BlackBerry Limited (NYSE: BB) Q4 2022 earnings call dated Mar. 30, 2023
Corporate Participants:
Tim Foote — Investor Relations
Steve Rai — Chief Financial Officer
John Chen — Executive Chairman and Chief Executive Officer
Analysts:
Luke Junk — Baird — Analyst
Daniel Chan — TD Securities — Analyst
Mike Walkley — Canaccord Genuity — Analyst
Paul Treiber — RBC Capital Markets — Analyst
Todd Coupland — CIBC — Analyst
Presentation:
Operator
Good afternoon, and welcome to the BlackBerry Fourth Quarter and Full Fiscal-Year 2023 Results Conference call. My name is Jason and I will be your conference moderator for today’s call. During the presentation all participants will be in listen-only mode. We will be facilitating a brief question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.
I would now like to turn today’s call over to Tim Foote, Vice President of BlackBerry, Investor Relations. Please go ahead.
Tim Foote — Investor Relations
Thank you, Jason. Good afternoon, and welcome to BlackBerry’s fourth quarter and full fiscal-year 2023 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer, John Chen; and Chief Financial Officer, Steve Rai.
After I read our cautionary note regarding forward-looking statements, John will provide a business update and Steve will 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 US 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, unexpected 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. These factors include the risk factors that are discussed in the company’s annual filings and MD&A. You should not place undue reliance on the company’s forward-looking statements. Any forward-looking statements are made only as of today and the company has no intention and undertakes no obligation to update or revise any of them except as required by-law.
As is customary, during the call, John and Steve will reference non-GAAP numbers in a summary of our quarterly and full-year results. For a reconciliation between our GAAP and non GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGAR, SEDAR and blackberry.com websites.
And with that, I’ll turn the call over to John. Thanks Tim. Good afternoon, everybody, and thanks for joining the call today. Let me start my review today with the IoT business unit. This has been a very good year. Despite a challenging macroenvironment, BlackBerry IoT close out the year with strong 16% year-over-year revenue growth to $206 million. This is in line with the outlook range we provided this time last year. QNX has a record year for adding new royalty backlog from design wins. In fact backlog at the end of fiscal 2003 has grown to a new record high of $640 million, 6-4-0. Going forward, we will report this annually in Q4 rather than in Q1 to enable a more in-depth discussion during our Analyst Day, which is typically happen in May. The result is yet more tangible evidence that our strategy for QNX and IoT is really paying-off. The business is executing and capitalizing on the strong secular trends. The move towards high-performance safety-critical software running on more powerful chipsets is opening up significant opportunities for QNX. In addition to generating royalty backlog, the new design wins also drove near-record levels for pre-production revenue in Q4. That is revenue from development seat licenses as well as professional services. Furthermore, the IoT business unit deliver a strong 81% gross margin, 8-1. In the quarter, we secured a total of 36 new design wins with six in auto and 30 in GEM [Phonetic]. QNX is winning in multiple auto domains, in particular, we continued to perform well in the fast-growing ADAS and the digital cockpit’s domain. In addition to auto, in adjacent verticals we also see similar trends towards high-performance safety-critical software at the edge. Medical and industrials are amount a number of verticals, making this transition and QNX is capitalizing on it. Example this quarter, including a win with the Abbott Labs for the real-time medical analyzer and with Corindus Vascular for robotic stroke treatment application. There are also wins South Korean Doosan for nuclear power plant controllers and Honeywell for industrial conveyor control units. Some of you on the call today may have joined us either in-person or virtually at CES that happened in January. This was a very successful event for the team with significant interest from and meetings with leading OEMs and Tier 1s. At CES, we also co-host the first Software-Defined Vehicle Innovation awards with MotorTrend. This event brought together and celebrate the best and brightest in software development across the auto industry. This was a key marketing event for us. One of our major announcement at CES was that the QNX RTOS is now available in the cloud through the AWS marketplace. This both extends the reach of QNX to AWS developer community and eliminates the need for physical hardware. The initial response has been positive with auto and GEM developers assessing QNX from locations around the world. Let me now move to IVY. This quarter, we made a significant step forward with IVY, announcing the first design win. Following a successful POC trials, Dongfang, one of the China’s leading automakers selected a digital copy solution from Tier 1 supplier, PATEO. That includes BlackBerry IVY to run into [Indecipherable] range of electric vehicles. At CES, the team demonstrated IVY running on three commercially available platforms, including Bosch, PATEO, and the AWS Graviton. There was particularly strong interest in seeing IVY running live in the Jeep Grand Cherokee at the booth. Not only was IVY an important feature of the BlackBerry booth, it was also featured prominently at the AWS booth. Overall, CES generate significant interest from potential new proof-of-concept trials for IVY. Product development remains on track. As we announced at CES, we’re targeting this GA, the general availability, that is, the GA release in May. This is an important step in scaling the IVY go-to-market and POC efforts. The IVY ecosystem is also developing well. One of the IVY fund investment, electro vehicle, a smart battery management application was successfully included as part of our first IV design win. This quarter, we added a partner specializing in AI power driver monitoring technology aimed at fleet customers called iDrive. iDrive is a California-based company that plans to leverage IVY sensor data to improve driver safety and fleet efficiency. Let me now turn to outlook for this coming fiscal year. Headwinds for the auto production from the macroenvironment and supply chain challenges persist, although they appear to be easing a bit. Global light vehicle production, which is a key driver for our royalty revenue is expected to increase by around 4% in 2023 to around 85 million vehicles. Despite this improvement, production will remain well below the 95 million vehicle in 2018, that is prior to both the pandemic and the supply chain difficulties. Even with these industry-wide challenges, we expect strong growth of BlackBerry IoT this fiscal year and for revenue to be in the range of $240 million to $250 million. This translates to 17% or from 17% to 21% year-on year growth. And is in line with the outlook given at our Analyst Day last May. We see this growth coming from a combination of both ongoing momentum in new design wins as well as an uptick in royalties. Given the anticipated timing of design wins throughout the year, we see the growth largely weighted to the second half. We expect revenue for Q1 to be in the range of $50 million to $53 million. Turning now to the cybersecurity business unit. Revenue for the quarter was $88 million. Billing increased sequentially for the third consecutive quarter to $107 million. Gross margin was 59%. ARR was $298 million and the dollar-based net retention rate was 81%. This was a challenging quarter for closing large deals in the government space. We saw an elongation of sale cycle in this vertical with additional layers of approval and reviews. In particular, we saw a number of key deals slip into later quarters and we don’t consider those due loss, but rather delay. Given the product mix of these deals that included mostly perpetual licenses, the impact on this quarter’s in-quarter revenue was significant. However, strong billing growth from others non-government verticals including financial services, we saw in cyber billings to increase overall for the third consecutive quarter. You may recall that we recently outlined a strong opportunity that we see for our Cylance product in the mid-market space. From our SMB wins this year as well as feedback from customers, we learned that having simple but effective turnkey products is a key to scaling this business. Therefore, we productize according to the market needs and launched two new offerings under the headline More Security, Less Complexity. These new offerings are designed to be simple to use or simpler to use, more cost-effective and deliver a leading edge security. The first product is Cylance Endpoint that brings together and augments our suite of Cylance Endpoint products into one easy-to-use cost-effective solution. The product leverages our battle-hearted AI engine along with a major user experience overhaul. This includes addition of new one alert council that combines the XDR data or the XDR data source and machine-learning for simple, intuitive, prioritized alert. Cylance Endpoint is also available as a managed service through Cylance Card MDR. The second product is Cylance Edge, a product that connects user to their work effortlessly and securely right out of box. Customers can securely assess cloud-based SaaS application as well as gain visibility into how sensitive datas are stored and shared. The third development that I like to highlight is an exciting point of differentiation of BlackBerry versus our competitors. We integrated our AtHoc critical event management into guide managed service to provide unified communications with cyber crisis respond even if communication channels like emails are compromised. We will provide significantly more detail and demonstrate this new product at RSA in San Francisco next month. So, please stay-tuned. Turning now to UEM. We were delighted when Gartner announced that BlackBerry UEM was the only vendor voted in the top-right quadrant by customers for deployment, capabilities and support. Receiving this recognition based on review for some of the most security conscious customers in the world demonstrate level of performance that only BlackBerry can provide. In a market, we’re seeing a tailwind from the return to corporate issued devices, given concerns around security and lack of control. For customer making this transition, particularly in the financial services but in other verticals as well, BlackBerry is seen as a go to most secured solution in the market and we see this driving interest. One key comparative advantage for our product is the Microsoft Intune is unable to block specific apps that present a security or privacy risks across all devices where BlackBerry UEM can. On the product development front, we announced new feature for UEM this quarter. These include being the first in the industry to integrate with the Adobe Experience Manager, enabling secure document signing on mobile that meets the vigorous government security standards. Once again, we secured sales with leading customers in our core regulated vertical, especially government and financial services this quarter. Among those who were able to name are Bank of America, Deutsche Bank, TD Ameritrade, the Bank of Italy, the Swiss National Bank and the Bank of India. In government wins including US Air Force, Scottish government, the US Department of Treasury, the Netherlands government SSC-ICT, the Shared Service Center and the Australian Department of Health and Human Services. Turning now to the outlook for the cyber BU. For the coming fiscal year and allowing factors such as the macroeconomics backdrop, we expect revenue to be in the range of $425 million to $450 million. Correspondingly, we expect billings to be in a range of $430 million to $480 million, an increase of between 7% to 20% year-over-year. For Q1, we expect the revenue to increase sequentially and be in a range of $100 million to $110 million. As as was the case in the past quarter, we expect billings to continue to exceed revenue this fiscal year, which is strong leading indicator of a return to revenue growth. Furthermore, we expect ARR to return to sequential growth in the second half of this fiscal year. Moving now to licensing. Last week we were pleased to announce the patent sale agreement with key patent innovation for up to $900 million. BlackBerry will receive a combination of cash at closing and potential future royalties as a share of profits generated from the portfolio. KPI, whose team is based in Ireland, brings significant experience and expertise for maximizing the value of the patents and with it the overall deal value for BlackBerry. Importantly, the agreement with KPI has no financing condition and they secure all their funding from a leading US space investment firm with more than $30 billion in assets under management. Adding meaningfully to the overall deal value, BlackBerry will retain approximately 2,000 patents that would have been so under the previous transaction with Catapult, as well as BlackBerry keeping all existing revenue-generating contracts. Considering all these factors, especially assessed the level of certainty and ability to execute, we consider this due to have a higher overall value and that will be the best outcome for our shareholders. The transaction is subject to the standard regulatory approval and we expected it to close in Q2. Following the completion of the sale, we plan to leverage third-parties to opportunistically monetize the remaining patents. However, this is likely to take some time to ramp up. So, revenue excluding proceeds from the patent sale is expected to be approximately $5 million per quarter this fiscal year. In the quarter, we recognized $10 million of revenue related to past patent dues. These revenues is not as a result of net-new agreements and had no impact on the sale of our patent portfolio. Let me now turn the call over to Steve for more details on our financial.
Steve Rai — Chief Financial Officer
Thank you, John. As usual, my comments on our financial performance for the fourth quarter will be in non-GAAP terms unless otherwise noted. Total company revenue for the quarter was $151 million. IoT revenue was $53 million and cybersecurity revenue was $88 million. Software product revenue as a percentage of total revenue remained in the range of 85% to 90% and professional services made-up the balance. The percentage of software product revenue that was recurring increased to around 90% given the delay of some large mainly perpetual deals that John mentioned earlier. Licensing and other revenue was $10 million.
Total company gross margin was 67%. Operating expenses for the fourth quarter were $118 million. These non-GAAP operating expenses exclude $26 million fair value gain on the convertible debentures, $15 million in amortization of acquired intangibles, $9 million in stock-compensation expense and $7 million in restructuring expenses, as a result of steps taken in the quarter to streamline costs, including facilities and IT infrastructure. Non-GAAP operating expenses also exclude $476 million non-cash accounting impairment of goodwill and long-lived assets for the Spark reporting unit. This represents a non-cash charge of $0.82 to GAAP earnings per share.
In accordance with accounting rules, we were required to perform a goodwill impairment review by determining a fair-value for all our reporting units. The total of which is required to reconcile to our market capitalization. BlackBerry’s market capitalization at the test date had declined year-on-year, similar to the broad-based market decline over the same period. Further details will be disclosed in our Form 10-K.
The non-GAAP operating loss for the fourth quarter was $17 million and non-GAAP net loss was $13 million. The $0.02 non-GAAP basic loss per share for the quarter beat expectations. Adjusted EBITDA, excluding the non-GAAP adjustments previously mentioned was negative $12 million. Total cash, cash equivalents and investments were $487 million as at February 28, 2023 and free cash usage in the quarter reduced to $9 million. In this coming fiscal year, we will be focused on driving towards both profitable growth and being cash flow positive. In our IoT business, we will continue to invest given the relatively high-level of visibility we have for growth. On the cyber side, we have identified a clear plan to deliver expansion of both gross margin and operating margin. The outlook for the coming year is for a significantly lower EPS loss and cash flow usage.
That concludes my comments and I’ll turn it back to John.
John Chen — Executive Chairman & Chief Executive Officer
Thank you, Steve. Before we open the line for Q&A, let me recap on the key message from the quarter. This was a strong quarter and a record year for QNX royalty backlog for BlackBerry IoT. We enter FY ’24 with significant design momentum. And although, we still face macroeconomics and supply chain headwind, we expect revenue growth of approximately 20% this coming fiscal year. The cyber business unit was impacted this quarter by elongated sales cycle in government, causing a number of large deals to slip to later quarters. However, the non-government business drove sequential billing growth for the third consecutive quarter.
We expect to deliver revenue growth of approximately 5% and billings growth of approximately 15% this fiscal year and to return to sequential ARR growth for the cybersecurity business unit in the second half. And finally, we entered into a fully-funded agreement to sell the non-core patent portfolio for up to $900 million, while also retaining more patents and retaining existing revenue contracts.
That concludes my remarks. Jason, can you please open the line for Q&A.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Luke Junk from Baird. Please go head.
Luke Junk — Baird — Analyst
Good afternoon, thank you for taking the questions. To start, hoping you could expand please on where you were able to take cost out of the P&L already this quarter, so opex down sequentially? And looking-forward, what do you envision with respect to your plan to deliver gross margin and operating margin expansion, especially in cybersecurity? Maybe if you could just speak to some specific actions and areas of the cost stack that you’re focused on. Thank you.
John Chen — Executive Chairman & Chief Executive Officer
Okay. We have been focusing on improving gross margin and operating margin for the cyber business for quite some time and in this past quarter, we just see that some of the results. Shifting costs to a lower-cost base area, hiring people in those areas, more so than hiring people in the more expensive barrier is certainly one way of doing that. Particularly, mostly in the replacement of attrition. And a little bit more disciplined on pricing and discounting. It’s also put in place. So by and large, we were able to do that and we — and our plan costs to continue to do that for the balance of the year or the new fiscal year, so and versus the difference between that and oh, and then we also reduce G&A costs where we can and we’ve done a lot. Facility cost is another aspects of it. So many, many different areas. It’s a very concerted effort. From an IoT perspective, this is the unit that has been exempt from focusing on that. They were just focusing on growth and they have — I think they still going to hire 200-some people this year or if they could right now assuming we have the candidates. So, those are the kind of how we allocate capital and spending.
Luke Junk — Baird — Analyst
Thank you for that, John. Very helpful. And then from my follow-up, hoping to take a step-back and just talk about the bigger picture in IoT and in auto specifically, just love to get your perspective on the focus of that market going-forward from here. One of the clearest takeaway at CES this year, walking the floor was the prevalence of just increase in centralized architectures, which also has very clear applications for auto software and ultimately software-defined vehicles. Can you just speak to where you’re finding your auto customers right now in terms of their readiness for a software forward future in auto? And do you think there is an increasing sense of urgency, especially OEMs trying to figure out software? Thank you.
John Chen — Executive Chairman & Chief Executive Officer
Yeah, very much so. I think you said everything. It’s consistent with what we have been learning from customers and analysts also. So, you talk to each of the OEM, they all have a strong investment in SDG, I mean, the software-defined vehicle and approach and they need foundational software and they needed from a safety perspective. A number of years back, there were a couple of largely attempted to do the foundational software themselves and they have all decided to join force with us and work with us. Again, these are the very big name. And we are of course welcome the partnership. So, if you look at our win rate and I mean, I don’t want to jinx it, but it’s extremely, extremely high.
In fact I think our team wins 90% of the deals out there, something like that. And then in addition to that, our products related to hypervisors, ADAS, related to cockpit all very popular wins out there and usage out there. And then I also wanted to say beyond auto, we’re also seeing a lot of strong interest. As I said in my script, all the chip technology company is pushing multi-core and multi-processing, parallel processing and all that good stuff. And so — and they needed safety and they needed container, our container, they need a hypervisor. And so we seem to have a very good strong track record in the eyes of the customer. So, I’m pretty comfortable that we’re going to see continued growth at least for the for the immediate future.
Luke Junk — Baird — Analyst
Thank you for that. I’ll go ahead and leave it there.
John Chen — Executive Chairman & Chief Executive Officer
Okay, thank you.
Operator
Our next question comes from Daniel Chan from TD Securities. Please go ahead.
Daniel Chan — TD Securities — Analyst
Hi, thank you. When you’re monetizing the remaining patents, are you looking to license them out or are you looking to sell them? If you’re looking to license them, should we expect it to be faster and more broadly licensed considering they’re standard essential patents?
John Chen — Executive Chairman & Chief Executive Officer
Yeah, it’s licensing. So, the remaining patent is now in two groups, once the transaction is done. One group is the the embedded and the cybersecurity patent and the other group is the mobile patent, mobile phones and related networking patents. So, the latter we will monetize through third-party. And probably, in some cases, we’ll trim the patent down a little bit by selling some. And the former, we haven’t really decided the overall plan yet. And of course, we will always be interested in licensing to people, but it’s probably not going to be a active process.
Daniel Chan — TD Securities — Analyst
Okay, thanks for that, John. And then John around this time five years ago, the Board extended your arrangement to lead the company into November this year. Just wondering whether you can share with us what your plans are as we get closer to November?
John Chen — Executive Chairman & Chief Executive Officer
No, no. We started the conversation between me and the Board. So stay-tuned on that. So, we don’t have anything to report at this point.
Daniel Chan — TD Securities — Analyst
Okay, thank you.
Operator
Our next question comes from Mike Walkley from Canaccord. Please go ahead.
John Chen — Executive Chairman & Chief Executive Officer
Hi, Mike.
Mike Walkley — Canaccord Genuity — Analyst
Hey, John. Just wanted to dig a little bit more into the cybersecurity business. It’s great to hear on the SMB side, your simplified approach managed responses, we hear that more and more. Can you talk about competition within that business and with this new approach, how quickly you get that implemented and has that given you confidence in ARR returning to growth second-half of the year?
John Chen — Executive Chairman & Chief Executive Officer
Good quick question. So, there’s a lot of competition. I think you folks hear different cybersecurity company, all kind of done in for the SMB. The good things about the SMB market is a, big and b, they lack the security, the ability to have their own security team normally. So, they are very receptive to our MDR solution, our Guard solution and then we’re now streamlining these turnkey product set just to make sure that they don’t need to have a certain level of, of capability or knowledge before they could put it in use. Either they use it themselves or they use us to help them to use it. But it is a very popular.
I think you’re going to hear it from — you already heard it, I’m sure from most of all the key players. The good news is the market is big, it’s growing. I think the — there is a lot of SMB, for the first time, take this investment quite seriously, because they have to given what the trend of the cybersecurity world looks like and the ransomware looks like. And there is a lot of white space for replacement of prior technology, the first-generation. So, with that two combination, the market is big, but the competition is fierce too. I would agree with that.
Mike Walkley — Canaccord Genuity — Analyst
That’s helpful. And I think simplified approach is what the SMB is really looking for. Just as my follow-up question, just digging a little more on the cybersecurity. IS ARR stable to growing outside the UEM business and maybe you can update us on UEM kind of where that is on churning off some customers that you wanted to kind of into place as you focus more on the large government type deals?
John Chen — Executive Chairman & Chief Executive Officer
Yeah, UEM has in the last couple of quarters, ARR in the business is stable, which is a good sign, gave us some level of comfort.
Mike Walkley — Canaccord Genuity — Analyst
Okay, thank you.
John Chen — Executive Chairman & Chief Executive Officer
Sure.
Operator
Our next question comes from Paul Treiber from RBC Capital Markets. Please go ahead.
John Chen — Executive Chairman & Chief Executive Officer
Hey, Paul.
Paul Treiber — RBC Capital Markets — Analyst
Thanks and good afternoon. Just since we’re on the topic of cybersecurity, could you speak to the traction that you’ve seen or cross-selling cyber into UEM base, which is promptly large enterprise?
John Chen — Executive Chairman & Chief Executive Officer
Yeah. Let’s see. We see some, but not dominant because ours — UES, our Cylance base is typically SMB and our UEM base are typically very large name. But on the other hand, there has been some upsell. I wouldn’t — so I would say that it’s promising, but not very high volume at this point. But however, this is something that we will go do and mostly, you’re going to have to go after the Macfee and the Symantec and Trend Micro base.
Paul Treiber — RBC Capital Markets — Analyst
And what fundamentally has been the challenge? Is it product? Is it pricing? Is it sales? Can you help us better understand that?
John Chen — Executive Chairman & Chief Executive Officer
Yeah, three years ago, it was the product. We lack — our EDR was not as up to snuff as everybody else. We have better EPP. But the world wants both. So, we slipped from that. Now, it’s really more on, on what leverage we could create. The product is now get back in competitive mode. We have some differentiated things that based on our AI model and the Cylance OAI model and the lightweight and the offline mode and all that. So, we have some really strong reasons for people to — customer to take a look at it and use and — but we need better traction in the indirect sales side. Our direct sales people and after the last year, year-plus building and so forth, we feel comfortable that the productivity is there. There now we need to get some leverage. We need more deals. And the only way that we could do that is to engage the third-party better and that’s the number one focus in this year’s plan.
Paul Treiber — RBC Capital Markets — Analyst
That’s helpful. And then just one more if I may, just in regards to IoT, you mentioned very strong win rates, could you speak to the pricing and how ARPUs are tracking? And obviously OEMs are hard to sell into. Do you still see opportunities to expand ARPU like when you were targeting a couple years ago, I think there was a number like $25 or so if you out there. Is that still an achievable long-term target?
John Chen — Executive Chairman & Chief Executive Officer
Absolutely. In fact. I would say to you today I hope I don’t have to eat these words myself. I would say to you today and I’ll explain why too. Today. I have more confidence in the $25 per car ARPU than when I first come out with that as a goal, a number of years back. And the reason is now we are basically being accepted as a foundational software for major auto company, like — names that I could review, like Volvo and BMWs and Volkswagen and these are all public, public information, so they are all standardized on BlackBerry QNX.
So, when you have a foundational software and earlier the conversation regarding software-defined vehicle, allow us to upsell modules. And that’s — so that brings the different type of economics, because in the past, we’re talking about one copy and charge it one-time, now we’re talking about building on, on that platform and up-selling. So, I think our people are very excited about it and rightfully so. I see the same trend. Customers are more receptive in buying more adapted modules from and then plugged on to the platform and which of course we have safety certification across everything we sell.
Paul Treiber — RBC Capital Markets — Analyst
Thanks for taking the questions.
Operator
Our next question comes from Todd Coupland from CIBC. Please go ahead.
John Chen — Executive Chairman & Chief Executive Officer
Hi, Todd.
Todd Coupland — CIBC — Analyst
Hi, John, good evening. I want to follow-up on that last ARPU question. Maybe I’ll ask it a little differently. When you look at the IoT backlog that you quote, what would be the software per vehicle embedded in that in the wins that you have already? Is it high single-digits? Is it double-digits in that $25 range. Can you give us any color on? Actually…
John Chen — Executive Chairman & Chief Executive Officer
So, there are a handful of wins that could push us in that area of $20, $25, but most of them I would say in high single-digit and low double-digit.
Todd Coupland — CIBC — Analyst
Okay. And I mean obviously if you’re $10 or higher, that’s quite a bit higher than just the infotainment OS where you’ve come from. When would you see production volume of those double-digit type ARPU starting to kick-in?
John Chen — Executive Chairman & Chief Executive Officer
Well, part of our reason that we feel — I don’t know whether I should say comfortable, but we feel okay with our 17% to 20% growth this year is because we expect to see some of this, the so-called start of production, the SOP. And so I believe FY ’25-’26, we have a higher growth number. If you remember, we set a five-year compounded growth rate of 20%. So, we came in the first year at 16%. This year is going be 17% to 20% and so that imply the math sets that we have to be over 20%, the next couple of years.
Todd Coupland — CIBC — Analyst
So, what you’re saying with that, those handful of like higher ARPU deals later in the year, that that’s what’s your — that’s what gets you to that. I don’t know exactly where the number lands in Q2, but let’s call it $65 million to $75 million a quarter implied for Q3 and Q4 if you take your guide at face value?
John Chen — Executive Chairman & Chief Executive Officer
Yes, that’s correct. We map in the production, the only wrinkle is something that we will not be within our control, the wrinkle will be macroeconomics issue of high interest rate that slow down production, a deteriorations of supply chain, our chip availability that will slow down production. That will put a wrinkle on us, the second half. But given everything we know today and all the conversation with the OEMs, the team feel very comfortable or quite comfortable. I have to — I’m usually very optimistic. So, you have to factor that in. They feel comfortable of delivering the — what my outlook that I provided earlier.
Todd Coupland — CIBC — Analyst
And baked into the outlook is that 85 million production volume for the market and then you’ll get that higher ARPU, even if you don’t get back to those 2018 levels. Is that…
John Chen — Executive Chairman & Chief Executive Officer
That’s the math that we base it on. Yes, correct.
Todd Coupland — CIBC — Analyst
And my second question has to do with the outstanding debentures. What’s your thinking on a target balance sheet with the extra cash and the patent sale, would you look to repay that debt or would you look to roll it over? Just talk about your…
John Chen — Executive Chairman & Chief Executive Officer
Our plan is to repay the debt.
Todd Coupland — CIBC — Analyst
Repay all of it?
John Chen — Executive Chairman & Chief Executive Officer
Yeah. Now if somebody wants to roll a small portion over, we will be open to it, but that’s not — that’s not our current planning.
Todd Coupland — CIBC — Analyst
Yeah, yeah. Okay, that’s great, thanks a lot.
John Chen — Executive Chairman & Chief Executive Officer
Sure.
Operator
I would like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry for closing remarks.
John Chen — Executive Chairman & Chief Executive Officer
Thank you. Thank you, Jason. Before we end the call today, I’d like to remind you of our few events coming up. Between April 24 and 27, the BlackBerry will be at RSA Conference and we’ll be demonstrating the new product offerings that I mentioned earlier. So, if you happen to be there, please do drop by. On May 17, we will be hosting a virtual Analyst Day in which management will provide a comprehensive overview of our long-term strategy, product innovation, market opportunities, go-to-market approach and of course, the financial outlook.
Then on May 23, we’ll be hosting a retail investor focus live Q&A in which John Giamatteo, the President of BlackBerry Cybersecurity and Mattias Eriksson, President of BlackBerry IoT will answer your questions. So please, feel free to send them to Tim in advance at Investor Relations, one word, pro at blackberry.com, or you can submit them through the portal on that date. We provide more detail on all these events in the coming weeks. So, please stay-tuned. As always, I thank everyone of you for joining today’s call and I hope to speak to you soon.
Operator
[Operator Closing Remarks]