I missed your last part, Mike, your last question.

[Thomas Michael Walkley, MD & Senior Equity Analyst]

Just who do you see as your leading competitors in the market currently?

[John S. Chen, Executive Chairman & CEO]

Okay. I think, so first of all, in our $100 million cumulative for the next 3 years, we lay out an operational plan, that does not identify -- does not include acquisition of any sorts in this area. I wouldn't say we're not open to it, but it's not a high-priority item for us on acquisition in this area. We believe that the product strength is there. We know it works well. The customers start rolling it out. We have some very good names and big names that are our customer taking advantage of it and they are gradually buying more. Our win rates are quite high compared to the industry. I think we win about half of all the POC that we completed. So combination of that, we are quite encouraged to the competitiveness of our product. Again, it's because it was designed for the cloud, for the analytics and now we are trying to tie that into our Sparks platform, so that you could be managed by the UEM and the security side. So there are a lot of good things there. Don't need -- at this point, we don't believe we need any help inorganically.

[Thomas Michael Walkley, MD & Senior Equity Analyst]

Just a clarification, you're just investing to scale up your own sales channels and platforms, so that's where you're going to invest in that. And with competitors sequentially for sale, do you see any competitive dynamics that help put BlackBerry in your win rates?

[John S. Chen, Executive Chairman & CEO]

I don't know what area you're referring to. I mostly just focused on the reach, which are the channel, which -- that's just why we've been spending a lot of time and energy on building up channels and getting these big resellers to resell products. And again from a product-to-product specific, the fact that this is a modular design and the design that are -- again, your more modern architecture, I would say. And the hardware is not really an important part, it's relatively simple component, unlike a -- the competitors being more proprietary based. So we have some ability and advantage because of that, but I am not sure exactly which area you're referring to.

[Operator]

Our next question comes from the line of Paul Steep from Scotia Capital.

[Paul Steep, Analyst]

John, can you chat a little bit about with UME and the EMM market, how you're seeing your market share maybe progress over time? And what your view is sort of the health of the base? And then my quick follow-up, I guess, would be that to you or Steve, in terms of the sales force transition. What the early response has been? And how settled in people are with the new program?

[John S. Chen, Executive Chairman & CEO]

Okay. Let me take the first one then. We are very strong in -- from a UEM side of the equation, we are very strong in 2 verticals, the financial and the government verticals, and as we want to build more and more solutions that is built over cybersecurity and a platform on endpoint protection and management. So we have a lot of opportunity there, especially in the government sectors that we have been in a lot of discussion in a lot of different projects. We need to probably broaden ourself in channel reach to other verticals, that's also being regulated. There are opportunities in transportation that ties to the Radar and QNX. We think there is some encouraging opportunity there. There could be opportunity on the health care side of the equation. So we're not very big in the health care side, but it's something that a lot of the health care customers and prospects would like to work with us on. So I think we have expansion in vertical, and also a kind of moving up the sack on a UEM with our existing customer base.

[Steven M. Capelli, CFO & COO]

And I'll take the second part of your question, which is related to how is the sales force responding. And over the course of the year, there will be continued improvement on the response. First, individual sales person. It's not until they have the opportunity of really closing large deals as they see the emphasis on subscription model versus perpetual. So we'll be working through, but I think it's gone according to plan and we haven't had any surprises as a result.

[John S. Chen, Executive Chairman & CEO]

I think -- I'd like to add something to that. What I could gather, the sales force is not the problem because our compensation doesn't differentiate whether you are -- because we count people on billings. So how we take revenue from an accounting point of view, it doesn't really affect them individually. Maybe your sales management team is a little different, but I believe that changing the customer way of wanting to buy things, it may be a little bit more challenging than my sales team. Customers, especially in government, tend to buy it from a program -- on a program basis. So they tend to want to acquire in a perpetual way.

[Operator]

Our next question comes from the line of Gus Papageorgiou from Macquarie.

[Gus Papageorgiou, Associate Director for Technology Research]

Just want to focus on IP licensing business, can you -- couple questions there. Just can you give us an idea or a sense of why that business is doing better than you expected? And secondly, obviously, you've been flexing your legal muscles going after some big players. I'm just wondering what are the prospects there of negotiating licenses versus onetime payments and in the event that, I think, most companies resist licenses and rather just cut you a check? How do you encourage them to take on a license versus just cutting a onetime check?

[John S. Chen, Executive Chairman & CEO]

Do you want to take that?

[Steven M. Capelli, CFO & COO]

Well, yes, I can take that. Gus, well, the first case is that we think it's doing better, because, a, we have a better base of predictability. As we mentioned earlier, in the IP licensing as well as our other licensing within the category, we're running $40 million to $45 million. So 2 factors will come into play: one is what you mentioned is getting more of a recurring revenue from our discussions around IP licensing; but the other one is onetime events. So there will be some -- our expectation is that there will be some onetime events in the later half of this fiscal year. And respectful to the comment of how do you get people to have more of a recurring model rather than the onetime event, it just takes place in negotiations through the volume, and we had to be receptive to both models and we have been. Our preference naturally is more longer-term volume based.

[Gus Papageorgiou, Associate Director for Technology Research]

And I assume that longer term is the one the negotiations are spinnable versus confrontational?

[John S. Chen, Executive Chairman & CEO]

Okay. So Gus, let me kick -- use the word legal muscle. Compared to some of the people we go after, we really don't have that much of a muscle. But I believe that our duty is to make sure that our investor get a reasonable return on the investment made. And maintaining and creating an IP portfolio of our size and complexity and continue adding IP innovation into it, it's a pretty costly proposition. So because of that, we believe that we need to go after company that uses our intellectual property and also offer to company that maybe will take advantage of our intellectual property. So it comes in all sizes and shapes, it comes in all types of reactions, some of them are very receptive, some really want to do this, some are a little bit more withdrawn. We don't absolutely do not like to sue people. I think this is really a waste of time and waste of money in my personal opinion. But on the other hand, if people are just either ignoring us or not providing a reasonable resolution, then we have no other choice for our shareholders. We believe we wanted -- we need to do with the minimum. So therefore, we use the legal side very, very carefully and very limited, and we liked it. We prefer to have a business solution rather than a legal solution. So now as regarding to recurring versus a perpetual, this is one -- a perpetual, one-time meaning, sorry. This is one of those situation where people want to -- obviously, wants to pay only one time and then you just don't have to remember it anymore or deal with it anymore. And we obviously want a recurring, and the tougher one is part of, like Steve said, is part of the negotiation. And this is why sometimes, it is so unpredictable, whether it's this quarter or next quarter, and we won't just give up because of the quarterly boundary and that's how we think about the business.

[Operator]

Our next question comes from the line of Steven Fox from Cross Research.

[Steven Bryant Fox, Managing Director]

I was wondering just, first of all, if you could expand on one of the bullets in your slide where you talked about building out your Jarvis sales team a bit more in terms of [ update on innovation moving towards commercializing ]

[John S. Chen, Executive Chairman & CEO]

He is breaking out. You broke up a little, but you said about the Jarvis team?

[Steven Bryant Fox, Managing Director]

Yes. Why are you -- why is there a dedicated sales team being put in place? And can you give us some -- an update on how that innovation is moving towards commercializing?

[John S. Chen, Executive Chairman & CEO]

Yes. No, we don't really have a Jarvis sales team. We, currently, we are offering Jarvis to the OEM and Tier 1 in the auto sector. And we're using the existing QNX team. So we don't -- I don't think I have said that we're building a Jarvis sales team. Maybe in the future that might be that need, but currently that's not in our plan.

[Steven Bryant Fox, Managing Director]

And then how close do you think you are to sort of seeing meaningful commercialization around Jarvis?

[John S. Chen, Executive Chairman & CEO]

We have one customer already, and we have one that we believe will sign up very, very soon. These obviously -- when we talk about these customers, they are pretty big name customers that you will recognize. And this is really about getting more and more of the developer and the development process, the quality -- qualification process using it. As time progresses, we'll get more and more revenue out of it. And so we have a commercial license. We are building refinement next-generation upgrades and stuff to it. So it's more engineering than sales.

[Steven Bryant Fox, Managing Director]

Got it. And then just on the quarter you just reported, can you give us some more color on QNX's mix? How successful you've been and with the recent wins and revenues and moving out of infotainment?

[John S. Chen, Executive Chairman & CEO]

That's a good question. We -- actually as I said earlier, our infotainment business grew year-over-year, but our non-infotainment business grew even much faster. And they are -- we have some really strong winds in event driver sales as well instrumentation cluster. So -- and obviously, we have ongoing business in Over the Air and hypervisor. So things are looking, touch wood, things are looking pretty good and these design wins in the last couple of years finally are starting to yield some result for us.

[Operator]

Our next question comes from the line of Gabriela Borges from Goldman Sachs.

[Gabriela Borges, Equity Analyst]

I wanted to follow-up with Steve on earlier commentary on perpetual license mix being relatively small. If one has to reconcile that with the mix of recurring going down quarter-over-quarter to 81 from 86, could you just explain what the factors are driving that?

[Steven M. Capelli, CFO & COO]

Sure. The first thing is that the recurring is based on consistent methodology, which includes total software and services, less professional services, less IP licensing, so from a definition standpoint. But during the quarter, we could have a mix difference, where under 606 if we achieve all the performance obligations for our sale, then we have to take the revenue, which is proper, can we take the revenue in the immediate standpoint. So there are instances of that. One example could be our Secusmart software. Gabriela, you recall that what turns immediate revenue into more ratable revenue is a lot of cases -- services that we have to continue to perform because of our [ NOC ]. So it's really the mix between the type of software that we're selling quarter-to-quarter.

[Gabriela Borges, Equity Analyst]

That makes sense. And the follow-up is for John, if I may, on the QNX business. You talked a little bit about the longer-term refinement pipeline. I'd appreciate if you could also comment on your visibility into the second half of the year? How do you feel about that revenue ramp? And the comment on closer to 20% growth versus 30% growth. Just wanted to confirm that's just because of the comps and nothing has changed internally with respect to your earnings?

[John S. Chen, Executive Chairman & CEO]

Yes. It's just a matter of the magnitude of the comp -- the magnitude of the numbers, the base number that you comment. So the business of -- the good thing about the QNX business is quite predictable. And the best thing is it takes a while to make it predictable, because every time we win, we win a design win. You know you've got the initial batch of development suites, the licenses, these are not very big, it's probably 6 -- a lot of times, it's about 6 figures numbers, in the hundreds of thousands, but that's pretty much a onetime thing. There might be some ongoing professional services to take the engineers for the Tier 1 or the OEM to use our platform. And then once they start delivering the product, then we got a royalty check and it's rather steady in that sense. So it takes a while to get a steady stream of revenue. And what you're seeing or we're all seeing right now this year is the wins that we have, accumulated within the last few years starting to pay dividend and they're starting to either step up the developments in some cases or they're shipping the product, and then therefore we're getting the ongoing. So we don't have any fundamental issues with the business. My comment of more 20% and 30% is because of the fact that the numbers are bigger in the second half of last year.

[Operator]

Our next question comes from the line of Todd Coupland from CIBC.

[Todd Adair Coupland]

I also had a QNX question. So I guess, the 20% in the second half of the year, what does the -- beyond the next couple of quarters, what does the pipeline for QNX look like? You had a string of wins that have built up this base that you're now benefiting from, but what is visibility in a little bit longer-term pipeline for the next fiscal year?

[John S. Chen, Executive Chairman & CEO]

We should continue to see growth. I don't have the numbers or exactly what percentage it might be, but -- I mean, I am reasonably comfortable with double digit. So another question, is the double-digit, 1 or 2 or 3? And it's relatively pretty good. In general, I know you folks are -- I'm sorry, if I somehow get you out of concern about it's been growing at 29% and 30% in the first 2 quarters and now we're going to say we're growing let's say in the lower 20s. Again, it's certainly because of the numbers, the comps and we have no issue with the business. The visibility is quite good. The visibility is quite good, actually beyond. In fact, we have high hope that this business continues to grow in the next couple of years in a reasonable fashion. But because of the design win we have, a lot of the design wins, the big design wins we have, some of them are assigned to yield results. But some of them are -- whether we say NVIDIAs or the Baidu and all that, they are yet to come. And so they will add to the growth in the future years.

[Todd Adair Coupland]

Okay. And just on that point, it seems like you did call out ADAS, but it seems like it's still tilted towards infotainment and there's a lot of competition in the ADAS side of the business. Can you just give us an update on your views of your competitive position specifically for ADAS features?

[John S. Chen, Executive Chairman & CEO]

Yes. Every quarter, we win some ADAS design. So I don't get the feeling from many of our people that ADAS is "very competitive." I am sure that we don't win every deal, opportunity out there, but we win a number of the opportunities, and that don't seems to be a concern of that. Did you hear anything out there that I should be aware of?

[Todd Adair Coupland]

Are you asking me or your staff?

[John S. Chen, Executive Chairman & CEO]

I'm asking you. I haven't heard. You're the first person who asked me about whether our ADAS is competitive or because -- again, not that because I am expert in this, it's just that every quarter we win some ADAS, and we're in a number of conversation, I don't hear my sales force saying that the ADAS are overly competitive. Usually, it is a code word for that situation you're pointing out, but we know infotainment is competitive and infotainment pricing is competitive probably because of the [ current trends ], but we still win infotainment deal. The year-over-year revenue has still gone up. So ADAS actually has been growing pretty nicely. I didn't know -- I don't know why you -- did you hear anything that I should be aware of?

[Todd Adair Coupland]

No. Just there's a lot of people interested in that part of the vehicles disruption. So it's never been clear to me that your market share and footprint has been firmly established area. So it's more on that line than sort of specific wins with other players.

[John S. Chen, Executive Chairman & CEO]

I see. No, we win some really big ADAS. I mean, I just told you that we won a big account in the past quarter. I want to add one thing to this. It's a good question. Why we win? We win because of our -- every other solution we talk about, ADAS or clusters, OTA or safety, everything we win is because of the ISO safety certification that we have. And this is where Tier 1 wants to work with us and OEM wants to work with us. And the reason is pretty simple. It's a bigger question -- the bigger question is the trend of the OEMs and the Tier 1 are going to let high-performance component, the computer, HPC, or people call it ECM, they mean to say -- different people call it different names. The idea is there are a number of computers in a car, whether it's a connected car or an autonomous driven platform. So if you get less number -- more integrated and less number of HPCs, the safety of each of the HPC will become more important. ADAS is part of that. And so we win because of that. Currently, we are the only ISO certification standard, highest standard in safety, we're the only provider of that. So this is why everybody wants to work with us. I don't want to be overly bullish about we win every deal and stuff, but any safety-oriented component, we have a very high chance of winning.

[Operator]

Our final question for today will come from the line of Paul Treiber from RBC Capital Markets.

[Paul Treiber, Associate]

I just want to follow up on the questions on QNX and automotive. And just to clarify, has your enthusiasm for the automotive business changed at all from your prior comments? And then related to that, I think, in the past you've mentioned about increasing that business by 3 to 5x over the next 3 to 5 years. Is that still a reasonable outlook for that business?

[John S. Chen, Executive Chairman & CEO]

Yes. With the comments related to ARPU, and so the answer to your question, yes, we are still gunning for that, and we don't have any reasons to believe that we should back off on it. I feel quite encouraged with the auto business. Just last couple of weeks, I have spoken to many of the Tier 1 and OEM CEOs, I feel good about how they view what we offer, the collaboration that they would want, the deals that we are bidding, I don't see any slowdown or any reason to be concerned about auto business. In fact, we are probably going to step up more investment in QNX. We will add more engineers around the world and especially in Canada. We have a number of announcement that comes out that will come out, we just got to confirm our investment level, that we will increase our investment level in this area. And in addition, the OEM -- the operating system could be used in many different areas, including medical equipment and so forth, and we are looking at that too. So in addition to the auto, which we will grow and invest in heavily, there is also other verticals that could use it. And this is why I feel good about our Spark platform because we could secure more endpoints beyond just the cars.

[Paul Treiber, Associate]

Thanks for clarifying that. Just one last question from me and it's a problem you have, probably a big problem, is just on the cash and potential uses of cash. You talked about M&A and share buybacks to potentially offset the dilution. Do you have any updates on that, particularly in regards to M&A with valuations are where they are and then also maybe share buybacks?

[John S. Chen, Executive Chairman & CEO]

Yes. We are not really doing much buyback. This is really -- the reason is, when we do our calculation, we believe that cash for our shareholders return is best used on expanding the business and expanding the capability. I am a very cautious guy and you could use the word cheaper. I don't think I'm cheap, I am just value seekers. What I don't want to do is to buy very, very high multiple. There are a number of interesting opportunities out there. We have a team of people that they go around and they try to understand the landscape and the company and so forth. So acquisition has continued to be a high-priority item for us. We will be very careful not to be -- not to over pay. This market, as you will agree, is going higher, some time for a very good reasons that I could understand, but then I'm not you guys and it's not my day job, but because of that I am little cautious of jumping in and paying high multiples. So I guess, I'm doing a wait and see there a little bit. So we -- in the meantime, we have plenty of things to do ourselves organically. We are building our ISS technology. And next week, we're going to announce some new styles. So we are quite busy ourselves, but we will do some acquisition. Buyback is currently the back burner.Okay. I think that was it, right? Okay, thank you. So thank you. Before I close the call, I like to put a pitch for our marketing group that we have our Security Summit in New York next week. And I think it's next Thursday, Friday, as I don't remember correctly, but I hope that I could see some of you there or most of you there. Thank you for the time that you spent with us today, and have a good day.

[Steven M. Capelli, CFO & COO]

Thank you.

[Operator]

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