Q4 2023 BlackBerry Ltd Earnings Call
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Speaker 2: 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 toward the end of the conference.
Speaker 2: Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Tim Foot, Vice President of Blackberry Investor Relations. Please go ahead. Tim Foot, Vice President of Blackberry Investor Relations
Speaker 3: Thank you Jason. Good afternoon and welcome to Blackberry's fourth quarter and full fiscal year 2023 earnings conference call.
Speaker 3: With me on the call today are Executive Chair and Chief Executive Officer John Chen and Chief Financial Officer Steve Wray.
Speaker 3: After I read our cautionary note regarding forward-looking statements, John will provide a business update and Steve will review the financial results.
Speaker 3: We will then open the call for a brief Q&A session.
Speaker 3: This call is available to the general public via call-in numbers and via webcast in the investor information section at blackberry.com.
Speaker 3: A replay will also be available on the blackberry.com website.
Speaker 3: Some of the statements we will be making today constitute forward-looking statements and are made pursuant to the safe harbour provisions of applicable US and Canadian securities laws.
Speaker 3: We'll indicate forward-looking statements by using words such as expect, will, should, intend, believe and similar expressions.
Speaker 3: 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.
Speaker 3: Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements.
Speaker 3: These factors include the risk factors that are discussed in the company's annual filings and MD&A.
Speaker 3: You should not place undue reliance on the company's forward-looking statements.
Speaker 3: 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.
Speaker 3: As is customary during the call, John and Steve will reference non-GAAP numbers in their summary of our quarterly and full year results.
Speaker 3: 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, CEDA and blackberry.com websites.
Speaker 3: And with that, I'll turn the call over to John .
Speaker 4: Thanks, Tim. Good afternoon, everybody, and thanks for joining the call today.
Speaker 4: Let me start my review today with the IoT Business Unit.
Speaker 4: This has been a very good year. Despite a challenging macro environment, Blackberry IoT closed out the year with strong 16% year-over-year revenue growth to $206 million.
Speaker 4: This is in line with the outlook range we provided this time last year.
Speaker 4: QNX has a record year for adding new royalty backlog from design wins. In fact, the backlog at the end of fiscal 23 has grown to a new record high of $640,640,000. Going forward, we will report this annually in Q4.
Speaker 4: The business is executing and capitalizing on strong secular trends.
Speaker 4: running on more powerful chipsets is opening up significant opportunities for QNX.
Speaker 4: 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.
Speaker 4: Furthermore, the IoT Business Unit delivers a strong 81% growth margin, 8-1.
Speaker 4: In a quarter, we secure a total of 36 new design wins, with 6 in Auto and 30 in Jam.
Speaker 4: QNX is winning in multiple auto domains. In particular, we continue to perform well in the fast growing ADARs and the digital cockpit domain.
Speaker 4: trends towards high performance safety critical software at the edge.
Speaker 4: Medical and industrials are amount a number of verticals making this transition and QNX is capitalizing on it.
Speaker 4: Example this quarter including a win with the Ava Labs for the real-time medical analyzer and with Corinda's Resculer for robotic stroke treatment application.
Speaker 4: There are also wins to South Korean Doosan for nuclear power plant controllers and Honeywell for industrial conveyor control units.
Speaker 4: Some of you on a call today may have joined us either in person or virtually at CES that happened in January .
Speaker 4: 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 Motor Trend.
Speaker 4: This event brought together and celebrated the best and brightest in software development across the auto industry. This was a key marketing event for us.
Speaker 4: One of our major announcements at CES was that the QNX RTOS is now available in the cloud through the AWS Marketplace.
Speaker 4: This both extends the reach of QNX to AWS developer community and eliminates the need for physical hardware.
Speaker 4: The initial response has been positive with auto and Jam developers assessing QNX from locations around the world.
Speaker 4: Let me now move to Ivy.
Speaker 4: This quarter we made a significant step forward with Ivy, announcing the first design win.
Speaker 4: Following his successful POC trials, Gong Fang, one of China's leading automakers, selected a digital carpet solution from Tier 1 supplier Pateo.
Speaker 4: That includes Blackberry IV to run in the voyeur range of electric vehicles.
Speaker 4: At CES, the team demonstrate I'd be running on three commercially available platforms.
Speaker 4: including Bosch, Patteo, and the AWS Greboton.
Speaker 4: There was particularly strong interest in seeing IB running live in the Jeep Grand Cherokee at the booth.
Speaker 4: Not only was Ivy an important feature of the Blackberry booth, it was also featured prominently at the AWS booth.
Speaker 4: Overall, CES generates significant interest for potential new proof of concept trials for IV.
Speaker 4: 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 IV go-to-market and POC efforts. The IV ecosystem is also
Speaker 4: One of the IV funds investments, Electra Vehicle, a smart battery management application, was successfully included as part of our first IV design win.
Speaker 4: This quarter we added a partner specializing in AI-powered driver monitoring technology aimed at fleet customers called iDrive.
Speaker 4: iDrive is a California-based company that plans to leverage IV sensor data to improve driver safety and free efficiency.
Speaker 4: Let me now turn to Outlook for this coming fiscal year.
Speaker 4: Headwinds for the auto production from the macro environment and supply chain challenges persist. A library of the work of Peter
Speaker 4: although they appear to be easing a bit.
Speaker 4: Robo 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.
Speaker 4: 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.
Speaker 4: Even with these industry-wide challenges, we expect strong growth for BlackBerry IoT this fiscal year, and for revenue to be in the range of $240 to $250 million.
Speaker 4: This translates to 17% or from 17 to 21% year on year growth.
Speaker 4: and it's in line with the outlook given at our analyst's day last May.
Speaker 4: We see this growth coming from a combination of both ongoing momentum in new design wins, as well as an uptick in royalties.
Speaker 4: Given the anticipated timing of design wins throughout the year, we see the growth largely weighted to the second half.
Speaker 4: We expect revenue for Q1 to be in the range of $50 to $53 million.
Speaker 4: Turning now to the cybersecurity business units. Revenue for the quarter was $88 million. Billing increased sequentially for the third consecutive quarter to $107 million. This margin was 59%.
Speaker 4: ARR was $298 million and the dollar-based net retention rate was 81%.
Speaker 4: This was a challenging quarter for closing large deals in the government space. We saw an elongation of sales cycle in this vertical with additional layers of approval and reviews. We saw an elongation of sales cycle in this vertical with additional layers of approval and reviews.
Speaker 4: In particular, we saw a number of key deals slip into later quarters, and we don't consider those deal laws a rather delay.
Speaker 4: Given the product mix of these deals that included mostly perpetual licenses, the impact on this quarter's in-quarter revenue was significant.
Speaker 4: 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 building growth from others has been further Dinosaur Sale.
Speaker 4: Non-government verticals, including financial services, result in cyber buildings increase overall for the third consecutive quarter.
Speaker 4: You may recall that we recently outlined a strong opportunity that we see for our silenced products in the mid-market space.
Speaker 4: From our SMB wins this year as well as feedback from customers, we learned that having simple but effective turnkey products is the key to scaling this business.
Speaker 4: Therefore, we productize according to the market needs and launch two new offerings under the headline, more security, less complexity.
Speaker 4: These new offerings are designed to be simple to use, or simpler to use, more cost effective, and deliver leading Azure security.
Speaker 4: effective solution.
Speaker 4: The product leverages our battle-hardened AI engine, along with the major user experience overhaul.
Speaker 4: This includes an addition of the new One Alert Council that combines the XDR data of the XDR data source and machine learning for simple, intuitive, prioritized alerts. Sign-In's endpoint is also available as a managed service through Sign-In's Guard MDR.
Speaker 4: The second product is SIDENCE Edge, a product that connects users to their work effortlessly and securely right out of the box. Customers can securely assess cloud-based SaaS applications as well as gain visibility into how sensitive data are stored and shared. The third development that I'd like to highlight is an exciting point of differentiation.
Speaker 4: this new product at RSA in San Francisco next month. So please stay tuned.
Speaker 4: 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.
Speaker 4: Receiving this recognition based on review for some of the most security conscious customers in the world demonstrate a level of performance that only BlackBerry can provide.
Speaker 4: In the market we're seeing a tailwind from the return to corporate issue 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, Bakberry is seen as the go-to most secure solution in the market and we see this driving interest.
Speaker 4: One key competitive advantage for our product is the Microsoft Intune is unable to block specific apps that present a security or privacy risk across all devices where BlackBerry UEM can.
Speaker 4: On the product development front, we announced new features for UEM this quarter. This includes 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.
Speaker 4: Once again, we secure sales with leading customers in our core regulated vertical, especially government and financial services this quarter.
Speaker 4: Among those who are able to name are Bank of America, Deutsche Bank, TD Ameritrade, the Bank of Italy, the Swiss National Bank, and the Bank of India.
Speaker 4: In government, WINS including US Air Force, Scottish Government, the US Department of Treasury, the Netherlands Government SSC ICT, the Shared Service Centre and the Australian Department of Health and Human Services.
Speaker 4: Turning now to the outlook for the cyber BU.
Speaker 4: For the coming fiscal year and allowing factors such as the macroeconomic backdrop, we expect revenue to be in the range of $425 to $450 million.
Speaker 4: Correspondingly, we expect buildings to be in the range of $430 to $480 million, an increase of between 7 to 20 percent year over year.
Speaker 4: For Q1, we expect the revenue to increase sequentially and be in the range of $100 to $110 million.
Speaker 4: fiscal year, which is a strong leading indicator of a return to revenue growth. Furthermore, we expect AR to return to sequential growth in the second half of this fiscal year.
Speaker 4: Moving now to licensing. Last week we were pleased to announce the patent sale agreement with Key Patent Innovation.
Speaker 4: for up to $900 million. Blackberry will receive a combination of cash, a closing, and potential future royalties as a share of profits generated from the portfolio.
Speaker 4: KBI, whose team is based in Ireland.
Speaker 4: 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 have secured all their fundings from a leading U.S.-based investment firm with more than $30 billion in assets under management.
Speaker 4: Adding meaningfully to the overall deal value, Blackberry will retain approximately 2,000 patents that would have been sold under the previous transaction with Catapult, as well as Blackberry keeping all existing revenue generating contracts.
Speaker 4: Considering all these factors, especially the assessed level of certainty and ability to execute, we consider this deal to have a higher overall value and that will be the best outcome for our shareholder.
Speaker 4: The transaction is subject to the standard regulatory approval and we expected it to close in Q2.
Speaker 4: Following the completion of the sale, we plan to leverage third parties to opportunistically monetize the remaining patterns. However, this is likely to take some time to ramp up. So revenue, excluding proceeds, and the
Speaker 4: from the patent sale is expected to be approximately 5 million per quarter this fiscal year.
Speaker 4: In the quarter, we recognize 10 million of revenue related to past patent
Speaker 4: These revenues are not as a result of net new agreements and have no impact on the sale of our patent portfolio. Let me now turn the call over to Steve for more details on our financials.
Speaker 4: Thank you John . As usual, my comments on our financial performance for the fourth quarter will be in non-GAAP terms unless otherwise noted.
Speaker 4: Total company revenue for the quarter was 151 million.
Speaker 4: IOT revenue was $53 million and cybersecurity revenue was $88 million.
Speaker 4: Software product revenue as a percentage of total revenue remained in the range of 85-90% 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.
Speaker 4: operating expenses exclude.
Speaker 4: 26 million fair value gain on the convertible debentures.
Speaker 5: $15 million in amortization of acquired intangibles.
Speaker 5: $9 million in stock compensation expense.
Speaker 5: and $7 million in restructuring expenses as a result of steps taken in the quarter to streamline costs including facilities and IT infrastructure.
Speaker 5: non-GAAP operating expenses also exclude a $476 million non-cash accounting impairment of goodwill and long-lived assets for the SPARC reporting unit.
Speaker 5: This represents a non-cash charge of 82 cents to GAAP earnings per share.
Speaker 5: In accordance with accounting rules, we were required to perform a goodwill impairment review by determining a fair value for all our reporting units.
Speaker 5: 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.
Speaker 5: similar to the broad-based market decline over the same period. Further details will be disclosed in our Form 10-K .
Speaker 5: The non-GAAP operating loss for the fourth quarter was $17 million.
Speaker 5: non-gap net loss was 13 million. The 2 cent non-gap basic loss per share for the porter beat expectations.
Speaker 5: Adjusted EBITDA, excluding the non-GAAP adjustments previously mentioned, was negative 12 million. Global cash, cash equivalents and investments were 487 million as at February 28, 2023.
Speaker 5: 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.
Speaker 5: In our IoT business, we will continue to invest given the relatively high level of visibility we have for growth.
Speaker 5: On the cyber side, we have identified a clear plan to deliver expansion of both gross margin and operating margin.
Speaker 5: The outlook for the coming year is for a significantly lower EPS loss and cash flow usage.
Speaker 4: That concludes my comments and I'll turn it back to John . Thank you, Steve. Before we open the line for Q&A, let me recap on the key message from the quarter.
Speaker 4: This was a strong quarter in the record year for QNX Royalty Backlog for BlackBerry IoT. We enter FY24 with significant design, the
Speaker 4: momentum and although we still face macro economics and supply chain headwind, we expect revenue growth for approximately 20% this coming fiscal year.
Speaker 4: 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 building growth for the third consecutive quarter.
Speaker 4: We expect to deliver revenue growth of approximately 5%.
Speaker 4: and building schools are approximately 15% this fiscal year and to return to sequential ARR growth for the cybersecurity business use it was a nice of the excuse me for a cyber security quiz business unit in the second half.
Speaker 4: And finally, we enter 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.
Speaker 2: That concludes my remarks. Jason, can you please open the line for Q&A? Thank you. We will now begin the question and answer session. To ask a question, please press star 1 on your telephone keypad. Please make sure your line is unmuted. Again, press star 1 to ask a question.
Speaker 2: We'll pause for just a moment to allow everyone an opportunity to signal for a question.
Speaker 2: We request that you limit yourself to one question and one follow-up. Our first question comes from Luke Junk from Baird. Please go ahead.
Speaker 6: Good afternoon, thank you for taking the questions. To start, hoping you could expand please on where you were able to take also the P&L already this quarter, so OPEX, down sequentially and looking forward, what you envision with respect to your plan to deliver gross margin and operating margin expansion, especially in the future.
Speaker 6: cybersecurity. Maybe if you could just speak to some specific actions and areas of the cost stack that you're focused on. Thank you.
Speaker 4: Okay, we have been focusing on improving gross margin.
Speaker 4: and operating margin.
Speaker 4: for the cyber business for quite some time. And in this past quarter, we just see some of the results. Shifting costs.
Speaker 4: to a lower cost base area, hiring people in those areas more so than hiring people in a more expensive area is certainly one way of doing that, particularly mostly in the replacement of attrition.
Speaker 4: And…
Speaker 4: a little bit more disciplined on pricing and discounting. It's also been put in place. So by and large, we were able to do that. And our plan caused us to continue to do that for this balance of the year, the new fiscal year.
Speaker 4: and versus the difference between that and, oh, and then we also reduce G&A costs.
Speaker 4: and versus the difference between that and... Oh, and then we also reduce GNA costs.
Speaker 4: where we can and we've done a lot. Facility costs and other aspects of it. So many different areas, it's a very concerted effort. From an IoT perspective, this is the unit that has been exempt.
Speaker 4: from focusing on that. They are 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...
Speaker 4: Kind of how we allocate capital and spending.
Speaker 6: Yeah, thank you for that John , very helpful. And then for my follow up, hoping to take a step back and just talk about the bigger picture in IoT and in auto specifically. And just love to get your perspective on the focus of that market going forward from here. One of the clearest takeaways at CES this year walking the floor was the problem...
Speaker 4: and do you think there's an increasing sense of urgency, especially OEMs trying to figure out software? Thank you. Yeah, very much so. I think you said everything is consistent with what we have been learning from customers and analysts also. So, you talk to each of the OEMs, they all have a different level of urgency.
Speaker 4: a strong investment in SDG, I mean, there's a software-defined vehicle.
Speaker 4: approach and they need foundational software and they need it from safety perspective. A number of years back there were a couple of large OEMs attempted to do the foundational software themselves and they have all decided to join force with us.
Speaker 4: and work with us directly and these are the very big names and we of course welcome the partnership. So you look at our win rate and 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.
Speaker 4: So and then in addition to that our products related to hypervisors ADARs
Speaker 4: auto we're also seeing a lot of strong interest as I said in my script you know all the chips chip technology company is pushing multi-core
Speaker 4: and multi-processing, parallel processing and all that good stuff. And so, and they needed safety and they needed a container, a container, they needed a hypervisor. And so,
Speaker 4: 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 immediate future. Thank you for that. I'll go ahead and leave it there.
Speaker 2: Okay, thank you. Our next question comes from Daniel Chan from TD Securities. Please go ahead. Hi.
Speaker 7: 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 standards essential patents?
Speaker 4: Yeah, it's licensing. The remaining pattern is now in two groups. Once the transaction is done. One group is the embedded and the cybersecurity patterns. And the other group is the mobile pattern, mobile phones and related networking patterns. So the latter...
Speaker 4: we will monetize through third party and probably in some cases we will trim the patent down a little bit by selling some. And the former we haven't really decided the overall plan yet.
Speaker 4: And of course we will always be interested in licensing.
Speaker 4: to people, but it's probably not going to be an active process.
Speaker 7: Okay, thanks for that, John . And then John , around this time, five years ago, the board extended your arrangement to lead the company until November this year. Just wondering whether you can share with us what your plans are as we get closer to November . No, no. I, we started the conversation.
Speaker 4: between me and the board. So you stay tuned, stay tuned on that. So we don't have anything to report at this point.
Speaker 2: Okay, thank you. Our next question comes from Mike Walkley from Canaccord. Please go ahead. Hi Mike. Hey John . I just want to dig a little bit more into the cybersecurity business. It's great to hear on the SMB side, a simplified approach and a managed response. Do you Track your personal Music and Online Birnl Mae? That's amazing.
Speaker 4: Good question. So there's a lot of competition. I think you folks here, different cyber security company all kind of gun 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.
Speaker 4: normally. So they are very receptive to our MDR solution, our guard solution and 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 capability or knowledge before they could put it in use. Either they use it themselves or they...
Speaker 4: There's 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 ransom world looks like. And there's a lot of white space for replacement of prior technology, the first generation.
Speaker 4: So with that two combination, the market is fake, but the competition is fierce too. I would agree to that.
Speaker 2: That's helpful and simplified approaches with what the S&P is really looking for. Just as my follow-up question, just digging a little more into cybersecurity.
Speaker 2: Is ARR stable to growing outside the UEM business? And maybe you can update us on UEM, kind of where that is on turning off some customers that you wanted to kind of end of life as you focus more on the large government type deals. Yeah, UEM has in the last couple of quarters ARR in the business...
Speaker 2: Since we're on the topic of cyber security, could you speak to the traction that you've seen across selling cyber into UEM base, which is probably large enterprise? Mm, yeah.
Speaker 4: Let's see. We see some but not dominant because our UES, our sign-in base is typically SMB and our UEM base is typically a very large name.
Speaker 4: But on the other hand, there has been some upsell. 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 McAfee and the...
Speaker 4: at the Symantec and Trend Micro base. And what fundamentally has been the challenge? Is it product, is it pricing, is it sales? Can you help us understand that? Yeah, three years ago it was the product. We lack... Our EDR was not as up to snuff as everybody else. We have better...
Speaker 4: some differentiated things that, you know, based on our AI model and the silencer AI 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 and use. And, but we need better attraction in the indirect sales side.
Speaker 4: Our direct sales people, after the last year, year plus, building and so forth, we feel comfortable that the productivity is there. Then 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.
Speaker 4: in this year's plan.
Speaker 8: That's helpful. And then just one more if I may. Just in regards to IoT, you know, you mentioned very strong win rates. Could you speak to the pricing and in how ARPUs are tracking and you know obviously OEMs are hard to sell into. Do you still see opportunities to expand ARPU, you know, like you were targeting a couple years ago?
Speaker 4: Today, I have more confidence in the 25.
Speaker 4: for car output than when I first come up with that as a goal a number of years back.
Speaker 4: And the reason is now we are basically being accepted as a foundational software for major auto company. Names that I could review like Vowo and BMWs and Volkswagen and these are all public.
Speaker 4: public information. They are all standardized on Blackberry QNX. When you have a foundational software and earlier the conversation regarding software defined vehicle allow us to upsell modules.
Speaker 4: 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 that platform and upselling. I think our people are very excited about it and rightfully so. I see the same trend.
Speaker 4: Customers are more receptive in buying more adapted modules.
Speaker 4: and then plucked onto the platform, and which of course we have safety certification across everything we sell.
Speaker 2: Thanks for taking the questions. Our next question comes from Todd Coopland from CIBC. Please go ahead. Place your feet.
Speaker 2: 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...
Speaker 2: 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 what actually you've got? Woo side of science behind that?
Speaker 2: that's quite a bit higher than just the...
Speaker 2: infotainment OS where you've come from, when would you see production volume of those double-digit type ARPUs starting to kick in?
Speaker 4: Well, part of our reason that we feel, I don't know what I should say, comfortable, but we feel okay with our 17 to 20 percent growth this year. It's because we expect to see some of this the so-called startup production, the SOP.
Speaker 4: 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.
Speaker 4: This year is going to be 17 to 20, and so that implies the map sets that will have to be over 20% the next couple of years.
Speaker 2: So, what you're saying with that, those handful of like higher ARPU deals later in the year, that's what gets you to that.
Speaker 2: I don't know exactly where the number lands in Q2, but let's call it 65 to 75 million a quarter implied for Q3 and Q4 if you take your guide at face value. Yes, that's correct.
Speaker 4: We map in the production. The only wrinkle is something that will not be within our control. The wrinkle will be a macroeconomics issue of high interest rate that slow down production, a deterioration of supply chain.
Speaker 4: or chip availability that will slow down production, that will put a wrinkle on us in the second half. But given everything we know today and all the conversation with OEMs.
Speaker 4: the team feel very comfortable, quite comfortable. I have to, you know, I'm usually very optimistic. So you have to factor that in. They feel comfortable delivering what my outlook.
Speaker 2: that I provided earlier. 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? That's the map that we base it on, yes correct.
Speaker 2: My second question has to do with the outstanding debentures. What is your thinking on a target balance sheet? With the extra cash from the patent sale, would you look to repay that debt or would you look to roll it over? Just talk about your plans. Our plan is to repay the debt.
Speaker 2: has to do with the outstanding debentures. What's your thinking on a target balance sheet? With the extra cash from the patent sale, would you look to repay that debt or would you look to roll it over? Just talk about your plans. Our plan is to repay the debt. Repay all of it. Yep.
Speaker 4: Now if somebody wants to roll a small portion over we will be open to it, but that's not our current planning. Yeah.
Speaker 4: Now if somebody wants to roll a small portion over, we will be open to it, but that's not our current planning. Yeah, yeah. Okay, that's great. Thanks a lot. Go ahead Jake, go ahead.
Speaker 4: I would like to turn the call back over to John Chen, Executive Chair and CEO of Blackberry for closing remarks. Thank you. Thank you, Jason. Before we end the call today, I'd like to remind you about a few events coming up. Between April 24th and 27th, the Blackberry will be at RSA conference and we'll be demonstrating the new product offerings that I mentioned earlier. So...
Speaker 4: If you happen to be there, please do drop by. On May 17, we'll 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 Joe Mateo, the president of Blackberry Cybersecurity, and Matias Ericsson, president of Blackberry IoT will answer your questions.
Speaker 4: So please feel free to send them to Tim in advance at investor relations, one word, plural, at blackberry.com or you can submit them through the portal on that day. We provide more detail on all these events in the coming weeks so please stay tuned. As always, I thank every one of you for joining today's call and I hope to speak to you soon. This concludes today's call. Thank you.
Speaker 1: So TR that.
Speaker 1: I.