UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended AugustMay 31, 20212022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-38232
______________________________________________________
BlackBerry Limited
(Exact name of registrant as specified in its charter) | | | | | | | | | | | | | | |
Canada | | 98-0164408 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| |
2200 University Ave East | | |
Waterloo | Ontario | Canada | | N2K 0A7 |
(Address of Principal Executive Offices) | | (Zip Code) |
(519) 888-7465
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares | BB | New York Stock Exchange |
Common Shares | BB | Toronto Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | x | Accelerated filer | ☐ |
Non-accelerated filer | o | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
The registrant had 567,010,674577,169,762 common shares issued and outstanding as of September 20, 2021.June 21, 2022.
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BLACKBERRY LIMITED |
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TABLE OF CONTENTS |
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PART I | FINANCIAL INFORMATION | | |
Item 1 | Financial Statements | | |
| Consolidated Balance Sheets as of AugustMay 31, 20212022 (unaudited) and February 28, 20212022 | | |
| Consolidated Statements of Shareholders' Equity - Three and Six Months Ended AugustMay 31, 2022 and 2021 (unaudited) | | |
| Consolidated Statements of Operations - Three Months Ended May 31, 2022 and 20202021 (unaudited) | | |
| Consolidated Statements of OperationsComprehensive Loss - Three and Six Months Ended AugustMay 31, 20212022 and 20202021 (unaudited) | | |
| Consolidated Statements of Comprehensive LossCash Flows - Three and Six Months Ended AugustMay 31, 20212022 and 20202021 (unaudited) | | |
| Consolidated Statements of Cash Flows - Six Months Ended August 31, 2021 and 2020 (unaudited) | | |
| Notes to the Consolidated Financial Statements | | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | | |
Item 3 | Quantitative and Qualitative Disclosures about Market Risk | | |
Item 4 | Controls and Procedures | | |
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PART II | OTHER INFORMATION | | |
Item 1 | Legal Proceedings | | |
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Item 6 | Exhibits | | |
Signatures | | | |
Unless the context otherwise requires, all references to the “Company” and “BlackBerry” include BlackBerry Limited and its subsidiaries.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions) (unaudited)
Consolidated Balance Sheets | | | | | | | | | | | |
| As at |
| August 31, 2021 | | February 28, 2021 |
Assets | | | |
Current | | | |
Cash and cash equivalents (note 3) | $ | 291 | | | $ | 214 | |
Short-term investments (note 3) | 416 | | | 525 | |
Accounts receivable, net of allowance of $9 and $10, respectively (note 4) | 121 | | | 182 | |
Other receivables | 23 | | | 25 | |
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Income taxes receivable | 9 | | | 10 | |
Other current assets (note 4) | 50 | | | 50 | |
| 910 | | | 1,006 | |
Restricted cash equivalents and restricted short-term investments (note 3) | 27 | | | 28 | |
Long-term investments (note 3) | 38 | | | 37 | |
Other long-term assets (note 4) | 13 | | | 16 | |
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Operating lease right-of-use assets, net | 57 | | | 63 | |
Property, plant and equipment, net (note 4) | 44 | | | 48 | |
Goodwill (note 4) | 848 | | | 849 | |
Intangible assets, net (note 4) | 695 | | | 771 | |
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| $ | 2,632 | | | $ | 2,818 | |
Liabilities | | | |
Current | | | |
Accounts payable | $ | 22 | | | $ | 20 | |
Accrued liabilities (note 4) | 174 | | | 178 | |
Income taxes payable (note 5) | 9 | | | 6 | |
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Deferred revenue, current (note 11) | 198 | | | 225 | |
| 403 | | | 429 | |
Deferred revenue, non-current (note 11) | 46 | | | 69 | |
Operating lease liabilities | 79 | | | 90 | |
Other long-term liabilities (note 4) | 4 | | | 6 | |
Long-term debentures (note 6) | 782 | | | 720 | |
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| 1,314 | | | 1,314 | |
Commitments and contingencies (note 10) | | | |
Shareholders’ equity | | | |
Capital stock and additional paid-in capital | | | |
Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable | — | | | — | |
Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares | | | |
Issued - 566,994,978 voting common shares (February 28, 2021 - 565,505,328 ) | 2,845 | | | 2,823 | |
Deficit | (1,512) | | | (1,306) | |
Accumulated other comprehensive loss (note 9) | (15) | | | (13) | |
| 1,318 | | | 1,504 | |
| $ | 2,632 | | | $ | 2,818 | |
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| As at |
| May 31, 2022 | | February 28, 2022 |
Assets | | | |
Current | | | |
Cash and cash equivalents (note 2) | $ | 391 | | | $ | 378 | |
Short-term investments (note 2) | 272 | | | 334 | |
Accounts receivable, net of allowance of $4 and $4, respectively (note 3) | 102 | | | 138 | |
Other receivables (note 3) | 21 | | | 25 | |
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Income taxes receivable | 9 | | | 9 | |
Other current assets (note 3) | 169 | | | 159 | |
| 964 | | | 1,043 | |
Restricted cash and cash equivalents (note 2) | 28 | | | 28 | |
Long-term investments (note 2) | 30 | | | 30 | |
Other long-term assets (note 3) | 8 | | | 9 | |
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Operating lease right-of-use assets, net | 46 | | | 50 | |
Property, plant and equipment, net (note 3) | 38 | | | 41 | |
Goodwill (note 3) | 841 | | | 844 | |
Intangible assets, net (note 3) | 505 | | | 522 | |
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| $ | 2,460 | | | $ | 2,567 | |
Liabilities | | | |
Current | | | |
Accounts payable | $ | 14 | | | $ | 22 | |
Accrued liabilities (note 3 and note 9) | 304 | | | 157 | |
Income taxes payable (note 4) | 13 | | | 11 | |
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Deferred revenue, current (note 10) | 190 | | | 207 | |
| 521 | | | 397 | |
Deferred revenue, non-current (note 10) | 32 | | | 37 | |
Operating lease liabilities | 60 | | | 66 | |
Other long-term liabilities | 3 | | | 4 | |
Long-term debentures (note 5) | 459 | | | 507 | |
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| 1,075 | | | 1,011 | |
Commitments and contingencies (note 9) | | | |
Shareholders’ equity | | | |
Capital stock and additional paid-in capital | | | |
Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable | — | | | — | |
Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares | | | |
Issued - 577,168,941 voting common shares (February 28, 2022 - 576,227,898) | 2,880 | | | 2,869 | |
Deficit | (1,475) | | | (1,294) | |
Accumulated other comprehensive loss (note 8) | (20) | | | (19) | |
| 1,385 | | | 1,556 | |
| $ | 2,460 | | | $ | 2,567 | |
See notes to consolidated financial statements.
On behalf of the Board: | | | | | |
John S. Chen | Barbara StymiestLisa Disbrow |
Director | Director |
BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Shareholders’ Equity
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| Three Months Ended August 31, 2021 |
| Capital Stock and Additional Paid-in Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total |
Balance as at May 31, 2021 | $ | 2,834 | | | $ | (1,368) | | | $ | (10) | | | $ | 1,456 | |
Net loss | — | | | (144) | | | — | | | (144) | |
Other comprehensive loss | — | | | — | | | (5) | | | (5) | |
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Stock-based compensation | 10 | | | — | | | — | | | 10 | |
Shares issued: | | | | | | | |
Exercise of stock options | 1 | | | — | | | — | | | 1 | |
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Balance as at August 31, 2021 | $ | 2,845 | | | $ | (1,512) | | | $ | (15) | | | $ | 1,318 | |
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| Three Months Ended May 31, 2022 |
| Capital Stock and Additional Paid-in Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total |
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Balance as at February 28, 2022 | $ | 2,869 | | | $ | (1,294) | | | $ | (19) | | | $ | 1,556 | |
Net loss | — | | | (181) | | | — | | | (181) | |
Other comprehensive loss | — | | | — | | | (1) | | | (1) | |
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Stock-based compensation (note 6) | 8 | | | — | | | — | | | 8 | |
Shares issued: | | | | | | | |
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Employee share purchase plan (note 6) | 3 | | | — | | | — | | | 3 | |
Balance as at May 31, 2022 | $ | 2,880 | | | $ | (1,475) | | | $ | (20) | | | $ | 1,385 | |
| | | Three Months Ended August 31, 2020 | | Three Months Ended May 31, 2021 |
| | Capital Stock and Additional Paid-in Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total | | Capital Stock and Additional Paid-in Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total |
Balance as at May 31, 2020 | $ | 2,777 | | | $ | (838) | | | $ | (26) | | | $ | 1,913 | | |
| Balance as at February 28, 2021 | | Balance as at February 28, 2021 | $ | 2,823 | | | $ | (1,306) | | | $ | (13) | | | $ | 1,504 | |
Net loss | Net loss | — | | | (23) | | | — | | | (23) | | Net loss | — | | | (62) | | | — | | | (62) | |
Other comprehensive income | Other comprehensive income | — | | | — | | | 13 | | | 13 | | Other comprehensive income | — | | | — | | | 3 | | | 3 | |
| Stock-based compensation | Stock-based compensation | 9 | | | — | | | — | | | 9 | | Stock-based compensation | 7 | | | — | | | — | | | 7 | |
Shares issued: | Shares issued: | | Shares issued: | |
Exercise of stock options | Exercise of stock options | 2 | | | — | | | — | | | 2 | | Exercise of stock options | 1 | | | — | | | — | | | 1 | |
| Balance as at August 31, 2020 | $ | 2,788 | | | $ | (861) | | | $ | (13) | | | $ | 1,914 | | |
Employee share purchase plan | | Employee share purchase plan | 3 | | | — | | | — | | | 3 | |
Balance as at May 31, 2021 | | Balance as at May 31, 2021 | $ | 2,834 | | | $ | (1,368) | | | $ | (10) | | | $ | 1,456 | |
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Shareholders’ Equity
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| Six Months Ended August 31, 2021 |
| Capital Stock and Additional Paid-in Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total |
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Balance as at February 28, 2021 | $ | 2,823 | | | $ | (1,306) | | | $ | (13) | | | $ | 1,504 | |
Net loss | — | | | (206) | | | — | | | (206) | |
Other comprehensive loss | — | | | — | | | (2) | | | (2) | |
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Stock-based compensation (note 7) | 17 | | | — | | | — | | | 17 | |
Shares issued: | | | | | | | |
Exercise of stock options (note 7) | 2 | | | — | | | — | | | 2 | |
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Employee share purchase plan (note 7) | 3 | | | — | | | — | | | 3 | |
Balance as at August 31, 2021 | $ | 2,845 | | | $ | (1,512) | | | $ | (15) | | | $ | 1,318 | |
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| Six Months Ended August 31, 2020 |
| Capital Stock and Additional Paid-in Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total |
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Balance as at February 29, 2020 | $ | 2,760 | | | $ | (198) | | | $ | (33) | | | $ | 2,529 | |
Net loss | — | | | (659) | | | — | | | (659) | |
Other comprehensive income | — | | | — | | | 20 | | | 20 | |
Cumulative impact of adoption of ASC 326 | — | | | (4) | | | — | | | (4) | |
Stock-based compensation | 22 | | | — | | | — | | | 22 | |
Shares issued: | | | | | | | |
Exercise of stock options | 3 | | | — | | | — | | | 3 | |
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Employee share purchase plan | 3 | | | — | | | — | | | 3 | |
Balance as at August 31, 2020 | $ | 2,788 | | | $ | (861) | | | $ | (13) | | | $ | 1,914 | |
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions, except per share data) (unaudited)
Consolidated Statements of Operations
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 | | May 31, 2022 | | May 31, 2021 | |
Revenue (note 11) | $ | 175 | | | $ | 259 | | | $ | 349 | | | $ | 465 | | |
Revenue (note 10) | | Revenue (note 10) | $ | 168 | | | $ | 174 | | |
Cost of sales | Cost of sales | 63 | | | 60 | | | 123 | | | 123 | | Cost of sales | 64 | | | 60 | | |
| Gross margin | Gross margin | 112 | | | 199 | | | 226 | | | 342 | | Gross margin | 104 | | | 114 | | |
| Operating expenses | Operating expenses | | Operating expenses | | |
Research and development | Research and development | 58 | | | 57 | | | 115 | | | 114 | | Research and development | 53 | | | 57 | | |
Selling, marketing and administration | Selling, marketing and administration | 83 | | | 79 | | | 156 | | | 169 | | Selling, marketing and administration | 82 | | | 73 | | |
Amortization | Amortization | 45 | | | 46 | | | 91 | | | 92 | | Amortization | 27 | | | 46 | | |
Impairment of goodwill (note 3) | — | | | — | | | — | | | 594 | | |
Impairment of long-lived assets | — | | | 21 | | | — | | | 21 | | |
| Debentures fair value adjustment (note 6) | 67 | | | 18 | | | 63 | | | 19 | | |
| | Debentures fair value adjustment (note 5) | | Debentures fair value adjustment (note 5) | (46) | | | (4) | | |
Litigation settlement (note 9) | | Litigation settlement (note 9) | 165 | | | — | | |
| | 253 | | | 221 | | | 425 | | | 1,009 | | | 281 | | | 172 | | |
Operating loss | Operating loss | (141) | | | (22) | | | (199) | | | (667) | | Operating loss | (177) | | | (58) | | |
Investment loss, net | Investment loss, net | (1) | | | (5) | | | (3) | | | (5) | | Investment loss, net | (1) | | | (2) | | |
Loss before income taxes | Loss before income taxes | (142) | | | (27) | | | (202) | | | (672) | | Loss before income taxes | (178) | | | (60) | | |
Provision for (recovery of) income taxes (note 5) | 2 | | | (4) | | | 4 | | | (13) | | |
Provision for income taxes (note 4) | | Provision for income taxes (note 4) | 3 | | | 2 | | |
| Net loss | Net loss | $ | (144) | | | $ | (23) | | | $ | (206) | | | $ | (659) | | Net loss | $ | (181) | | | $ | (62) | | |
Loss per share (note 8) | | | | | | | | |
Loss per share (note 7) | | Loss per share (note 7) | | | | |
Basic | Basic | $ | (0.25) | | | $ | (0.04) | | | $ | (0.36) | | | $ | (1.18) | | Basic | $ | (0.31) | | | $ | (0.11) | | |
Diluted | Diluted | $ | (0.25) | | | $ | (0.04) | | | $ | (0.36) | | | $ | (1.18) | | Diluted | $ | (0.35) | | | $ | (0.11) | | |
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See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Comprehensive Loss
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 | | May 31, 2022 | | May 31, 2021 | |
Net loss | Net loss | $ | (144) | | | $ | (23) | | | $ | (206) | | | $ | (659) | | Net loss | $ | (181) | | | $ | (62) | | |
Other comprehensive income (loss) | Other comprehensive income (loss) | | Other comprehensive income (loss) | | |
| Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the period, net of income taxes of nil for the three and six months ended August 31, 2021 and August 31, 2020 (note 9) | (2) | | | 4 | | | (1) | | | 3 | | |
Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the three months ended, net of income taxes of nil (May 31, 2021 - income taxes of nil) (note 8) | | Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the three months ended, net of income taxes of nil (May 31, 2021 - income taxes of nil) (note 8) | 1 | | | 1 | | |
| Foreign currency translation adjustment, net of income taxes of nil for the three and six months ended August 31, 2021 (net of income taxes of $1 million and $1 million respectively, for the three and six months ended August 31,2020) | (3) | | | 2 | | | (2) | | | 3 | | |
Foreign currency translation adjustment | | Foreign currency translation adjustment | (4) | | | 1 | | |
| Net change in fair value from instrument-specific credit risk on the Debentures, net of income taxes of nil for the three and six months ended August 31, 2021 (net of income taxes of $1 million and $2 million, respectively, for the three and six months ended August 31, 2020) (note 6) | — | | | 7 | | | 1 | | | 14 | | |
Net change in fair value from instrument-specific credit risk on the 1.75% Debentures, net of income taxes of nil (May 31, 2021 - income taxes of nil) (note 5) | | Net change in fair value from instrument-specific credit risk on the 1.75% Debentures, net of income taxes of nil (May 31, 2021 - income taxes of nil) (note 5) | 2 | | | 1 | | |
Other comprehensive income (loss) | Other comprehensive income (loss) | (5) | | | 13 | | | (2) | | | 20 | | Other comprehensive income (loss) | (1) | | | 3 | | |
Comprehensive loss | Comprehensive loss | $ | (149) | | | $ | (10) | | | $ | (208) | | | $ | (639) | | Comprehensive loss | $ | (182) | | | $ | (59) | | |
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Cash Flows | | | Six Months Ended | | Three Months Ended |
| | August 31, 2021 | | August 31, 2020 | | May 31, 2022 | | May 31, 2021 |
Cash flows from operating activities | Cash flows from operating activities | | | | Cash flows from operating activities | | | |
| Net loss | Net loss | $ | (206) | | | $ | (659) | | Net loss | $ | (181) | | | $ | (62) | |
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | |
Amortization | Amortization | 97 | | | 100 | | Amortization | 29 | | | 49 | |
| Stock-based compensation | Stock-based compensation | 17 | | | 22 | | Stock-based compensation | 8 | | | 7 | |
Impairment of goodwill | — | | | 594 | | |
Impairment of long-lived assets | — | | | 21 | | |
| Debentures fair value adjustment (note 6) | 63 | | | 19 | | |
| Debentures fair value adjustment (note 5) | | Debentures fair value adjustment (note 5) | (46) | | | (4) | |
| Operating leases | Operating leases | (8) | | | (2) | | Operating leases | (3) | | | (3) | |
Other | Other | (2) | | | (3) | | Other | — | | | (3) | |
Net changes in working capital items | Net changes in working capital items | | Net changes in working capital items | |
Accounts receivable, net of allowance | Accounts receivable, net of allowance | 61 | | | (29) | | Accounts receivable, net of allowance | 36 | | | 29 | |
Other receivables | Other receivables | 2 | | | (11) | | Other receivables | 4 | | | (1) | |
| Income taxes receivable | 1 | | | (3) | | |
| Other assets | Other assets | 4 | | | 43 | | Other assets | (9) | | | (6) | |
Accounts payable | Accounts payable | 2 | | | (2) | | Accounts payable | (8) | | | 2 | |
Accrued liabilities | Accrued liabilities | (2) | | | (21) | | Accrued liabilities | 148 | | | (14) | |
Income taxes payable | Income taxes payable | 3 | | | (12) | | Income taxes payable | 2 | | | 2 | |
Deferred revenue | Deferred revenue | (50) | | | (57) | | Deferred revenue | (22) | | | (29) | |
Net cash used in operating activities | Net cash used in operating activities | (18) | | | — | | Net cash used in operating activities | (42) | | | (33) | |
Cash flows from investing activities | Cash flows from investing activities | | | | Cash flows from investing activities | | | |
Acquisition of long-term investments | (1) | | | (1) | | |
| | Acquisition of property, plant and equipment | Acquisition of property, plant and equipment | (4) | | | (3) | | Acquisition of property, plant and equipment | (1) | | | (2) | |
| Acquisition of intangible assets | Acquisition of intangible assets | (14) | | | (16) | | Acquisition of intangible assets | (8) | | | (6) | |
| Acquisition of short-term investments | Acquisition of short-term investments | (429) | | | (320) | | Acquisition of short-term investments | (164) | | | (209) | |
Proceeds on sale or maturity of restricted short-term investments | Proceeds on sale or maturity of restricted short-term investments | 24 | | | — | | Proceeds on sale or maturity of restricted short-term investments | — | | | 24 | |
Proceeds on sale or maturity of short-term investments | Proceeds on sale or maturity of short-term investments | 537 | | | 794 | | Proceeds on sale or maturity of short-term investments | 226 | | | 369 | |
| Net cash provided by investing activities | Net cash provided by investing activities | 113 | | | 454 | | Net cash provided by investing activities | 53 | | | 176 | |
Cash flows from financing activities | Cash flows from financing activities | | | | Cash flows from financing activities | | | |
Issuance of common shares | Issuance of common shares | 5 | | | 6 | | Issuance of common shares | 3 | | | 4 | |
| Payment of finance lease liability | — | | | (1) | | |
| | Net cash provided by financing activities | Net cash provided by financing activities | 5 | | | 5 | | Net cash provided by financing activities | 3 | | | 4 | |
Effect of foreign exchange gain on cash, cash equivalents, restricted cash, and restricted cash equivalents | — | | | 1 | | |
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents | | Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents | (1) | | | 3 | |
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period | Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period | 100 | | | 460 | | Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period | 13 | | | 150 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period | Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period | 218 | | | 426 | | Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period | 406 | | | 218 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period | Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period | $ | 318 | | | $ | 886 | | Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period | $ | 419 | | | $ | 368 | |
See notes to consolidated financial statements.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
Basis of Presentation and Preparation
These interim consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“U.S. GAAP”). They do not include all of the disclosures required by U.S. GAAP for annual financial statements and should be read in conjunction with the audited consolidated financial statements of BlackBerry Limited (the “Company”) for the year ended February 28, 20212022 (the “Annual Financial Statements”), which have been prepared in accordance with U.S. GAAP. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included in these interim consolidated financial statements. Operating results for the three and six months ended AugustMay 31, 20212022 are not necessarily indicative of the results that may be expected for the full year ending February 28, 2022.2023. The consolidated balance sheet at February 28, 20212022 was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.
CertainThe preparation of the comparative figures have been reclassified to conform to the current period’s presentation.
In the first quarter of fiscal 2022, the Chief Operating Decision Maker (“CODM”), who is the Executive Chair and Chief Executive Officer (“CEO”) of the Company, began making decisions and assessing the performance of the Company using three operating segments, whereas the CODM previously made decisions and assessed the performance of the Company as a single operating segment. As a result of the internal reporting reorganization, the Company is now organized and managed as three reportable operating segments: Cyber Security, IoT (collectively, “Software & Services”), and Licensing and Other, as further discussed in Note 11.
Risks and Uncertainties
In fiscal 2022 and fiscal 2021, the economic downturn and uncertainty caused by the novel coronavirus (“COVID-19”) resulted in the Company making significant judgments related to its estimates and assumptions concerning the impairment of goodwill, indefinite-lived intangible assets, certain operating lease right-of-use (“ROU”) assets and associated property, plant and equipment, and concerning the collectability of receivables.
As of the date of issuance of the financial statements, the Company is not aware of any additional events or circumstances which would require it to update its estimates, judgments, or revise the carrying value of its assets or liabilities, other than the COVID-19 pandemic as discussed below in Note 3. These estimates may change, as new events occur and additional information is obtained, and such changes will be recognized in the consolidated financial statements as soon as they become known.requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates and any such differences may be material to the Company’s consolidated financial statements.
Certain of the comparative figures have been reclassified to conform to the current period’s presentation.
The Company is organized and managed as 3 reportable operating segments: Cybersecurity, IoT (collectively, “Software & Services”), and Licensing and Other, as further discussed in Note 10.
Significant Accounting Policies and Critical Accounting Estimates
There have been no material changes to the Company’s accounting policies or critical accounting estimates from those described in the Annual Financial Statements.
Accounting Standards Adopted During Fiscal 20222023
ASC 740, Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) released ASU 2019-12 on the topic of simplifying the accounting for income taxes, as part of its simplification initiative to reduce the cost2020-06, Debt with Conversion and complexity in accounting for income taxes. The amendments in this update remove certain exceptions from Topic 740, Income Taxes, including: (i) the exception to the incremental approach for intra-period tax allocation; (ii) the exception to accounting for basis differences when there are ownership changes in foreign investments; and (iii) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The update also simplifies U.S. GAAP in several other areas of Topic 740 such as: (i) franchise taxes and other taxes partially based on income; (ii) transactions with a government that result in a step up in the tax basis of goodwill; (iii) separate financial statements of entities not subject to tax; and (iv) enacted changes in tax laws in interim periods.
The guidance was effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The only aspect of ASU 2019-12 that impacts the Company is the removal of the exception related to intra-period tax allocation. As a result of its adoption of the new standard, the Company determines the tax attributable to continuing operations without regard to the tax effect of other items included in other comprehensive income. The Company adopted this guidance in the first quarter of fiscal 2022 and it did not have a material impact on the Company’s results of operations, financial position or disclosures.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
2. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTEDOther Options
In August 2020, the FASBFinancial Standards Accounting Board (“FASB”) issued a new accounting standard on the topic of debt with conversion and other options, ASUaccounting standards update (“ASU”) 2020-06. The amendment in this update simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The guidance is effective for interim and annual periods beginning after December 15, 2021. The Company adopted this guidance in the first quarter of fiscal 2023 and it did not have a material impact on its results of operations, financial position and disclosures as the fair value option accounting model used by the Company is not impacted by this ASU and the Company already utilizes the if-converted method in its calculation of diluted earnings per share relating to the 1.75% Debentures (as defined in Note 5).
ASU 2021-08, Business Combinations
In October 2021, the FASB issued a new accounting standard on the topic of business combinations, accounting for contract assets and contract liabilities from contracts with customers, ASU 2021-08. The amendment in this update improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. This update requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The guidance is effective for interim and annual periods beginning after December 15, 2022 and requires entities to prospectively apply business combinations occurring on or after the effective date of the amendments. The Company early adopted this guidance in the first quarter of fiscal 2023, and will adoptapply it prospectively to any business acquisitions subsequent to the date of adoption.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
ASU 2021-10, Government Assistance
In November 2021, the FASB issued a new accounting standard on the topic of government assistance, ASU 2021-10. The standard requires additional disclosures for transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including: (i) information about the nature of the transactions and related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement affected by these transactions including amounts applicable to each line; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The update also requires entities that omit any of the information because it is legally prohibited from being disclosed to include a statement to that effect. The guidance is effective for annual periods beginning after December 15, 2021. The Company adopted this guidance in the first quarter of fiscal 2023 and does not expect the adoption to have a material impact on its results of operations, financial position andannual disclosures.
3.2. FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS
Fair Value
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value into three levels:
•Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
•Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 - Significant unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Recurring Fair Value Measurements
The Company’s cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities are measured at an amount that approximates their fair values (Level 2 measurement) due to their short maturities.
In determining the fair value of investments held, the Company primarily relies on an independent third-party valuator for the fair valuation of securities. The Company also reviews the inputs used in the valuation process and assesses the pricing of the securities for reasonableness after conducting its own internal collection of quoted prices from brokers. Fair values for all investment categories provided by the independent third-party valuator that are in excess of 0.5% from the fair values determined by the Company are communicated to the independent third-party valuator for consideration of reasonableness. The independent third-party valuator considers the information provided by the Company before determining whether a change in their original pricing is warranted.
The Company’s investments largely consist of debt securities issued by major corporate and banking organizations, the provincial and federal governments of Canada, international government banking organizations and the United States Department of the Treasury and are all investment grade. The Company also holds certain private equity investments without readily determinable fair value and a limited amount of public equity securities following theobtained through an initial public offering by the issuer of a previous privatepreviously held non-marketable equity investment.
For a description of how the fair valuesvalue of the 1.75% Debentures (as defined in Note 6) and 3.75% Debentures (as defined in Note 6) were5) was determined, see the “Convertible debentures” accounting policies in Note 1 to the Annual Financial Statements. The 1.75% Debentures are classified as Level 3 and the 3.75% Debentures were classified as Level 2.3.
Non-Recurring Fair Value Measurements
Upon the occurrence of certain events, the Company re-measures the fair value of non-marketable equity investments for which it utilizes the measurement alternative, and long-lived assets, including property, plant and equipment, operating lease ROU assets, intangible assets and goodwill.goodwill if an impairment or observable price adjustment is recognized in the current period.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
Goodwill ImpairmentNon-Marketable Equity Investments Measured Using the Measurement Alternative
DuringNon-marketable equity investments measured using the first quartermeasurement alternative include investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence. The estimation of fiscal 2021,fair value used in the fair value measurements required the use of significant unobservable inputs, and as a result, of the deterioration in economic conditions caused by the global COVID-19 pandemic and its impact on the Company’s reporting units, and the decline of the trading value of the Company’s capital stock below the Company’s consolidated carrying value, the Company determined that it was more likely than not that the fair value of at least one of its reporting units was lower than its carrying value after including goodwill. As a result, the Company completed an analysis of the fair value of its reporting units to compare against their respective carrying valuesmeasurements were classified as of May 31, 2020. Based on the results of the goodwill impairment test, it was concluded that the carrying value of one reporting unit exceeded its fair value, necessitating an impairment charge for the amount of excess and reducing the carrying value of goodwill. Consequently, the Company recorded total non-cash goodwill impairment charges of $594 million in the BlackBerry Spark reporting unit (the “Goodwill Impairment Charge”). The estimated fair values of the Company’s other reporting units substantially exceeded their carrying values at May 31, 2020. The Company did not identify any goodwill impairment during its annual impairment test in the fourth quarter of fiscal 2021, and all reporting units substantially exceeded their carrying values. For further discussion of the Goodwill Impairment Charge in fiscal 2021, see Note 3 to the Annual Financial Statements.Level 3.
Cash, Cash Equivalents and Investments
The components of cash, cash equivalents and investments by fair value level as at AugustMay 31, 20212022 were as follows:
| | | Cost Basis | | | Unrealized Losses | | | Fair Value | | Cash and Cash Equivalents | | Short-term Investments | | Long-term Investments | | Restricted Cash Equivalents | | | Cost Basis (1) | | Unrealized Gains | | Unrealized Losses | | | Fair Value | | Cash and Cash Equivalents | | Short-term Investments | | Long-term Investments | | Restricted Cash and Cash Equivalents | |
Bank balances | Bank balances | $ | 95 | | | | $ | — | | | | $ | 95 | | | $ | 95 | | | $ | — | | | $ | — | | | $ | — | | | Bank balances | $ | 97 | | | $ | — | | | $ | — | | | | $ | 97 | | | $ | 95 | | | $ | — | | | $ | — | | | $ | 2 | | |
Other investments | Other investments | 38 | | | | — | | | | 38 | | | — | | | — | | | 38 | | | — | | | Other investments | 25 | | | 5 | | | — | | | | 30 | | | — | | | — | | | 30 | | | — | | |
| | 133 | | | | — | | | | 133 | | | 95 | | | — | | | 38 | | | — | | | | 122 | | | 5 | | | — | | | | 127 | | | 95 | | | — | | | 30 | | | 2 | | |
Level 1: | Level 1: | | | | | | | | | Level 1: | | | | | | |
| Equity securities | Equity securities | 10 | | | | (8) | | | | 2 | | | — | | | 2 | | | — | | | — | | | Equity securities | 10 | | | — | | | (10) | | | | — | | | — | | | — | | | — | | | — | | |
| | Level 2: | Level 2: | | | | | | | | | Level 2: | | | | | | |
Term deposits, certificates of deposits, and GIC's | 164 | | | | — | | | | 164 | | | 45 | | | 92 | | | — | | | 27 | | | |
Bankers’ acceptances/bearer deposit notes | 42 | | | | — | | | | 42 | | | 34 | | | 8 | | | — | | | — | | | |
Term deposits, certificates of deposits, and GICs | | Term deposits, certificates of deposits, and GICs | 54 | | | — | | | — | | | | 54 | | | 28 | | | — | | | — | | | 26 | | |
Bearer deposit notes | | Bearer deposit notes | 60 | | | — | | | — | | | | 60 | | | 60 | | | — | | | — | | | — | | |
Commercial paper | Commercial paper | 256 | | | | — | | | | 256 | | | 84 | | | 172 | | | — | | | — | | | Commercial paper | 257 | | | — | | | — | | | | 257 | | | 125 | | | 132 | | | — | | | — | | |
Non-U.S. promissory notes | Non-U.S. promissory notes | 81 | | | | — | | | | 81 | | | 20 | | | 61 | | | — | | | — | | | Non-U.S. promissory notes | 85 | | | — | | | — | | | | 85 | | | 33 | | | 52 | | | — | | | — | | |
| Non-U.S. treasury bills/notes | | Non-U.S. treasury bills/notes | 50 | | | — | | | — | | | | 50 | | | 50 | | | — | | | — | | | — | | |
Non-U.S. government sponsored enterprise notes | Non-U.S. government sponsored enterprise notes | 77 | | | | — | | | | 77 | | | — | | | 77 | | | — | | | — | | | Non-U.S. government sponsored enterprise notes | 69 | | | — | | | — | | | | 69 | | | — | | | 69 | | | — | | | — | | |
Non-U.S. treasury bills/notes | 13 | | | | — | | | | 13 | | | 13 | | | — | | | — | | | — | | | |
| Corporate notes/bonds | Corporate notes/bonds | 4 | | | | — | | | | 4 | | | — | | | 4 | | | — | | | — | | | Corporate notes/bonds | 19 | | | — | | | — | | | | 19 | | | — | | | 19 | | | — | | | — | | |
| | 637 | | | | — | | | | 637 | | | 196 | | | 414 | | | — | | | 27 | | | | 594 | | | — | | | — | | | | 594 | | | 296 | | | 272 | | | — | | | 26 | | |
| | | $ | 780 | | | | $ | (8) | | | | $ | 772 | | | $ | 291 | | | $ | 416 | | | $ | 38 | | | $ | 27 | | | | $ | 726 | | | $ | 5 | | | $ | (10) | | | | $ | 721 | | | $ | 391 | | | $ | 272 | | | $ | 30 | | | $ | 28 | | |
(1) Cost basis for other investments includes the effect of returns of capital and impairment.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
The components of cash, cash equivalents and investments by fair value level as at February 28, 20212022 were as follows:
| | | Cost Basis | | | Unrealized Losses | | | Fair Value | | Cash and Cash Equivalents | | Short-term Investments | | Long-term Investments | | Restricted Cash Equivalents | | Restricted Short-term Investments | | Cost Basis (1) | | Unrealized Gains | | Unrealized Losses | | | Fair Value | | Cash and Cash Equivalents | | Short-term Investments | | Long-term Investments | | Restricted Cash and Cash Equivalents | |
Bank balances | Bank balances | $ | 165 | | | | $ | — | | | | $ | 165 | | | $ | 165 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Bank balances | $ | 105 | | | $ | — | | | $ | — | | | | $ | 105 | | | $ | 104 | | | $ | — | | | $ | — | | | $ | 1 | | |
Other investments | Other investments | 37 | | | | — | | | | 37 | | | — | | | — | | | 37 | | | — | | | — | | Other investments | 8 | | | — | | | — | | | | 8 | | | — | | | — | | | 8 | | | — | | |
| | 202 | | | | — | | | | 202 | | | 165 | | | — | | | 37 | | | — | | | — | | | 113 | | | — | | | — | | | | 113 | | | 104 | | | — | | | 8 | | | 1 | | |
Level 1: | Level 1: | | | | | | | | Level 1: | | | | | | |
Equity securities | Equity securities | 10 | | | | (7) | | | | 3 | | | — | | | 3 | | | — | | | — | | | — | | Equity securities | 10 | | | — | | | (9) | | | | 1 | | | — | | | 1 | | | — | | | — | | |
| Level 2: | Level 2: | | | | | | | | Level 2: | | | | | | |
Term deposits, certificates of deposits, and GICs | Term deposits, certificates of deposits, and GICs | 138 | | | | — | | | | 138 | | | 7 | | | 103 | | | — | | | 4 | | | 24 | | Term deposits, certificates of deposits, and GICs | 157 | | | — | | | — | | | | 157 | | | 65 | | | 65 | | | — | | | 27 | | |
Bearer deposit notes | 40 | | | | — | | | | 40 | | | — | | | 40 | | | — | | | — | | | — | | |
Bankers’ acceptances/bearer deposit notes | | Bankers’ acceptances/bearer deposit notes | 58 | | | — | | | — | | | | 58 | | | 58 | | | — | | | — | | | — | | |
Commercial paper | Commercial paper | 162 | | | | — | | | | 162 | | | 15 | | | 147 | | | — | | | — | | | — | | Commercial paper | 247 | | | — | | | — | | | | 247 | | | 62 | | | 185 | | | — | | | — | | |
Non-U.S. promissory notes | Non-U.S. promissory notes | 55 | | | | — | | | | 55 | | | 26 | | | 29 | | | — | | | — | | | — | | Non-U.S. promissory notes | 71 | | | — | | | — | | | | 71 | | | 46 | | | 25 | | | — | | | — | | |
| Non-U.S. government sponsored enterprise notes | Non-U.S. government sponsored enterprise notes | 154 | | | | — | | | | 154 | | | 1 | | | 153 | | | — | | | — | | | — | | Non-U.S. government sponsored enterprise notes | 58 | | | — | | | — | | | | 58 | | | — | | | 58 | | | — | | | — | | |
Non-U.S. treasury bills/notes | Non-U.S. treasury bills/notes | 25 | | | | — | | | | 25 | | | — | | | 25 | | | — | | | — | | | — | | Non-U.S. treasury bills/notes | 43 | | | — | | | — | | | | 43 | | | 43 | | | — | | | — | | | — | | |
| Corporate notes/bonds | 25 | | | | — | | | | 25 | | | — | | | 25 | | | — | | | — | | | — | | |
| | 599 | | | | — | | | | 599 | | | 49 | | | 522 | | | — | | | 4 | | | 24 | | |
| | | 634 | | | — | | | — | | | | 634 | | | 274 | | | 333 | | | — | | | 27 | | |
Level 3: | | Level 3: | | | | | | |
| Other investments | | Other investments | 17 | | | 5 | | | — | | | | 22 | | | — | | | — | | | 22 | | | — | | |
| | | | $ | 774 | | | $ | 5 | | | $ | (9) | | | | $ | 770 | | | $ | 378 | | | $ | 334 | | | $ | 30 | | | $ | 28 | | |
| | $ | 811 | | | | $ | (7) | | | | $ | 804 | | | $ | 214 | | | $ | 525 | | | $ | 37 | | | $ | 4 | | | $ | 24 | | |
(1) Cost basis for other investments includes the effect of returns of capital and impairment.
As at AugustMay 31, 2021,2022, the Company had private non-marketable equity investments without readily determinable fair value of $38$30 million (February 28, 2022 - $30 million). During the three months ended May 31, 2022 and May 31, 2021, no adjustments were made to the carrying value of non-marketable equity investments without readily determinable fair value as a result of observable price changes or impairment. As of May 31, 2022, the Company has recorded a cumulative upward adjustment of $5 million to the carrying value of certain non-marketable equity investments without readily determinable fair value as a result of observable price changes for identical or similar securities (February 28, 2022 - $37$5 million). As of May 31, 2022, the Company has recorded a cumulative impairment of $3 million to the carrying value of certain other non-marketable equity investments without readily determinable fair value (February 28, 2022 - $3 million).
There were no realized gains or losses on available-for-sale securities for the three and six months ended AugustMay 31, 20212022 (realized losses of NaN for the three and six months ended AugustMay 31, 2020)2021).
The Company has restricted cash and cash equivalents, consisting of cash and securities pledged as collateral to major banking partners in support of the Company’s requirements for letters of credit. These letters of credit support certain leasing arrangements entered into in the ordinary course of business. The letters of credit are for terms ranging from one month to fourthree years. The Company is legally restricted from accessing these funds during the term of the leases for which the letters of credit have been issued; however, the Company can continue to invest the funds and receive investment income thereon.
The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at August 31, 2021 and February 28, 2021 from the consolidated balance sheets to the consolidated statements of cash flows:
| | | | | | | | | | | |
| As at |
| August 31, 2021 | | February 28, 2021 |
Cash and cash equivalents | $ | 291 | | | $ | 214 | |
Restricted cash and cash equivalents | 27 | | | 4 | |
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows | $ | 318 | | | $ | 218 | |
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at May 31, 2022 and February 28, 2022 from the consolidated balance sheets to the consolidated statements of cash flows:
| | | | | | | | | | | |
| As at |
| May 31, 2022 | | February 28, 2022 |
Cash and cash equivalents | $ | 391 | | | $ | 378 | |
Restricted cash and cash equivalents | 28 | | | 28 | |
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows | $ | 419 | | | $ | 406 | |
The contractual maturities of available-for-sale investments as at AugustMay 31, 20212022 and February 28, 20212022 were as follows:
| | | As at | | | As at | |
| | August 31, 2021 | | | February 28, 2021 | | | May 31, 2022 | | | February 28, 2022 | |
| | Cost Basis | | Fair Value | | | Cost Basis | | Fair Value | | | Cost Basis | | Fair Value | | | Cost Basis | | Fair Value | |
Due in one year or less | Due in one year or less | $ | 637 | | | $ | 637 | | | | $ | 599 | | | $ | 599 | | | Due in one year or less | $ | 594 | | | $ | 594 | | | | $ | 634 | | | $ | 634 | | |
| No fixed maturity | No fixed maturity | 10 | | | 2 | | | | 10 | | | 3 | | | No fixed maturity | 10 | | | — | | | | 10 | | | 1 | | |
| | $ | 647 | | | $ | 639 | | | | $ | 609 | | | $ | 602 | | | | $ | 604 | | | $ | 594 | | | | $ | 644 | | | $ | 635 | | |
|
As at AugustMay 31, 2021,2022 and February 28, 2022, the Company had investmentsno available-for-sale debt securities with continuous unrealized losses totaling $8 million, consisting of unrealized losses on equity securities (February 28, 2021 - continuous unrealized losses totaling $7 million).losses.
4.3. CONSOLIDATED BALANCE SHEET DETAILS
Accounts Receivable, Net of Allowance
The allowance for credit losses as at AugustMay 31, 20212022 was $9$4 million (February 28, 20212022 - $10$4 million).
The Company recognizes current estimated credit losses for accounts receivable, net of allowance. The cumulative expected credit losses (“CECL”) for accounts receivable. The CECL for accounts receivable net are estimated based on days past due and region for each customer in relation to a representative pool of assets consisting of a large number of customers with similar risk characteristics that operate under similar economic environments. The Company determined the CECL by estimating historical credit loss experience based on the past due status and region of the customers, adjusted as appropriate to reflect current conditions and estimates of future economic conditions, inclusive of the effect of the COVID-19 pandemic on credit losses. The duration and severity of the COVID-19 pandemic and the resulting market volatility are highly uncertain and, as such, the impact on expected credit losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods.conditions. When specific customers are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The Company also has long-term accounts receivable included in Other Long-term Assets. The CECL for long-term accounts receivable is estimated using the probability of default method and the default exposure due to limited historical information. The exposure of default is represented by the assets’ amortized carrying amount at the reporting date.
The following table sets forth the activity in the Company’s allowance for credit losses: | | | | | | | |
| As at | | |
| AugustMay 31, 20212022 | | |
Beginning balance as of February 29, 202028, 2021 | $ | 910 | | | |
Impact of adopting ASC 326 | 4 | | | |
Prior period recovery for expected credit losses | (3)(2) | | | |
Write-offs charged against the allowance | (4) | | | |
Ending balance of the allowance for credit loss as at February 28, 20212022 | 104 | | | |
| | | |
Current period recovery for expected credit losses | (1)— | | | |
| | | |
| | | |
Ending balance of the allowance for credit loss as at AugustMay 31, 20212022 | $ | 94 | | | |
The allowance for credit losses as at AugustMay 31, 20212022 consists of $2$1 million (February 28, 20212022 - $3$2 million) relating to CECL estimated based on days past due and region and $7$3 million (February 28, 20212022 - $7$2 million) relating to specific customers that were evaluated separately.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
There was 1no customer that comprised more than 10% of accounts receivable as at AugustMay 31, 20212022 (February 28, 20212022 - 1no customer comprised more than 10%).
Other Current AssetsReceivables
As at AugustMay 31, 20212022 and February 28, 2021,2022, other receivables included items such as receivables from the Government of Canada’s Hardest-Hit Business Recovery Program (“HHBRP”) and an intellectual property licensing receivable, among other items, none of which were greater than 5% of the current assets balance in any of the periods presented.
Other Current Assets
Other current assets comprised the following:
| | | | | | | | | | | |
| As at |
| May 31, 2022 | | February 28, 2022 |
| | | |
| | | |
Intellectual property | $ | 118 | | | $ | 118 | |
Other | 51 | | | 41 | |
| $ | 169 | | | $ | 159 | |
On January 29, 2022, the Company entered into a patent sale agreement with Catapult IP Innovations, Inc. (“Catapult”), pursuant to which the Company agreed to sell substantially all of its non-core patent assets to Catapult for a total transaction price of $600 million. Patents that are essential to the Company’s current core business operations are excluded from the transaction. Pursuant to the patent sale agreement, the Company would receive a license back to the patents being sold, which relate primarily to mobile devices, messaging and wireless networking. Completion of the revenue transaction is subject to the satisfaction of closing conditions. Catapult continues to work on securing its required financing; however, the Company is no longer under exclusivity with Catapult and is exploring alternative options in parallel. For the year ended February 28, 2022, the Company had classified $118 million of intellectual property that would be sold under the patent sale agreement with Catapult as other current assets on the Company’s consolidated balance sheets relating to the patent sale agreement. As at May 31, 2022, the Company continues to classify the intellectual property as other current assets on the Company’s consolidated balance sheets.
Other current assets also included items such as the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5% of the current assets balance in allany of the periods presented.
Property, Plant and Equipment, Net
Property, plant and equipment comprised the following: | | | | | | | | | | | |
| As at |
| May 31, 2022 | | February 28, 2022 |
Cost | | | |
BlackBerry operations and other information technology | $ | 93 | | | $ | 92 | |
Leasehold improvements and other | 54 | | | 53 | |
Furniture and fixtures | 9 | | | 10 | |
Manufacturing, repair and research and development equipment | 1 | | | 1 | |
| 157 | | | 156 | |
Accumulated amortization | 119 | | | 115 | |
Net book value | $ | 38 | | | $ | 41 | |
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
Property, Plant and Equipment, Net
Property, plant and equipment comprised the following: | | | | | | | | | | | |
| As at |
| August 31, 2021 | | February 28, 2021 |
Cost | | | |
Buildings, leasehold improvements and other | $ | 53 | | | $ | 67 | |
BlackBerry operations and other information technology | 93 | | | 110 | |
Manufacturing, repair and research and development equipment | 71 | | | 72 | |
Furniture and fixtures | 9 | | | 10 | |
| 226 | | | 259 | |
Accumulated amortization | 182 | | | 211 | |
Net book value | $ | 44 | | | $ | 48 | |
Intangible Assets, Net
Intangible assets comprised the following: | | | As at August 31, 2021 | | As at May 31, 2022 |
| | Cost | | Accumulated Amortization | | Net Book Value | | Cost | | Accumulated Amortization | | Net Book Value |
Acquired technology | Acquired technology | $ | 1,023 | | | $ | 747 | | | $ | 276 | | Acquired technology | $ | 1,023 | | | $ | 789 | | | $ | 234 | |
Other acquired intangibles | | Other acquired intangibles | 494 | | | 293 | | | 201 | |
Intellectual property | Intellectual property | 500 | | | 314 | | | 186 | | Intellectual property | 120 | | | 50 | | | 70 | |
Other acquired intangibles | 494 | | | 261 | | | 233 | | |
| | $ | 2,017 | | | $ | 1,322 | | | $ | 695 | | | $ | 1,637 | | | $ | 1,132 | | | $ | 505 | |
| | | As at February 28, 2021 | | As at February 28, 2022 |
| | Cost | | Accumulated Amortization | | Net Book Value | | Cost | | Accumulated Amortization | | Net Book Value |
Acquired technology | Acquired technology | $ | 1,023 | | | $ | 712 | | | $ | 311 | | Acquired technology | $ | 1,023 | | | $ | 776 | | | $ | 247 | |
Other acquired intangibles | | Other acquired intangibles | 494 | | | 283 | | | 211 | |
Intellectual property | Intellectual property | 498 | | | 299 | | | 199 | | Intellectual property | 117 | | | 53 | | | 64 | |
Other acquired intangibles | 494 | | | 233 | | | 261 | | |
| | $ | 2,015 | | | $ | 1,244 | | | $ | 771 | | | $ | 1,634 | | | $ | 1,112 | | | $ | 522 | |
For the sixthree months ended AugustMay 31, 2021,2022, amortization expense related to intangible assets amounted to $89$25 million (six(three months ended AugustMay 31, 20202021 - $89$45 million).
Total additions to intangible assets for sixthe three months ended AugustMay 31, 2022 amounted to $8 million (three months ended May 31, 2021 amounted to $14 million (six months ended August 31, 2020 - $16$6 million). During the sixthree months ended AugustMay 31, 2021,2022, additions to intangible assets primarily consisted of payments for intellectual property relating to patent maintenance, registration and license fees.
Based on the carrying value of the identified intangible assets as at AugustMay 31, 2021,2022, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for the remainder of fiscal 20222023 and each of the five succeeding years is expected to be as follows: fiscal 2022 - $73 million; fiscal 2023 - $120$74 million; fiscal 2024 - $110$94 million; fiscal 2025 - $102$90 million; fiscal 2026 - $96$85 million; fiscal 2027 - $79 million and fiscal 20272028 - $88$43 million.
Goodwill
Changes to the carrying amount of goodwill during the three months ended May 31, 2022 were as follows:
| | | | | |
| Carrying Amount |
Carrying amount as at February 28, 2021 | $ | 849 | |
| |
Effect of foreign exchange on non-U.S. dollar denominated goodwill | (5) | |
Carrying amount as at February 28, 2022 | 844 | |
| |
| |
Effect of foreign exchange on non-U.S. dollar denominated goodwill | (3) | |
Carrying amount as at May 31, 2022 | $ | 841 | |
In the fourth quarter of fiscal 2022, the Company announced that it had agreed to the sale of a significant amount of patent assets to Catapult subject to the satisfaction of closing conditions. The completion of the sale would accelerate the timing of estimated cash flows for the Intellectual Property reporting unit and, based upon changes in the estimates to future cash flows following the contemplated sale, could potentially result in impacts that would be material to the consolidated financial statements in relation to the fair value of the goodwill of that reporting unit.
Other Long-term Assets
As at May 31, 2022 and February 28, 2022, other long-term assets included long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5% of total assets in any of the periods presented.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
Goodwill
Changes to the carrying amount of goodwill during the six months ended August 31, 2021 were as follows:
| | | | | |
| Carrying Amount |
Carrying amount as at February 29, 2020 | $ | 1,437 | |
Goodwill impairment charge (see note 3) | (594) | |
Effect of foreign exchange on non-U.S. dollar denominated goodwill | 6 | |
Carrying amount as at February 28, 2021 | 849 | |
| |
| |
Effect of foreign exchange on non-U.S. dollar denominated goodwill | (1) | |
Carrying amount as at August 31, 2021 | $ | 848 | |
Other Long-term Assets
As at August 31, 2021 and February 28, 2021, other long-term assets included long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5% of total assets in any of the periods presented.
Accrued Liabilities
Accrued liabilities comprised the following: | | | As at | | As at |
| | August 31, 2021 | | February 28, 2021 | | May 31, 2022 | | February 28, 2022 |
| Accrued settlement (note 9) | | Accrued settlement (note 9) | $ | 165 | | | $ | — | |
Accrued royalties | | Accrued royalties | 20 | | | 20 | |
| Operating lease liabilities, current | Operating lease liabilities, current | 30 | | | 33 | | Operating lease liabilities, current | 27 | | | 28 | |
Other | Other | 144 | | | 145 | | Other | 92 | | | 109 | |
| | $ | 174 | | | $ | 178 | | | $ | 304 | | | $ | 157 | |
Other accrued liabilities include accrued royalties, accrued director fees, accrued vendor liabilities, accrued carrier liabilities, variable incentive accrual and payroll withholding taxes, among other items, none of which were greater than 5% of the current liabilities balance.
Other Long-term Liabilities
Other long-term liabilities consistbalance in any of the long-term portion of finance lease liabilities and non-lease component liabilities related to the Company’s previous Resource Allocation Program entered into in order to transition the Company from a legacy hardware manufacturer to a licensing driven software business.periods presented.
5.4. INCOME TAXES
For the sixthree months ended AugustMay 31, 2021,2022, the Company’s net effective income tax expense rate was approximately 2% compared to a net effective income tax recoveryexpense rate of 2%3% for the sixthree months ended AugustMay 31, 2020.2021. The Company’s income tax rate reflects the change in unrecognized income tax benefit, if any, and the fact that the Company has a significant valuation allowance against its deferred income tax assets, and in particular, the change in fair value of the 1.75% Debentures (as defined in Note 6)5), amongst other items, is offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.
The Company’s total unrecognized income tax benefits as at AugustMay 31, 20212022 were $19$20 million (February 28, 20212022 - $24$20 million). As at AugustMay 31, 2021, $192022, $20 million of the unrecognized income tax benefits have been netted against deferred income tax assets and nil has been recorded within income taxes payable on the Company’s consolidated balance sheets.
The Company is subject to ongoing examination by tax authorities in certain jurisdictions in which it operates. The Company regularly assesses the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income taxes as well as the provisions for indirect and other taxes and related penalties and interest. While the final resolution of audits is uncertain, the Company believes the ultimate resolution of these audits will not have a material adverse effect on its consolidated financial position, liquidity or results of operations.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
6.5. DEBENTURES
1.75% Convertible Debentures
On September 1, 2020, Hamblin Watsa Investment Counsel Ltd., in its capacity as investment manager of Fairfax Financial Holdings Limited ("Fairfax"(“Fairfax”), and another institutional investor invested in the Company through a $365 million private placement of new debentures (the “1.75% Debentures”), which replaced $605 million of debentures issued in a private placement on September 7, 2016 (the “3.75% Debentures”) as described below (collectively, the “Debentures”).
Due to the conversion option and other embedded derivatives within the 1.75% Debentures, and consistent with the Company’s accounting for the 3.75% Debentures, the Company has elected to record the 1.75% Debentures, including the debt itself and all embedded derivatives, at fair value and present the 1.75% Debentures as a single hybrid financial instrument. No portion of the fair value of the 1.75% Debentures has been recorded as equity, nor would be if the embedded derivatives were bifurcated from the host debt contract.
Each period, the fair value of the 1.75% Debentures is recalculated and resulting gains and losses from the change in fair value of the 1.75% Debentures associated with non-credit components are recognized in income, while the change in fair value associated with credit components is recognized in accumulated other comprehensive loss (“AOCL”). The fair value of the 1.75% Debentures has been determined using the significant Level 2 inputs interest rate curves, and any observable trades of the Debentures that may have occurred during the period, the market price and volatility of the Company’s listed common shares, and the significant Level 3 inputs related to credit spread and the implied discount of the 1.75% Debentures at issuance.
The Company originally determined its credit spread by calibrating to observable trades of the 3.75% Debentures and trending the calibrated spread to valuation dates utilizing an appropriate credit index. The Company’s credit spread was determined to be 7.90% as of the issuance date of the 1.75% Debentures and 6.46%7.31% as of AugustMay 31, 2021.2022. An increase in credit spread will result in a decrease in the fair value of 1.75% Debentures and vice versa. The fair value of the 1.75% Debentures on September 1, 2020 was determined to be approximately $456 million and the implied discount approximately $91 million. The Company determined the implied discount on the 1.75% Debentures by calculating the fair value of the 1.75% Debentures on September 1, 2020 utilizing the above credit spread and other inputs described above.
The following table summarizes the change in fair value of the 1.75% Debentures for the six months ended August 31, 2021, which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy:
| | | | | | | | | |
| | As at |
| | August 31, 2021 | |
Balance as at February 28, 2021 | | $ | 720 | | |
Change in fair value of the Debentures | | 62 | | |
Balance as at August 31, 2021 | | $ | 782 | | |
The difference between the fair value of the 1.75% Debentures and the unpaid principal balance of $365 million is $417 million.
The following table shows the impact of the changes in fair value of the 1.75% Debentures for the three and six months ended August 31, 2021 and August 31, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Charge associated with the change in fair value from non-credit components recorded in the consolidated statements of operations | | $ | (67) | | | $ | — | | | $ | (63) | | | $ | — | |
Income associated with the change in fair value from instrument-specific credit components recorded in AOCL | | — | | | — | | | 1 | | | — | |
Total increase in the fair value of the 1.75% Debentures | | $ | (67) | | | $ | — | | | $ | (62) | | | $ | — | |
For the three and six months ended August 31, 2021, the Company recorded interest expense related to the Debentures of $2 million and $3 million, respectively, which has been included in investment loss, net on the Company’s consolidated statements of operations (three and six months ended August 31, 2020 - $6 million and $11 million).
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
fair value of the 1.75% Debentures on September 1, 2020 utilizing the above credit spread and other inputs described above.
The following table summarizes the change in fair value of the 1.75% Debentures for the three months ended May 31, 2022, which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy:
| | | | | | | | | |
| | As at |
| | May 31, 2022 | |
Balance as at February 28, 2022 | | $ | 507 | | |
Change in fair value of the 1.75% Debentures | | (48) | | |
Balance as at May 31, 2022 | | $ | 459 | | |
The difference between the fair value of the 1.75% Debentures and the unpaid principal balance of $365 million is $94 million.
The following table shows the impact of the changes in fair value of the 1.75% Debentures for the three months ended May 31, 2022 and May 31, 2021:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | May 31, 2022 | | May 31, 2021 | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Income associated with the change in fair value from non-credit components recorded in the consolidated statements of operations | | $ | 46 | | | $ | 4 | | | | | |
Income associated with the change in fair value from instrument-specific credit components recorded in AOCL | | 2 | | | 1 | | | | | |
Total decrease in the fair value of the 1.75% Debentures | | $ | 48 | | | $ | 5 | | | | | |
For the three months ended May 31, 2022, the Company recorded interest expense related to the 1.75% Debentures of $2 million, which has been included in investment loss, net on the Company’s consolidated statements of operations (three months ended May 31, 2021 - $2 million).
Fairfax, a related party under U.S. GAAP due to its beneficial ownership of common shares in the Company after taking into account potential conversion of the 1.75% Debentures, owned $500 million principal amount of the 3.75% Debentures and purchasedowns $330 million principal amount of the 1.75% Debentures. As such, the redemption of Fairfax’s portion of the 3.75% Debentures, the investment by Fairfax in the 1.75% Debentures and the payment of interest on the 1.75% Debentures to Fairfax representrepresents a related party transactions.transaction. Fairfax receives interest at the same rate as other holders of the 1.75% Debentures.
3.75% Convertible Debentures
On September 7, 2016, Fairfax and other institutional investors invested in the Company through a $605 million private placement of the 3.75% Debentures.
On July 22, 2020, the Company announced that, with the required approval of the holders of the 3.75% Debentures, it would redeem the 3.75% Debentures for a redemption amount of approximately $615 million (the “Redemption Amount”), which would settle all outstanding obligations of the Company in respect of the 3.75% Debentures. The redemption was completed on September 1, 2020. As the Redemption Amount represented fair value at August 31, 2020 and the Company elected the fair value option for the 3.75% Debentures, the impact to the consolidated statements of operations of the redemption on the fair value was recorded in the second quarter of fiscal 2021.
The following table shows the impact of the changes in fair value of the 3.75% Debentures for the three and six months ended August 31, 2021 and August 31, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 |
| | | | | | | | |
Charge associated with the change in fair value from non-credit components recorded in the consolidated statements of operations | | $ | — | | | $ | (18) | | | $ | — | | | $ | (19) | |
Income associated with the change in fair value from instrument-specific credit components recorded in AOCL | | — | | | 7 | | | — | | | 15 | |
| | | | | | | | |
| | | | | | | | |
Total decrease in the fair value of the 3.75% Debentures | | $ | — | | | $ | (11) | | | $ | — | | | $ | (4) | |
7.6. CAPITAL STOCK
The following details the changes in issued and outstanding common shares for the sixthree months ended AugustMay 31, 2021:2022:
| | | Capital Stock and Additional Paid-in Capital | | Capital Stock and Additional Paid-in Capital |
| | Stock Outstanding (000s) | | Amount | | Stock Outstanding (000s) | | Amount |
Common shares outstanding as at February 28, 2021 | 565,505 | | | $ | 2,823 | | |
Common shares outstanding as at February 28, 2022 | | Common shares outstanding as at February 28, 2022 | 576,228 | | | $ | 2,869 | |
Exercise of stock options | Exercise of stock options | 379 | | | 2 | | Exercise of stock options | 27 | | | — | |
Common shares issued for restricted share unit settlements | Common shares issued for restricted share unit settlements | 732 | | | — | | Common shares issued for restricted share unit settlements | 456 | | | — | |
Stock-based compensation | Stock-based compensation | — | | | 17 | | Stock-based compensation | — | | | 8 | |
| Common shares issued for employee share purchase plan | Common shares issued for employee share purchase plan | 379 | | | 3 | | Common shares issued for employee share purchase plan | 458 | | | 3 | |
Common shares outstanding as at August 31, 2021 | 566,995 | | | $ | 2,845 | | |
Common shares outstanding as at May 31, 2022 | | Common shares outstanding as at May 31, 2022 | 577,169 | | | $ | 2,880 | |
The Company had 567577 million voting common shares outstanding, 1 million options to purchase voting common shares, 2015 million RSUs and 12 million DSUs outstanding as at September 20, 2021.June 21, 2022. In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 6.5.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
7. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per share: | | | | | | | | | | | | | | | |
| Three Months Ended | |
| May 31, 2022 | | May 31, 2021 | | | | |
Net loss for basic loss per share available to common shareholders | $ | (181) | | | $ | (62) | | | | | |
Less: 1.75% Debentures fair value adjustment (1) (2) | (46) | | | — | | | | | |
Add: interest expense on 1.75% Debentures (1) (2) | 2 | | | — | | | | | |
Net loss for diluted loss per share available to common shareholders | $ | (225) | | | $ | (62) | | | | | |
| | | | | | | |
Weighted average number of shares outstanding (000’s) - basic (3) (4) | 576,877 | | | 567,358 | | | | | |
Effect of dilutive securities (000’s) | | | | | | | |
| | | | | | | |
Conversion of 1.75% Debentures (1) (2) | 60,833 | | | — | | | | | |
Weighted average number of shares and assumed conversions (000’s) diluted | 637,710 | | | 567,358 | | | | | |
Loss per share - reported | | | | | | | |
Basic | $ | (0.31) | | | $ | (0.11) | | | | | |
Diluted | $ | (0.35) | | | $ | (0.11) | | | | | |
(1) The Company has presented the dilutive effect of the 1.75% Debentures using the if-converted method, assuming conversion at the beginning of the quarter for the three months ended May 31, 2022. Accordingly, to calculate diluted loss per share, the Company adjusted net loss by eliminating the fair value adjustment made to the 1.75% Debentures and interest expense incurred on the 1.75% Debentures for the three months ended May 31, 2022, and added the number of shares that would have been issued upon conversion to the diluted weighted average number of shares outstanding. See Note 5 for details on the 1.75% Debentures.
(2) The Company has not presented the dilutive effect of the 1.75% Debentures using the if-converted method in the calculation of diluted loss per share for the three months ended May 31, 2021, as to do so would be antidilutive. See Note 5 for details on the 1.75% Debentures.
(3) The three months ended May 31, 2021, includes approximately 1,421,945 common shares (Exchange Shares) remaining that were subsequently issued on the third anniversary date of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition.
(4) The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted loss per share for the three months ended May 31, 2022 and May 31, 2021, as to do so would be antidilutive.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
8. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per share: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 |
Net loss for basic and diluted loss per share available to common shareholders (1) | $ | (144) | | | $ | (23) | | | $ | (206) | | | $ | (659) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average number of shares outstanding (000’s) - basic and diluted (1) (2) (3) | 568,082 | | | 558,882 | | | 567,724 | | | 558,365 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Loss per share - reported | | | | | | | |
Basic | $ | (0.25) | | | $ | (0.04) | | | $ | (0.36) | | | $ | (1.18) | |
Diluted | $ | (0.25) | | | $ | (0.04) | | | $ | (0.36) | | | $ | (1.18) | |
(1) The Company has not presented the dilutive effect of the Debentures using the if-converted method in the calculation of diluted loss per share for the three and six months ended August 31, 2021 and August 31, 2020, as to do so would be antidilutive. See Note 6 for details on the Debentures.
(2) The three and six months ended August 31, 2021, includes approximately 1,421,945 common shares (Exchange Shares) remaining to be issued on the third anniversary date of the Cylance acquisition completed on February 21, 2019, in consideration for the acquisition. The three and six months ended August 31, 2020, includes approximately 2,802,067 common shares to be issued in equal installments on the two anniversary dates of the Cylance acquisition thereafter, in consideration for the acquisition. There are no service or other requirements associated with the issuance of these shares.
(3) The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted loss per share for the three and six months ended August 31, 2021 and August 31, 2020, as to do so would be antidilutive.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
9. ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in AOCL by component net of tax, for the three and six months ended AugustMay 31, 20212022 and AugustMay 31, 20202021 were as follows:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 | | May 31, 2022 | | May 31, 2021 | |
| Cash Flow Hedges | Cash Flow Hedges | | | | | | | | Cash Flow Hedges | | | | |
Balance, beginning of period | Balance, beginning of period | $ | 2 | | | $ | (2) | | | $ | 1 | | | $ | (1) | | Balance, beginning of period | $ | — | | | $ | 1 | | |
Other comprehensive income (loss) before reclassification | (2) | | | 3 | | | — | | | 1 | | |
Other comprehensive income before reclassification | | Other comprehensive income before reclassification | 1 | | | 2 | | |
Amounts reclassified from AOCL into net loss | Amounts reclassified from AOCL into net loss | — | | | 1 | | | (1) | | | 2 | | Amounts reclassified from AOCL into net loss | — | | | (1) | | |
Accumulated net unrealized gains (losses) on derivative instruments designated as cash flow hedges | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | | |
Accumulated net unrealized gains on derivative instruments designated as cash flow hedges | | Accumulated net unrealized gains on derivative instruments designated as cash flow hedges | $ | 1 | | | $ | 2 | | |
Foreign Currency Cumulative Translation Adjustment | Foreign Currency Cumulative Translation Adjustment | | | | | | | | Foreign Currency Cumulative Translation Adjustment | | | | |
Balance, beginning of period | Balance, beginning of period | $ | (3) | | | $ | (8) | | | $ | (4) | | | $ | (9) | | Balance, beginning of period | $ | (10) | | | $ | (4) | | |
Other comprehensive income (loss) before reclassification | (3) | | | 2 | | | (2) | | | 3 | | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | (4) | | | 1 | | |
Foreign currency cumulative translation adjustment | Foreign currency cumulative translation adjustment | $ | (6) | | | $ | (6) | | | $ | (6) | | | $ | (6) | | Foreign currency cumulative translation adjustment | $ | (14) | | | $ | (3) | | |
Change in Fair Value From Instrument-Specific Credit Risk On Debentures | | | | | | | | |
Change in Fair Value From Instrument-Specific Credit Risk On 1.75% Debentures | | Change in Fair Value From Instrument-Specific Credit Risk On 1.75% Debentures | | | | |
Balance, beginning of period | Balance, beginning of period | $ | (8) | | | $ | (15) | | | $ | (9) | | | $ | (22) | | Balance, beginning of period | $ | (8) | | | $ | (9) | | |
Other comprehensive income before reclassification | Other comprehensive income before reclassification | — | | | 7 | | | 1 | | | 14 | | Other comprehensive income before reclassification | 2 | | | 1 | | |
| Change in fair value from instruments-specific credit risk on Debentures | $ | (8) | | | $ | (8) | | | $ | (8) | | | $ | (8) | | |
Change in fair value from instruments-specific credit risk on 1.75% Debentures | | Change in fair value from instruments-specific credit risk on 1.75% Debentures | $ | (6) | | | $ | (8) | | |
Other Post-Employment Benefit Obligations | Other Post-Employment Benefit Obligations | | | | | | | | Other Post-Employment Benefit Obligations | | | | |
Actuarial losses associated with other post-employment benefit obligations | Actuarial losses associated with other post-employment benefit obligations | $ | (1) | | | $ | (1) | | | $ | (1) | | | $ | (1) | | Actuarial losses associated with other post-employment benefit obligations | $ | (1) | | | $ | (1) | | |
Accumulated Other Comprehensive Loss, End of Period | Accumulated Other Comprehensive Loss, End of Period | $ | (15) | | | $ | (13) | | | $ | (15) | | | $ | (13) | | Accumulated Other Comprehensive Loss, End of Period | $ | (20) | | | $ | (10) | | |
10.9. COMMITMENTS AND CONTINGENCIES
(a)Letters of Credit
The Company had $27$26 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of AugustMay 31, 2021.2022. See the discussion of restricted cash in Note 3.2.
(b)Contingencies
Litigation
The Company is involved in litigation in the normal course of its business, both as a defendant and as a plaintiff. The Company is subject to a variety of claims (including claims related to patent infringement, purported class actions and other claims in the normal course of business) and may be subject to additional claims either directly or through indemnities against claims that it provides to certain of its partners and customers. In particular, the industry in which the Company competes has many participants that own, or claim to own, intellectual property, including participants that have been issued patents and may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those used by the Company in its products. The Company has received, and may receive in the future, assertions and claims from third parties that the Company’s products infringe on their patents or other intellectual property rights. Litigation has been, and will likely continue to be, necessary to determine the scope, enforceability and validity of third-party proprietary rights or to establish the Company’s proprietary rights. Regardless of whether claims against the Company have merit, those claims could be time-consuming to evaluate and defend, result in costly litigation, divert management’s attention and resources and subject the Company to significant liabilities.
Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount of any potential loss. Where a potential loss is considered probable and the amount is reasonably
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum amount in the range. The Company does not provide for claims for which the outcome is not determinable or claims for which the amount of
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable.
As of AugustMay 31, 2021,2022, with the exception of the U.S. class actions settlement discussed in “Litigation Settlement“ below in this Note 9, there are no other material claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable; therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed the potential loss as reasonably possible to result; however, an estimate of the amount of loss cannot reasonably be made. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding does not require the claimant to specifically identify the patent claims that have allegedly been infringed or the products that are alleged to infringe; damages sought are unspecified, unsupportable, unexplained or uncertain; discovery has not been started or is incomplete; the facts that are in dispute are highly complex (e.g., once a patent is identified, the analysis of the patent and a comparison to the activities of the Company is a labour-intensive and highly technical process);complex; the difficulty of assessing novel claims; the parties have not engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and the often slow pace of litigation.
The Company has included the following summaries of certain of its legal proceedings though they do not meet the test for accrual described above.
Between October and December 2013, several purported class action lawsuits and one individual lawsuit were filed against the Company and certain of its former officers in various jurisdictions in the U.S. and Canada alleging that the Company and certain of its officers made materially false and misleading statements regarding the Company’s financial condition and business prospects and that certain of the Company’s financial statements contain material misstatements. The individual lawsuit was voluntarily dismissed.
On March 14, 2014,dismissed and the four putative U.S. class actions were consolidatedreached an agreement in the U.S. District Court for the Southern District of New York, and on May 27, 2014, a consolidated amended class action complaint was filed. On March 13, 2015, the Court issued an order granting the Company’s motionprinciple to dismiss. The Court denied the plaintiffs’ motion for reconsideration and for leave to file an amended complaint on November 13, 2015. On August 24, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the District Court order dismissing the complaint, but vacated the order denying leave to amend and remanded to the District Court for further proceedingssettle; see “Litigation Settlement“ below in connection with the plaintiffs’ request for leave to amend. The Court granted the plaintiffs’ motion for leave to amend on September 13, 2017. On September 29, 2017, the plaintiffs filed a second consolidated amended class action complaint (the “Second Amended Complaint”), which added the Company’s former Chief Legal Officer as a defendant. The Court denied the motion to dismiss the Second Amended Complaint on March 19, 2018. On January 4, 2019, the Court issued an order placing the case on its suspense calendar but allowed fact and expert discovery to continue. On August 2, 2019, the Magistrate Judge issued a Report and Recommendation that the Court grant the defendants’ motion for judgment on the pleadings dismissing the claims of additional plaintiffs Cho and Ulug. On September 24, 2019, the District Court Judge accepted the Magistrate Judge’s recommendation and dismissed the claims of Cho and Ulug against all defendants. On October 17, 2019, Cho and Ulug filed a Notice of Appeal. The District Court removed the case from its suspense calendar on May 29, 2020. Plaintiffs filed a motion for class certification on June 8, 2020. All discovery was completed as of November 13, 2020. On January 26, 2021, the District Court granted the plaintiffs’ motion for class certification. The class includes “all persons who purchased or otherwise acquired the common stock of BlackBerry Limited on the NASDAQ during the period from March 28, 2013, through and including September 20, 2013 (the “Class Period”).” The class excludes (a) all persons and entities who purchased or otherwise acquired BlackBerry Limited common stock between March 28, 2013, and April 10, 2013, and who sold all their BlackBerry Limited common stock before April 11, 2013, and (b) the Defendants, officers and directors of BlackBerry Limited, members of their immediate families and their legal representatives, heirs, successors, or assigns, and any entity in which any of the Defendants have or had a controlling interest. On February 9, 2021, the defendants filed a Rule 23(f) petition for interlocutory review of the class certification order with the Second Circuit Court of Appeals. The Second Circuit Court of Appeals denied the Rule 23(f) petition on June 23, 2021. The Second Circuit Court of Appeals affirmed the District Court judgment dismissing Cho and Ulug’s claims on March 11, 2021, and denied Cho and Ulug’s petition for panel rehearing and rehearing en banc on April 28, 2021. On April 19, 2021, Defendants filed a motion for summary judgment, and both parties filed Daubert motions to exclude the testimony of the oppositions’ marketing and accounting experts. Both sides filed oppositions to these motions on June 21, 2021. Defendants filed a reply in support of their summary judgment motion and a motion to strike Plaintiffs’ response to Defendants’ separate statement of undisputed facts on July 22, 2021. Plaintiffs filed an opposition to the motion to strike
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
on August 5, 2021, and Defendants filed a reply in support on August 10, 2021. On August 13, 2021, Plaintiffs filed an unopposed motion for approval of a class notice plan. On September 10, 2021, the Court (i) granted in part and denied in part the parties’ Daubert motions and (ii) granted the plaintiffs’ unopposed motion for approval of the class notice plan. On May 5, 2021, the parties participated in a mediation with the Hon. Layn Phillips (ret.), which did not result in an agreement. The Court has not set a trial date.this Note 9.
On July 23, 2014, the plaintiffs in the putative Ontario class action filed a motion for certification and leave to pursue statutory misrepresentation claims. On November 16, 2015, the Ontario Superior Court of Justice issued an order granting the plaintiffs’ motion for leave to file a statutory claim for misrepresentation. On December 2, 2015, the Company filed a notice of motion seeking leave to appeal this ruling. On January 22, 2016, the Court postponed the hearing on the plaintiffs’ certification motion to an undetermined date after asking the Company to file a motion to dismiss the claims of the U.S. plaintiffs for forum non conveniens. Before that motion was heard, the parties agreed to limit the class to purchasers who reside in Canada or purchased on the Toronto Stock Exchange. On November 15, 2018, the Court denied the Company’s motion for leave to appeal the order granting the plaintiffs leave to file a statutory claim for misrepresentation. On February 5, 2019, the Court entered an order certifying a class comprised persons (a) who purchased BlackBerry common shares between March 28, 2013, and September 20, 2013, and still held at least some of those shares as of September 20, 2013, and (b) who acquired those shares on a Canadian stock exchange or acquired those shares on any other stock exchange and were a resident of Canada when the shares were acquired. Notice of class certification was published on March 6, 2019. The Company filed its Statement of Defence on April 1, 2019, and discovery is proceeding.
On February 15, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice. The Statement of Claim alleges that actions the Company took when certain of its employees decided to accept offers of employment from Ford Motor Company of Canada amounted to a wrongful termination of the employees’ employment with the Company. The claim seeks (i) an unspecified quantum of statutory, contractual, or common law termination entitlements; (ii) punitive or breach of duty of good faith damages of CAD$20,000,000, or such other amount as the Court finds appropriate, (iii) pre- and post- judgment interest, (iv) attorneys’ fees and costs, and (v) such other relief as the Court deems just. The Court granted the plaintiffs’ motion to certify the class action on May 27, 2019. The Company commenced a motion for leave to appeal the certification order on June 11, 2019. The Court denied the motion for leave to appeal on September 17, 2019. The Company filed its Statement of Defence on December 19, 2019, and discovery is proceeding.
Other contingencies
In the first quarter of fiscal 2019, the Board approved a compensation package for the Company’s Executive Chair and CEO as an incentive to remain as Executive Chair until November 23, 2023. As part of the package, the Company’s Executive Chair and CEO is entitled to receive a contingent performance-based cash award in the amount of $90 million that will become earned and payable should the 10-day average closing price of the Company’s common shares on the New York Stock Exchange reach $30 before November 3, 2023. As the award is triggered by the Company’s share price, it is considered stock-based compensation and accounted for as a share-based liability award. As at AugustMay 31, 2021,2022, the liability recorded in association with this award is approximately $11$1 million (February 28, 20212022 - $8$2 million).
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
As at AugustMay 31, 2021,2022, the Company has recognized $17 million (February 28, 20212022 - $15$17 million) in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX. A portion of this amount may be repayable in the future under certain circumstances if certain terms and conditions are not met by the Company, which is not probable at this time.
(c)ConcentrationsLitigation Settlement
On March 14, 2014, the four putative U.S. class actions were consolidated in Certain Areasthe U.S. District Court for the Southern District of New York, and on May 27, 2014, a consolidated amended class action complaint was filed. On March 13, 2015, the Court issued an order granting the Company’s motion to dismiss. The Court denied the plaintiffs’ motion for reconsideration and for leave to file an amended complaint on November 13, 2015. On August 24, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the District Court order dismissing the complaint, but vacated the order denying leave to amend and remanded to the District Court for further proceedings in connection with the plaintiffs’ request for leave to amend. The Court granted the plaintiffs’ motion for leave to amend on September 13, 2017. On September 29, 2017, the plaintiffs filed a second consolidated amended class action complaint (the “Second Amended Complaint”), which added the Company’s former Chief Legal Officer as a defendant. The Court denied the motion to dismiss the Second Amended Complaint on March 19, 2018. On August 2, 2019, the Magistrate Judge issued a Report and Recommendation that the Court grant the defendants’ motion for judgment on the pleadings dismissing the claims of additional plaintiffs Cho and Ulug. On September 24, 2019, the District Court Judge accepted the Magistrate Judge’s recommendation and dismissed the claims of Cho and Ulug against all defendants. On January 26, 2021, the District Court granted the plaintiffs’ motion for class certification. The class includes “all persons who purchased or otherwise acquired the common stock of BlackBerry Limited on the NASDAQ during the period from March 28, 2013, through and including September 20, 2013”. The class excludes (a) all persons and entities who purchased or otherwise acquired the Company’s common stock between March 28, 2013, and April 10, 2013, and who sold all their Company common stock before April 11, 2013, and (b) the defendants, officers and directors of the Company’s Business
Company, members of their immediate families and their legal representatives, heirs, successors, or assigns, and any entity in which any of the Defendants have or had a controlling interest. The Company attemptsSecond Circuit Court of Appeals denied the defendants’ petition for review of the class certification order on June 23, 2021. The Second Circuit Court of Appeals affirmed the District Court judgment dismissing Cho and Ulug’s claims on March 11, 2021, and denied Cho and Ulug’s petition for panel rehearing and rehearing en banc on April 28, 2021. On May 5, 2021, the parties participated in a mediation with the Hon. Layn Phillips (ret.), which did not result in an agreement. On September 10, 2021. the Court granted the plaintiffs’ unopposed motion for approval of the class notice plan. Postcard notice was mailed on October 8, 2021; publication notice was issued starting on October 18, 2021. On January 3, 2022, the Court denied defendants’ motion for summary judgment except with respect to ensure that most components essentialseven statements the Court found were barred by the statute of repose. On April 6, 2022, the parties accepted a mediator’s proposal, and reached an agreement in principle to settle the Company’s business are generally available from multiple sources; however, certain components are currently obtained from limited sources within a competitive market, which subjectsU.S. consolidated actions for $165,000,000. The settlement is subject to preliminary and final approval by the Court. The Stipulation of Settlement was executed effective June 7, 2022, the Court granted plaintiffs’ motion for preliminary approval of the settlement on June 14, 2022, and scheduled the final approval hearing for September 29, 2022. In the first quarter of fiscal 2023, the Company to supply, availability and pricing risks. The Company has also entered into various agreements foraccrued $165 million associated with this settlement within the supplyline Litigation settlement on the consolidated statement of components, and the manufacturing of its products; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to risks of supply shortages.operations.
(d)Indemnifications
The Company enters into certain agreements that contain indemnification provisions under which the Company could be subject to costs and damages, including in the event of an infringement claim against the Company or an indemnified
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
third party. Such intellectual property infringement indemnification clauses are generally not subject to any dollar limits and remain in effect for the term of the Company’s agreements. To date, the Company has not encountered material costs as a result of such indemnifications.
The Company has entered into indemnification agreements with its current and former directors and executive officers. Under these agreements, the Company agreed, subject to applicable law, to indemnify its current and former directors and executive officers against all costs, charges and expenses reasonably incurred by such individuals in respect of any civil, criminal or administrative action that could arise by reason of their status as directors or officers. The Company maintains liability insurance coverage for the benefit of the Company, and its current and former directors and executive officers. The Company has not encountered material costs as a result of such indemnifications in the current period.
11. REVENUE AND SEGMENT DISCLOSURES
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the CODM for making decisions and assessing performance as a source of the Company’s reportable operating segments. In the first quarter of fiscal 2022, the CODM, who is the Executive Chair and CEO of the Company, began making decisions and assessing the performance of the Company using 3 operating segments, whereas the CODM previously made decisions and assessed the performance of the Company as a single operating segment.
The CODM does not evaluate operating segments using discrete asset information. The Company does not specifically allocate assets to operating segments for internal reporting purposes.
Segment Disclosures
The Company is now organized and managed as 3 operating segments: Cyber Security, IoT, and Licensing and Other. Prior year information has been restated to conform to the current year presentation of the Company’s segment information.
The following table shows information by operating segment for the three and six months ended August 31, 2021 and August 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | | | |
| August 31, 2021 | | August 31, 2020 | | | | August 31, 2021 | | August 31, 2020 | | | | August 31, 2021 | | August 31, 2020 | | | | August 31, 2021 | | August 31, 2020 | | | | | |
Segment revenue | $ | 120 | | | $ | 120 | | | | | $ | 40 | | | $ | 31 | | | | | $ | 15 | | | $ | 108 | | | | | $ | 175 | | | $ | 259 | | | | | | | |
Segment cost of sales | 49 | | | 46 | | | | | 7 | | | 6 | | | | | 6 | | | 7 | | | | | 62 | | | 59 | | | | | | | |
Segment gross margin (1) | $ | 71 | | | $ | 74 | | | | | $ | 33 | | | $ | 25 | | | | | $ | 9 | | | $ | 101 | | | | | $ | 113 | | | $ | 200 | | | | | | | |
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| For the Six Months Ended |
| Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | | | |
| August 31, 2021 | | August 31, 2020 | | | | August 31, 2021 | | August 31, 2020 | | | | August 31, 2021 | | August 31, 2020 | | | | August 31, 2021 | | August 31, 2020 | | | | | | |
Segment revenue | $ | 227 | | | $ | 239 | | | | | $ | 83 | | | $ | 60 | | | | | $ | 39 | | | $ | 166 | | | | | $ | 349 | | | $ | 465 | | | | | | | |
Segment cost of sales | 95 | | | 93 | | | | | 14 | | | 12 | | | | | 12 | | | 15 | | | | | 121 | | | 120 | | | | | | | |
Segment gross margin (1) | $ | 132 | | | $ | 146 | | | | | $ | 69 | | | $ | 48 | | | | | $ | 27 | | | $ | 151 | | | | | $ | 228 | | | $ | 345 | | | | | | | |
(1) A reconciliation of total segment gross margin to consolidated totals is set forth below.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
10. REVENUE AND SEGMENT DISCLOSURES
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as a source of the Company’s reportable operating segments. The CODM, who is the Executive Chair and CEO of the Company, makes decisions and assesses the performance of the Company using 3 operating segments.
The CODM does not evaluate operating segments using discrete asset information. The Company does not specifically allocate assets to operating segments for internal reporting purposes.
Segment Disclosures
The Company is organized and managed as 3 operating segments: Cybersecurity, IoT, and Licensing and Other.
The following table shows information by operating segment for the three months ended May 31, 2022 and May 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| Cybersecurity | | IoT | | Licensing and Other | | Segment Totals | | | | |
| May 31, | | | | May 31, | | | | May 31, | | | | May 31, | | | | | | |
| 2022 | | 2021 | | | | 2022 | | 2021 | | | | 2022 | | 2021 | | | | 2022 | | 2021 | | | | | |
Segment revenue | $ | 113 | | | $ | 107 | | | | | $ | 51 | | | $ | 43 | | | | | $ | 4 | | | $ | 24 | | | | | $ | 168 | | | $ | 174 | | | | | | | |
Segment cost of sales | 53 | | | 46 | | | | | 8 | | | 7 | | | | | 2 | | | 6 | | | | | 63 | | | 59 | | | | | | | |
Segment gross margin (1) | $ | 60 | | | $ | 61 | | | | | $ | 43 | | | $ | 36 | | | | | $ | 2 | | | $ | 18 | | | | | $ | 105 | | | $ | 115 | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cyber Security (1) A reconciliation of total segment gross margin to consolidated totals is set forth below.
Cybersecurityconsists of the Company’s BlackBerry Spark® software platform, BlackBerry® AtHoc,AtHoc®, BlackBerry® Alert and BlackBerry SecuSUITE. The BlackBerry Spark platform is a comprehensive offering of security software products and services, including the BlackBerry Spark® Unified Endpoint Security Suite and the BlackBerry Spark® Unified Endpoint Management (“UEM”) Suite, which are also marketed together as the BlackBerry Spark® Suites,Suite, offering the Company’s broadest range of tailored cybersecurity and endpoint management options. The BlackBerry Spark UES Suite includes revenue from the Company’s Cylance® artificial intelligence and machine learning-based platform consisting of BlackBerry® Protect, BlackBerry® Optics, BlackBerry® Persona, BlackBerry® Gateway, BlackBerry® GuardCylancePROTECT®, CylanceOPTICS®, CylancePERSONA®, CylanceGATEWAY™, CylanceGUARD® managed services and other cybersecurity applications. In addition, the Company offers the BlackBerry Cyber Suite, a UEM-agnostic version of its BlackBerry Spark UES Suite. The BlackBerry Spark UEM Suite includes the Company’s BlackBerry® UEM, BlackBerry® Dynamics™, and BlackBerry® Workspaces solutions. Cyber SecurityCybersecurity revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services.
IoT consists of BlackBerryBlackBerry® QNX®, BlackBerryBlackBerry® Certicom®, BlackBerry Radar®, BlackBerry IVY™ and other IoT applications. IoT revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services.
Licensing and Other consists of the Company’s intellectual property arrangements and settlement awards. Other consists of the Company’s legacy service access fees (“SAF”) business.business, which ceased operations on January 4, 2022.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
The following table reconciles total segment gross margin for the three and six months ended AugustMay 31, 20212022 and AugustMay 31, 20202021 to the Company’s consolidated totals:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 | | May 31, 2022 | | May 31, 2021 | |
Total segment gross margin | Total segment gross margin | $ | 113 | | | $ | 200 | | | 228 | | | $ | 345 | | Total segment gross margin | $ | 105 | | | $ | 115 | | |
Adjustments (1): | Adjustments (1): | | Adjustments (1): | | |
Less: Cost of sales | 1 | | | 1 | | | 2 | | | 3 | | |
Less: Stock compensation | | Less: Stock compensation | 1 | | | 1 | | |
Less: | Less: | | Less: | | |
Research & development | Research & development | 58 | | | 57 | | | 115 | | | 114 | | Research & development | 53 | | | 57 | | |
Selling, marketing and administration | Selling, marketing and administration | 83 | | | 79 | | | 156 | | | 169 | | Selling, marketing and administration | 82 | | | 73 | | |
Amortization | Amortization | 45 | | | 46 | | | 91 | | | 92 | | Amortization | 27 | | | 46 | | |
Impairment of long-lived assets | — | | | 21 | | | — | | | 21 | | |
Impairment of goodwill | — | | | — | | | — | | | 594 | | |
| Debentures fair value adjustment | Debentures fair value adjustment | 67 | | | 18 | | | 63 | | | 19 | | Debentures fair value adjustment | (46) | | | (4) | | |
Litigation settlement | | Litigation settlement | 165 | | | — | | |
Investment loss, net | Investment loss, net | 1 | | | 5 | | | 3 | | | 5 | | Investment loss, net | 1 | | | 2 | | |
Consolidated loss before income taxes | Consolidated loss before income taxes | $ | (142) | | | $ | (27) | | | $ | (202) | | | $ | (672) | | Consolidated loss before income taxes | $ | (178) | | | $ | (60) | | |
|
(1) The CODM reviews segment information on an adjusted basis, which excludes certain amounts as described below:
Stock compensation expenses - Equity compensation is a non-cash expense and does not impact the ongoing operating decisions taken by the Company’s management.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
Revenue
The Company disaggregates revenue from contracts with customers based on geographical regions, timing of revenue recognition, and the major product and service types, as discussed above in “Segment Disclosures”.
The Company’s revenue, classified by major geographic region in which the Company’s customers are located, was as follows:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 | | May 31, 2022 | | May 31, 2021 | |
North America (1) | North America (1) | $ | 101 | | | $ | 195 | | | $ | 212 | | | $ | 345 | | North America (1) | $ | 89 | | | $ | 111 | | |
Europe, Middle East and Africa | Europe, Middle East and Africa | 57 | | | 48 | | | 102 | | | 89 | | Europe, Middle East and Africa | 60 | | | 45 | | |
Other regions | Other regions | 17 | | | 16 | | | 35 | | | 31 | | Other regions | 19 | | | 18 | | |
| Total | Total | $ | 175 | | | $ | 259 | | | $ | 349 | | | $ | 465 | | Total | $ | 168 | | | $ | 174 | | |
| North America (1) | North America (1) | 57.7 | % | | 75.3 | % | | 60.8 | % | | 74.2 | % | North America (1) | 53.0 | % | | 63.8 | % | |
Europe, Middle East and Africa | Europe, Middle East and Africa | 32.6 | % | | 18.5 | % | | 29.2 | % | | 19.1 | % | Europe, Middle East and Africa | 35.7 | % | | 25.9 | % | |
Other regions | Other regions | 9.7 | % | | 6.2 | % | | 10.0 | % | | 6.7 | % | Other regions | 11.3 | % | | 10.3 | % | |
Total | Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | 100.0 | % | | 100.0 | % | |
(1) North America includes all revenue from the Company’s intellectual property arrangements, due to the global applicability of the patent portfolio and licensing arrangements thereof.
Revenue, classified by timing of recognition, was as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 |
Products and services transferred over time | $ | 107 | | | $ | 125 | | | $ | 213 | | | $ | 241 | |
Products and services transferred at a point in time | 68 | | | 134 | | | 136 | | | 224 | |
Total | $ | 175 | | | $ | 259 | | | $ | 349 | | | $ | 465 | |
Revenue contract balances
The following table sets forth the activity in the Company’s revenue contract balances for the six months ended August 31, 2021:
| | | | | | | | | | | | | | | | | |
| Accounts Receivable | | Deferred Revenue | | Deferred Commissions |
Opening balance as at February 28, 2021 | $ | 188 | | | $ | 294 | | | $ | 21 | |
Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other | 314 | | | 256 | | | 10 | |
Decrease due to payment, fulfillment of performance obligations, or other | (376) | | | (306) | | | (13) | |
| | | | | |
Decrease, net | (62) | | | (50) | | | (3) | |
Closing balance as at August 31, 2021 | $ | 126 | | | $ | 244 | | | $ | 18 | |
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
Revenue, classified by timing of recognition, was as follows: | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| May 31, 2022 | | May 31, 2021 | | | | |
Products and services transferred over time | $ | 97 | | | $ | 107 | | | | | |
Products and services transferred at a point in time | 71 | | | 67 | | | | | |
Total | $ | 168 | | | $ | 174 | | | | | |
Revenue contract balances
The following table sets forth the activity in the Company’s revenue contract balances for the three months ended May 31, 2022:
| | | | | | | | | | | | | | | | | |
| Accounts Receivable | | Deferred Revenue | | Deferred Commissions |
Opening balance as at February 28, 2022 | $ | 138 | | | $ | 244 | | | $ | 16 | |
Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other | 159 | | | 137 | | | 6 | |
Decrease due to payment, fulfillment of performance obligations, or other | (195) | | | (159) | | | (6) | |
| | | | | |
Decrease, net | (36) | | | (22) | | | — | |
Closing balance as at May 31, 2022 | $ | 102 | | | $ | 222 | | | $ | 16 | |
Transaction price allocated to the remaining performance obligations
The table below discloses the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as at AugustMay 31, 20212022 and the time frame in which the Company expects to recognize this revenue. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
| | | | | | | | | | | | | | | | | | | | | | | |
| As at August 31, 2021 |
| Less than 12 Months | | 12 to 24 Months | | Thereafter | | Total |
Remaining performance obligations | $ | 213 | | | $ | 36 | | | $ | 15 | | | $ | 264 | |
Revenue recognized for performance obligations satisfied in prior periods
For the three and six months ended August 31, 2021, no revenue was recognized for performance obligations satisfied in a prior period (three and six months ended August 31, 2020 - NaN and $1 million of revenue was recognized relating to performance obligations satisfied in a prior period). | | | | | | | | | | | | | | | | | | | | | | | |
| As at May 31, 2022 |
| Less than 12 Months | | 12 to 24 Months | | Thereafter | | Total |
Remaining performance obligations | $ | 191 | | | $ | 27 | | | $ | 10 | | | $ | 228 | |
Property, plant and equipment, intangible assets, operating lease ROU assets and goodwill, classified by geographic region in which the Company’s assets are located, were as follows:
| | | As at | | As at |
| | August 31, 2021 | | February 28, 2021 | | May 31, 2022 | | February 28, 2022 |
| | Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill | | Total Assets | | Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill | | Total Assets | | Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill | | Total Assets | | Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill | | Total Assets |
Canada | Canada | $ | 252 | | | $ | 467 | | | $ | 289 | | | $ | 504 | | Canada | $ | 118 | | | $ | 391 | | | $ | 117 | | | $ | 447 | |
United States | United States | 1,364 | | | 1,845 | | | 1,411 | | | 1,963 | | United States | 1,285 | | | 1,934 | | | 1,313 | | | 1,989 | |
Other | Other | 28 | | | 320 | | | 31 | | | 351 | | Other | 27 | | | 135 | | | 27 | | | 131 | |
| | $ | 1,644 | | | $ | 2,632 | | | $ | 1,731 | | | $ | 2,818 | | | $ | 1,430 | | | $ | 2,460 | | | $ | 1,457 | | | $ | 2,567 | |
Information About Major Customers
There was one customer that comprised 12% and15% of the Company’s revenue in the three months ended May 31, 2022 (three months ended May 31, 2021 - no other customer that comprised more than 10% of the Company’s revenue inrevenue).
BlackBerry Limited
Notes to the threeConsolidated Financial Statements
In millions of United States dollars, except share and six months ended August 31, 2021, respectively (threeper share data, and six months ended August 31, 2020 - one customer that comprised 40% and 34% of the Company’s revenue, respectively).except as otherwise indicated (unaudited)
12.
11. CASH FLOW AND ADDITIONAL INFORMATION
(a) Certain consolidated statements of cash flow information related to interest and income taxes paid is summarized as follows:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | August 31, 2021 | | August 31, 2020 | | August 31, 2021 | | August 31, 2020 | | May 31, 2022 | | May 31, 2021 | |
Interest paid during the period | Interest paid during the period | $ | 2 | | | $ | 6 | | | $ | 3 | | | $ | 11 | | Interest paid during the period | $ | 2 | | | $ | 2 | | |
Income taxes paid during the period | Income taxes paid during the period | 3 | | | 2 | | | 4 | | | 2 | | Income taxes paid during the period | 1 | | | 1 | | |
Income tax refunds received during the period | Income tax refunds received during the period | 3 | | | — | | | 5 | | | 1 | | Income tax refunds received during the period | — | | | 2 | | |
(b) Additional Information
Foreign exchange
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency, the U.S. dollar. The majority of the Company’s revenue in the secondfirst quarter of fiscal 20222023 was transacted in U.S. dollars. Portions of the revenue were denominated in Canadian dollars, euros and British pounds. Other expenses, consisting mainly of salaries and certain other operating costs, were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros and British pounds. At AugustMay 31, 2021,2022, approximately 31%21% of cash and cash equivalents,
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)
33% 7% of accounts receivable and 31%40% of accounts payable were denominated in foreign currencies (February 28, 20212022 – 20%37%, 25%23% and 34%30%, respectively). These foreign currencies primarily include the Canadian dollar, euro and British pound. As part of its risk management strategy, the Company maintains net monetary asset and/or liability balances in foreign currencies and engages in foreign currency hedging activities using derivative financial instruments, including currency forward contracts and currency options. The Company does not use derivative instruments for speculative purposes.
Interest rate risk
Cash and cash equivalents and investments are invested in certain instruments of varying maturities. Consequently, the Company is exposed to interest rate risk as a result of holding investments of varying maturities. The fair value of investments, as well as the investment income derived from the investment portfolio, will fluctuate with changes in prevailing interest rates. The Company has also issued 1.75% Debentures with a fixed interest rate, as described in Note 6.5. The fair value of the 1.75% Debentures will fluctuate with changes in prevailing interest rates. Consequently, the Company is exposed to interest rate risk as a result of the 1.75% Debentures. The Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio or changes in the market value of the 1.75% Debentures.
Credit risk
The Company is exposed to market and credit risk on its investment portfolio. The Company reduces this risk by investing in liquid, investment-grade securities and by limiting exposure to any one entity or group of related entities. As at AugustMay 31, 2021,2022, no single issuer represented more than 11%14% of the total cash, cash equivalents and investments (February 28, 20212022 - no single issuer represented more than 13%10% of the total cash, cash equivalents and investments), with the largest such issuer representing cash balances at one of the Company’s banking counterparties. As at August 31, 2021, the Company had $1 million in collateral posted with counterparties (February 28, 2021 - nil in collateral held or posted).non-US government debt securities.
Liquidity risk
Cash, cash equivalents, and investments were approximately $772$721 million as at AugustMay 31, 2021.2022. The Company’s management remains focused on efficiently managing working capital balances and managing the liquidity needs of the business. Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities and access to other potential financing arrangements, should be sufficient to meet funding requirements for current financial commitments and future operating expenditures not yet committed, and should provide the necessary financial capacity for the foreseeable future.
Government subsidies
During the first quarter of fiscal 2021, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) and the Canada Emergency Rent Subsidy (“CERS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic,pandemic. The CEWS program initially runningran for a thirty-six week period between March and November 2020.2020 and the CERS program for a period between September 2020 and July 2021. The program wasprograms were subsequently extended to June 2021
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and the Government of Canada has announced an additional extension to per share data, and except as otherwise indicated (unaudited)
October 2021. The CEWS providesprogram provided a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria. The extension also includesincluded a gradual decrease to the subsidy rate. The Company applied for the CEWS to the extent it met the requirements to receive the subsidy and during the three and six months ended August 31, 2021, recorded $11 million and $27 million, respectively, in government subsidies as a reduction to operating expenses in the consolidated statement of operations (August 31, 2020 - $18 million and $27 million, respectively). CEWS received after June 5, 2021 may be repayable in the future under certain circumstances if certain terms and conditions are not met by the Company, which is not probable at this time. The CERS program provided a subsidy of up to 65% of eligible fixed property expenses. The base subsidy was determined based on the percentage revenue decline experienced by businesses affected by the COVID-19 pandemic. The CERS program gradually reduced the amount and availability of subsidies in the months leading up to the program’s final claim period.
During the third quarter of fiscal 2022, the Government of Canada announced the HHBRP to continue supporting businesses affected by the COVID-19 pandemic. The HHBRP provides a subsidy of up to 50% of eligible employees’ employment insurable remuneration, subject to certain criteria, and rent and ran until May 7, 2022.
The Company applied for the CEWS, CERS and HHBRP to the extent it met the requirements to receive the subsidy and during the three months ended May 31, 2022, recorded $4 million in government subsidies as a reduction to operating expenses in the consolidated statement of operations (May 31, 2021 - $15 million). As at May 31, 2022, the Company has recorded $4 million in accrued government subsidies within other receivables on the consolidated balance sheet (May 31, 2021 - $9 million).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited interim consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited for the three and six months ended AugustMay 31, 2021,2022, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated financial statements and accompanying notes and MD&A for the fiscal year ended February 28, 20212022 (the “Annual MD&A”). The Consolidated Financial Statements are presented in U.S. dollars and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). All financial information in this MD&A is presented in U.S. dollars, unless otherwise indicated.
Additional information about the Company, which is included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 20212022 (the “Annual Report”), can be found on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of certain securities laws, including under the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including statements relating to:
•the Company’s plans, strategies and objectives, including its intentions to increase and enhance its product and service offerings;
•the Company’s expectations with respectofferings, to the potential sale of a portion ofpatent new innovations, and to increase staffing in its patent portfolio;Cybersecurity and IoT businesses;
•the Company’s expectations with respect to the impact of the ongoing COVID-19 pandemic and related cost reduction measures and governmental assistanceglobal semiconductor shortage on the Company’s business,its results of operations and financial condition on a consolidated basis, including its liquidity position;condition;
•the Company’s expectations with respect to its revenue and billings in fiscal 2022,2023 and with respect to installations of the BlackBerry IVY™ platform;
•the Company’s estimates of purchase obligations and other contractual commitments;commitments, including the timing of a litigation settlement payment; and
•the Company’s expectations with respect to the sufficiency of its financial resources.
The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “could”, “intend”, “believe”, “target”, “plan” and similar expressions are intended to identify forward-looking statements in this MD&A, including in the sections entitled “Business Overview - Strategy”, “Business Overview - Products and Services”, “Business Overview - COVID-19”COVID-19 and Macroeconomic Factors”, “Non-GAAP Financial Measures - Key Metrics”, “Results of Operations - Three months ended AugustMay 31, 20212022 compared to the three months ended AugustMay 31, 20202021 - Revenue - Revenue by Segment” and “Financial Condition - Debenture FinancingContractual and Other Funding Sources”Obligations”. 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 appropriate in the circumstances, including but not limited to, the Company’s expectations regarding its business, strategy, opportunities and prospects, the launch of new products and services, general economic conditions, the ongoing COVID-19 pandemic, competition, and the Company’s expectations regarding its financial performance. Many factors could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in Part I, Item 1A “Risk Factors” in the Annual Report.
All of these factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. Any statements that are forward-looking statements are intended to enable the Company’s shareholders to view the anticipated performance and prospects of the Company from management’s perspective at the time such statements are made, and they are subject to the risks that are inherent in all forward-looking statements, as described above, as well as difficulties in forecasting the Company’s financial results and performance for future periods, particularly over longer periods, given changes in technology and the Company’s business strategy, evolving industry standards, intense competition and short product life cycles that characterize the industries in which the Company operates. See the “Strategy” subsection in Part I, Item 1 “Business” of the Annual Report.
The Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Business Overview
The Company provides intelligent security software and services to enterprises and governments around the world. The Company secures more than 500 million endpoints including more than 195215 million vehicles. Based in Waterloo, Ontario, the Company leverages artificial intelligence (“AI”) and machine learning to deliver innovative solutions in the areas of
cybersecurity, safety and data privacy, and is a leader in the areas of endpoint security, endpoint management, encryption, and embedded systems.
Strategy
The Company’s strategyCompany is widely recognized for its intelligent security software and services and believes that it delivers the broadest set of security capabilities in the market to connect, secureprotect and manage every endpointendpoints in the Internet of Things.Things (“IoT”). The Company leverages its extensive technology portfolio to offer best-in-class cybersecurity, safety and reliability to enterprise customers primarily in government regulated and other coreregulated industries, as well as to original equipment manufacturers in automotive, medical, industrial and other core verticals.
The Company’s goal is to offer smarter security solutions that are more effective, require fewer resources to support and produce a better return on investment for customers than competing offerings. To achieve this vision, the Company continues to extend the functionality of its AI-focused BlackBerry Spark® software platform and safety-certified QNX® Neutrino® real time operating system and is commercializing its new BlackBerry IVY™ intelligent vehicle data platform.
The Company’s go-to-market strategy is focusedfocuses principally on generating revenue from enterprise software services and licensingservices as well as from embedded software designs with leading OEMsoriginal equipment manufacturers (“OEMs”) and Tier 1 suppliers. The Company intends to drive revenue growth and to achieve margins that are consistent with those of other enterprise software companies.
Products and Services
The Company has multiple products and services from which it derives revenue, which are structured in three groups: Cyber Security,segments: Cybersecurity, IoT (collectively with Cyber Security,Cybersecurity, “Software & Services”) and Licensing and Other.
Cyber SecurityCybersecurity
The Cyber SecurityCybersecurity business consists of BlackBerry Spark, BlackBerry® AtHoc®, BlackBerry® SecuSUITE® and BlackBerry Alert and SecuSUITE.Messenger (BBM®) Enterprise.
The Company’s core secure software and services offering is its BlackBerry Spark software platform, which integrates a unified endpoint security (“UES”) layer with BlackBerry unified endpoint management (“UEM”) to enable secure endpoint communications in a zero trustzero-trust environment. BlackBerry UES is a set of complementary cybersecurity products offering endpoint protection platform (“EPP”), endpoint detection and response (“EDR”), mobile threat defense (“MTD”), zero-trust network access (“ZTNA”) and user and entity behavior analytics (“UEBA”) capabilities. The BlackBerry Spark platform is informed by the Company’s AI and machine learning capabilities, continuous innovations, professional cybersecurity services and threat research, industry partnerships and academic collaborations. The Company is currently executing on a robust schedule of product launches for BlackBerry Spark to deliver on the Company’s extended detection and response (“XDR”) strategy, which aims to use security telemetry data from the platform’s full range of natively-integrated products and partner solutions to provide deep contextual insights for more powerful and integrated threat detection and response. This comprehensive security strategy for BlackBerry Spark is designed to operate on a single agent across all endpoints, to be administered from a single console, to leverage a single crowd-sourced threat data lake and to be managed in one cloud environment. BlackBerry Spark solutions are available through the BlackBerry Spark® Unified Endpoint Security Suite and the BlackBerry Spark® Unified Endpoint Management Suite, which are also marketed together as the BlackBerry Spark® Suites,Suite, offering the Company’s most comprehensive range of tailored cybersecurity and endpoint management options.
The BlackBerry Spark UES Suite offers leading Cylance® AI and machine learning-based cybersecurity solutions, including: BlackBerry® Protect,CylancePROTECT®, an EPP and available MTD solution that uses machine learningan automated, prevention-first approach to prevent suspicious behavior andprotect against the execution of malicious code on an endpoint; BlackBerry® Optics,CylanceOPTICS®, an EDR solution that provides both visibility into and prevention of malicious activity on an endpoint; BlackBerry® Guard,CylanceGUARD®, a managed detection and response solution that provides 24/7 threat hunting and monitoring; BlackBerry® Gateway, a cloud-nativeCylanceGATEWAY®, an AI-empowered ZTNA solution, that monitors suspicious network activity; and BlackBerry® Persona,CylancePERSONA®, a UEBA solution that provides continuous authentication by validating user identity in real time. The combined platform features industry-leading threat prevention modules to help organizations cope with the significant growth of cyberattacks. The Company also offers incident response, compromisedcompromise assessment and containment services to assist clients with forensic analysis, state of existing systems and remediation of attacks.
In addition, the Company offers the The BlackBerry Cyber Suite, a UEM-agnostic version of its BlackBerry Spark® UES Suite which organizations can integratenatively integrates with BlackBerry® UEM and also works with UEM softwaresolutions from other leading vendors.
The BlackBerry Spark UEM Suite includes the Company’s BlackBerry®BlackBerry UEM, BlackBerry® Dynamics™ and BlackBerry® Workspaces solutions. BlackBerry UEM is a central software component of the Company’s secure communications platform,
offering a “single pane of glass”, or unified console view, for managing and securing devices, applications, identity, content and endpoints across all leading operating systems. BlackBerry Dynamics offers a best-in-class development platform and secure container for mobile applications, including the Company’s own enterprise applications such as BlackBerry® Work and BlackBerry® Connect for secure collaboration.
The Company also offers the BlackBerry® Spark SDK to promote the evolution of a platform ecosystem by enabling enterprise and independent software vendor (“ISV”) developers to integrate the security features of BlackBerry Spark into their own mobile and web applications, as well as BlackBerry Messenger (BBM®) Enterprise, an enterprise-grade secure instant messaging solution for messaging, voice and video.
BlackBerry AtHoc and BlackBerry Alert are secure, networked critical event management solutions that enable people, devices and organizations to exchange critical information in real time during business continuity and life safety operations. The platforms securely connect with a diverse set of endpoints to distribute emergency mass notifications, improve personnel accountability and facilitate the bidirectional collection and sharing of data within and between organizations. BlackBerry AtHoc serves the requirements of the public sector market while BlackBerry Alert targets the commercial sector.
SecuSUITE® for GovernmentSecuSUITE is a certified, multi-OS voice and text messaging solution with advanced encryption, anti-eavesdropping and continuous authentication capabilities, providing a maximum level of security on conventional mobile devices for public authoritiesgovernment and businesses.
The Company also offers BBM Enterprise, an enterprise-grade secure instant messaging solution for messaging, voice and video.
IoT
The IoT business consists of BlackBerry Technology Solutions (“BTS”) and BlackBerry IVY.
The principal component of BTS is BlackBerry QNX, a global provider of real-time operating systems, hypervisors, middleware, development tools, and professional services for connected embedded systems in the automotive, medical, industrial automation and other markets. A recognized leader in automotive software, BlackBerry QNX offers a growing portfolio of safety-certified, secure and reliable platform solutions and is focused on achieving design wins with automotive original equipment manufacturers (“OEMs”),OEMs, Tier 1 vendors and automotive semiconductor suppliers. These solutions include the Neutrino® operating system and the BlackBerry QNX® CAR platform, the most advanced embedded software platform for the autonomous vehicle market, as well as other products designed to alleviate the challenges of compliance with ISO 26262, the automotive industry’s functional safety standard. Additionally, the Company’s secure automotive over-the-air software update management service allows OEMs to manage the life cycle of the software and security in their vehicles.
The Company has entered into an agreement with Amazon Web Services, Inc. (“AWS”) to develop and market BlackBerry IVY, an intelligent vehicle data platform leveraging BlackBerry QNX’s automotive capabilities. BlackBerry IVY will allow automakers to safely access a vehicle’s sensor data, normalize it, and apply machine learning at the edge to generate and share predictive insights and inferences. Automakers and developers will be able to use this information to create responsive in-vehicle services that enhance driver and passenger experiences. BlackBerry IVY will support multiple vehicle operating systems and multi-cloud deployments in order to ensure compatibility across vehicle models and brands. The Company expects to release an early access version of BlackBerry IVY in October 2021, followed by a commercial release in February 2022 with installations of BlackBerry IVY to begin in 2023 model year vehicles.
BlackBerry QNX is also a preferred supplier of embedded systems for companies building medical devices, train-control systems, industrial robots, hardware security modules, building automation systems, green energy solutions, and other mission-critical applications.
In addition to BlackBerry QNX, BTS includes BlackBerry Certicom® cryptography and key management products, and the BlackBerry Radar® asset monitoring solution, and the BlackBerry Jarvis™ binary code scanning solution..solution.
BlackBerry Certicom leverages patented elliptic curve cryptography to provide device security, anti-counterfeiting and product authentication solutions. BlackBerry Certicom’s offerings include its managed public key infrastructure (“PKI”) platform, key management and provisioning technology that helps customers to protect the integrity of their silicon chips and devices from the point of manufacturing through the device life cycle. BlackBerry Certicom’s secure key provisioning, code signing and security credential management system services protect next-generation connected cars, critical infrastructure and IoT deployments from product counterfeiting, re-manufacturing and unauthorized network access.
BlackBerry Radar is a family of asset monitoring and telematics solutions for the transportation and logistics industry. The BlackBerry Radar solution includes devices and secure cloud-based dashboards for tracking containers, trailers, chassis, flatbeds and heavy machinery, for reporting locations and sensor data, and for enabling custom alerts and fleet management analytics.
The Company has partnered with Amazon Web Services, Inc. (“AWS”) to develop and market BlackBerry Jarvis isIVY, an intelligent vehicle data platform leveraging BlackBerry QNX’s automotive capabilities. BlackBerry IVY will allow automakers to safely access a cloud-based binary static application securityvehicle’s sensor data, normalize it, and apply machine learning at the edge to generate and share predictive insights and inferences. Automakers and developers will be able to use this information to create responsive in-vehicle services that enhance driver and passenger experiences. BlackBerry IVY will support multiple vehicle operating systems and hardware, as well as multi-cloud deployments in order to ensure compatibility across vehicle models and brands. In February 2022, the Company released a version of BlackBerry IVY for proof-of-concept testing platform that identifies vulnerabilitiesand the Company expects installations of BlackBerry IVY in deployed binary software used in automobiles and other embedded applications.vehicles to begin during the 2024 or 2025 model year.
The BlackBerry SparkCybersecurity and IoT groups are both complemented by the enterprise and cybersecurity consulting services offered by the Company’s BlackBerry® Professional Services business. BlackBerry Professional Services provides platform-agnostic strategies to address mobility-based challenges, providing expert deployment support, end-to-end delivery (from system design to user training), application consulting, and experienced project management. The Company’s cybersecurity consulting services and tools, combined with its other security solutions, help customers identify the latest cybersecurity threats, test for
test for vulnerabilities, develop risk-appropriate mitigations, maintain IT security standards and techniques, and defend against the risk of future attacks.
Licensing and Other
Licensing and Other consists primarily of the Company’s patent licensing business and legacy service access fees (“SAF”).
The Company’s Licensing business is responsible for the management and monetization of the Company’s global patent portfolio. The patent portfolio continues to provide a competitive advantage in the Company’s core product areas as well as providing leverage in the development of future technologies and licensing programs in both core and adjacent vertical markets. The Company owns rights to an array of patented and patent pending technologies which include, but are not limited to, operating systems, networking infrastructure, acoustics, messaging, enterprise software, automotive subsystems, cybersecurity, cryptography and wireless communications.
In addition, in recent years, the Company has licensed its device security software and service suite and related brand assets to outsourcing partners who design, manufacture, market and provide customer support for BlackBerry-branded handsets featuring the Company’s secure Android™ software. The Company has also entered into licensing arrangements with manufacturers of other devices with embedded BlackBerry cybersecurity technology.
In the fourth quarter of fiscal 2021,2022, the Company enteredannounced its entry into exclusive negotiationsa patent sale agreement with a North American entityCatapult IP Innovations (“Catapult”) for the potential sale of a portionsubstantially all of the Company’s non-core patent portfolio relatingassets for total consideration of $600 million (the “Patent Sale Transaction”). Patents that are essential to the Company’s current core business operations are excluded from the Patent Sale Transaction. Pursuant to the terms of the Patent Sale Transaction, at closing, the Company will receive a license back to the patents being sold, which relate primarily to non-core or legacy mobile devices, messaging and wireless networking technologies. Negotiations are ongoing. Although the parties have reached preliminary agreement on many key termsnetworking. The Patent Sale Transaction will not impact customers’ use of any of the potential transactionCompany’s products, solutions or services. Completion of the Patent Sale Transaction is subject to the satisfaction of financing and other closing conditions. Catapult continues to work on securing financing; however, the Company expectsis no longer under exclusivity with Catapult and is able to enter into a definitive agreementexplore alternative options in the third quarter of fiscal 2022, there can be no assurance that the Company will reach a definitive agreement or that a transaction will be consummated. If a transaction is completed, the Company expects to retain rights to use these patents and does not intend to sell patents associated with the Company’s current Software and Services business.parallel.
The Company’s Other business generates revenue from SAF charged to subscribers using the Company’s legacy BlackBerry 7 and prior BlackBerry operating systems.systems, which is no longer supported or maintained as of January 4, 2022.
Recent Developments
The Company continued to execute on its strategy in fiscal 20222023 and announced the following achievements:
Products and Innovation:
•Launched BlackBerry Optics 3.0,Strengthened QNX® Advanced Virtualization Framework for Android Automotive OS to simplify and accelerate building IVI systems on the Company’s next-generation cloud-based EDR solution and BlackBerry Gateway, the Company’s first AI-empowered ZTNA product;QNX® Hypervisor;
•Announced thatReleased QNX® Hypervisor 2.2 for Safety, the Company was awardedlatest edition of the Company’s safety-certified, real-time embedded hypervisor product, certified to the highest AAA Rating in SE Labs’ Breach Response Testlevel of functional safety for BlackBerry Protectboth automotive and BlackBerry Optics;medical device software;
•Announced thatAchieved the certification of QNX® OS for Safety 2.2 to the highest integrity level of the functional safety standard for the railway industry;
•Received the Frost & Sullivan named2022 Enabling Technology Leadership Award for BlackBerry an innovator in its US Healthcare Cybersecurity Market report;IVY;
•Launched BlackBerry Jarvis 2.0, the Company’s updated software composition analysis tool;CylanceGATEWAY, BlackBerry’s Zero Trust Network Access (ZTNA) service offering;
•Announced that Frost & Sullivan named BlackBerry IVY an industry-leading cloud software platformNamed as a ‘Leader’ for automakers and smart cities;a third consecutive year in the IDC MarketScape: Worldwide UEM Software 2022 Vendor Assessment;
•Launched an autonomous flood riskTogether with Google, launched Chrome Enterprise Management with BlackBerry UEM to support devices running Google Chrome OS and clean water monitoring solution based on BlackBerry AtHoc;
•Announced that BlackBerry AtHoc won the Frost & Sullivan 2021 Technology Innovation Leadership Award for safe city solutions;Chrome browser; and
•Launched updated SecuSUITE capabilities to further secure group phone callsEnhanced the BlackBerry Managed Security Service Provider (MSSP) channel program, including an expansion of the range of products available, increased partner support and messages.more comprehensive training.
Customers and Partners:
•Announced that the Company has design wins with 24 of the world’s leading 25 Electric Vehicle (EV) automakers, increasing from 23 of the top 25 last quarter;
•Announced that BlackBerry QNX software is embedded in over 195215 million vehicles;
•Announced that BlackBerry IVY will provide secure vehicle-based payment capability through a partnership with financial technology solution provider Car IQ;Selected by BDStar Intelligent & Connected Vehicle Technology Co., Ltd. (BICV) to power an intelligent digital cockpit, featuring augmented reality, artificial intelligence, and hologram functions for the new Renault Jiangling all-electric sedan;
•Launched the BlackBerry IVY Advisory Council to help shape and advise the BlackBerry IVY application development community and drive use case generation;Jointly developed a digital LCD instrument cluster with BiTECH for Changan’s next-generation high-end UNI-V Coupe;
•Announced that Volvo Group has selected BlackBerry QNXEntered into a multi-year agreement with Magna International Inc. to collaborate on next-generation Advanced Driver Assistance System (ADAS) solutions for its Dynamic Software Platform;global automakers;
•Announced that WM Motor has chosen BlackBerry QNX technologiesPartnered with Midis Group to power its W6 all-electric SUV;
•Announced thatexpand go-to-market activities in Eastern Europe, the QNX Neutrino operating system has been adopted in a new digital LCD cluster jointly developed with BiTech Automotive (Wuhu) Co., Ltd. for Changan Automobile’s new SUV, the UNI-K;
•Announced that Nobo Technologies selected QNX Neutrino as the foundation for the advanced Digital Cockpit Controller in Great Wall Motors’ Haval H6S, the next generation of China’s leading SUV;
•Announced that sTraffic has chosen the BlackBerry QNX® OS for Safety as the foundation for its Communications-based Train Control System (CBTC);
•Announced the integration of BlackBerry UEM with Microsoft 365;
•Announced that the Government of Canada has selected BlackBerry for their secure productivityMiddle East, and secure communications needs;
•Announced that BlackBerry and IBM Canada have established a new partnership to bring BlackBerry’s industry leading BlackBerry Spark platform to organizations across Canada;
•Announced BlackBerry QNX and Carleton University have joined forces in a $21 million partnership to train next generation of software engineers;Africa; and
•Announced that BlackBerryJoined forces with NXP to help companies prepare for, and the University of Waterloo have expanded their partnership to create a new joint innovation program.prevent, Y2Q post-quantum cyberattacks.
Environmental, Sustainability and Corporate Governance:
•Appointed John Giamatteo as PresidentReleased the Company’s 2022 Environmental, Social, and Governance (ESG) report.
Pearlstein Settlement
On April 7, 2022, the Company announced that it had reached an agreement in principle to settle the consolidated securities class action lawsuit captioned Pearlstein v. Blackberry Limited, et al., Case No. 13 Civ. 7060 (CM) (KHP) pending against the Company and certain of Cyber Security effective October 4, 2021;
•Announcedits former officers in the resignationU.S. District Court for the Southern District of Tom Eacobacci as PresidentNew York. A formal settlement agreement was signed on June 9, 2022 and Chief Operating Officer effective October 29, 2021;
•Appointed Mattias Eriksson as Presidentcontemplates an aggregate cash payment by the Company of $165 million to settle the claims brought on behalf of all persons who purchased or otherwise acquired BlackBerry shares on the NASDAQ between March 28, 2013 and General Manager of IoT; and
•AnnouncedSeptember 20, 2013. While the Company believes that the Company was named oneallegations in the case were without merit, it also believes that eliminating the distraction, expense and risk of Canada’s Greenest Employers for sixth yearcontinued litigation is in a row.
Segment Reporting
As disclosed in Note 11 to the Consolidated Financial Statements,best interests of the Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the chief operating decision maker (“CODM”) for making decisions and assessing performance as a source of the Company’s reportable operating segments.its shareholders. In the first quarter of fiscal 2022,2023, the Company internally reorganizedaccrued $165 million associated with this settlement within the line Litigation settlement on the consolidated statement of operations. Final settlement including payment is expected to occur before the end of fiscal 2023.
COVID-19 and as a result, the CODM, who is the Executive Chair and CEO of the Company, began making decisions and assessing the performance of the Company using three operating segments, whereas the Company was previously a single operating segment.
COVID-19Macroeconomic Factors
The novel coronavirus (“COVID-19”)COVID-19 pandemic has prompted extraordinary actions by governmental authorities throughout the world and has resulted incontinues to have a significant market volatility, uncertaintyimpact on global markets, businesses and economic disruption.economies.
To protectThe Company continues to focus on protecting the health and safety of the Company’sits employees, contractors, customers and visitors, duringpartners, while also providing technology to help them do their best while operating remotely. During the first half of fiscal 2022 and throughout most of fiscal 2021, the Company mandated remote working, utilizing virtual meetings and suspending most employee travel. The Company also shifted customer, industry and other stakeholder events to virtual-only experiences, and may similarly alter, postpone or cancel other events in the future. The long-term impacts on the Company of substantially remote operations are uncertain.
The Company also implemented a series of temporary cost reduction measures to further preserve financial flexibility during the COVID-19 pandemic. In the second quarter of fiscal 2022, these actions included taking advantage of2023, the broad-based employer relief provided by governments in Canada, the United StatesCompany maintained its remote working model, limiting employee travel and other jurisdictions and the postponement ofhosting certain discretionary spending.public events as virtual-only experiences. The Company expects that savings from temporary cost reduction measureshas more recently shifted to a hybrid model for most of its global offices with employees returning to work in person on a part-time basis, subject to local rules and governmental assistance related to the pandemic will continue to be lower in fiscal 2022 than in fiscal 2021.
In fiscal 2022 and fiscal 2021, the economic downturn and uncertainty caused by the COVID-19 pandemic and the measures undertaken to contain its spread have negatively affected the Company’s QNX automotive software business, caused volatility in demand for many of the Company’s other products and services, adversely affected the ability of the Company’s sales and professional services teams to meet with customers and provide service, negatively impacted expected spending from new customers and increased sales cycle times.regulations.
Although the Company experienced higher Software & Services revenue in the first six monthsquarter of fiscal 20222023 compared to the first six monthsquarter of fiscal 2021, when the COVID-19 pandemic first materially negatively impacted the Company’s operations, and observed a recovery in both automotive design activities and production volumes during the first six months of fiscal 2022, on a year over year basis, the COVID-19 pandemic and relatedensuing global chipsemiconductor shortage have had and in fiscal 2022, may continue to have a material adverse impact on production-based royalties for the Company’s QNX automotive software business in particularbusiness. This chip supply disruption and its impact on the Company’s business, results of operations and financial condition on a consolidated basis. The Company does not expectmay be exacerbated by the COVID-19 pandemicinvasion of Ukraine by Russia and its related economic impact to materially adversely affect the Company’s liquidity position.resulting global sanctions against Russia.
The ultimate impact of the COVID-19 pandemic on the Company’s operational and financial performance will also depend on, among other things, the pandemic’s duration and severity, including resurgences in some geographic areas as a result of new strains and variants, the governmental restrictions that may be sustained or imposed in response to the pandemic, and the effectiveness of actions taken to contain or mitigate the pandemic (including the distribution, efficacy and efficacyacceptance of vaccines,
particularly against emergent viral variants), the impact of the global chip shortage and other supply chain constraints.. The long-term impact of the COVID-19 pandemic on the Company’s business cannot be reasonably estimated at this time and may not be fully reflected until future periods.
The Company continues Refer to evaluate the current and potential impact of the pandemic on its business, results of operations and consolidated financial statements, including potential asset impairment. The Company also continues to actively monitor developments and business conditions that may cause it to take further actions that alter business operations as may be required by applicable authorities or that the Company determines arePart II, Item 1A “Risk Factors” in the best interestsAnnual Report for a discussion of its employees, customers, suppliersthese factors and stockholders.other risks.
First Quarter Fiscal 20222023 Summary Results of Operations
The following table sets forth certain unaudited consolidated statements of operations data for the quarter ended AugustMay 31, 20212022 compared to the quarter ended AugustMay 31, 20202021 under U.S. GAAP: | | | For the Three Months Ended (in millions, except for share and per share amounts) | | For the Three Months Ended (in millions, except for share and per share amounts) |
| | August 31, 2021 | | August 31, 2020 | | Change | | | May 31, 2022 | | May 31, 2021 | | Change | |
Revenue | Revenue | $ | 175 | | | $ | 259 | | | $ | (84) | | | Revenue | $ | 168 | | | $ | 174 | | | $ | (6) | | |
Gross margin | Gross margin | 112 | | | 199 | | | (87) | | | Gross margin | 104 | | | 114 | | | (10) | | |
Operating expenses | Operating expenses | 253 | | | 221 | | | 32 | | | Operating expenses | 281 | | | 172 | | | 109 | | |
Investment loss, net | Investment loss, net | (1) | | | (5) | | | 4 | | | Investment loss, net | (1) | | | (2) | | | 1 | | |
Loss before income taxes | Loss before income taxes | (142) | | | (27) | | | (115) | | | Loss before income taxes | (178) | | | (60) | | | (118) | | |
Provision for (recovery of) income taxes | 2 | | | (4) | | | 6 | | | |
Provision for income taxes | | Provision for income taxes | 3 | | | 2 | | | 1 | | |
Net loss | Net loss | $ | (144) | | | $ | (23) | | | $ | (121) | | | Net loss | $ | (181) | | | $ | (62) | | | $ | (119) | | |
Loss per share - reported | Loss per share - reported | | | | | | | Loss per share - reported | | | | | | |
Basic | Basic | $ | (0.25) | | | $ | (0.04) | | | | Basic | $ | (0.31) | | | $ | (0.11) | | | |
Diluted | Diluted | $ | (0.25) | | | $ | (0.04) | | | | Diluted | $ | (0.35) | | | $ | (0.11) | | | |
| Weighted-average number of shares outstanding (000’s) | Weighted-average number of shares outstanding (000’s) | | | Weighted-average number of shares outstanding (000’s) | | |
Basic (1) | Basic (1) | 568,082 | | | 558,882 | | | | Basic (1) | 576,877 | | | 567,358 | | | |
Diluted (2) | Diluted (2) | 568,082 | | | 558,882 | | | | Diluted (2) | 637,710 | | | 567,358 | | | |
|
(1)Basic loss per share on a U.S. GAAP basis for the second quarter of fiscal 2022 and second quarter of fiscalthree months ended May 31, 2021 includes 1,421,945 and 2,802,067 common shares respectively, to bethat were subsequently issued on the third anniversary datesdate of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition. There are no service or other requirements associated with the issuance of these shares.
(2)Diluted loss per share on a U.S. GAAP basis for the second quarter of fiscal 2022 andthree months ended May 31, 2021 does not include the dilutive effect of the 1.75% Debentures (defined below) or, as to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for the three months ended May 31, 2022 and May 31, 2021 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive. See Note 87 to the Consolidated Financial Statements for the Company’s calculation of the diluted weighted average number of shares outstanding.
The following tables showtable shows information by operating segment for the three and six months ended AugustMay 31, 20212022 and AugustMay 31, 2020.2021. The Company reports segment information in accordance with U.S. GAAP Accounting Standards Codification Section 280 based on the “management” approach. The management approach designates the internal reporting used by the CODM for making decisions and assessing performance of the Company’s reportable operating segments. See “Business Overview”Note 10 to the Consolidated Financial Statements for a description of the Company’s operating segments, as well as Note 11 to the Consolidated Financial Statements.segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended (in millions) |
| | For the Three Months Ended (in millions) | | Cybersecurity | | IoT | | Licensing and Other | | Segment Totals | |
| | Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | | May 31, | | Change | | May 31, | | Change | | May 31, | | Change | | May 31, | | Change | |
| | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | | 2022 | | 2021 | | Change | 2022 | | 2021 | | Change | 2022 | | 2021 | | Change | 2022 | | 2021 | | Change | |
Segment revenue | Segment revenue | $ | 120 | | | $ | 120 | | | $ | — | | | $ | 40 | | | $ | 31 | | | $ | 9 | | | $ | 15 | | | $ | 108 | | | $ | (93) | | | $ | 175 | | | $ | 259 | | | $ | (84) | | | Segment revenue | $ | 113 | | | $ | 107 | | $ | 6 | | | $ | 51 | | | $ | 43 | | $ | 8 | | | $ | 4 | | | $ | 24 | | $ | (20) | | | $ | 168 | | | $ | 174 | | $ | (6) | | |
Segment cost of sales | Segment cost of sales | 49 | | | 46 | | | 3 | | | 7 | | | 6 | | | 1 | | | 6 | | | 7 | | | (1) | | | 62 | | | 59 | | | 3 | | | Segment cost of sales | 53 | | | 46 | | | 7 | | | 8 | | | 7 | | | 1 | | | 2 | | | 6 | | | (4) | | | 63 | | | 59 | | | 4 | | |
Segment gross margin | Segment gross margin | $ | 71 | | | $ | 74 | | | $ | (3) | | | $ | 33 | | | $ | 25 | | | $ | 8 | | | $ | 9 | | | $ | 101 | | | $ | (92) | | | $ | 113 | | | $ | 200 | | | $ | (87) | | | Segment gross margin | $ | 60 | | | $ | 61 | | | $ | (1) | | | $ | 43 | | | $ | 36 | | | $ | 7 | | | $ | 2 | | | $ | 18 | | | $ | (16) | | | $ | 105 | | | $ | 115 | | | $ | (10) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| (in millions) |
| Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | | | |
| August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | | |
Segment revenue | $ | 227 | | $ | 239 | | $ | (12) | | $ | 83 | | $ | 60 | | $ | 23 | | $ | 39 | | $ | 166 | | $ | (127) | | $ | 349 | | $ | 465 | | $ | (116) | | | | | |
Segment cost of sales | 95 | | 93 | | 2 | | 14 | | 12 | | 2 | | 12 | | 15 | | (3) | | 121 | | 120 | | 1 | | | | |
Segment gross margin | $ | 132 | | $ | 146 | | $ | (14) | | $ | 69 | | $ | 48 | | $ | 21 | | $ | 27 | | $ | 151 | | $ | (124) | | $ | 228 | | $ | 345 | | $ | (117) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following tables reconciletable reconciles the Company’s segment results for the three and six months ended AugustMay 31, 20212022 to consolidated U.S. GAAP results:
| | | For the Three Months Ended August 31, 2021 | | For the Three Months Ended May 31, 2022 |
| | (in millions) | | | (in millions) | |
| | Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | Reconciling Items | | Consolidated U.S. GAAP | | | Cybersecurity | | IoT | | Licensing and Other | | Segment Totals | | Reconciling Items | | Consolidated U.S. GAAP | |
Revenue | Revenue | $ | 120 | | | $ | 40 | | | $ | 15 | | | $ | 175 | | | $ | — | | | $ | 175 | | | Revenue | $ | 113 | | | $ | 51 | | | $ | 4 | | | $ | 168 | | | $ | — | | | $ | 168 | | |
Cost of sales (1) | 49 | | | 7 | | | 6 | | | 62 | | | 1 | | | 63 | | | |
Gross margin | $ | 71 | | | $ | 33 | | | $ | 9 | | | $ | 113 | | | $ | (1) | | | $ | 112 | | | |
Cost of sales | | Cost of sales | 53 | | | 8 | | | 2 | | | 63 | | | 1 | | | 64 | | |
Gross margin (1) | | Gross margin (1) | $ | 60 | | | $ | 43 | | | $ | 2 | | | $ | 105 | | | $ | (1) | | | $ | 104 | | |
Operating expenses | Operating expenses | | | | | | | | | 253 | | | 253 | | | Operating expenses | | | | | | | | | 281 | | | 281 | | |
Investment loss, net | Investment loss, net | | 1 | | | 1 | | | Investment loss, net | | 1 | | | 1 | | |
Loss before income taxes | Loss before income taxes | | $ | (142) | | | Loss before income taxes | | $ | (178) | | |
| | | For the Six Months Ended August 31, 2021 | |
| | (in millions) | | |
| | Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | Reconciling Items | | Consolidated U.S. GAAP | | |
Revenue | $ | 227 | | | $ | 83 | | | $ | 39 | | | $ | 349 | | | $ | — | | | $ | 349 | | | |
Cost of sales (1) | 95 | | | 14 | | | 12 | | | 121 | | | 2 | | | 123 | | | |
Gross margin | $ | 132 | | | $ | 69 | | | $ | 27 | | | $ | 228 | | | $ | (2) | | | $ | 226 | | | |
Operating expenses | | | | | | | | | 425 | | | 425 | | | |
Investment loss, net | | 3 | | | 3 | | | |
Loss before income taxes | | $ | (202) | | | |
| |
(1) See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the three and six months ended AugustMay 31, 2021.2022.
The following tables reconciletable reconciles the Company’s segment results for the three and six months ended AugustMay 31, 20202021 to consolidated U.S. GAAP results:
| | | For the Three Months Ended August 31, 2020 | | For the Three Months Ended May 31, 2021 |
| | (in millions) | | | (in millions) | |
| | Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | Reconciling Items | | Consolidated U.S. GAAP | | | Cybersecurity | | IoT | | Licensing and Other | | Segment Totals | | Reconciling Items | | Consolidated U.S. GAAP | |
Revenue | Revenue | $ | 120 | | | $ | 31 | | | $ | 108 | | | $ | 259 | | | $ | — | | | $ | 259 | | | Revenue | $ | 107 | | | $ | 43 | | | $ | 24 | | | $ | 174 | | | $ | — | | | $ | 174 | | |
Cost of sales (1) | 46 | | | 6 | | | 7 | | | 59 | | | 1 | | | 60 | | | |
Gross margin | $ | 74 | | | $ | 25 | | | $ | 101 | | | $ | 200 | | | $ | (1) | | | $ | 199 | | | |
Cost of sales | | Cost of sales | 46 | | | 7 | | | 6 | | | 59 | | | 1 | | | 60 | | |
Gross margin (1) | | Gross margin (1) | $ | 61 | | | $ | 36 | | | $ | 18 | | | $ | 115 | | | $ | (1) | | | $ | 114 | | |
Operating expenses | Operating expenses | | | | | | | | | 221 | | | 221 | | | Operating expenses | | | | | | | | | 172 | | | 172 | | |
Investment loss, net | Investment loss, net | | 5 | | | 5 | | | Investment loss, net | | 2 | | | 2 | | |
Loss before income taxes | Loss before income taxes | | $ | (27) | | | Loss before income taxes | | $ | (60) | | |
| | | For the Six Months Ended August 31, 2020 | |
| | (in millions) | | |
| | Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | Reconciling Items | | Consolidated U.S. GAAP | | |
Revenue | $ | 239 | | | $ | 60 | | | $ | 166 | | | $ | 465 | | | $ | — | | | $ | 465 | | | |
Cost of sales (1) | 93 | | | 12 | | | 15 | | | 120 | | | 3 | | | 123 | | | |
Gross margin | $ | 146 | | | $ | 48 | | | $ | 151 | | | $ | 345 | | | $ | (3) | | | $ | 342 | | | |
Operating expenses | | | | | | | | | 1,009 | | | 1,009 | | | |
Investment loss, net | | 5 | | | 5 | | | |
Loss before income taxes | | $ | (672) | | | |
|
(1) See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the three and six months ended AugustMay 31, 2020.2021.
Financial Highlights
The Company had approximately $772$721 million in cash, cash equivalents and investments as of AugustMay 31, 2021 and $804 million in cash, cash equivalents and investments as of February2022 (February 28, 2021.2022 - $770 million).
In the secondfirst quarter of fiscal 2022,2023, the Company recognized revenue of $175$168 million and incurred a net loss of $144$181 million, or $0.25$0.31 basic loss per share and $0.35 diluted loss per share on a U.S. GAAP basis. In the secondbasis (first quarter of fiscal 2021, the Company recognized2022 - revenue of $259$174 million and incurred a net loss of $23$62 million, or $0.04$0.11 basic and diluted loss per share onshare). The net loss was primarily due to a U.S. GAAP basis.litigation settlement, as discussed above in “Business Overview - Pearlstein Settlement”.
The Company recognized an adjusted net loss of $33$31 million, and an adjusted loss of $0.06$0.05 per share, on a non-GAAP basis in the secondfirst quarter of fiscal 2022. The Company recognized2023 (first quarter of fiscal 2022 - adjusted net incomeloss of $58$27 million, and adjusted earningsloss of $0.10$0.05 per share, in the second quarter of fiscal 2021.share). See “Non-GAAP Financial Measures” below.
Debentures Fair Value Adjustment
As previously disclosed, the Company elected the fair value option to account for its outstanding 1.75% unsecured convertible debentures (the “1.75% Debentures”) and its previously outstanding 3.75% outstanding convertible debentures (the “3.75% Debentures” and collectively, the “Debentures”); therefore, periodic revaluation has been and continues to be required under U.S. GAAP. The fair value adjustment does not impact the terms of the 1.75% Debentures such as the face value, the redemption features or the conversion price.
As at AugustMay 31, 2021,2022, the fair value of the 1.75% Debentures was approximately $782$459 million, an increasea decrease of approximately $67$48 million during the secondfirst quarter of fiscal 2022.2023. For the three months ended AugustMay 31, 2021,2022, the Company recorded a non-cash chargeincome relating to changes in fair value from non-credit components of $67$46 million (pre-tax and after tax) (the “Q2“Q1 Fiscal 20222023 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and a non-cash income relating to
changes in fair value from instrument specific credit risk of nil$2 million in Other Comprehensive Loss (“OCL”) relating to the 1.75% Debentures. For the six months ended August 31, 2021, the Company recorded a non-cash charge relating to changes in fair value from non-credit components of $63 million (pre-tax and after tax) (the “Fiscal 2022 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and non-cash income relating to changes in fair value from instrument specific credit risk of $1 million in OCL relating to the 1.75% Debentures. See Note 65 to the Consolidated Financial Statements for further details on the 1.75% Debentures.
Non-GAAP Financial Measures
The Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, and information contained in this MD&A is presented on that basis. On September 22, 2021,June 23, 2022, the Company announced financial results for the three and six months ended AugustMay 31, 2021,2022, which included certain non-GAAP financial measures and non-GAAP ratios, including adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted operating income (loss),net loss, adjusted EBITDA, adjusted operating income (loss) margin percentage, adjusted EBITDA margin percentage, adjusted net income (loss), adjusted income (loss)loss per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, and adjusted amortization expense.expense, adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage, adjusted EBITDA margin percentage and free cash usage.
In the Company’s internal reports, management evaluates the performance of the Company’s business on a non-GAAP basis by excluding the impact of certain items below from the Company’s U.S. GAAP financial results. The Company believes that these non-GAAP financial measures and non-GAAP ratios provide management, as well as readers of the Company’s financial statements with a consistent basis for comparison across accounting periods and is useful in helping management and readers understand the Company’s operating results and underlying operational trends. In the first quarter of fiscal 2022, the Company discontinued its use of software deferred revenue acquired and software deferred commission acquired adjustments in its non-GAAPNon-GAAP financial measures due to the quantitative decline in the adjustments over time. For purposes of comparability, the Company’sand non-GAAP financial measures for the three and six months ended August 31, 2020 have been updated to conform to the current year’s presentation.ratios exclude certain amounts as described below:
•Debentures fair value adjustment. The Company has elected to measure its outstanding 1.75% Debentures outstanding at fair value in accordance with the fair value option under U.S. GAAP. Each period, the fair value of the 1.75% Debentures is recalculated and resulting non-cash income and charges from the change in fair value from non-credit components of the 1.75% Debentures are recognized in income. The amount can vary each period depending on changes to the Company’s share price.price, share price volatility and credit indices. This is not indicative of the Company’s core operating performance, and may not be meaningful in comparison towhen comparing the Company’s past operating performance.performance against that of prior periods.
•Restructuring charges. The Company believes that restructuring costs relating to employee termination benefits, facilities and facilitiesother pursuant to the Resource AllocationCost Optimization Program (“RAP”) entered into in order to transition the Company from a legacy hardware manufacturer to a licensing driven software businessreduce its annual expenses amongst R&D, infrastructure and other functions do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful in comparison towhen comparing the Company’s past operating performance.performance against that of prior periods.
•Stock compensation expenses. Equity compensation is a non-cash expense and does not impact the ongoing operating decisions taken by the Company’s management.
•Amortization of acquired intangible assets. When the Company acquires intangible assets through business combinations, the assets are recorded as part of purchase accounting and contribute to revenue generation. Such acquired intangible assets depreciate over time and the related amortization will recur in future periods until the assets have been fully amortized. This is not indicative of the Company’s core operating performance, and may not be meaningful in comparison towhen comparing the Company’s past operating performance.performance against that of prior periods.
•Long-lived asset impairment chargeLitigation settlement.. The Company believes that long-lived asset impairment chargeslitigation settlements do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful in comparison towhen comparing the Company’s past operating performance.
•Goodwill impairment charge.The Company believes that goodwill impairment charge does not reflect expected future operating expenses, is not indicative of the Company’s core operating performance and may not be meaningful in comparison to the Company’s past operating performance.against that of prior periods.
On a U.S. GAAP basis, the impactimpacts of these items isare reflected in the Company’s income statement. However, the Company believes that the provision of supplemental non-GAAP measures allowallows investors to evaluate the financial performance of the Company’s business using the same evaluation measures that management uses, and is therefore a useful indication of the Company’s performance or expected performance of future operations and facilitates period-to-period comparison of operating performance. As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary non-GAAP financial measures that exclude certain items from the presentation of its financial results.
Reconciliation of non-GAAP based measures with most directly comparable U.S. GAAP based measures for the three months ended AugustMay 31, 20212022 and AugustMay 31, 20202021
Readers are cautioned that adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted operating income (loss),net loss, adjusted EBITDA, adjusted operating income (loss) margin percentage, adjusted EBITDA margin percentage, adjusted net income (loss), adjusted income (loss)loss per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, and adjusted amortization expense, adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage, adjusted EBITDA margin percentage and free cash usage and similar measures do not have any standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similarly titled measures reported by other companies. These non-GAAP financial measures should be considered in the context of the U.S. GAAP results, which are described in this MD&A and presented in the Consolidated Financial Statements.
A reconciliation of the most directly comparable U.S. GAAP financial measures for the three months ended AugustMay 31, 20212022 and AugustMay 31, 20202021 to adjusted financial measures is reflected in the table below:
| For the Three Months Ended (in millions) | For the Three Months Ended (in millions) | | August 31, 2021 | | August 31, 2020 | For the Three Months Ended (in millions) | | May 31, 2022 | | May 31, 2021 |
| Gross margin | Gross margin | | $ | 112 | | | $ | 199 | | Gross margin | | $ | 104 | | | $ | 114 | |
| Stock compensation expense | Stock compensation expense | | 1 | | | 1 | | Stock compensation expense | | 1 | | | 1 | |
Adjusted gross margin | Adjusted gross margin | | $ | 113 | | | $ | 200 | | Adjusted gross margin | | $ | 105 | | | $ | 115 | |
| Gross margin % | Gross margin % | | 64.0 | % | | 76.8 | % | Gross margin % | | 61.9 | % | | 65.5 | % |
| Stock compensation expense | Stock compensation expense | | 0.6 | % | | 0.4 | % | Stock compensation expense | | 0.6 | % | | 0.6 | % |
Adjusted gross margin % | Adjusted gross margin % | | 64.6 | % | | 77.2 | % | Adjusted gross margin % | | 62.5 | % | | 66.1 | % |
Reconciliation of U.S. GAAP operating expense for the three months ended AugustMay 31, 2021,2022, February 28, 2022 and May 31, 2021 and August 31, 2020 to adjusted operating expense is reflected in the table below:
| For the Three Months Ended (in millions) | For the Three Months Ended (in millions) | | August 31, 2021 | | May 31, 2021 | | August 31, 2020 | For the Three Months Ended (in millions) | | May 31, 2022 | | February 28, 2022 | | May 31, 2021 |
Operating expense | Operating expense | | $ | 253 | | | $ | 172 | | | $ | 221 | | Operating expense | | $ | 281 | | | $ | (22) | | | $ | 172 | |
Restructuring charges | Restructuring charges | | — | | | — | | | 1 | | Restructuring charges | | 1 | | | — | | | — | |
Stock compensation expense | Stock compensation expense | | 11 | | | 6 | | 8 | | Stock compensation expense | | 6 | | | 4 | | 6 | |
Debentures fair value adjustment (1) | Debentures fair value adjustment (1) | | 67 | | | (4) | | | 18 | | Debentures fair value adjustment (1) | | (46) | | | (165) | | | (4) | |
| Acquired intangibles amortization | Acquired intangibles amortization | | 32 | | | 32 | | | 32 | | Acquired intangibles amortization | | 23 | | | 22 | | | 32 | |
| LLA impairment charge | | — | | | — | | | 21 | | |
| Litigation settlement | | Litigation settlement | | 165 | | | — | | | — | |
Adjusted operating expense | Adjusted operating expense | | $ | 143 | | | $ | 138 | | | $ | 141 | | Adjusted operating expense | | $ | 132 | | | $ | 117 | | | $ | 138 | |
(1) See “Second“First Quarter Fiscal 20222023 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”
Reconciliation of U.S. GAAP net loss and U.S. GAAP basic loss per share for the three months ended AugustMay 31, 20212022 and AugustMay 31, 20202021 to adjusted net income (loss)loss and adjusted basic earnings (loss)loss per share is reflected in the table below:
| For the Three Months Ended (in millions, except per share amounts) | For the Three Months Ended (in millions, except per share amounts) | | August 31, 2021 | | August 31, 2020 | For the Three Months Ended (in millions, except per share amounts) | | May 31, 2022 | | May 31, 2021 |
| | | | Basic loss per share | | | Basic earnings (loss) per share | | | | Basic loss per share | | | Basic loss per share |
Net loss | Net loss | | $ | (144) | | | $(0.25) | | $ | (23) | | | $(0.04) | Net loss | | $ | (181) | | | $(0.31) | | $ | (62) | | | $(0.11) |
| Restructuring charges | Restructuring charges | | — | | | 1 | | | Restructuring charges | | 1 | | | — | | |
Stock compensation expense | Stock compensation expense | | 12 | | | 9 | | | Stock compensation expense | | 7 | | | 7 | | |
Debentures fair value adjustment | Debentures fair value adjustment | | 67 | | | 18 | | | Debentures fair value adjustment | | (46) | | | (4) | | |
| Acquired intangibles amortization | Acquired intangibles amortization | | 32 | | | 32 | | | Acquired intangibles amortization | | 23 | | | 32 | | |
| LLA impairment charge | | — | | | 21 | | | |
| Litigation settlement | | Litigation settlement | | 165 | | | — | | |
| Adjusted net income (loss) | | $ | (33) | | | $(0.06) | | $ | 58 | | | $0.10 | |
Adjusted net loss | | Adjusted net loss | | $ | (31) | | | $(0.05) | | $ | (27) | | | $(0.05) |
Reconciliation of U.S. GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended AugustMay 31, 20212022 and AugustMay 31, 20202021 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:
| For the Three Months Ended (in millions) | For the Three Months Ended (in millions) | | August 31, 2021 | | August 31, 2020 | For the Three Months Ended (in millions) | | May 31, 2022 | | May 31, 2021 |
Research and development | Research and development | | $ | 58 | | | $ | 57 | | Research and development | | $ | 53 | | | $ | 57 | |
| Stock compensation expense | Stock compensation expense | | 2 | | | 2 | | Stock compensation expense | | 2 | | | 2 | |
Adjusted research and development | Adjusted research and development | | $ | 56 | | | $ | 55 | | Adjusted research and development | | $ | 51 | | | $ | 55 | |
| Selling, marketing and administration | Selling, marketing and administration | | $ | 83 | | | $ | 79 | | Selling, marketing and administration | | $ | 82 | | | $ | 73 | |
Restructuring charges | Restructuring charges | | — | | | 1 | | Restructuring charges | | 1 | | | — | |
| Stock compensation expense | Stock compensation expense | | 9 | | | 6 | | Stock compensation expense | | 4 | | | 4 | |
| Adjusted selling, marketing and administration | Adjusted selling, marketing and administration | | $ | 74 | | | $ | 72 | | Adjusted selling, marketing and administration | | $ | 77 | | | $ | 69 | |
| Amortization | Amortization | | $ | 45 | | | $ | 46 | | Amortization | | $ | 27 | | | $ | 46 | |
Acquired intangibles amortization | Acquired intangibles amortization | | 32 | | | 32 | | Acquired intangibles amortization | | 23 | | | 32 | |
Adjusted amortization | Adjusted amortization | | $ | 13 | | | $ | 14 | | Adjusted amortization | | $ | 4 | | | $ | 14 | |
Adjusted operating income (loss),loss, adjusted EBITDA, adjusted operating income (loss)loss margin percentage and adjusted EBITDA margin percentage for the three months ended AugustMay 31, 20212022 and AugustMay 31, 20202021 are reflected in the table below.
| For the Three Months Ended (in millions) | For the Three Months Ended (in millions) | | August 31, 2021 | | August 31, 2020 | For the Three Months Ended (in millions) | | May 31, 2022 | | May 31, 2021 |
Operating loss | Operating loss | | $ | (141) | | | $ | (22) | | Operating loss | | $ | (177) | | | $ | (58) | |
Non-GAAP adjustments to operating loss | Non-GAAP adjustments to operating loss | | Non-GAAP adjustments to operating loss | |
| Restructuring charges | Restructuring charges | | — | | | 1 | | Restructuring charges | | 1 | | | — | |
Stock compensation expense | Stock compensation expense | | 12 | | | 9 | | Stock compensation expense | | 7 | | | 7 | |
Debentures fair value adjustment | Debentures fair value adjustment | | 67 | | | 18 | | Debentures fair value adjustment | | (46) | | | (4) | |
| Acquired intangibles amortization | Acquired intangibles amortization | | 32 | | | 32 | | Acquired intangibles amortization | | 23 | | | 32 | |
| LLA impairment charge | | — | | | 21 | | |
| Litigation settlement | | Litigation settlement | | 165 | | | — | |
Total non-GAAP adjustments to operating loss | Total non-GAAP adjustments to operating loss | | 111 | | | 81 | | Total non-GAAP adjustments to operating loss | | 150 | | | 35 | |
Adjusted operating income (loss) | | (30) | | | 59 | | |
Adjusted operating loss | | Adjusted operating loss | | (27) | | | (23) | |
Amortization | Amortization | | 48 | | | 50 | | Amortization | | 29 | | | 49 | |
Acquired intangibles amortization | Acquired intangibles amortization | | (32) | | | (32) | | Acquired intangibles amortization | | (23) | | | (32) | |
Adjusted EBITDA | Adjusted EBITDA | | $ | (14) | | | $ | 77 | | Adjusted EBITDA | | $ | (21) | | | $ | (6) | |
| Revenue | Revenue | | $ | 175 | | | $ | 259 | | Revenue | | $ | 168 | | | $ | 174 | |
Adjusted operating income (loss) margin % (1) | | (17%) | | 23% | |
Adjusted operating loss margin % (1) | | Adjusted operating loss margin % (1) | | (16%) | | (13%) |
Adjusted EBITDA margin % (2) | Adjusted EBITDA margin % (2) | | (8%) | | 30% | Adjusted EBITDA margin % (2) | | (13%) | | (3%) |
(1) Adjusted operating income (loss)loss margin % is calculated by dividing adjusted operating income (loss)loss by revenue
(2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by revenue
ReconciliationThe Company uses free cash flow (usage) when assessing its sources of non-GAAP based measures with most directly comparable U.S. GAAP based measures forliquidity, capital resources, and quality of earnings. The Company believes that free cash flow (usage) is helpful in understanding the six months ended August 31, 2021Company’s capital requirements and August 31, 2020.
A reconciliation ofprovides an additional means to reflect the most directly comparable U.S. GAAP financial measures for the six months ended August 31, 2021 and August 31, 2020 to adjusted financial measures is reflectedcash flow trends in the table below: | | | | | | | | | | | | | | |
For the Six Months Ended (in millions) | | August 31, 2021 | | August 31, 2020 |
| | | | |
| | | | |
| | | | |
| | | | |
Gross margin | | $ | 226 | | | $ | 342 | |
| | | | |
| | | | |
| | | | |
Stock compensation expense | | 2 | | | 3 | |
Adjusted gross margin | | $ | 228 | | | $ | 345 | |
| | | | |
Gross margin % | | 64.8 | % | | 73.5 | % |
| | | | |
| | | | |
| | | | |
Stock compensation expense | | 0.5 | % | | 0.7 | % |
Adjusted gross margin % | | 65.3 | % | | 74.2 | % |
| | | | |
Operating expense | | $ | 425 | | | $ | 1,009 | |
Restructuring charges | | — | | | 2 | |
Stock compensation expense | | 17 | | | 20 | |
Debentures fair value adjustment (1) | | 63 | | | 19 | |
| | | | |
Acquired intangibles amortization | | 64 | | | 65 | |
| | | | |
Goodwill impairment charge | | — | | | 594 | |
LLA impairment charge | | — | | | 21 | |
| | | | |
| | | | |
Adjusted operating expense | | $ | 281 | | | $ | 288 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(1) See “Second Quarter Fiscal 2022 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”
Company’s business. Reconciliation of U.S. GAAP net loss and U.S. GAAP basic loss per sharecash used in operating activities for the sixthree months ended AugustMay 31, 2022 and May 31, 2021 and August 31, 2020 to adjusted net income (loss) and adjusted basic earnings (loss) per sharefree cash usage is reflected in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Six Months Ended (in millions, except per share amounts) | | August 31, 2021 | | August 31, 2020 |
| | | | Basic loss per share | | | | Basic earnings (loss) per share |
Net loss | | $ | (206) | | | $(0.36) | | $ | (659) | | | $(1.18) |
| | | | | | | | |
| | | | | | | | |
Restructuring charges | | — | | | | | 2 | | | |
Stock compensation expense | | 19 | | | | | 23 | | | |
Debentures fair value adjustment | | 63 | | | | | 19 | | | |
| | | | | | | | |
Acquired intangibles amortization | | 64 | | | | | 65 | | | |
| | | | | | | | |
Goodwill impairment charge | | — | | | | | 594 | | | |
LLA impairment charge | | — | | | | | 21 | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Adjusted net income (loss) | | $ | (60) | | | $(0.11) | | $ | 65 | | | $0.12 |
Reconciliation of U.S. GAAP research and development, selling, marketing and administration, and amortization expense for the six months ended August 31, 2021 and August 31, 2020 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:
| | | | | | | | | | | | | | |
For the Six Months Ended (in millions) | | August 31, 2021 | | August 31, 2020 |
Research and development | | $ | 115 | | | $ | 114 | |
| | | | |
Stock compensation expense | | 4 | | | 5 | |
Adjusted research and development | | $ | 111 | | | $ | 109 | |
| | | | |
Selling, marketing and administration | | $ | 156 | | | $ | 169 | |
Restructuring charges | | — | | | 2 | |
| | | | |
Stock compensation expense | | 13 | | | 15 | |
| | | | |
Adjusted selling, marketing and administration | | $ | 143 | | | $ | 152 | |
| | | | |
Amortization | | $ | 91 | | | $ | 92 | |
Acquired intangibles amortization | | 64 | | | 65 | |
Adjusted amortization | | $ | 27 | | | $ | 27 | |
Adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage and adjusted EBITDA margin percentage for the six months ended August 31, 2021 and August 31, 2020 are reflected in the table below.
| | | | | | | | | | | | | | |
For the Six Months Ended (in millions) | | August 31, 2021 | | August 31, 2020 |
Operating loss | | $ | (199) | | | $ | (667) | |
Non-GAAP adjustments to operating loss | | | | |
| | | | |
| | | | |
Restructuring charges | | — | | | 2 | |
Stock compensation expense | | 19 | | | 23 | |
Debentures fair value adjustment | | 63 | | | 19 | |
| | | | |
Acquired intangibles amortization | | 64 | | | 65 | |
| | | | |
Goodwill impairment charge | | — | | | 594 | |
LLA impairment charge | | — | | | 21 | |
| | | | |
| | | | |
Total non-GAAP adjustments to operating loss | | 146 | | | 724 | |
Adjusted operating income (loss) | | (53) | | | 57 | |
Amortization | | 97 | | | 100 | |
Acquired intangibles amortization | | (64) | | | (65) | |
Adjusted EBITDA | | $ | (20) | | | $ | 92 | |
| | | | |
Revenue | | $ | 349 | | | $ | 465 | |
Adjusted operating income (loss) margin % (1) | | (15 | %) | | 12 | % |
Adjusted EBITDA margin % (2) | | (6 | %) | | 20 | % |
(1) Adjusted operating income (loss) margin % is calculated by dividing adjusted operating income (loss) by revenue
(2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by revenue | | | | | | | | | | | | | | |
For the Three Months Ended (in millions) | | May 31, 2022 | | May 31, 2021 |
Net cash used in operating activities | | $ | (42) | | | $ | (33) | |
Acquisition of property, plant and equipment | | (1) | | | (2) | |
Free cash usage | | $ | (43) | | | $ | (35) | |
Key Metrics
The Company regularly monitors a number of financial and operating metrics, including the following key metrics, in order to measure the Company’s current performance and estimateestimated future performance. Readers are cautioned that annual recurring revenue (“ARR”), dollar-based net retention rate (“DBNRR”), QNX royalty revenue backlog, Cybersecurity total contract value (“TCV”) billings, and recurring revenue percentage and free cash flow do not have any standardized meaning and are unlikely to be comparable to similarly titled measures reported by other companies. In the first quarter of fiscal 2022, the Company discontinued its use of software deferred revenue acquired in its key metrics as the
Company no longer reports non-GAAP revenue. For purposes of comparability, the Company’s key metrics for the three months ended August 31, 2020 have been updated to conform to the current year’s presentation.
Comparative breakdowns of certain key metrics for the three months ended AugustMay 31, 20212022 and AugustMay 31, 20202021 are set forth below.
| For the Three Months Ended (in millions) | For the Three Months Ended (in millions) | | August 31, 2021 | | August 31, 2020 | | Change | For the Three Months Ended (in millions) | | May 31, 2022 | | May 31, 2021 | | Change |
| Annual Recurring Revenue | Annual Recurring Revenue | | | | | | | Annual Recurring Revenue | | | | | | |
Cyber Security | | $ | 364 | | | $ | 367 | | | $ | (3) | | |
Cybersecurity | | Cybersecurity | | $ | 334 | | | $ | 364 | | | $ | (30) | |
IoT | IoT | | $ | 89 | | | $ | 92 | | | $ | (3) | | IoT | | $ | 94 | | | $ | 86 | | | $ | 8 | |
Dollar-Based Net Retention Rate | Dollar-Based Net Retention Rate | | Dollar-Based Net Retention Rate | |
Cyber Security | | 95 | % | | 100 | % | | (5 | %) | |
| Cybersecurity | | Cybersecurity | | 88 | % | | 94 | % | | (6 | %) |
QNX Royalty Revenue Backlog | | QNX Royalty Revenue Backlog | | $ | 560 | | | $ | 490 | | | $ | 70 | |
Cybersecurity Total Contract Value Billings | | Cybersecurity Total Contract Value Billings | | $ | 89 | | | $ | 77 | | | $ | 12 | |
Recurring Software Product Revenue | Recurring Software Product Revenue | | ~ 80% | | ~ 90% | | ~ 10% | Recurring Software Product Revenue | | ~ 80% | | ~ 90% | | 10 | % |
|
Annual Recurring Revenue
The Company defines ARR as the annualized value of all subscription, term, maintenance, services, and royalty contracts that generate recurring revenue as of the end of the reporting period. The Company uses ARR as an indicator of business momentum for software and services.
Cyber SecurityCybersecurity ARR was approximately $364$334 million in the second quarter of fiscal 2022, consistent with the first quarter of fiscal 20222023 and decreased compared to $367$347 million in the secondfourth quarter of fiscal 2021.2022 and compared to $364 million in the first quarter of fiscal 2022.
IoT ARR was approximately $89$94 million in the secondfirst quarter of fiscal 2023 and increased compared to $93 million in the fourth quarter of fiscal 2022 and increased compared to $86 million in the first quarter of fiscal 2022 and decreased compared to $92 million the second quarter of fiscal 2021.2022.
Dollar-Based Net Retention Rate
The Company calculates the DBNRR as of period end by first calculating the ARR from the customer base as at 12 months prior to the current period end (“Prior Period ARR”). The Company then calculates the ARR for the same cohort of customers as at the current period end (“Current Period ARR”). The Company then divides the Current Period ARR by the Prior Period ARR to calculate the DBNRR.
Cyber SecurityCybersecurity DBNRR was 95%88% in the secondfirst quarter of fiscal 2023 and decreased compared to 91% in the fourth quarter of fiscal 2022 and increased compared to 94% in the first quarter of fiscal 20222022.
QNX Royalty Revenue Backlog
The Company defines the royalty revenue backlog of its QNX business as estimated future revenue from variable forecasted royalties related to the QNX business. The estimation of forecasted royalties is based on QNX’s royalty rates and decreased comparedon projections of anticipated volumes that are based on historical shipping experience and current customer projections that management believes are reasonable over the lifetime of a design. The QNX royalty revenue backlog is calculated annually based on current
projections of volumes and may not be indicative of actual future revenue. The revenue that the Company will recognize is subject to 100% in secondseveral factors, including actual volumes and potential terminations or modifications to customer contracts.
The Company’s QNX royalty revenue backlog was approximately $560 million at the end of the first quarter of fiscal 2021.2023 and increased compared to approximately $490 million at the end of the first quarter of fiscal 2022.
Total Contract Value Billings
The Company defines TCV billings as amounts invoiced less credits issued. The Company considers TCV billings to be a useful metric because billings drive deferred revenue, which is an important indicator of the health and visibility of the business, and represents a significant percentage of future revenue.
Total CompanyCybersecurity TCV billings increasedwas $89 million in the second quarter of fiscal 2022 compared to the first quarter of fiscal 2022 and decreased2023, an increase of $12 million compared to $77 in the secondfirst quarter of fiscal 2021.
The Company expects sequential billings growth for Cyber Security for the remainder of fiscal 2022.
Recurring Software Product Revenue
The Company defines recurring software product revenue percentage as recurring software product revenue divided by total software and services revenue. Recurring software product revenue is comprised of subscription and term licenses, maintenance arrangements, royalty arrangements and perpetual licenses recognized ratably under ASC 606. Total software and services revenue is comprised of recurring product revenue, non-recurring product revenue and professional services. The Company uses recurring software product revenue percentage to provide visibility into the revenue expected to be recognized in the current and future periods.
Total adjusted Software and Services product revenue, excluding professional services, was approximately 80% recurring in the secondfirst quarter of fiscal 2023, consistent with the fourth quarter of fiscal 2022, and decreased compared to approximately 90% recurring in the first quarter of fiscal 2022 and the second quarter of fiscal 2021 due to product mix.
Free Cash Flow
Free cash flow is a measure of liquidity calculated as net operating cash flow minus capital expenditures. Free cash flow does not have any standardized meaning as prescribed by U.S. GAAP and therefore may not be comparable to similar measures presented by other companies. The Company uses free cash flow when assessing its sources of liquidity, capital resources, and
quality of earnings. Free cash flow is helpful in understanding the Company’s capital requirements and provides an additional means to reflect the cash flow trends in the Company’s business. For the three months ended August 31, 2021, the Company’s net cash generated by operating activities was $12 million and capital expenditures were $2 million, resulting in the Company reporting free cash flow of $10 million compared to net cash generated by operating activities of $31 million, capital expenditures of $2 million, and free cash flow of $29 million for the three months ended August 31, 2020.
Results of Operations - Three months ended AugustMay 31, 20212022 compared to the three months ended AugustMay 31, 20202021
Revenue
Revenue by Segment
Comparative breakdowns of revenue by segment are set forth below.
| | | For the Three Months Ended (in millions) | | For the Three Months Ended (in millions) |
| | August 31, 2021 | | August 31, 2020 | | Change | | | May 31, 2022 | | May 31, 2021 | | Change | |
Revenue by Segment | Revenue by Segment | | | | | | | Revenue by Segment | | | | | | |
Cyber Security | $ | 120 | | | $ | 120 | | | $ | — | | | |
Cybersecurity | | Cybersecurity | $ | 113 | | | $ | 107 | | | $ | 6 | | |
IoT | IoT | 40 | | | 31 | | | 9 | | | IoT | 51 | | | 43 | | | 8 | | |
Licensing and Other | Licensing and Other | 15 | | | 108 | | | (93) | | | Licensing and Other | 4 | | | 24 | | | (20) | | |
| | | $ | 175 | | | $ | 259 | | | $ | (84) | | | | $ | 168 | | | $ | 174 | | | $ | (6) | | |
| % Revenue by Segment | % Revenue by Segment | | | % Revenue by Segment | | |
Cyber Security | 68.6 | % | | 46.3 | % | | | |
Cybersecurity | | Cybersecurity | 67.3 | % | | 61.5 | % | | |
IoT | IoT | 22.9 | % | | 12.0 | % | | | IoT | 30.4 | % | | 24.7 | % | | |
Licensing and Other | Licensing and Other | 8.5 | % | | 41.7 | % | | | Licensing and Other | 2.3 | % | | 13.8 | % | | |
| | | 100.0 | % | | 100.0 | % | | | | 100.0 | % | | 100.0 | % | | |
Cyber SecurityCybersecurity
Cyber SecurityThe increase in Cybersecurity revenue of $6 million was $120 million, or 68.6% of revenue, in the second quarter of fiscal 2022, comparedprimarily due to $120 million, or 46.3% of revenue, in the second quarter of fiscal 2021. Anan increase of $11$16 million related to the sale of Secusmart solutions, waspartially offset by a decrease of $9$6 million relating to product revenue in BlackBerry Spark and a decrease of $3$2 million relating to professional services.
The Company expects modest sequential Cyber Security revenue growth for the remainder of fiscal 2022.
IoT
IoT revenue was $40 million, or 22.9% of revenue, in the second quarter of fiscal 2022, an increase of $9 million compared to $31 million, or 12.0% of revenue, in the second quarter of fiscal 2021. The increase in IoT revenue of $9$8 million was primarily due to an increase of $6 million in BlackBerry QNX royalty revenue due to the partial recovery of the automotive market from the slowdown related to the COVID-19 pandemic in the second quarter of fiscal 2021, an increase of $3 million in development seat revenue and an increase of $1$3 million relating to professional services revenue.services.
Licensing and Other
Licensing and Other revenue was $15 million, or 8.5% of revenue, in the second quarter of fiscal 2022, a decrease of $93 million compared to $108 million, or 41.7% of revenue, in the second quarter of fiscal 2021. The decrease in Licensing and Other revenue of $93$20 million was primarily due to a decrease of $18 million in revenue from the Company’s intellectual property licensing arrangements including its patent licensing agreement with Teletry.
The Company previously stated that, assumingdue to the potential sale of a portion of the Company’s patent portfolio process concludespending Patent Sale Transaction in the middlefirst quarter of fiscal 2022 without the completion of a transaction, the Company would resume its prior monetization activities and expected that Licensing and Other revenue would be approximately $100 million in fiscal 2022. The Company now expects that the ongoing patent sale process,2023 and associated restrictions on monetization activity will continue for the remainderand a decrease of the fiscal year and that, therefore, Licensing and Other revenue will be approximately $10$2 million in each of the third and fourth quarters of fiscal 2022 and approximately $60 million in fiscal 2022.
Revenue by Geography
Comparative breakdowns of the geographic regions are set forth in the following table:
| | | For the Three Months Ended (in millions) | | For the Three Months Ended (in millions) |
| | August 31, 2021 | | August 31, 2020 | | Change | | May 31, 2022 | | May 31, 2021 | | Change |
Revenue by Geography | Revenue by Geography | | | | | | | Revenue by Geography | | | | | | |
North America | North America | $ | 101 | | | $ | 195 | | | $ | (94) | | | North America | $ | 89 | | | $ | 111 | | | $ | (22) | | |
Europe, Middle East and Africa | Europe, Middle East and Africa | 57 | | | 48 | | | 9 | | | Europe, Middle East and Africa | 60 | | | 45 | | | 15 | | |
Other regions | Other regions | 17 | | | 16 | | | 1 | | | Other regions | 19 | | | 18 | | | 1 | | |
| | $ | 175 | | | $ | 259 | | | $ | (84) | | | | $ | 168 | | | $ | 174 | | | $ | (6) | | |
| % Revenue by Geography | % Revenue by Geography | | | % Revenue by Geography | | |
North America | North America | 57.7 | % | | 75.3 | % | | | North America | 53.0 | % | | 63.8 | % | | |
Europe, Middle East and Africa | Europe, Middle East and Africa | 32.6 | % | | 18.5 | % | | | Europe, Middle East and Africa | 35.7 | % | | 25.9 | % | | |
Other regions | Other regions | 9.7 | % | | 6.2 | % | | | Other regions | 11.3 | % | | 10.3 | % | | |
| | 100.0 | % | | 100.0 | % | | | | 100.0 | % | | 100.0 | % | | |
North America Revenue
RevenueThe decrease in North America was $101revenue of $22 million or 57.7% of revenue, in the second quarter of fiscal 2022, reflecting a decrease of $94 million compared to $195 million, or 75.3% of revenue, in the second quarter of fiscal 2021. Revenue in North America decreased compared to the second quarter of fiscal 2021was primarily due to a decrease of $92$18 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment”, and a decrease of $6$3 million in product revenue in BlackBerry Spark, partially offset by an increase of $5$2 million in BlackBerry QNX royalty revenue due to the reasons discussed above in “Revenue by Segment”.revenue.
Europe, Middle East and Africa Revenue
RevenueThe increase in Europe, Middle East and Africa was $57revenue of $15 million or 32.6% of revenue in the second quarter of fiscal 2022, reflecting an increase of $9 million compared to $48 million or 18.5% of revenue in the second quarter of fiscal 2021. The increase in revenue iswas primarily due to an increase of $11$16 million related to the sale of Secusmart solutions an increase of $2 million in development seat revenue and an increase of $1$4 million in BlackBerry QNX royaltydevelopment seat revenue, due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease of $4$3 million in product revenue in BlackBerry Spark.
Other Regions Revenue
RevenueThe increase in otherOther regions was $17 million or 9.7% of revenue in the second quarter of fiscal 2022, reflecting an increase of $1 million compared to $16 million or 6.2% of revenue in the second quarter of fiscal 2021. The increase in revenue iswas primarily due to an increase of $1 million in BlackBerry QNX development seat revenue.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin decreased by $87$10 million to approximately $112$104 million in the secondfirst quarter of fiscal 2023 (first quarter of fiscal 2022 from $199 million in the second quarter of fiscal 2021.- $114 million). The decrease was primarily due to a decrease in revenue from Licensing and Other and BlackBerry Spark, partially offset by an increase in revenue from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales does not significantly fluctuate based on business volume.
Consolidated Gross Margin Percentage
Consolidated gross margin percentage decreased by 12.8%3.6% to approximately 64.0%61.9% of consolidated revenue in the secondfirst quarter of fiscal 2023 (first quarter of fiscal 2022 from 76.8% of consolidated revenue in the second quarter of fiscal 2021.- 65.5%). The decrease was primarily due to a lower gross margin contribution from Licensing and Other and BlackBerry Spark due to the reasons discussed above in “Revenue by Segment”, partially offset by a
higher gross margin contribution from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”.
Gross Margin by Segment
See “Business Overview” and “Second“First Quarter Fiscal 20222023 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended (in millions) |
| | For the Three Months Ended (in millions) | | Cybersecurity | | IoT | | Licensing and Other | | Segment Totals | |
| | Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | | May 31, | | Change | | May 31, | | Change | | May 31, | | Change | | May 31, | | Change | |
| | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | | 2022 | | 2021 | | Change | 2022 | | 2021 | | Change | 2022 | | 2021 | | Change | 2022 | | 2021 | | Change | |
Segment revenue | Segment revenue | $ | 120 | | $ | 120 | | $ | — | | $ | 40 | | $ | 31 | | $ | 9 | | $ | 15 | | $ | 108 | | $ | (93) | | $ | 175 | | $ | 259 | | $ | (84) | | Segment revenue | $ | 113 | | $ | 107 | $ | 6 | | $ | 51 | | $ | 43 | $ | 8 | | $ | 4 | | $ | 24 | $ | (20) | | $ | 168 | | $ | 174 | $ | (6) | |
Segment cost of sales | Segment cost of sales | 49 | | 46 | | 3 | | 7 | | 6 | | 1 | | 6 | | 7 | | (1) | | 62 | | 59 | | 3 | | Segment cost of sales | 53 | | 46 | | 7 | | 8 | | 7 | | 1 | | 2 | | 6 | | (4) | | 63 | | 59 | | 4 | |
Segment gross margin | Segment gross margin | $ | 71 | | $ | 74 | | $ | (3) | | $ | 33 | | $ | 25 | | $ | 8 | | $ | 9 | | $ | 101 | | $ | (92) | | $ | 113 | | $ | 200 | | $ | (87) | | Segment gross margin | $ | 60 | | $ | 61 | | $ | (1) | | $ | 43 | | $ | 36 | | $ | 7 | | $ | 2 | | $ | 18 | | $ | (16) | | $ | 105 | | $ | 115 | | $ | (10) | |
Segment gross margin % | Segment gross margin % | 59 | % | | 62 | % | | (3 | %) | | 83 | % | | 81 | % | | 2 | % | | 60 | % | | 94 | % | | (34 | %) | | 65 | % | | 77 | % | | (12 | %) | | Segment gross margin % | 53 | % | | 57 | % | | (4 | %) | | 84 | % | | 84 | % | | — | % | | 50 | % | | 75 | % | | (25 | %) | | 63 | % | | 66 | % | | (3 | %) | |
Cyber SecurityCybersecurity
Cyber SecurityThe decrease in Cybersecurity gross margin decreased by $3of $1 million to approximately $71 million in the second quarter of fiscal 2022 from $74 million in the second quarter of fiscal 2021. The decrease was primarily due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales for most Cybersecurity products does not significantly fluctuate based on business volume.
Cyber SecurityThe decrease in Cybersecurity gross margin percentage decreasedof 4% was primarily due to an increase in revenue from the sale of Secusmart solutions, which has a lower relative gross margin percentage.
IoT
The increase in IoT gross margin of $7 million was primarily due to the reasons discussed above in “Revenue by 3% to approximately 59% of Cyber Security revenueSegment”, partially offset by an increase in salaries expense.
IoT gross margin percentage was consistent with the secondfirst quarter of fiscal 2022 from 62%2022.
Licensing and Other
The decrease in Licensing and Other gross margin of Cyber Security revenue in the second quarter of fiscal 2021. The decrease$16 million was primarily due to the reasons discussed above in “Revenue by Segment”.
IoT
IoT gross margin increased by $8 million to approximately $33 million in the second quarter of fiscal 2022 from $25 million in the second quarter of fiscal 2021. The increase was primarily due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales does not significantly fluctuate based on business volume.
IoT gross margin percentage increased by 2% to approximately 83% of IoT revenue in the second quarter of fiscal 2022 from 81% of IoT revenue in the second quarter of fiscal 2021. The increase was primarily due to an increase in BlackBerry QNX royalty revenue, which has a higher relative gross margin percentage, due to the reasons discussed above in “Revenue by Segment”.
Licensing and Other
Licensing and Other gross margin decreased by $92 million to approximately $9 million in the second quarter of fiscal 2022 from $101 million in the second quarter of fiscal 2021. The decrease was primarily due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales does not significantly fluctuate based on business volume.
Licensing and Other gross margin percentage decreased by 34% to approximately 60% of Licensing and Other revenue in the second quarter of fiscal 2022 from 94% of Licensing and Other revenue in the second quarter of fiscal 2021. The decrease25% was primarily due to the reasons discussed above in “Revenue by Segment”.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended AugustMay 31, 2021,2022, compared to the quarter ended May 31, 2021February 28, 2022 and the quarter ended AugustMay 31, 2020.2021. The Company believes it is meaningful to provide a sequential comparison between the secondfirst quarter of fiscal 20222023 and the firstfourth quarter of fiscal 2022.
| | | For the Three Months Ended (in millions) | | For the Three Months Ended (in millions) |
| | August 31, 2021 | | | May 31, 2021 | | | August 31, 2020 | | May 31, 2022 | | | February 28, 2022 | | | May 31, 2021 |
Revenue | Revenue | $ | 175 | | | | $ | 174 | | | | $ | 259 | | Revenue | $ | 168 | | | | $ | 185 | | | | $ | 174 | |
Operating expenses | Operating expenses | | | | | | | | Operating expenses | | | | | | | |
Research and development | Research and development | 58 | | | | 57 | | | | 57 | | Research and development | 53 | | | | 47 | | | | 57 | |
Selling, marketing and administration | Selling, marketing and administration | 83 | | | | 73 | | | | 79 | | Selling, marketing and administration | 82 | | | | 64 | | | | 73 | |
Amortization | Amortization | 45 | | | | 46 | | | | 46 | | Amortization | 27 | | | | 32 | | | | 46 | |
Impairment of long-lived assets | — | | | | — | | | | 21 | | |
| | Debentures fair value adjustment | Debentures fair value adjustment | 67 | | | | (4) | | | | 18 | | Debentures fair value adjustment | (46) | | | | (165) | | | | (4) | |
| Litigation settlement | | Litigation settlement | 165 | | | | — | | | | — | |
Total | Total | $ | 253 | | | | $ | 172 | | | | $ | 221 | | Total | $ | 281 | | | | $ | (22) | | | | $ | 172 | |
| Operating Expenses as % of Revenue | Operating Expenses as % of Revenue | | | | | | Operating Expenses as % of Revenue | | | | | |
Research and development | Research and development | 33.1 | % | | | 32.8 | % | | | 22.0 | % | Research and development | 31.5 | % | | | 25.4 | % | | | 32.8 | % |
Selling, marketing and administration | Selling, marketing and administration | 47.4 | % | | | 42.0 | % | | | 30.5 | % | Selling, marketing and administration | 48.8 | % | | | 34.6 | % | | | 42.0 | % |
Amortization | Amortization | 25.7 | % | | | 26.4 | % | | | 17.8 | % | Amortization | 16.1 | % | | | 17.3 | % | | | 26.4 | % |
Impairment of long-lived assets | — | % | | | — | % | | | 8.1 | % | |
| | Debentures fair value adjustment | Debentures fair value adjustment | 38.3 | % | | | (2.3 | %) | | | 6.9 | % | Debentures fair value adjustment | (27.4 | %) | | | (89.2 | %) | | | (2.3 | %) |
| Litigation settlement | | Litigation settlement | 98.2 | % | | | — | % | | | — | % |
Total | Total | 144.6 | % | | | 98.9 | % | | | 85.3 | % | Total | 167.3 | % | | | (11.9) | % | | | 98.9 | % |
See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the three months ended August 31, 2021, May 31, 20212022, February 28, 2022 and AugustMay 31, 2020.2021.
U.S. GAAP Operating Expenses
Operating expenses increased by $81$303 million, or 47.1%, to $253 million, or 144.6% of revenue, in the second quarter of fiscal 2022, compared to $172 million, or 98.9% of revenue,1,377.3% in the first quarter of fiscal 2022. The increase was2023, compared to the fourth quarter of fiscal 2022 primarily attributable to a $165 million litigation settlement, the difference between the Q2Q1 Fiscal 20222023 Debentures Fair Value Adjustment and the fair value adjustment related to the 1.75% Debentures incurred in the firstfourth quarter of fiscal 2022 of $71$119 million, an increase of $6 million in stock compensation expenses, a decrease in benefits of $4$10 million in government subsidies resulting from claims filed for the Canada Emergency Wage Subsidy and Hardest-Hit Business Recovery Program programs (“CEWS”COVID-19 subsidies”) program to support the business through the COVID-19 pandemic and an increase of $3$9 million in the Company’s deferred share unit costs, partially offset by a decrease of $7 million in legal expenses.variable incentive plan costs.
Operating expenses increased by $32$109 million, or 14.5%63.4%, compared to $253 million, or 144.6% of revenue, in the secondfirst quarter of fiscal 2022 comparedprimarily attributable to $221a $165 million or 85.3%litigation settlement and a decrease in benefits of revenue,$11 million in the second quarter of fiscal 2021. The increase was primarily attributableCOVID-19 subsidies, partially offset by the difference between the Q2Q1 Fiscal 20222023 Debentures Fair Value Adjustment and the fair value adjustment related to the 1.75% Debentures incurred in the secondfirst quarter of fiscal 20212022 of $49$42 million, a decrease in benefits of $7$19 million in CEWS funding and an increase of $4 million in stock compensation expenses, partially offset by long-lived asset impairment of $21 million in the second quarter of fiscal 2021 which did not recuramortization expense and a decrease of $7$5 million in legalsalaries and benefits expenses.
Adjusted Operating Expenses
Adjusted operating expenses increased by $5$15 million, or 3.6%12.8%, to $143$132 million in the secondfirst quarter of fiscal 20222023 compared to $138$117 million in the firstfourth quarter of fiscal 2022. The increase was primarily attributable to a decrease in benefits of $4$10 million in CEWS funding,COVID-19 subsidies, an increase of $9 million in variable incentive plan costs and an increase of $3 million in the Company’s deferred share unit costslegal expenses, partially offset by a decrease of $6 million in amortization expense and a reversaldecrease of previously accrued liabilities of $3 million in commission expenses.
Adjusted operating expenses decreased by $6 million, or 4.3%, to $132 million in the first quarter of fiscal 2021 which did not recur, partially offset by a decrease of $7 million in legal expenses.
Adjusted operating expenses increased by $2 million, or 1.4%,2023 compared to $143$138 million in the secondfirst quarter of fiscal 2022, compared to $141 million in the second quarter of fiscal 2021.2022. The increasedecrease was primarily attributable to a decrease in benefits of $7$10 million in CEWS funding, an increaseamortization expense, a decrease of $5 million in salaries and benefits expenses and a decrease of $2 million in the Company’s deferred share unit costsmarketing and an increase of $2 million in
variable incentive plan costs,advertising expenses, partially offset by a decrease in benefits of $7$11 million in legal expenses and a decrease of $4 million in salaries and benefits expenses.COVID-19 subsidies.
Research and Development Expenses
Research and development expenses consist primarily of salaries and benefits costs for technical personnel, new product development costs, travel expenses, office and building costs, infrastructure costs and other employee costs.
Research and development expenses increaseddecreased by $1$4 million, or 1.8%7.0%, to $58 million in the secondfirst quarter of fiscal 2023 compared to the first quarter of fiscal 2022 comparedprimarily due to $57a decrease of $2 million in the second quartersalaries and benefits expenses and a decrease of fiscal 2021. This increase was primarily attributable to the increase of $1$2 million in variable incentive plan costs and an increase of $1 million in infrastructure costs,consulting fees, partially offset by a decrease in benefits of $1 million in operating lease costs.claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX.
Adjusted research and development expenses increaseddecreased by $1$4 million, or 1.8%7.3%, to $56$51 million in the secondfirst quarter of fiscal 2023 (first quarter of fiscal 2022 compared to- $55 million in the second quarter of fiscal 2021.million). The increasedecrease was primarily attributabledue to the increase of $1 million in infrastructure costs, partially offset bysame reasons described above on a decrease of $1 million in operating lease costs.U.S. GAAP basis.
Selling, Marketing and Administration Expenses
Selling, marketing and administration expenses consist primarily of marketing, advertising and promotion, salaries and benefits, external advisory fees, information technology costs, office and related staffing infrastructure costs and travel expenses.
Selling, marketing and administration expenses increased by $4$9 million, or 5.1%12.3%, to $83 million in the secondfirst quarter of fiscal 2023 compared the first quarter of fiscal 2022 compared to $79 million in the second quarter of fiscal 2021. This increase was primarily attributabledue to a decrease in benefits of $7$11 million in CEWS funding, an increase of $4 million in stock compensation expenses, an increase of $2 million in variable incentive costs and an increase of $2 million in the Company’s deferred share unit costs,COVID-19 subsidies, partially offset by a decrease of $7 million in legal expenses and a decrease of $5$3 million in salaries and benefits expenses.
Adjusted selling, marketing and administration expenses increased by $2$8 million, or 2.8%11.6%, to $74$77 million in the secondfirst quarter of fiscal 2023 (first quarter of fiscal 2022 compared to $72 million in the second quarter of fiscal 2021.- $69 million). This increase was primarily attributabledue to the same reasons described above on a decrease in benefits of $7 million in CEWS funding, an increase of $2 million in the Company’s deferred share unit costs, an increase of $2 million in variable incentive costs and unfavorable foreign currency translation of $2 million, partially offset by a decrease of $7 million in legal expenses and a decrease of $5 million in salaries and benefits expenses.U.S. GAAP basis.
Amortization Expense
The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the quarter ended AugustMay 31, 20212022 compared to the quarter ended AugustMay 31, 2020.2021. Intangible assets are comprised of patents, licenses and acquired technology.
| | | For the Three Months Ended (in millions) | | For the Three Months Ended (in millions) |
| | Included in Operating Expense | | Included in Operating Expense |
| | August 31, 2021 | | August 31, 2020 | | Change | | May 31, 2022 | | May 31, 2021 | | Change |
Property, plant and equipment | Property, plant and equipment | $ | 3 | | | $ | 5 | | | $ | (2) | | Property, plant and equipment | $ | 4 | | | $ | 3 | | | $ | 1 | |
Intangible assets | Intangible assets | 42 | | | 41 | | | 1 | | Intangible assets | 23 | | | 43 | | | (20) | |
Total | Total | $ | 45 | | | $ | 46 | | | $ | (1) | | Total | $ | 27 | | | $ | 46 | | | $ | (19) | |
| | | Included in Cost of Sales | | Included in Cost of Sales |
| | August 31, 2021 | | August 31, 2020 | | Change | | May 31, 2022 | | May 31, 2021 | | Change |
Property, plant and equipment | Property, plant and equipment | $ | 1 | | | $ | 1 | | | $ | — | | Property, plant and equipment | $ | — | | | $ | 1 | | | $ | (1) | |
Intangible assets | Intangible assets | 2 | | | 3 | | | (1) | | Intangible assets | 2 | | | 2 | | | — | |
Total | Total | $ | 3 | | | $ | 4 | | | $ | (1) | | Total | $ | 2 | | | $ | 3 | | | $ | (1) | |
Amortization included in Operating Expense
Amortization expense relating to property, plant and equipment and certain intangible assets decreased by $1 million to $45 million in the second quarter of fiscal 2022 compared to $46 million in the second quarter of fiscal 2021. The decrease in amortization expense included in operating expense of $19 million was due to the lower cost base of assets.assets and a decrease in intellectual property held and used related to the Patent Sale Transaction.
Adjusted amortization expense decreased by $1$10 million to $13$4 million in the secondfirst quarter of fiscal 2023 (first quarter of fiscal 2022 compared to- $14 million in the second quarter of fiscal 2021million) due to the lower cost base of assets.
reasons described above on a U.S. GAAP basis. Amortization included in Cost of Sales
AmortizationThe decrease in amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the Company’s service operations decreased byof $1 million to $3 million in the second quarter of fiscal 2022 compared to $4 million in the second quarter of fiscal 2021. The decrease in amortization expense was due to the lower cost base of assets.
Investment Loss, Net
Investment loss, net, which includes the interest expense from the 1.75% Debentures, decreased by $4$1 million to an investment loss, net of $1 million in the secondfirst quarter of fiscal 2023 (first quarter of fiscal 2022 compared to- investment loss, net of $5 million in the second quarter of fiscal 2021.$2 million). The decrease in investment loss, net is primarily due to a decrease in interest expense from the Debentures partially offset byunrealized losses on public equity securities and a lower averagehigher yield on cash and investments balance compared to the second quarter of fiscal 2021 as a result of the redemption of the 3.75% Debentures and issuance of the 1.75% Debentures.investments.
Income Taxes
For the secondfirst quarter of fiscal 2022,2023, the Company’s net effective income tax expense rate was approximately 1%, compared to an2% (first quarter of fiscal 2022 - net effective income tax recoveryexpense rate of approximately 15% for the same period in the prior fiscal year.3%). The Company’s net effective income tax rate reflects the change in unrecognized income tax benefits, if any, and the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the Debentures, amongst other items, was offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.
Net Loss
The Company’s net loss for the second quarter of fiscal 2022 was $144 million, or $0.25 basic and diluted loss per share on a U.S. GAAP basis, reflecting an increase in net loss of $121 million compared to a net loss of $23 million, or $0.04 basic and diluted loss per share, in the second quarter of fiscal 2021. The increase in net loss of $121 million was primarily due to a decrease in revenue, as described above in “Revenue by Segment”, a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage” and an increase in operating expenses primarily due to an increase in the fair value adjustment related to the Debentures, as described above in “Operating Expenses”.
Adjusted net loss was $33 million in the second quarter of fiscal 2022 compared to adjusted net income of $58 million in the second quarter of fiscal 2021, reflecting a decrease in adjusted net income of $91 million primarily due to a decrease in revenue as described above in “Revenue by Segment”, a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage” and an increase in operating expenses as described above in “Operating Expenses”.
The weighted average number of shares outstanding was 568 million common shares for basic and diluted loss per share for the second quarter of fiscal 2022. The weighted average number of shares outstanding was 559 million common shares for basic loss and diluted loss per share for the second quarter of fiscal 2021.
Results of Operations - Six months ended August 31, 2021 compared to the six months ended August 31, 2020
The following section sets forth certain consolidated statements of operations data, which is expressed in millions of dollars, except for share and per share amounts and as a percentage of revenue, for the six months ended August 31, 2021 and August 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| (in millions, except for share and per share amounts) | |
| August 31, 2021 | | August 31, 2020 | | Change | |
Revenue | $ | 349 | | | | | $ | 465 | | | | | $ | (116) | | |
Gross margin | 226 | | | | | 342 | | | | | (116) | | |
Operating expenses | 425 | | | | | 1,009 | | | | | (584) | | |
Investment loss, net | (3) | | | | | (5) | | | | | 2 | | |
Loss before income taxes | (202) | | | | | (672) | | | | | 470 | | |
Provision for (recovery of) income taxes | 4 | | | | | (13) | | | | | 17 | | |
| | | | | | | | | | |
| | | | | | | | | | |
Net loss | $ | (206) | | | | | $ | (659) | | | | | $ | 453 | | |
Loss per share - reported | | | | | | | | | | |
Basic | $ | (0.36) | | | | | $ | (1.18) | | | | | $ | 0.82 | | |
Diluted | $ | (0.36) | | | | | $ | (1.18) | | | | | $ | 0.82 | | |
| | | | | | | | | | |
Weighted-average number of shares outstanding (000’s) | | | | | | | | | | |
Basic (1) | 567,724 | | | | | 558,365 | | | | | | |
Diluted (2) | 567,724 | | | | | 558,365 | | | | | | |
(1)Basic loss per share on a U.S. GAAP basis for the first six months of fiscal 2022 and fiscal 2021 includes 1,421,945 and 2,802,067 common shares, respectively, remaining to be issued on the anniversary dates of the Cylance acquisition completed on February 21, 2019, in consideration for the acquisition. There are no service or other requirements associated with the issuance of these shares.
(2)Diluted loss per share on a U.S. GAAP basis for the first six months of fiscal 2022 and fiscal 2021 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for the first six months of fiscal 2022 and fiscal 2021 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.
Revenue
Revenue by Segment
Comparative breakdowns of revenue by segment are set forth below.
| | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| (in millions) | | | | |
| August 31, 2021 | | August 31, 2020 | | Change | |
Revenue by Segment | | | | | | | | | |
Cyber Security | $ | 227 | | | $ | 239 | | | $ | (12) | | | | | |
IoT | 83 | | | 60 | | | 23 | | | | | |
Licensing and Other | 39 | | | 166 | | | (127) | | | | | |
| | | | | | | | | |
| $ | 349 | | | $ | 465 | | | $ | (116) | | | | | |
| | | | | | | | | |
% Revenue by Segment | | | | | | | | | |
Cyber Security | 65.0 | % | | 51.4 | % | | | | | | |
IoT | 23.8 | % | | 12.9 | % | | | | | | |
Licensing and Other | 11.2 | % | | 35.7 | % | | | | | | |
| | | | | | | | | |
| 100.0 | % | | 100.0 | % | | | | | | |
Cyber Security
Cyber Security revenue was $227 million, or 65.0% of revenue in the first six months of fiscal 2022, a decrease of $12 million compared to $239 million, or 51.4% of revenue in the first six months of fiscal 2021. The decrease in Cyber Security revenue of $12 million was primarily due to a decrease of $19 million relating to product revenue in BlackBerry Spark and a decrease of $6 million relating to professional services, offset by an increase of $14 million related to the sale of Secusmart solutions.
IoT
IoT revenue was $83 million, or 23.8% of revenue in the first six months of fiscal 2022, an increase of $23 million compared to $60 million, or 12.9% of revenue in the first six months of fiscal 2021. The increase in IoT revenue of $23 million was primarily due to an increase of $12 million in BlackBerry QNX royalty revenue due to the partial recovery of the automotive market from the slowdown related to the COVID-19 pandemic in the first six months of fiscal 2021, an increase of $8 million in development seat revenue and an increase of $2 million in BlackBerry Radar revenue.
Licensing and Other
Licensing and Other revenue was $39 million, or 11.2% of revenue in the first six months of fiscal 2022, a decrease of $127 million compared to $166 million, or 35.7% of revenue in the first six months of fiscal 2021. The decrease in Licensing and Other revenue of $127 million was primarily due to a decrease in revenue from the Company’s intellectual property licensing arrangements including its patent licensing agreement with Teletry.
U.S. GAAP Revenue by Geography
Comparative breakdowns of the geographic regions on a U.S. GAAP basis are set forth in the following table:
| | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| (in millions) | | |
| August 31, 2021 | | August 31, 2020 | | Change | |
Revenue by Geography | | | | | | | |
North America | $ | 212 | | | $ | 345 | | | $ | (133) | | | |
Europe, Middle East and Africa | 102 | | | 89 | | | 13 | | | |
Other regions | 35 | | | 31 | | | 4 | | | |
| $ | 349 | | | $ | 465 | | | $ | (116) | | | |
| | | | | | | |
% Revenue by Geography | | | | | | | |
North America | 60.8 | % | | 74.2 | % | | | | |
Europe, Middle East and Africa | 29.2 | % | | 19.1 | % | | | | |
Other regions | 10.0 | % | | 6.7 | % | | | | |
| 100.0 | % | | 100.0 | % | | | | |
| | | | | | | |
North America Revenue
Revenue in North America was $212 million, or 60.8% of revenue, in the first six months of fiscal 2022, reflecting a decrease of $133 million compared to $345 million, or 74.2% of revenue in the first six months of fiscal 2021. The decrease in North American revenue is primarily due to a decrease of $124 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment”, a decrease of $16 million in product revenue in BlackBerry Spark and a decrease of $2 million relating to non-automotive OEM business, partially offset by an increase of $10 million in BlackBerry QNX royalty revenue due to the reasons discussed above in “Revenue by Segment”.
Europe, Middle East and Africa Revenue
Revenue in Europe, Middle East and Africa was $102 million, or 29.2% of revenue, in the first six months of fiscal 2022, reflecting an increase of $13 million compared to $89 million, or 19.1% of revenue, in the first six months of fiscal 2021. The increase in revenue is primarily due to an increase of $14 million related to the sale of Secusmart solutions, an increase of $3 million in development seat revenue and an increase of $2 million in BlackBerry QNX royalty revenue due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease of $4 million in product revenue in BlackBerry Spark.
Other Regions Revenue
Revenue in other regions was $35 million, or 10.0% of revenue, in the first six months of fiscal 2022, reflecting an increase of $4 million compared to $31 million, or 6.7% of revenue, in the first six months of fiscal 2021. The increase in revenue is primarily due to an increase of $3 million in development seat revenue.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin decreased by $116 million to approximately $226 million in the first six months of fiscal 2022 from $342 million in the first six months of fiscal 2021. The decrease was primarily due to a decrease in revenue from Licensing and Other and BlackBerry Spark, partially offset by an increase in revenue from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales does not significantly fluctuate based on business volume.
Consolidated Gross Margin Percentage
Consolidated gross margin percentage decreased by 8.7%, to approximately 64.8% of consolidated revenue in the first six months of fiscal 2022 from 73.5% of consolidated revenue in the first six months of fiscal 2021. The decrease was primarily due to a lower gross margin contribution from Licensing and Other due to the reasons discussed above in “Revenue by Segment”, partially offset by a higher gross margin contribution from BlackBerry QNX due to the reasons discussed above in “Revenue by Segment”.
Gross Margin by Segment
See “Business Overview” and “Second Quarter Fiscal 2022 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| (in millions) |
| Cyber Security | | IoT | | Licensing and Other | | Segment Totals | | | | |
| August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | August 31, 2021 | | August 31, 2020 | | Change | | | |
Segment revenue | $ | 227 | | $ | 239 | | $ | (12) | | $ | 83 | | $ | 60 | | $ | 23 | | $ | 39 | | $ | 166 | | $ | (127) | | $ | 349 | | $ | 465 | | $ | (116) | | | | |
Segment cost of sales | 95 | | 93 | | 2 | | 14 | | 12 | | 2 | | 12 | | 15 | | (3) | | 121 | | 120 | | 1 | | | | |
Segment gross margin | $ | 132 | | $ | 146 | | $ | (14) | | $ | 69 | | $ | 48 | | $ | 21 | | $ | 27 | | $ | 151 | | $ | (124) | | $ | 228 | | $ | 345 | | $ | (117) | | | | |
Segment gross margin % | 58 | % | | 61 | % | | (3 | %) | | 83 | % | | 80 | % | | 3 | % | | 69 | % | | 91 | % | | (22 | %) | | 65 | % | | 74 | % | | (9 | %) | | | | |
Cyber Security
Cyber Security gross margin decreased by $14 million to approximately $132 million in the first six months of fiscal 2022 from $146 million in the first six months of fiscal 2021. The decrease was primarily due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales does not significantly fluctuate based on business volume.
Cyber Security gross margin percentage decreased by 3% to approximately 58% of Cyber Security revenue in the first six months of fiscal 2022 from 61% of Cyber Security revenue in the first six months of fiscal 2021. The decrease was primarily due to the reasons discussed above in “Revenue by Segment”.
IoT
IoT gross margin increased by $21 million to approximately $69 million in the first six months of fiscal 2022 from $48 million in the first six months of fiscal 2021. The increase was primarily due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales does not significantly fluctuate based on business volume.
IoT gross margin percentage increased by 3% to approximately 83% of IoT revenue in the first six months of fiscal 2022 from 80% of IoT revenue in the first six months of fiscal 2021. The increase was primarily due an increase in BlackBerry QNX royalty revenue, which has a higher relative gross margin percentage, due to the reasons discussed above in “Revenue by Segment”.
Licensing and Other
Licensing and Other gross margin decreased by $124 million to approximately $27 million in the first six months of fiscal 2022 from $151 million in the first six months of fiscal 2021. The decrease was primarily due to the reasons discussed above in “Revenue by Segment”, as the Company’s cost of sales does not significantly fluctuate based on business volume.
Licensing and Other gross margin percentage decreased by 22% to approximately 69% of Licensing and Other revenue in the first six months of fiscal 2022 from 91% of Licensing and Other revenue in the first six months of fiscal 2021. The decrease was primarily due to the reasons discussed above in “Revenue by Segment”.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the six months ended August 31, 2021, compared to the six months ended August 31, 2020.
| | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| (in millions) |
| August 31, 2021 | | | | August 31, 2020 | | | | Change |
Revenue | $ | 349 | | | | | $ | 465 | | | | | $ | (116) | |
Operating expenses | | | | | | | | | |
Research and development | 115 | | | | | 114 | | | | | 1 | |
Selling, marketing and administration | 156 | | | | | 169 | | | | | (13) | |
Amortization | 91 | | | | | 92 | | | | | (1) | |
Impairment of goodwill | — | | | | | 594 | | | | | (594) | |
Impairment of long-lived assets | — | | | | | 21 | | | | | (21) | |
| | | | | | | | | |
Debentures fair value adjustment | 63 | | | | | 19 | | | | | 44 | |
| | | | | | | | | |
Total | $ | 425 | | | | | $ | 1,009 | | | | | $ | (584) | |
| | | | | | | | | |
Operating Expense as % of Revenue | | | | | | | | | |
Research and development | 33.0 | % | | | | 24.5 | % | | | | |
Selling, marketing and administration | 44.7 | % | | | | 36.3 | % | | | | |
Amortization | 26.1 | % | | | | 19.8 | % | | | | |
Impairment of goodwill | — | % | | | | 127.7 | % | | | | |
Impairment of long-lived assets | — | % | | | | 4.5 | % | | | | |
| | | | | | | | | |
Debentures fair value adjustment | 18.1 | % | | | | 4.1 | % | | | | |
| | | | | | | | | |
Total | 121.8 | % | | | | 217.0 | % | | | | |
See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the six months ended August 31, 2021 and August 31, 2020.
U.S. GAAP Operating Expenses
Operating expenses decreased by $584 million, or 57.9%, to $425 million, or 121.8% of revenue in the first six months of fiscal 2022, compared to $1,009 million, or 217.0% of revenue, in the first six months of fiscal 2021. The decrease was primarily attributable to goodwill impairment of $594 million in the first quarter of fiscal 2021 which did not recur, long-lived assets impairment of $21 million in the second quarter of fiscal 2021 which did not recur, a decrease of $9 million in salaries and benefits expense, and a decrease of $3 million in operating lease cost, partially offset by the difference between the Fiscal 2022 Debentures Fair Value Adjustment and the fair value adjustment of $44 million related to the Debentures incurred in the first six months of fiscal 2021, and an increase of $6 million in variable incentive plan costs.
Adjusted Operating Expenses
Adjusted operating expenses decreased by $7 million, or 2.4%, to $281 million in the first six months of fiscal 2022, compared to $288 million in the first six months of 2021. The decrease was primarily attributable to a decrease of $8 million in salaries and benefits expense, a decrease of $3 million in operating lease cost, partially offset by an increase of $5 million in variable incentive plan costs.
Research and Development Expenses
Research and development expenses consist primarily of salaries and benefits for technical personnel, new product development costs, travel, office and building costs, infrastructure costs and other employee costs.
Research and development expenses increased by $1 million, or 0.9%, to $115 million, or 33.0% of revenue, in the first six months of fiscal 2022, compared to $114 million, or 24.5% of revenue, in the first six months of fiscal 2021. The increase was primarily attributable to a decrease of $2 million in claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund (“SIF”) program’s investment in BlackBerry QNX, and an increase of $1 million in variable incentive plan costs, partially offset by a decrease of $2 million in operating lease cost.
Adjusted research and development expenses increased by $2 million, or 1.8% to $111 million in the first six months of fiscal 2022 compared to $109 million in the first six months of fiscal 2021. The increase was primarily attributable to a decrease of $2 million in SIF claims, partially offset by a decrease of $2 million in operating lease cost.
Selling, Marketing and Administration Expenses
Selling, marketing and administration expenses consist primarily of marketing, advertising and promotion, salaries and benefits, external advisory fees, information technology costs, office and related staffing infrastructure costs and travel expenses.
Selling, marketing and administration expenses decreased by $13 million, or 7.7%, to $156 million, or 44.7% of revenue, in the first six months of fiscal 2022 compared to $169 million in the first six months of fiscal 2021, or 36.3% of revenue. The decrease was primarily attributable to a decrease of $8 million in salaries and benefits expenses, a recovery of $2 million in expected credit losses, and a decrease of $2 million in consulting expenses, partially offset by an increase of $5 million in variable incentive plan costs, and an increase of $2 million in the Company’s deferred share unit liability due to increases in the Company’s stock price.
Adjusted selling, marketing and administration expenses decreased by $9 million, or 5.9%, to $143 million in the first six months of fiscal 2022 compared to $152 million in the first six months of fiscal 2021. The decrease was primarily due to the same reasons described above on a U.S. GAAP basis.
Amortization Expense
The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the six months ended August 31, 2021 compared to the six months ended August 31, 2020. Intangible assets are comprised of patents, licenses and acquired technology.
| | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| (in millions) |
| Included in Operating Expense |
| August 31, 2021 | | August 31, 2020 | | Change |
Property, plant and equipment | $ | 6 | | | $ | 9 | | | $ | (3) | |
Intangible assets | 85 | | | 83 | | | 2 | |
Total | $ | 91 | | | $ | 92 | | | $ | (1) | |
| | | | | |
| Included in Cost of Sales |
| August 31, 2021 | | August 31, 2020 | | Change |
Property, plant and equipment | $ | 2 | | | $ | 2 | | | $ | — | |
Intangible assets | 4 | | | 6 | | | (2) | |
Total | $ | 6 | | | $ | 8 | | | $ | (2) | |
| | | | | |
Amortization included in Operating Expense
Amortization expense relating to certain property, plant and equipment and intangible assets decreased by $1 million to $91 million in the first six months of fiscal 2022, compared to $92 million in the first six months of fiscal 2021. The decrease in amortization expense was due to the lower cost base of assets.
Adjusted amortization expense was $27 million in the first six months of fiscal 2022, consistent with $27 million in the first six months of fiscal 2021.
Amortization included in Cost of Sales
Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s service operations decreased by $2 million to $6 million in the first six months of fiscal 2022, compared to $8 million in the first six months of fiscal 2021. The decrease in amortization expense was due to the lower cost base of assets.
Investment Loss, Net
Investment loss, net, which includes the interest expense from the Debentures, decreased by $2 million to investment loss of $3 million in the first six months of fiscal 2022, from investment loss of $5 million in the first six months of fiscal 2021. The decrease in investment loss, net was due to a decrease in interest expense from the Debentures, partially offset by a lower yield on cash and investments and lower average cash and investments balances in the first six months of fiscal 2022 compared to the first six months of fiscal 2021 as a result of the redemption of the 3.75% Debentures and issuance of the 1.75% Debentures.
Income Taxes
For the first six months of fiscal 2022, the Company’s net effective income tax expense rate was approximately 2%, compared to a net effective income tax recovery rate of approximately 2% for the same period in the prior fiscal year. The Company’s net effective income tax rate reflects the change in unrecognized income tax benefits, if any, and the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the Debentures, amongst other items, was offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.
Net Loss
The Company’s net loss for the first six monthsquarter of fiscal 2023 was $181 million, or $0.31 basic loss per share and $0.35 diluted loss per share on a U.S. GAAP basis (first quarter of fiscal 2022 was $206- net loss of $62 million, reflecting a decreaseor $0.11 basic and diluted loss per share). The increase in net loss of $453$119 million compared to net loss of $659 million in the first six months of fiscal 2021,was primarily due to a decreasean increase in operating expenses, due to the goodwill impairment in the first six months of fiscal 2021 that did not recur, as described above in “Operating Expenses”, partially offset by a decrease in revenue, as described above in “Revenue by Segment” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.
Adjusted net loss in the first six months of fiscal 2022 was $60 million compared to adjusted net income of $65$31 million in the first six monthsquarter of fiscal 2021, reflecting a decrease2023 (first quarter of fiscal 2022 - adjusted net loss of $27 million). The increase in adjusted net incomeloss of $125$4 million was primarily due to a decrease in revenue as described above in “Revenue by Segment” and, a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by a decrease in operating expendituresexpenses as described above in “Operating Expenses”.
Basic and diluted loss per share on a U.S. GAAP basis was $0.36 in the first six months of fiscal 2022, a decrease in basic and diluted loss per share of $0.82, compared to basic and diluted loss per share on a U.S. GAAP basis of $1.18 in the first six months of fiscal 2021.
The weighted average number of shares outstanding was 568577 million common shares for basic loss per share and 638 million common shares for diluted loss per share for the first six monthsquarter of August 31, 2021. The weighted average numberfiscal 2023 (first quarter of fiscal 2022 - 567 million common shares outstanding was 558 million for basic and diluted loss per share for the first six months of August 31, 2020.
Common Shares Outstanding
On September 20, 2021, there were 567 million voting common shares, options to purchase 1 million voting common shares, 20 million restricted share units and 1 million deferred share units outstanding. In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 6 to the Consolidated Financial Statements.
The Company has not paid any cash dividends during the last three fiscal years.share).
Financial Condition
Liquidity and Capital Resources
Cash, cash equivalents, and investments decreased by $32$49 million to $772$721 million as at AugustMay 31, 20212022 from $804$770 million as at February 28, 2021,2022, primarily as a result of changes in working capital. The majority of the Company’s cash, cash equivalents, and investments were denominated in U.S. dollars as at AugustMay 31, 2021.
A comparative summary of cash, cash equivalents, and investments is set out below:
| | | As at (in millions) | | As at (in millions) |
| | August 31, 2021 | | February 28, 2021 | | Change | | May 31, 2022 | | February 28, 2022 | | Change |
Cash and cash equivalents | Cash and cash equivalents | $ | 291 | | | $ | 214 | | | $ | 77 | | Cash and cash equivalents | $ | 391 | | | $ | 378 | | | $ | 13 | |
Restricted cash equivalents and restricted short-term investments | 27 | | | 28 | | | (1) | | |
Restricted cash and cash equivalents | | Restricted cash and cash equivalents | 28 | | | 28 | | | — | |
Short-term investments | Short-term investments | 416 | | | 525 | | | (109) | | Short-term investments | 272 | | | 334 | | | (62) | |
Long-term investments | Long-term investments | 38 | | | 37 | | | 1 | | Long-term investments | 30 | | | 30 | | | — | |
Cash, cash equivalents, and investments | Cash, cash equivalents, and investments | $ | 772 | | | $ | 804 | | | $ | (32) | | Cash, cash equivalents, and investments | $ | 721 | | | $ | 770 | | | $ | (49) | |
The table below summarizes the current assets, current liabilities, and working capital of the Company:
| | | As at (in millions) | | As at (in millions) |
| | August 31, 2021 | | February 28, 2021 | | Change | | May 31, 2022 | | February 28, 2022 | | Change |
Current assets | Current assets | $ | 910 | | | $ | 1,006 | | | $ | (96) | | Current assets | $ | 964 | | | $ | 1,043 | | | $ | (79) | |
Current liabilities | Current liabilities | 403 | | | 429 | | | (26) | | Current liabilities | 521 | | | 397 | | | 124 | |
Working capital | Working capital | $ | 507 | | | $ | 577 | | | $ | (70) | | Working capital | $ | 443 | | | $ | 646 | | | $ | (203) | |
Current Assets
The decrease in current assets of $96$79 million at the end of the secondfirst quarter of fiscal 20222023 from the end of the fourth quarter of fiscal 20212022 was primarily due to a decrease in short term investments of $109$62 million, a decrease in accounts receivable, net of allowance of $61$36 million and a decrease in other receivables of $2 million, and a decrease in income taxes receivable of $1$4 million, partially offset by an increase in cash and cash equivalents of $77 million.$13 million and an increase of $10 million in other current assets.
At AugustMay 31, 2021,2022, accounts receivable was $121$102 million, a decrease of $61$36 million from February 28, 2021.2022. The decrease was primarily due to lower revenue recognized over the three months ended AugustMay 31, 20212022 compared to the three months ended February 28, 2021,2022, and a decrease in days sales outstanding to 7266 days at the end of the secondfirst quarter of fiscal 20222023 from 8567 days at the end of the fourth quarter of fiscal 2021.2022.
At AugustMay 31, 2021,2022, other receivables decreased by $2was $21 million, to $23a decrease of $4 million compared to $25 million as atfrom February 28, 2021.2022. The decrease was primarily due to a decrease of $3$5 million relating to the CEWS program, partially offset byCOVID-19 subsidies.
At May 31, 2022, other current assets was $169 million, an increase of $2 million relating to the SIF claims.
At August 31, 2021, income taxes receivable was $9 million, a decrease of $1$10 million from February 28, 2021. This decrease2022. The increase was primarily due to changesan increase of $7 million in the quarterly tax provision.prepaid software and an increase of $3 million in inventory.
Current Liabilities
The decreaseincrease in current liabilities of $26$124 million at the end of the secondfirst quarter of 20222023 from the end of the fourth quarter of fiscal 20212022 was primarily due toan increase in accruals of $147 million and an increase in income taxes payable of $2 million, partially offset by a decrease in deferred revenue, current of $27$17 million and a decrease in accruedaccounts payable of $8 million.
Accrued liabilities were $304 million, reflecting an increase of $147 million compared to February 28, 2022. The increase was primarily due to a $165 million legal settlement accrual, partially offset by a decrease of $12 million in variable incentive plan costs and a decrease of $4 million partially offset byin payroll accruals.
Income taxes payable were $13 million, reflecting an increase in income taxes payable of $3 million and an increase in accounts payable of $2 million.million compared to February 28, 2022, which was primarily due to income earned in taxable jurisdictions.
Deferred revenue, current was $198$190 million, which reflectsreflecting a decrease of $27$17 million compared to February 28, 20212022 that was attributable to a $20$13 million decrease in deferred revenue, current related to BlackBerry Spark and $7$3 million related to BlackBerry AtHoc, partially offset by an increase of $2 million in deferred revenue, current related to BlackBerry QNX.AtHoc.
Accrued liabilitiesAccounts payable were $174$14 million, reflecting a decrease of $4 million compared to February 28, 2021, which was primarily attributable to a $3 million decrease in the operating lease liability, current, partially offset by an increase of $3 million in the Company’s deferred share unit liability due to increases in the Company’s stock price.
Income taxes payable were $9 million, reflecting an increase of $3 million compared to February 28, 2021, which was primarily due to changes in the quarterly tax provision.
Accounts payable were $22 million, reflecting an increase of $2$8 million from February 28, 2021,2022, which was primarily due to timing of payments of accounts payable.payments.
Cash flows for the sixthree months ended AugustMay 31, 20212022 compared to the sixthree months ended AugustMay 31, 20202021 were as follows:
| | | For the Six Months Ended | | For the Three Months Ended |
| | (in millions) | | (in millions) |
| | August 31, 2021 | | August 31, 2020 | | Change | | May 31, 2022 | | May 31, 2021 | | Change |
Net cash flows provided by (used in): | Net cash flows provided by (used in): | | | | | | Net cash flows provided by (used in): | | | | | |
Operating activities | Operating activities | $ | (18) | | | $ | — | | | $ | (18) | | Operating activities | $ | (42) | | | $ | (33) | | | $ | (9) | |
Investing activities | Investing activities | 113 | | | 454 | | | (341) | | Investing activities | 53 | | | 176 | | | (123) | |
Financing activities | Financing activities | 5 | | | 5 | | | — | | Financing activities | 3 | | | 4 | | | (1) | |
Effect of foreign exchange gain on cash and cash equivalents | — | | | 1 | | | (1) | | |
Effect of foreign exchange gain (loss) on cash and cash equivalents | | Effect of foreign exchange gain (loss) on cash and cash equivalents | (1) | | | 3 | | | (4) | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | $ | 100 | | | $ | 460 | | | $ | (360) | | Net increase in cash and cash equivalents | $ | 13 | | | $ | 150 | | | $ | (137) | |
Operating Activities
The increase in net cash flows used in operating activities of $18$9 million primarily reflects the net changes in working capital.
Investing Activities
During the sixthree months ended AugustMay 31, 2021,2022, cash flows provided by investing activities were $113$53 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $131$62 million, offset by cash used in the acquisition of intangible assets of $14$8 million, and the acquisition of property, plant and equipment of $4$1 million. For the same period in the prior fiscal year, cash flows provided by investing activities were $454$176 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $473$184 million, offset by cash used in the acquisition intangible assets of $16$6 million, and the acquisitions of property, plant and equipment of $3$2 million.
Financing Activities
The decrease in cash flows provided by financing activities of $5$1 million was consistent withfor the first sixthree months of fiscal 2021 and included common shares issued for stock options exercised and under the employee share purchase plan.
Aggregate Contractual Obligations
The following table sets out aggregate information about the Company’s contractual obligations and the periods in which payments are2023 was primarily due as at August 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) |
| Total | | Less than One Year | | One to Three Years | | Four to Five Years | | Greater than Five Years |
Operating lease obligations | $ | 118 | | | $ | 34 | | | $ | 45 | | | $ | 26 | | | $ | 13 | |
Purchase obligations and commitments | 162 | | | 114 | | | 48 | | | | | |
Debt interest and principal payments | 381 | | | 6 | | | 375 | | | | | |
Total | $ | 661 | | | $ | 154 | | | $ | 468 | | | $ | 26 | | | $ | 13 | |
Purchase obligations and commitments amounted to approximately $661 million as at August 31, 2021, including the principal amount of the 1.75% Debentures of $365 million and operating lease obligations of $118 million. The remaining balance consists of purchase orders for goods and services utilized in the operations of the Company. Total aggregate contractual obligations as at August 31, 2021 decreased by approximately $15 million as compared to the February 28, 2021 balance of approximately $676 million, which was attributable to a decrease in operating lease obligations.common shares issued upon the exercise of stock options.
Debenture Financing and Other Funding Sources
See Note 65 to the Consolidated Financial Statements for a description of the 1.75% Debentures.
The Company has $27$26 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business. See Note 32 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.
Cash, cash equivalents, and investments were approximately $772$721 million as at AugustMay 31, 2021.2022. The Company’s management remains focused on maintaining appropriate cash balances, efficiently managing working capital balances and managing the liquidity needs of the business. Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities and access to other potential financing arrangements, should be sufficient to meet funding requirements for current financial commitments and future operating expenditures not yet committed, and should provide the necessary financial capacity for the foreseeable future.
Contractual and Other Obligations
The following table sets out aggregate information about the Company’s contractual and other obligations and the periods in which payments are due as at May 31, 2022:
| | | | | | | | | | | | | | | | | | | | | |
| (in millions) |
| | | | | | | |
| Total | | Short-term (next 12 months) | | Long-term (>12 months) | | | | |
Operating lease obligations | $ | 94 | | | $ | 30 | | | $ | 64 | | | | | |
Purchase obligations and commitments | 129 | | | 107 | | | 22 | | | | | |
Litigation settlement | 165 | | | 165 | | | — | | | | | |
Debt interest and principal payments | 376 | | | 6 | | | 370 | | | | | |
Total | $ | 764 | | | $ | 308 | | | $ | 456 | | | | | |
Total contractual and other obligations as at May 31, 2022 increased by approximately $161 million as compared to the February 28, 2022 balance of approximately $603 million, which was attributable to a litigation settlement and an increase in purchase obligations and commitments, partially offset by a decrease in operation lease obligations.
The Company does not have any material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or under applicable Canadian securities laws.arrangements.
Accounting Policies and Critical Accounting Estimates
There have been no changes to the Company’s accounting policies or critical accounting estimates from those described under “Accounting Policies and Critical Accounting Estimates” in the Annual MD&A.
See Note 2 to the Consolidated Financial Statements for accounting pronouncements not yet adopted.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is engaged in operating and financing activities that generate risk in three primary areas:
Foreign Exchange
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency, the U.S. dollar. The majority of the Company’s revenue in the secondfirst quarter of fiscal 20222023 was transacted in U.S. dollars. Portions of the revenue were denominated in Canadian dollars, euros and British pounds. Expenses, consisting mainly of salaries and certain other operating costs, were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros and British pounds. At AugustMay 31, 2021,2022, approximately 31%21% of cash and cash equivalents, 33%7% of accounts receivables and 31%40% of accounts payable were denominated in foreign currencies (February 28, 20212022 – 20%37%, 25%23% and 34%30%, respectively). These foreign currencies primarily include the Canadian dollar, euro and British pound. As part of its risk management strategy, the Company maintains net monetary asset and/or liability balances in foreign currencies and engages in foreign currency hedging activities using derivative financial instruments, including currency forward contracts and currency options. The Company does not use derivative instruments for speculative purposes. If overall foreign currency exchanges rates to the U.S. dollar uniformly weakened or strengthened by 10% related to the Company’s net monetary asset or liability balances in foreign currencies at AugustMay 31, 20212022 (after hedging activities), the impact to the Company would be immaterial.
The Company regularly reviews its currency forward and option positions, both on a stand-alone basis and in conjunction with its underlying foreign currency exposures. Given the effective horizons of the Company’s risk management activities and the anticipatory nature of the exposures, there can be no assurance these positions will offset more than a portion of the financial impact resulting from movements in currency exchange rates. Further, the recognition of the gains and losses related to these instruments may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company’s financial condition and operating results.
Interest Rate
Cash and cash equivalents and investments are invested in certain instruments of varying maturities. Consequently, the Company is exposed to interest rate risk as a result of holding investments of varying maturities. The fair value of investments, as well as the investment income derived from the investment portfolio, will fluctuate with changes in prevailing interest rates. The Company has also issued 1.75% Debentures with a fixed interest rate, as described in Note 65 to the Consolidated Financial Statements. The fair value of the 1.75% Debentures will fluctuate with changes in prevailing interest rates. Consequently, the Company is exposed to interest rate risk as a result of the 1.75% Debentures. The Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio or changes in the market value of the 1.75% Debentures.
Credit and Customer Concentration
The Company, in the normal course of business, monitors the financial condition of its customers and reviews the credit history of each new customer. The Company establishes an allowance for credit losses (“ACL”) that corresponds to the specific credit risk of its customers, historical trends and economic circumstances. The ACL as at AugustMay 31, 20212022 was $9$4 million (February 28, 20212022 - $10$4 million). There was oneno customer that comprised more than 10% of accounts receivable as at AugustMay 31, 20212022 (February 28, 20212022 - oneno customer that comprised more than 10%). During the secondfirst quarter of fiscal 2022,2023, the percentage of the Company’s receivable balance that was past due decreasedincreased by 1.2%6.2% compared to the fourth quarter of fiscal 2021.2022. Although the Company actively monitors and attempts to collect on its receivables as they become due, the risk of further delays or challenges in obtaining timely payments of receivables from resellers and other distribution partners exists. The occurrence of such delays or challenges in obtaining timely payments could negatively impact the Company’s liquidity and financial condition. There was one customer that comprised 12% and15% of the Company’s revenue in the three months ended May 31, 2022 (three months ended May 31, 2021 - no customer that comprised more than 10% of the Company’s
revenue in the three and six months ended August 31, 2021, respectively (three and six months ended August 31, 2020 - one customer that comprised 40% and 34% of the Company’s revenue, respectively). revenue.)
Market values are determined for each individual security in the investment portfolio. The Company assesses declines in the value of individual investments for impairment to determine whether the decline is other-than-temporary. The Company makes this assessment by considering available evidence including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial
condition, the near-term prospects of the individual investment and the Company’s ability and intent to hold the debt securities to maturity.
ITEM 4. CONTROLS AND PROCEDURES
As of AugustMay 31, 2021,2022, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of such date, the Company’s disclosure controls and procedures were effective to give reasonable assurance that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the three months ended AugustMay 31, 2021,2022, no changes were made to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 109 to the Consolidated Financial Statements for information regarding certain legal proceedings in which the Company is involved.
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit Number | | Description of Exhibit |
10.1*† | | |
10.2*† | | |
| | |
| | |
31.1* | | |
31.2* | | |
32.1†† | | |
32.2†† | | |
| | |
| | |
| | |
101* | | XBRL Instance Document – the document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document |
101* | | Inline XBRL Taxonomy Extension Schema Document |
101* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104104* | | Cover Page Interactive Data File – formatted as Inline XBRL and contained in Exhibit 101 |
* Filed herewith
† Management contract or compensatory plan or arrangement
†† Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of the SEC’s Regulation S-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| | | | | | | | | | | |
| BLACKBERRY LIMITED |
| | | |
Date: September 23, 2021June 24, 2022 | By: | | /s/ John Chen |
| Name: | | John Chen |
| Title: | | Chief Executive Officer |
| | | |
| By: | | /s/ Steve Rai |
| Name: | | Steve Rai |
| Title: | | Chief Financial Officer (Principal Financial and Accounting Officer) |