UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~May 31, ~~2022~~2023


☐			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.


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.

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 ~~577,416,687~~583,239,813 common shares issued and outstanding as of ~~September 23, 2022.~~June 26, 2023.


BLACKBERRY LIMITED

TABLE OF CONTENTS
		Page No.
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of ~~August~~May 31, ~~2022~~2023 (unaudited) and February 28, ~~2022~~2023	5
	Consolidated Statements of Shareholders' Equity - Three ~~and Six~~ Months Ended ~~August~~May 31, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Operations - Three Months Ended May 31, 2023 and ~~2021~~2022 (unaudited)	7
	Consolidated Statements of ~~Operations~~Comprehensive Loss - Three ~~and Six~~ Months Ended ~~August~~May 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	8
	Consolidated Statements of ~~Comprehensive Loss~~Cash Flows - Three ~~and Six~~ Months Ended ~~August~~May 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	9
	~~Consolidated Statements of Cash Flows - Six Months Ended August 31, 2022 and 2021 (unaudited)~~	10
	Notes to the Consolidated Financial Statements	1110
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	2928
Item 3	Quantitative and Qualitative Disclosures about Market Risk	5747
Item 4	Controls and Procedures	5848

PART II	OTHER INFORMATION
Item 1	Legal Proceedings	5848

Item 6	Exhibits	5848
Signatures		5950

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					As at
		August 31, 2022		February 28, 2022			May 31, 2023		February 28, 2023
Assets	Assets					Assets
Current	Current					Current
Cash and cash equivalents (note 2)	Cash and cash equivalents (note 2)	$	431	$	378	Cash and cash equivalents (note 2)	$	358	$	295
Short-term investments (note 2)	Short-term investments (note 2)	212		334		Short-term investments (note 2)	158		131
Accounts receivable, net of allowance of $4 and $4, respectively (note 3)		100		138
Accounts receivable, net of allowance of $6 and $1, respectively (note 3)						Accounts receivable, net of allowance of $6 and $1, respectively (note 3)	117		120
Other receivables (note 3)	Other receivables (note 3)	15		25		Other receivables (note 3)	8		12

Income taxes receivable	Income taxes receivable	9		9		Income taxes receivable	3		3
Other current assets (note 3)	Other current assets (note 3)	173		159		Other current assets (note 3)	52		182
		940		1,043			696		743
Restricted cash and cash equivalents (note 2)	Restricted cash and cash equivalents (note 2)	27		28		Restricted cash and cash equivalents (note 2)	27		27
Long-term investments (note 2)	Long-term investments (note 2)	29		30		Long-term investments (note 2)	35		34
Other long-term assets (note 3)	Other long-term assets (note 3)	8		9		Other long-term assets (note 3)	60		8

Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	40		50		Operating lease right-of-use assets, net	44		44
Property, plant and equipment, net (note 3)	Property, plant and equipment, net (note 3)	27		41		Property, plant and equipment, net (note 3)	24		25
Goodwill (note 3)	Goodwill (note 3)	837		844		Goodwill (note 3)	596		595
Intangible assets, net (note 3)	Intangible assets, net (note 3)	473		522		Intangible assets, net (note 3)	192		203

		$	2,381	$	2,567		$	1,674	$	1,679
Liabilities	Liabilities					Liabilities
Current	Current					Current
Accounts payable	Accounts payable	$	20	$	22	Accounts payable	$	21	$	24
Accrued liabilities (note 3 and note 9)		300		157
Accrued liabilities (note 3)						Accrued liabilities (note 3)	128		143
Income taxes payable (note 4)	Income taxes payable (note 4)	17		11		Income taxes payable (note 4)	21		20

Debentures (note 5)						Debentures (note 5)	389		367
Deferred revenue, current (note 10)	Deferred revenue, current (note 10)	179		207		Deferred revenue, current (note 10)	177		175
		516		397			736		729
Deferred revenue, non-current (note 10)	Deferred revenue, non-current (note 10)	30		37		Deferred revenue, non-current (note 10)	26		40
Operating lease liabilities	Operating lease liabilities	54		66		Operating lease liabilities	52		52
Other long-term liabilities	Other long-term liabilities	2		4		Other long-term liabilities	1		1
Long-term debentures (note 5)		449		507

		1,051		1,011			815		822
Commitments and contingencies (note 9)	Commitments and contingencies (note 9)					Commitments and contingencies (note 9)
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Capital stock and additional paid-in capital	Capital stock and additional paid-in capital					Capital stock and additional paid-in capital
Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable	Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable	—		—		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	Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares					Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares
Issued - 577,415,891 voting common shares (February 28, 2022 - 576,227,898)		2,887		2,869
Issued and outstanding - 583,237,331 voting common shares (February 28, 2023 - 582,157,203)						Issued and outstanding - 583,237,331 voting common shares (February 28, 2023 - 582,157,203)	2,920		2,909
Deficit	Deficit	(1,529)		(1,294)		Deficit	(2,039)		(2,028)
Accumulated other comprehensive loss (note 8)	Accumulated other comprehensive loss (note 8)	(28)		(19)		Accumulated other comprehensive loss (note 8)	(22)		(24)
		1,330		1,556			859		857
		$	2,381	$	2,567		$	1,674	$	1,679

See notes to consolidated financial statements.

On behalf of the Board:


John S. Chen			Lisa Disbrow
Director			Director

BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Shareholders’ Equity

Three Months Ended August 31, 2022
Capital Stock
and Additional
Paid-in Capital Deficit Accumulated
Other
Comprehensive Loss Total
Balance as at May 31, 2022 $ 2,880 $ (1,475) $ (20) $ 1,385
Net loss — (54) — (54)
Other comprehensive loss — — (8) (8)
Stock-based compensation 7 — — 7
Balance as at August 31, 2022 $ 2,887 $ (1,529) $ (28) $ 1,330


	Three Months Ended May 31, 2023
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total























Balance as at February 28, 2023	$	2,909	$	(2,028)	$	(24)	$	857
Net loss	—		(11)		—		(11)
Other comprehensive income	—		—		2		2
Stock-based compensation (note 6)	9		—		—		9
Shares issued:


Employee share purchase plan (note 6)	2		—		—		2
Balance as at May 31, 2023	$	2,920	$	(2,039)	$	(22)	$	859


		Three Months Ended August 31, 2021									Three Months Ended May 31, 2022
		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, 2021		$	2,834	$	(1,368)	$	(10)	$	1,456

Balance as at February 28, 2022										Balance as at February 28, 2022	$	2,869	$	(1,294)	$	(19)	$	1,556
Net loss	Net loss	—		(144)		—		(144)		Net loss	—		(181)		—		(181)
Other comprehensive loss	Other comprehensive loss	—		—		(5)		(5)		Other comprehensive loss	—		—		(1)		(1)

Stock-based compensation	Stock-based compensation	10		—		—		10		Stock-based compensation	8		—		—		8
Shares issued:	Shares issued:									Shares issued:
Exercise of stock options		1		—		—		1

Balance as at August 31, 2021		$	2,845	$	(1,512)	$	(15)	$	1,318
Employee share purchase plan										Employee share purchase plan	3		—		—		3
Balance as at May 31, 2022										Balance as at May 31, 2022	$	2,880	$	(1,475)	$	(20)	$	1,385

See notes to consolidated financial statements.

~~BlackBerry Limited~~

~~(United States dollars, in millions) (unaudited)~~

~~Consolidated Statements of Shareholders’ Equity~~

Six Months Ended August 31, 2022
Capital Stock
and Additional
Paid-in Capital Deficit Accumulated
Other
Comprehensive Loss Total
Balance as at February 28, 2022 $ 2,869 $ (1,294) $ (19) $ 1,556
Net loss — (235) — (235)
Other comprehensive loss — — (9) (9)
Stock-based compensation (note 6) 15 — — 15
Shares issued:
Employee share purchase plan (note 6) 3 — — 3
Balance as at August 31, 2022 $ 2,887 $ (1,529) $ (28) $ 1,330

Six Months Ended August 31, 2021
Capital Stock
and Additional
Paid-in Capital Deficit Accumulated
Other
Comprehensive Loss Total
Balance as at February 28, 2021 $ 2,823 $ (1,306) $ (13) $ 1,504
Net loss — (206) — (206)
Other comprehensive loss — — (2) (2)
Stock-based compensation 17 — — 17
Shares issued:
Exercise of stock options 2 — — 2
Employee share purchase plan 3 — — 3
Balance as at August 31, 2021 $ 2,845 $ (1,512) $ (15) $ 1,318

~~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, 2022		August 31, 2021		August 31, 2022		August 31, 2021			May 31, 2023		May 31, 2022
Revenue (note 10)	Revenue (note 10)	$	168	$	175	$	336	$	349	Revenue (note 10)	$	373	$	168
Cost of sales	Cost of sales	62		63		126		123		Cost of sales	194		64

Gross margin	Gross margin	106		112		210		226		Gross margin	179		104

Operating expenses	Operating expenses									Operating expenses
Research and development	Research and development	54		58		107		115		Research and development	54		53
Selling, marketing and administration	Selling, marketing and administration	86		83		168		156		Selling, marketing and administration	99		82
Amortization	Amortization	25		45		52		91		Amortization	15		27

Impairment of long-lived assets (note 2)		4		—		4		—
Gain on sale of property, plant and equipment, net (note 3)		(6)		—		(6)		—

Debentures fair value adjustment (note 5)	Debentures fair value adjustment (note 5)	(10)		67		(56)		63		Debentures fair value adjustment (note 5)	22		(46)
Litigation settlement (note 9)	Litigation settlement (note 9)	—		—		165		—		Litigation settlement (note 9)	—		165
		153		253		434		425			190		281
Operating loss	Operating loss	(47)		(141)		(224)		(199)		Operating loss	(11)		(177)
Investment loss, net		(2)		(1)		(3)		(3)
Investment income (loss), net (note 2 and note 5)										Investment income (loss), net (note 2 and note 5)	3		(1)
Loss before income taxes	Loss before income taxes	(49)		(142)		(227)		(202)		Loss before income taxes	(8)		(178)
Provision for income taxes (note 4)	Provision for income taxes (note 4)	5		2		8		4		Provision for income taxes (note 4)	3		3

Net loss	Net loss	$	(54)	$	(144)	$	(235)	$	(206)	Net loss	$	(11)	$	(181)
Loss per share (note 7)	Loss per share (note 7)									Loss per share (note 7)
Basic	Basic	$	(0.09)	$	(0.25)	$	(0.41)	$	(0.36)	Basic	$	(0.02)	$	(0.31)
Diluted	Diluted	$	(0.10)	$	(0.25)	$	(0.45)	$	(0.36)	Diluted	$	(0.02)	$	(0.35)

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
August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021
Net loss $ (54) $ (144) $ (235) $ (206)
Other comprehensive 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, 2022 and August 31, 2021 (note 8) (2) (2) (1) (1)
Foreign currency translation adjustment (6) (3) (10) (2)
Net change in fair value from instrument-specific credit risk on the 1.75% Debentures, net of income taxes of nil for the three and six months ended August 31, 2022 and August 31, 2021 (note 5) — — 2 1
Other comprehensive loss (8) (5) (9) (2)
Comprehensive loss $ (62) $ (149) $ (244) $ (208)


	Three Months Ended
	May 31, 2023		May 31, 2022
Net loss	$	(11)	$	(181)
Other comprehensive income (loss)

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, 2022 - income taxes of nil) (note 8)	1		1

Foreign currency translation adjustment	1		(4)

Net change in fair value from instrument-specific credit risk on the Debentures, net of income taxes of nil (May 31, 2022 - income taxes of nil) (note 5)	—		2
Other comprehensive income (loss)	2		(1)
Comprehensive loss	$	(9)	$	(182)

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, 2022		August 31, 2021			May 31, 2023		May 31, 2022
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities

Net loss	Net loss	$	(235)	$	(206)	Net loss	$	(11)	$	(181)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:						Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization	Amortization	57		97		Amortization	16		29

Stock-based compensation	Stock-based compensation	15		17		Stock-based compensation	9		8

Impairment of long-lived assets (note 2)		4		—

Intellectual property disposed of by sale (note 3)						Intellectual property disposed of by sale (note 3)	147		—

Gain on sale of property, plant and equipment, net (note 3)		(6)		—

Debentures fair value adjustment (note 5)	Debentures fair value adjustment (note 5)	(56)		63		Debentures fair value adjustment (note 5)	22		(46)

Operating leases	Operating leases	(9)		(8)		Operating leases	(1)		(3)
Other		3		(2)

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	38		61		Accounts receivable, net of allowance	3		36
Other receivables	Other receivables	10		2		Other receivables	4		4

Income taxes receivable		—		1

Other assets	Other assets	(1)		4		Other assets	(62)		(9)
Accounts payable	Accounts payable	(2)		2		Accounts payable	(3)		(8)
Accrued liabilities	Accrued liabilities	145		(2)		Accrued liabilities	(14)		148
Income taxes payable	Income taxes payable	6		3		Income taxes payable	1		2
Deferred revenue	Deferred revenue	(35)		(50)		Deferred revenue	(12)		(22)
Net cash used in operating activities		(66)		(18)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	99		(42)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Acquisition of long-term investments	Acquisition of long-term investments	(2)		(1)		Acquisition of long-term investments	(1)		—

Acquisition of property, plant and equipment	Acquisition of property, plant and equipment	(4)		(4)		Acquisition of property, plant and equipment	(2)		(1)
Proceeds on sale of property, plant and equipment (note 3)		17		—

Acquisition of intangible assets	Acquisition of intangible assets	(16)		(14)		Acquisition of intangible assets	(8)		(8)

Acquisition of short-term investments	Acquisition of short-term investments	(273)		(429)		Acquisition of short-term investments	(66)		(164)
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	395		537		Proceeds on sale or maturity of short-term investments	39		226

Net cash provided by investing activities		117		113
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	(38)		53
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Issuance of common shares	Issuance of common shares	3		5		Issuance of common shares	2		3

Net cash provided by financing activities	Net cash provided by financing activities	3		5		Net cash provided by financing activities	2		3
Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents	Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents	(2)		—		Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents	—		(1)
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	52		100		Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period	63		13
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period	Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period	406		218		Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period	322		406
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	$	458	$	318	Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	$	385	$	419

See notes to consolidated financial statements.

109

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, ~~2022~~2023 (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 ~~August~~May 31, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the full year ending February ~~28, 2023.~~29, 2024. The consolidated balance sheet at February 28, ~~2022~~2023 was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.

The preparation of the consolidated financial statements 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 three 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.~~Statements other than those noted below.

Critical Accounting Estimates during the Quarter (Note 10)

To the extent the transaction price in a contract with a customer includes variable consideration, the Company estimates the amount of variable consideration that should be included in the price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. The Company also estimates whether and how much variable consideration is subject to constraint if it cannot conclude it is probable that a significant reversal in revenue will not occur, due to factors such as: the consideration being highly susceptible to factors outside the Company’s influence, the period of time before the variable consideration is resolved, the Company’s previous experience with similar contracts, the Company’s history of price concessions or changing of payment terms, and whether there is a large number and broad range of possible variable consideration amounts. To the extent the Company determines that there is a significant financing component in a contract with a customer, it determines the impact of the time value of money in adjusting the transaction price to account for the income associated with the financing component by estimating the discount rate that would be reflected in a separate financing transaction between the customer and the Company at contract inception, based upon the credit characteristics of the customer receiving financing in the contract.

Accounting Standards Adopted During Fiscal ~~2023~~2024

~~ASU 2020-06, Debt with Conversion and Other Options~~

In August 2020, the Financial Standards Accounting Board (“FASB”) issued a new accounting standard on the topic of debt with conversion and other options, accounting 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 has not adopted ~~this guidance in the first quarter of~~any new standards to date during 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 apply 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 annual disclosures.2024.

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.

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)

•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~~carried at ~~an amount~~amounts that ~~approximates~~approximate their fair values (Level 2 measurement) due to their short maturities.

Recurring Fair Value Measurements

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~~When the Company concludes that there is a significant financing component included within a contract with a customer due to timing differences between the fulfillment of ~~debt securities issued by major corporate and banking organizations, the provincial and federal governments of Canada, international government banking organizations~~certain performance obligations and the ~~United States Department~~receipt of payment for those performance obligations, the Company determines the present value of the ~~Treasury~~future consideration utilizing the discount rate that would be reflected in a separate financing transaction between the customer and ~~are all investment grade. The~~the Company ~~also holds certain public equity securities obtained through an initial public offering by~~at contract inception based upon the ~~issuer~~credit characteristics of ~~a previously held non-marketable equity investment.~~the customer receiving financing in the contract.

For a description of how the fair value of the ~~1.75%~~ Debentures (as defined in Note 5) 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.

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 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)~~

~~Impairment of Long-Lived Assets~~

During the second quarter of fiscal 2023, the Company decided to exit and seek subleases for certain leased facilities. The Company recorded a non-cash, pre-tax and after-tax impairment charge of $4 million related to the operating lease right-of-use (“ROU”) assets for those facilities. The impairment was determined by comparing the fair value of the impacted ROU asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment, using Level 2 inputs. The fair value of the ROU asset was based on the estimated sublease income for certain facilities taking into consideration the time period it will take to obtain a sublessor, the applicable discount rate and the sublease rate. The Company conducts an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate as new or updated information becomes available.

Non-Marketable Equity Investments Measured Using the Measurement Alternative

Non-marketable equity investments measured using the measurement 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 fair value used in the fair value measurements required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3.

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)

Cash, Cash Equivalents and Investments

The components of cash, cash equivalents and investments by fair value level as at ~~August~~May 31, ~~2022~~2023 were as follows:


		Cost Basis (1)		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-term Investments		Long-term Investments		Restricted Cash and 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	$	114	$	—	$	—	$	114	$	112	$	—	$	—	$	2	Bank balances	$	85	$	—	$	—	$	85	$	83	$	—	$	—	$	2
Other investments	Other investments	27		2		—		29		—		—		29		—		Other investments	29		6		—		35		—		—		35		—
		141		2		—		143		112		—		29		2			114		6		—		120		83		—		35		2
Level 1:	Level 1:																	Level 1:

Equity securities	Equity securities	10		—		(10)		—		—		—		—		—		Equity securities	10		—		(10)		—		—		—		—		—

Level 2:	Level 2:																	Level 2:
Term deposits and certificates of deposits	Term deposits and certificates of deposits	35		—		—		35		10		—		—		25		Term deposits and certificates of deposits	53		—		—		53		31		—		—		22
Bearer deposit notes		126		—		—		126		126		—		—		—
Bankers’ acceptances/bearer deposit notes																		Bankers’ acceptances/bearer deposit notes	106		—		—		106		106		—		—		—
Commercial paper	Commercial paper	198		—		—		198		83		115		—		—		Commercial paper	172		—		—		172		84		85		—		3
Non-U.S. promissory notes	Non-U.S. promissory notes	79		—		—		79		44		35		—		—		Non-U.S. promissory notes	83		—		—		83		32		51		—		—

Non-U.S. treasury bills/notes	Non-U.S. treasury bills/notes	25		—		—		25		25		—		—		—		Non-U.S. treasury bills/notes	22		—		—		22		22		—		—		—
Non-U.S. government sponsored enterprise notes		75		—		—		75		13		62		—		—
U.S. treasury bills/notes		18		—		—		18		18		—		—		—

Corporate notes/bonds																		Corporate notes/bonds	22		—		—		22		—		22		—		—
																			458		—		—		458		275		158		—		25
		556		—		—		556		319		212		—		25

																			$	582	$	6	$	(10)	$	578	$	358	$	158	$	35	$	27
		$	707	$	2	$	(10)	$	699	$	431	$	212	$	29	$	27

(1) Cost basis for other investments includes the effect of returns of capital and impairment.

1312

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, ~~2022~~2023 were as follows:


		Cost Basis (1)		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-term Investments		Long-term Investments		Restricted Cash and 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	$	105	$	—	$	—	$	105	$	104	$	—	$	—	$	1	Bank balances	$	89	$	—	$	—	$	89	$	87	$	—	$	—	$	2
Other investments	Other investments	8		—		—		8		—		—		8		—		Other investments	26		2		—		28		—		—		28		—
		113		—		—		113		104		—		8		1			115		2		—		117		87		—		28		2
Level 1:	Level 1:																	Level 1:
Equity securities	Equity securities	10		—		(9)		1		—		1		—		—		Equity securities	10		—		(10)		—		—		—		—		—

Level 2:	Level 2:																	Level 2:
Term deposits, certificates of deposits, and GICs		157		—		—		157		65		65		—		27
Bankers’ acceptances/bearer deposit notes		58		—		—		58		58		—		—		—
Term deposits, and certificates of deposits																		Term deposits, and certificates of deposits	33		—		—		33		8		—		—		25
Bearer deposit notes																		Bearer deposit notes	82		—		—		82		82		—		—		—
Commercial paper	Commercial paper	247		—		—		247		62		185		—		—		Commercial paper	159		—		—		159		108		51		—		—
Non-U.S. promissory notes	Non-U.S. promissory notes	71		—		—		71		46		25		—		—		Non-U.S. promissory notes	45		—		—		45		—		45		—		—

Non-U.S. government sponsored enterprise notes	Non-U.S. government sponsored enterprise notes	58		—		—		58		—		58		—		—		Non-U.S. government sponsored enterprise notes	30		—		—		30		10		20		—		—
Non-U.S. treasury bills/notes		43		—		—		43		43		—		—		—

Corporate notes/bonds																		Corporate notes/bonds	15		—		—		15		—		15		—		—
		634		—		—		634		274		333		—		27			364		—		—		364		208		131		—		25
Level 3:	Level 3:																	Level 3:

Other investments	Other investments	17		5		—		22		—		—		22		—		Other investments	2		4		—		6		—		—		6		—

		$	774	$	5	$	(9)	$	770	$	378	$	334	$	30	$	28		$	491	$	6	$	(10)	$	487	$	295	$	131	$	34	$	27

(1) Cost basis for other investments includes the effect of returns of capital and impairment.

As at ~~August~~May 31, ~~2022,~~2023, the Company had ~~private~~ non-marketable equity investments without readily determinable fair value of ~~$29~~$35 million (February 28, ~~2022~~2023 - ~~$30~~$34 million). As of ~~August~~May 31, ~~2022,~~2023, 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~~2023 - $3 million).

There were no realized gains or losses on available-for-sale securities for the three ~~and six~~ months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021.~~2022.

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 ~~three~~two 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~~May 31, ~~2022~~2023 and February 28, ~~2022~~2023 from the consolidated balance sheets to the consolidated statements of cash flows:


		As at					As at
		August 31, 2022		February 28, 2022			May 31, 2023		February 28, 2023
Cash and cash equivalents	Cash and cash equivalents	$	431	$	378	Cash and cash equivalents	$	358	$	295
Restricted cash and cash equivalents	Restricted cash and cash equivalents	27		28		Restricted cash and cash equivalents	27		27
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows	Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows	$	458	$	406	Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows	$	385	$	322

1413

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 contractual maturities of available-for-sale investments as at ~~August~~May 31, ~~2022~~2023 and February 28, ~~2022~~2023 were as follows:


		As at								As at
		August 31, 2022				February 28, 2022						May 31, 2023				February 28, 2023
		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	$	556	$	556	$	634	$	634		Due in one year or less	$	458	$	458	$	364	$	364

No fixed maturity	No fixed maturity	10		—		10		1			No fixed maturity	10		—		10		—
		$	566	$	556	$	644	$	635			$	468	$	458	$	374	$	364

As at ~~August~~May 31, ~~2022~~2023 and February 28, ~~2022,~~2023, the Company had no available-for-sale debt securities with continuous unrealized losses.

3. CONSOLIDATED BALANCE SHEET DETAILS

Accounts Receivable, Net of Allowance

The allowance for credit losses as at ~~August~~May 31, ~~2022~~2023 was $4$6 million (February 28, ~~2022~~2023 - $4$1 million).

The Company recognizes current estimated credit losses (“CECL”) for accounts receivable. The CECL for accounts receivable 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. 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 the 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~~Carrying Amount
	~~August 31, 2022~~
Beginning balance as of February 28, ~~2021~~2022	$	104

Prior period ~~recovery~~provision for expected credit losses	~~(2)~~1
Write-offs charged against the allowance	(4)
Ending balance of the allowance for credit loss as at February 28, ~~2022~~2023	41

Current period ~~recovery~~provision for expected credit losses	—5


Ending balance of the allowance for credit loss as at ~~August~~May 31, ~~2022~~2023	$	46

The allowance for credit losses as at ~~August~~May 31, ~~2022~~2023 consists of $1$2 million (February 28, ~~2022~~2023 - $2$1 million) relating to CECL estimated based on days past due and region and $3$4 million (February 28, ~~2022~~2023 - ~~$2 million)~~nil) relating to specific customers that were evaluated separately.

There was noone customer that comprised more than 10% of accounts receivable as at ~~August~~May 31, ~~2022~~2023 (February 28, ~~2022~~2023 - ~~no customer~~two customers comprised more than 10%).

~~Other Receivables~~

~~As at August 31, 2022, other receivables included items such as an intellectual property licensing receivable, among other items, none of which were greater than 5% of the current assets balance.~~

As at February 28, 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.

1514

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)

Other Receivables

As at May 31, 2023 and February 28, 2023, other receivables included items such as claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX, among other items, none of which were greater than 5% of the current assets balance.

Other Current Assets

Other current assets comprised the following:


		As at					As at
		August 31, 2022		February 28, 2022			May 31, 2023		February 28, 2023

Intellectual property	Intellectual property	$	132	$	118	Intellectual property	$	—	$	141
Other	Other	41		41		Other	52		41
		$	173	$	159		$	52	$	182

~~On January 29, 2022,~~As described in Note 10, on May 11, 2023, the Company ~~entered into a~~completed its previously announced patent sale ~~agreement~~ with ~~Catapult IP~~Malikie Innovations ~~Inc.~~Limited (“~~Catapult”~~Malikie”)~~, pursuant to~~ and recognized revenue of $218 million and cost of sales of $147 million, 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. Completionis comprised of the ~~revenue transaction is subject~~carrying value of the intellectual property of $141 million referred 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~~above, and ~~is continuing to explore alternative options in parallel. For the year ended February 28, 2022, the Company had classified $118~~$6 million of ~~intellectual property that would be sold under~~capitalized costs during 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 August 31, 2022, the Company continues to classify $132 million of intellectual property, which includes the initial $118 million of intellectual property that would be sold under the patent sale agreement with Catapult with additionsquarter related to patent ~~maintenance, as other current assets on~~maintenance. See Note 10 under the ~~Company’s consolidated balance sheets.~~heading “Patent Sale”.

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 any of~~as at the ~~periods presented.~~balance sheet dates.

Property, Plant and Equipment, Net

Property, plant and equipment comprised the following:
As at
August 31, 2022 February 28, 2022
Cost
BlackBerry operations and other information technology $ 94 $ 92
Leasehold improvements and other 18 53
Furniture and fixtures 10 10
Manufacturing, repair and research and development equipment 2 1
124 156
Accumulated amortization 97 115
Net book value $ 27 $ 41

~~Sale of Property, Plant and Equipment, Net~~

During the second quarter of fiscal 2023, the Company completed the sale of its corporate aircraft. As a result, the Company recorded proceeds of approximately $17 million and incurred a gain on disposal of approximately $6 million (cost of $29 million, accumulated amortization of $18 million, and a net book value of approximately $11 million).


	As at
	May 31, 2023		February 28, 2023
Cost
BlackBerry operations and other information technology	$	85	$	84
Leasehold improvements and other	19		19
Furniture and fixtures	9		9
Manufacturing, repair and research and development equipment	2		2
	115		114
Accumulated amortization	91		89
Net book value	$	24	$	25

1615

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)

Intangible Assets, Net

Intangible assets comprised the following:


		As at August 31, 2022							As at May 31, 2023
		Cost		Accumulated Amortization		Net Book Value			Cost		Accumulated Amortization		Net Book Value
Acquired technology	Acquired technology	$	1,023	$	802	$	221	Acquired technology	$	900	$	830	$	70
Other acquired intangibles	Other acquired intangibles	494		302		192		Other acquired intangibles	386		322		64
Intellectual property	Intellectual property	120		60		60		Intellectual property	124		66		58
		$	1,637	$	1,164	$	473		$	1,410	$	1,218	$	192


		As at February 28, 2022							As at February 28, 2023
		Cost		Accumulated Amortization		Net Book Value			Cost		Accumulated Amortization		Net Book Value
Acquired technology	Acquired technology	$	1,023	$	776	$	247	Acquired technology	$	900	$	824	$	76
Other acquired intangibles	Other acquired intangibles	494		283		211		Other acquired intangibles	386		318		68
Intellectual property	Intellectual property	117		53		64		Intellectual property	123		64		59
		$	1,634	$	1,112	$	522		$	1,409	$	1,206	$	203

For the ~~six~~three months ended ~~August~~May 31, ~~2022,~~2023, amortization expense related to intangible assets amounted to ~~$50~~$13 million ~~(six~~(three months ended ~~August~~May 31, ~~2021~~2022 - ~~$89~~$25 million).

Total additions to intangible assets for the ~~six~~three months ended ~~August~~May 31, 2023 amounted to $2 million (three months ended May 31, 2022 ~~amounted to $16 million (six months ended August 31, 2021~~ - ~~$14~~$8 million). During the ~~six~~three months ended ~~August~~May 31, ~~2022,~~2023, 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 ~~August~~May 31, ~~2022,~~2023, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for the remainder of fiscal ~~2023~~2024 and each of the five succeeding years is expected to be as follows: fiscal ~~2023 - $50 million; fiscal~~ 2024 - ~~$95~~$35 million; fiscal 2025 - ~~$90~~$41 million; fiscal 2026 - ~~$86~~$37 million; fiscal 2027 - ~~$79~~$32 million; fiscal 2028 - $19 million and fiscal ~~2028~~2029 - ~~$44~~$6 million.

~~Goodwill~~

~~Changes to the carrying amount of goodwill during the six months ended August 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~~	~~(7)~~
~~Carrying amount as at August 31, 2022~~	$	~~837~~

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 recoverability of the carrying value of that reporting unit.

~~Other Long-term Assets~~

As at August 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.

1716

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 three months ended May 31, 2023 were as follows:


	Carrying Amount
Carrying amount as at February 28, 2022	$	844
Goodwill impairment charge	(245)
Effect of foreign exchange on non-U.S. dollar denominated goodwill	(4)
Carrying amount as at February 28, 2023	595


Effect of foreign exchange on non-U.S. dollar denominated goodwill	1
Carrying amount as at May 31, 2023	$	596

Other Long-term Assets

As at May 31, 2023, other long-term assets included long-term receivables related to intellectual property sold, see Note 10 under the heading “Patent Sale”, long-term receivables, and the long-term portion of deferred commission, among other items, none of which were greater than 5% of the total assets balance.

As at February 28, 2023, other long-term assets included the long-term portion of deferred commission, among other items, none of which were greater than 5% of the total assets balance.

Accrued Liabilities

~~Accrued liabilities comprised the following:~~
As at
August 31, 2022 February 28, 2022
Accrued settlement (note 9) $ 164 $ —
Accrued royalties 20 20
Operating lease liabilities, current 25 28
Other 91 109
$ 300 $ 157

~~Other~~As at May 31, 2023 and February 28, 2023, other accrued liabilities ~~include~~included operating lease liabilities, current, 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 in any of the periods presented.

4. INCOME TAXES

For the ~~six~~three months ended ~~August~~May 31, ~~2022,~~2023, the Company’s net effective income tax expense rate was approximately 4%38% compared to a net effective income tax expense rate of 2% for the ~~six~~three months ended ~~August~~May 31, ~~2021.~~2022. 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 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 ~~August~~May 31, ~~2022~~2023 were ~~$20~~$21 million (February 28, ~~2022~~2023 - ~~$20~~$21 million). As at ~~August~~May 31, ~~2022, $20~~2023, $21 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.

5. DEBENTURES

On September 1, 2020, Hamblin Watsa Investment Counsel Ltd., in its capacity as investment manager of Fairfax Financial Holdings Limited (“Fairfax”), and another institutional investor invested in the Company through a $365 million private placement of ~~new~~ debentures (the ~~“1.75% Debentures”~~“Debentures”)~~, which replaced $605 million of debentures issued in a private placement~~. The Debentures mature on ~~September 7, 2016 (the “3.75% Debentures”).~~November 13, 2023.

Due to the conversion option and other embedded derivatives within the ~~1.75%~~ 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, 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 7.19% as of August 31, 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

1817

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 Company’s listed common shares, and the significant Level 3 inputs related to credit spread and the implied discount of the Debentures at issuance.

The Company originally determined its credit spread by calibrating to observable trades of the previously-outstanding convertible debentures issued by the Company 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 Debentures and 7.44% as of May 31, 2023. An increase in credit spread will result in a decrease in the fair value of 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 Debentures by calculating the fair value of the 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~~three months ended ~~August~~May 31, ~~2022,~~2023, which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy:


	As at
	~~August~~May 31, ~~2022~~2023
Balance as at February 28, ~~2022~~2023	$	~~507~~367
Change in fair value of the ~~1.75%~~ Debentures	~~(58)~~22
Balance as at ~~August~~May 31, ~~2022~~2023	$	~~449~~389

The difference between the fair value of the ~~1.75%~~ Debentures and the unpaid principal balance of $365 million is ~~$84~~$24 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~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021:~~2022:


		Three Months Ended				Six Months Ended					Three Months Ended
		August 31, 2022		August 31, 2021		August 31, 2022		August 31, 2021			May 31, 2023		May 31, 2022

Income (charge) associated with the change in fair value from non-credit components recorded in the consolidated statements of operations	Income (charge) associated with the change in fair value from non-credit components recorded in the consolidated statements of operations	$	10	$	(67)	$	56	$	(63)	Income (charge) associated with the change in fair value from non-credit components recorded in the consolidated statements of operations	$	(22)	$	46
Income associated with the change in fair value from instrument-specific credit components recorded in AOCL	Income associated with the change in fair value from instrument-specific credit components recorded in AOCL	—		—		2		1		Income associated with the change in fair value from instrument-specific credit components recorded in AOCL	—		2
Total decrease (increase) in the fair value of the 1.75% Debentures		$	10	$	(67)	$	58	$	(62)
Total decrease (increase) in the fair value of the Debentures										Total decrease (increase) in the fair value of the Debentures	$	(22)	$	48

For the three ~~and six~~ months ended ~~August~~May 31, ~~2022,~~2023, the Company recorded interest expense related to the ~~1.75%~~ Debentures of $2 ~~million, and $3~~ million, which has been included in investment ~~loss,~~income (loss), net on the Company’s consolidated statements of operations (three ~~and six~~ months ended ~~August~~May 31, ~~2021~~2022 - $2 ~~million and $3~~ 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, owns $330 million principal amount of the ~~1.75%~~ Debentures. As such, the payment of interest on the ~~1.75%~~ Debentures to Fairfax represents a related party transaction. Fairfax receives interest at the same rate as other holders of the ~~1.75%~~ Debentures.

~~6. CAPITAL STOCK~~

~~The following details the changes in issued and outstanding common shares for the six months ended August 31, 2022:~~

Capital Stock and
Additional Paid-in Capital
Stock
Outstanding
(000s) Amount
Common shares outstanding as at February 28, 2022 576,228 $ 2,869
Exercise of stock options 57 —
Common shares issued for restricted share unit settlements 673 —
Stock-based compensation — 15
Common shares issued for employee share purchase plan 458 3
Common shares outstanding as at August 31, 2022 577,416 $ 2,887

The Company had 577 million voting common shares outstanding, 1 million options to purchase voting common shares, 15 million RSUs and 1 million DSUs outstanding as at September 23, 2022. In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 5.

1918

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. CAPITAL STOCK

The following details the changes in issued and outstanding common shares for the three months ended May 31, 2023:


	Capital Stock and Additional Paid-in Capital
	Stock Outstanding (000s)	Amount
Common shares outstanding as at February 28, 2023	582,157	$	2,909
Exercise of stock options	52	—
Common shares issued for restricted share unit settlements	461	—
Stock-based compensation	—	9






Common shares issued for employee share purchase plan	567	2
Common shares outstanding as at May 31, 2023	583,237	$	2,920

The Company had 583 million voting common shares outstanding, 0.4 million options to purchase voting common shares, 18 million RSUs and 2 million DSUs outstanding as at June 26, 2023. In addition, 60.8 million common shares are issuable upon conversion in full of the Debentures as described in Note 5.

7. LOSS PER SHARE

The following table sets forth the computation of basic and diluted loss per share:


		Three Months Ended				Six Months Ended					Three Months Ended
		August 31, 2022		August 31, 2021		August 31, 2022		August 31, 2021			May 31, 2023		May 31, 2022
Net loss for basic loss per share available to common shareholders	Net loss for basic loss per share available to common shareholders	$	(54)	$	(144)	$	(235)	$	(206)	Net loss for basic loss per share available to common shareholders	$	(11)	$	(181)
Less: 1.75% Debentures fair value adjustment (1) (2)		(10)		—		(56)		—
Add: interest expense on 1.75% Debentures (1) (2)		2		—		3		—
Less: Debentures fair value adjustment (1) (2)										Less: Debentures fair value adjustment (1) (2)	—		(46)
Add: interest expense on Debentures (1) (2)										Add: interest expense on Debentures (1) (2)	—		2
Net loss for diluted loss per share available to common shareholders	Net loss for diluted loss per share available to common shareholders	$	(62)	$	(144)	$	(288)	$	(206)	Net loss for diluted loss per share available to common shareholders	$	(11)	$	(225)

Weighted average number of shares outstanding (000’s) - basic (3) (4)		577,314		568,082		577,097		567,724
Weighted average number of shares outstanding (000’s) - basic (3)										Weighted average number of shares outstanding (000’s) - basic (3)	582,812		576,877
Effect of dilutive securities (000’s)	Effect of dilutive securities (000’s)									Effect of dilutive securities (000’s)

Conversion of 1.75% Debentures (1) (2)		60,833		—		60,833		—
Conversion of Debentures (1) (2)										Conversion of Debentures (1) (2)	—		60,833
Weighted average number of shares and assumed conversions (000’s) diluted	Weighted average number of shares and assumed conversions (000’s) diluted	638,147		568,082		637,930		567,724		Weighted average number of shares and assumed conversions (000’s) diluted	582,812		637,710
Loss per share - reported	Loss per share - reported									Loss per share - reported
Basic	Basic	$	(0.09)	$	(0.25)	$	(0.41)	$	(0.36)	Basic	$	(0.02)	$	(0.31)
Diluted	Diluted	$	(0.10)	$	(0.25)	$	(0.45)	$	(0.36)	Diluted	$	(0.02)	$	(0.35)

(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 ~~and six~~ months ended ~~August~~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 ~~and six~~ months ended ~~August~~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 ~~and six~~ months ended ~~August~~May 31, ~~2021,~~2023, as to do so would be antidilutive. See Note 5 for details on the ~~1.75%~~ Debentures.

(3) The three and six months ended August 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 ~~and six~~ months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021,~~2022, as to do so would be antidilutive.

2019

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. ACCUMULATED OTHER COMPREHENSIVE LOSS

The changes in AOCL by component net of tax, for the three ~~and six~~ months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
		August 31, 2022		August 31, 2021		August 31, 2022		August 31, 2021			May 31, 2023		May 31, 2022

Cash Flow Hedges	Cash Flow Hedges									Cash Flow Hedges
Balance, beginning of period	Balance, beginning of period	$	1	$	2	$	—	$	1	Balance, beginning of period	$	(1)	$	—
Other comprehensive loss before reclassification		(2)		(2)		(1)		—
Other comprehensive income before reclassification										Other comprehensive income before reclassification	—		1
Amounts reclassified from AOCL into net loss	Amounts reclassified from AOCL into net loss	—		—		—		(1)		Amounts reclassified from AOCL into net loss	1		—
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)	$	—	$	(1)	$	—	Accumulated net unrealized gains on derivative instruments designated as cash flow hedges	$	—	$	1
Foreign Currency Cumulative Translation Adjustment	Foreign Currency Cumulative Translation Adjustment									Foreign Currency Cumulative Translation Adjustment
Balance, beginning of period	Balance, beginning of period	$	(14)	$	(3)	$	(10)	$	(4)	Balance, beginning of period	$	(16)	$	(10)
Other comprehensive loss		(6)		(3)		(10)		(2)
Other comprehensive income (loss)										Other comprehensive income (loss)	1		(4)
Foreign currency cumulative translation adjustment	Foreign currency cumulative translation adjustment	$	(20)	$	(6)	$	(20)	$	(6)	Foreign currency cumulative translation adjustment	$	(15)	$	(14)
Change in Fair Value From Instrument-Specific Credit Risk On 1.75% Debentures
Change in Fair Value From Instrument-Specific Credit Risk On Debentures										Change in Fair Value From Instrument-Specific Credit Risk On Debentures
Balance, beginning of period	Balance, beginning of period	$	(6)	$	(8)	$	(8)	$	(9)	Balance, beginning of period	$	(6)	$	(8)
Other comprehensive income before reclassification	Other comprehensive income before reclassification	—		—		2		1		Other comprehensive income before reclassification	—		2

Change in fair value from instruments-specific credit risk on 1.75% Debentures		$	(6)	$	(8)	$	(6)	$	(8)
Change in fair value from instruments-specific credit risk on Debentures										Change in fair value from instruments-specific credit risk on Debentures	$	(6)	$	(6)
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	$	(28)	$	(15)	$	(28)	$	(15)	Accumulated Other Comprehensive Loss, End of Period	$	(22)	$	(20)

9. COMMITMENTS AND CONTINGENCIES

(a)Letters of Credit

The Company had $26 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of ~~August~~May 31, ~~2022.~~2023. See the discussion of restricted cash in Note 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 probable or claims for which the amount of the

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)

loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable.

As of ~~August~~May 31, ~~2022, with the exception of the U.S. class actions settlement discussed in “Litigation Settlement” below in this Note 9,~~2023, 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; 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 and the consolidated U.S. class actions ~~reached an agreement in principle to settle;~~was settled; see “Litigation Settlement” below in this Note 9.

On July 23, 2014, the plaintiff in the putative Ontario class action (Swisscanto Fondsleitung AG v. BlackBerry Limited, et al.) filed a motion for class certification and for leave to pursue statutory misrepresentation claims. On November 17, 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 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. Discovery is proceeding and the Court has not set a trial date.

On March 17, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of ~~Justice.~~Justice (Parker v. BlackBerry Limited). 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 million, 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. The parties participated in a mediation on November 9, 2022, which did not result in an agreement. Discovery is proceeding and the Court has not set a trial date.

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 volume weighted 10-day average ~~closing~~trading 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 ~~August~~May 31, ~~2022,~~2023, the liability recorded in association with this award is ~~approximately $1~~nil (February 28, 2023 - nominal).

As at May 31, 2023, the Company has recognized $17 million (February 28, ~~2022~~2023 - $2$17 million). in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation

2221

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 August 31, 2022, the Company has recognized $17 million (February 28, 2022 - $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)Litigation Settlement

On March 14, 2014, the four putative U.S. class actions were consolidated 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 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, 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 Second 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 seven statements the Court found were barred by the statute of repose. On April 6, 2022, through a mediator, the ~~parties accepted a mediator’s settlement proposal, and reached an agreement~~Company agreed in principle to pay $165 million to settle the U.S. consolidated actions ~~for $165 million.~~(see “Litigation” above in this Note 9). The Stipulation of Settlement was executed effective June 7, 2022. On June 14, 2022, the Court granted plaintiffs’ motion for preliminary approval of the settlement and scheduled the final approval hearing for September 29, 2022. In the first quarter of fiscal 2023, the Company accrued $165 million associated with this settlement within the line ~~Litigation settlement~~ ~~on the consolidated statement of operations.~~ On June 29, 2022, the Company paid $1 million of the settlement amount. The remaining $164 million was paid on September 6, 2022. On September 29, 2022, the Court granted final approval of the settlement and entered final judgment.

(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 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.

~~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 three 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 three operating segments: Cybersecurity, IoT, and Licensing and Other.

The following table shows information by operating segment for the three ~~and six~~ months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021:~~2022:


		For the Three Months Ended													For the Three Months Ended
		Cybersecurity				IoT			Licensing and Other		Segment Totals							Cybersecurity			IoT			Licensing and Other					Segment Totals
		August 31,					August 31,				August 31,					August 31,								May 31,							May 31,						May 31,						May 31,
		2022		2021			2022		2021		2022		2021			2022			2021			2023				2022				2023			2022			2023			2022			2023			2022
Segment revenue	Segment revenue	$	111	$	120		$	51	$	40	$	6	$	15		$	168		$	175			Segment revenue	$	93		$	113			$	45		$	51		$	235		$	4		$	373		$	168
Segment cost of sales	Segment cost of sales	50		49			9		7		2		6			61			62				Segment cost of sales	37			53				9			8			147			2			193			63
Segment gross margin (1)	Segment gross margin (1)	$	61	$	71		$	42	$	33	$	4	$	9		$	107		$	113			Segment gross margin (1)	$	56		$	60			$	36		$	43		$	88		$	2		$	180		$	105

		For the Six Months Ended
		Cybersecurity				IoT			Licensing and Other		Segment Totals
		August 31,					August 31,				August 31,					August 31,
		2022		2021			2022		2021		2022		2021			2022			2021
Segment revenue		$	224	$	227		$	102	$	83	$	10	$	39		$	336		$	349
Segment cost of sales		103		95			17		14		4		12			124			121
Segment gross margin (1)		$	121	$	132		$	85	$	69	$	6	$	27		$	212		$	228

(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)

Cybersecurity consists of ~~the Company’s~~BlackBerry® UEM and Cylance® solutions (collectively BlackBerry Spark® ~~software platform,~~), BlackBerry® AtHoc®~~, BlackBerry® Alert~~ and BlackBerry® SecuSUITE®. The BlackBerry Spark platform is a comprehensive offering of security software products and services, including the BlackBerry® Cyber Suite and the BlackBerry Spark® Unified Endpoint Management Suite, which are also marketed together as the BlackBerry Spark® 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®~~Cylance artificial intelligence and machine learning-based platform ~~consisting~~consists of ~~CylancePROTECT®, CylanceOPTICS®, CylancePERSONA™, CylanceGATEWAY™~~CylanceENDPOINT™, CylanceGUARD® ~~managed services, CylancePROTECT Mobile™~~, CylanceEDGE™, CylanceINTELLIGENCE™ and other cybersecurity applications. The BlackBerry ~~Spark~~ UEM Suite includes the Company’s BlackBerry® UEM, BlackBerry® Dynamics™, and BlackBerry® Workspaces solutions. Cybersecurity revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services.

IoT consists of BlackBerry® QNX®, BlackBerry® Certicom®, BlackBerry Radar®, BlackBerry ~~IVY™~~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, 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 ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 to the Company’s consolidated totals:


		Three Months Ended				Six Months Ended					Three Months Ended
		August 31, 2022		August 31, 2021		August 31, 2022		August 31, 2021			May 31, 2023		May 31, 2022
Total segment gross margin	Total segment gross margin	$	107	$	113	212		$	228	Total segment gross margin	$	180	$	105
Adjustments (1):	Adjustments (1):									Adjustments (1):
Less: Stock compensation	Less: Stock compensation	1		1		2		2		Less: Stock compensation	1		1
Less:	Less:									Less:
Research & development	Research & development	54		58		107		115		Research & development	54		53
Selling, marketing and administration	Selling, marketing and administration	86		83		168		156		Selling, marketing and administration	99		82
Amortization	Amortization	25		45		52		91		Amortization	15		27
Impairment of long-lived assets		4		—		4		—

Gain on sale of property, plant and equipment, net		(6)		—		(6)		—

Debentures fair value adjustment	Debentures fair value adjustment	(10)		67		(56)		63		Debentures fair value adjustment	22		(46)
Litigation settlement	Litigation settlement	—		—		165		—		Litigation settlement	—		165
Investment loss, net		2		1		3		3
Investment income (loss), net										Investment income (loss), net	(3)		1
Consolidated loss before income taxes	Consolidated loss before income taxes	$	(49)	$	(142)	$	(227)	$	(202)	Consolidated loss before income taxes	$	(8)	$	(178)

(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)

Patent Sale

On May 11, 2023, the Company completed its previously announced patent sale with Malikie and sold certain non-core patent assets for $170 million in cash on closing, an additional $30 million in fixed consideration due by no later than the third anniversary of closing and variable consideration in the form of future royalties in the aggregate amount of up to $700 million (the “Malikie Transaction”). Pursuant to the terms of the Malikie Transaction, the Company received a license back to the patents sold, which relate primarily to mobile devices, messaging and wireless networking. The Malikie Transaction will not impact customers’ right to use any of the Company’s products, solutions or services.

In the first quarter of fiscal 2024, the Company recognized revenue of $218 million and cost of sales of $147 million related to intellectual property sold. The Company also recognized $1 million in other receivables, which has been included in accounts receivable on the Company’s balance sheets as at May 31, 2023 and $43 million in long-term receivables, which has been included in other long-term assets on the Company’s balance sheets as at May 31, 2023, relating to the $30 million in future cash to be paid no later than the third anniversary of closing and the future royalties that were not constrained as discussed below. The financing component recorded on the patent sale was $15 million and will be recognized as interest income over the payment terms.

The Company estimated variable consideration from future royalty revenues using an expected value method including inputs from both internal and external sources related to patent monetization activities and cash flows, and constrained the recognition of that variable consideration based on the Company’s accounting policies and critical accounting estimates as described in Note 1. The present value of variable consideration recognized as revenue was $23 million and the amount of variable consideration constrained was $210 million. The Company evaluates its conclusions as to whether the constraints are still applicable on an ongoing basis, and will make updates when it observes a sufficient amount of evidence that amounts of variable consideration are no longer subject to constraint or the estimated amount of variable consideration has changed.

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, 2022			August 31, 2021			August 31, 2022			August 31, 2021				May 31, 2023			May 31, 2022
North America (1)	North America (1)	$	85		$	101		$	174		$	212		North America (1)	$	317		$	89
Europe, Middle East and Africa	Europe, Middle East and Africa	61			57			121			102			Europe, Middle East and Africa	37			60
Other regions	Other regions	22			17			41			35			Other regions	19			19

Total	Total	$	168		$	175		$	336		$	349		Total	$	373		$	168

North America (1)	North America (1)	50.6		%	57.7		%	51.8		%	60.8		%	North America (1)	85.0		%	53.0		%
Europe, Middle East and Africa	Europe, Middle East and Africa	36.3		%	32.6		%	36.0		%	29.2		%	Europe, Middle East and Africa	9.9		%	35.7		%
Other regions	Other regions	13.1		%	9.7		%	12.2		%	10.0		%	Other regions	5.1		%	11.3		%
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
	May 31, 2023		May 31, 2022
Products and services transferred over time	$	85	$	97
Products and services transferred at a point in time	288		71
Total	$	373	$	168

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 Six Months Ended
August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021
Products and services transferred over time $ 95 $ 107 $ 193 $ 213
Products and services transferred at a point in time 73 68 143 136
Total $ 168 $ 175 $ 336 $ 349

Revenue contract balances

The following table sets forth the activity in the Company’s revenue contract balances for the ~~six~~three months ended ~~August~~May 31, ~~2022:~~2023:

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 326 283 11
Decrease due to payment, fulfillment of performance obligations, or other (364) (318) (11)
Decrease, net (38) (35) —
Closing balance as at August 31, 2022 $ 100 $ 209 $ 16


	Accounts and Other Receivable		Deferred Revenue		Deferred Commissions
Opening balance as at February 28, 2023	$	120	$	215	$	17
Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other	396		127		6
Decrease due to payment, fulfillment of performance obligations, or other	(347)		(139)		(6)

Increase (decrease), net	49		(12)		—
Closing balance as at May 31, 2023	$	169	$	203	$	17

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 ~~August~~May 31, ~~2022~~2023 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, 2022
Less than 12 Months 12 to 24 Months Thereafter Total
Remaining performance obligations $ 176 $ 24 $ 9 $ 209
The disclosure excludes estimates of variable consideration relating to future royalty revenues from the patent sale to Malikie, which have been constrained based on the Company’s accounting policies and critical accounting estimates as described in Note 1 and under “Patent Sale” in this Note 10.


	As at May 31, 2023
	Less than 12 Months		12 to 24 Months		Thereafter		Total
Remaining performance obligations	$	177	$	11	$	15	$	203

Revenue recognized for performance obligations satisfied in prior periods

For the three ~~and six~~ months ended ~~August~~May 31, ~~2022, $1~~2023, $9 million of ~~revenue was recognized for performance obligations satisfied in a prior period (three and six months ended August 31, 2021 - no~~ revenue was recognized relating to performance obligations satisfied in a prior ~~period)~~period as a result of certain variable consideration no longer being subject to constraint (three months ended May 31, 2022 - nil).

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, 2022				February 28, 2022					May 31, 2023				February 28, 2023
		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	$	97	$	384	$	117	$	447	Canada	$	94	$	323	$	98	$	375
United States	United States	1,253		1,898		1,313		1,989		United States	735		1,262		742		1,208
Other	Other	27		99		27		131		Other	27		89		27		96
		$	1,377	$	2,381	$	1,457	$	2,567		$	856	$	1,674	$	867	$	1,679

Information About Major Customers

There was one customer that comprised 58% of the Company’s revenue in the three months ended May 31, 2023 due to the completed Malikie Transaction (three months ended May 31, 2022 - one customer that comprised 15% of the Company’s revenue).

2625

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)

~~Information About Major Customers~~

There was one customer that comprised 16% and 15% of the Company’s revenue in the three and six months ended August 31, 2022, respectively (three and six months ended August 31, 2021 - one customer that comprised 12% and no customer that comprised more than 10% of the Company’s revenue, respectively).

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, 2022		August 31, 2021		August 31, 2022		August 31, 2021			May 31, 2023		May 31, 2022
Interest paid during the period	Interest paid during the period	$	2	$	2	$	3	$	3	Interest paid during the period	$	2	$	2
Income taxes paid during the period	Income taxes paid during the period	1		3		1		4		Income taxes paid during the period	2		1
Income tax refunds received during the period	Income tax refunds received during the period	—		3		—		5		Income tax refunds received during the period	—		—

(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 ~~second~~first quarter of fiscal ~~2023~~2024 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 ~~August~~May 31, ~~2022,~~2023, approximately ~~11%~~21% of cash and cash equivalents, ~~19%~~35% of accounts receivable and ~~43%~~38% of accounts payable were denominated in foreign currencies (February 28, ~~2022~~2023 – ~~37%~~19%, ~~23%~~24% and ~~30%~~36%, 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 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 ~~August~~May 31, ~~2022,~~2023, no single issuer represented more than ~~22%~~18% of the total cash, cash equivalents and investments (February 28, ~~2022~~2023 - no single issuer represented more than ~~10%~~12% of the total cash, cash equivalents and investments), with the largest such issuer representing bearer deposits, term deposits and cash balances ~~and bearer deposits~~ with one of the Company’s banking counterparties.

The Company maintains Credit Support Annexes (“CSAs”) with several of its counterparties. These CSAs require the outstanding net position of all contracts be made whole by the paying or receiving of collateral to or from the counterparties on a daily basis, subject to exposure and transfer thresholds. As at May 31, 2023, the Company had $1 million in collateral posted with counterparties (February 28, 2023 - $1 million in collateral held).

Liquidity risk

Cash, cash equivalents, and investments were approximately ~~$699~~$578 million as at ~~August~~May 31, ~~2022.~~2023. The Company’s management remains focused on efficiently managing working capital balances and managing the liquidity needs of the business. ~~Based~~The Company has experienced recent operating losses and the Debentures will mature on November 13, 2023 as described above in Note 5, but the Company has the ability to access other potential financing arrangements on commercially reasonable terms. Taking these factors into account and 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.~~

2726

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)

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 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. The CEWS program initially ran for a thirty-six week period between March and November 2020 and the CERS program for a period between September 2020 and July 2021. The programs were subsequently extended to October 2021. The CEWS program provided a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria. The extension also included a gradual decrease to the subsidy rate. 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~~Hardest-Hit Business Recovery Program (“HHBRP”) to continue supporting businesses affected by the COVID-19 pandemic. The HHBRP ~~provides~~provided 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 ~~and six~~ months ended ~~August~~May 31, 2022, recorded ~~nil and~~ $4 million ~~respectively,~~ in government subsidies as a reduction to operating expenses in the consolidated statement of ~~operations (August 31, 2021 - $11 million and $27 million, respectively).~~operations. As at ~~August~~May 31, 2022, the Company has recorded ~~nil~~$4 million in accrued government subsidies within other receivables on the consolidated balance ~~sheet (February 28, 2022 - $8 million).~~sheet.

2827

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 ~~August~~May 31, ~~2022,~~2023, 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, ~~2022~~2023 (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, ~~2022~~2023 (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 and to patent new ~~innovations, and~~innovations;

•the Company’s expectations with respect to ~~increase staffing in~~enhancing shareholder value through the strategic review of its ~~Cybersecurity and IoT~~ businesses;

•the Company’s expectations with respect to the impact of the ~~COVID-19 pandemic and~~ global semiconductor shortage, as well as other macroeconomic factors including inflation and interest rates, on its results of operations and financial condition;

•the Company’s expectations with respect to its revenue, billings, non-GAAP EPS and ~~billings~~cash flow usage in fiscal ~~2023,~~2024, the annual recurring revenue of its Cybersecurity business in fiscal 2024 and installations of the BlackBerry ~~IVY™ platform~~IVY® platform;

•the Company’s expectations with respect to its non-GAAP EPS and cash flow in fiscal 2025;

•the ~~sale of substantially all of~~Company’s expectations with respect to its ~~non-core patent assets;~~revenue, non-GAAP gross margin and Cybersecurity gross margin in fiscal 2026 and IoT gross margin in the long term;

•the Company’s estimates of purchase obligations and other contractual commitments; 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 and~~Strategic Review of Businesses”, “Business Overview - Macroeconomic Factors”, “Non-GAAP Financial Measures - Key Metrics”, “Results of Operations - Three months ended ~~August~~May 31, ~~2022~~2023 compared to the three months ended ~~August~~May 31, ~~2021~~2022 - Revenue - Revenue by Segment” and “Financial Condition - Contractual and Other 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.~~performance, and the Company’s expectations regarding the strategic review of its businesses. 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.~~Report, and (i) risk related to the Company’s review of its businesses, including the Company’s ability to identify, pursue and realize the benefits of strategic alternatives being explored by the Company, and which may not be consummated in the manner contemplated by the Company or at all, and (ii) risk that uncertainty relating to the announcement of the Company’s strategic review may adversely impact the Company’s business, its existing and future relationships with business partners and customers, and its ability to attract and retain key employees.

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 ~~215~~235 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 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, protect and manage ~~endpoints in the Internet of Things (“IoT”).~~IoT endpoints. The Company leverages its extensive technology portfolio to offer best-in-class cybersecurity, safety and reliability to enterprise customers primarily in government and regulated industries, ~~as well as~~to small and medium-sized businesses, and to original equipment manufacturers (“OEMs”) 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 focuses principally on generating revenue from enterprise software and services as well as from embedded software designs with leading ~~original equipment manufacturers (“OEMs”)~~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 ~~segments:~~groups: Cybersecurity, IoT (collectively with Cybersecurity, “Software & Services”) and Licensing and Other.

Cybersecurity

The Cybersecurity business consists of BlackBerry ~~Spark, BlackBerry® AtHoc®~~Spark®, BlackBerry® SecuSUITE® and ~~BlackBerry Messenger (BBM®) Enterprise.~~BlackBerry® AtHoc®.

The Company’s core secure software and services ~~offering is~~offerings are its ~~BlackBerry Spark software platform, which integrates a unified endpoint security (“UES”) layer with~~Cylance® cybersecurity and BlackBerry unified endpoint management (“UEM”) ~~to enable secure~~solutions, collectively known as BlackBerry Spark.

BlackBerry’s Cylance cybersecurity solutions include: CylanceENDPOINT™, an integrated endpoint ~~communications in a zero-trust environment. BlackBerry UES is a set of complementary cybersecurity products offering endpoint protection platform (“EPP”), endpoint detection~~security solution that leverages the Cylance AI model 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 singleOneAlert EDR console, to ~~leverage a single crowd-sourced threat data lake~~prevent, detect and ~~to be managed in one cloud environment. BlackBerry Spark solutions are available through~~remediate cyber threats at the BlackBerry® Cyber Suite and the BlackBerry Spark® Unified Endpoint Management Suite, which are also marketed together as the BlackBerry Spark® Suite, offering the Company’s most comprehensive range of tailored cybersecurity and endpoint, ~~management options.~~

The BlackBerry UES Suite offers leading Cylance® AI and machine learning-based cybersecurity solutions, including: CylancePROTECT®, an EPP and available MTD solution that uses an automated, prevention-first approach to protect against the execution of malicious codeincluding on ~~an endpoint; CylanceOPTICS®, an EDR solution that provides both visibility into and prevention of malicious activity on an endpoint;~~mobile; CylanceGUARD®, a managed detection and response solution that provides 24/7 threat hunting and ~~monitoring; CylanceGATEWAY™~~monitoring, as well as integrated critical event management communications during a cyber incident; CylanceEDGE™, an ~~AI-empowered~~AI-powered continuous authentication ZTNA ~~solution, and CylancePERSONA™, a UEBA~~ solution that provides ~~continuous authentication by validating user identity in real time. The combined platform features industry-leading~~secure access to applications and data loss prevention; and CylanceINTELLIGENCE™, a contextual cyber threat ~~prevention modules to help organizations cope with the significant growth of cyberattacks.~~intelligence service. The Company also offers incident response, compromise assessment and containment services to assist clients with forensic analysis, state of existing systems and remediation of attacks. ~~The BlackBerry UES Suite natively integrates~~These solutions are designed to provide a continuous state of resilience for the Company’s customers and support the outcomes they require by: (i) complementing, extending, or fully managing security capabilities with ~~BlackBerry® UEM~~the Company’s experts and ~~also works~~extended technology ecosystem, (ii) enabling the workforce in a way that is fast, easy and satisfying, while providing security visibility, controls and peace of mind; and (iii) reducing complexity and overhead costs associated with ~~UEM solutions from other vendors.~~security operations.

The BlackBerry ~~Spark~~ UEM Suite includes the Company’s ~~BlackBerry~~BlackBerry® UEM, BlackBerry® Dynamics™ and BlackBerry® Workspaces solutions. BlackBerry UEM isemploys a ~~central software component of the Company’s~~containerized approach to manage and secure ~~communications platform,~~

~~offering a “single pane of glass”, or unified console view, for managing~~devices, third party and ~~securing devices,~~custom applications, identity, content and endpoints across all leading operating ~~systems.~~systems, as well as providing regulatory compliance tools. 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. BlackBerry Workspaces is a secure Enterprise File Sync and Share (EFSS) solution. BBM Enterprise, is an enterprise-grade secure instant messaging solution for messaging, voice and video.

BlackBerry SecuSUITE 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 government and businesses.

BlackBerry AtHoc and ~~BlackBerry~~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 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 government 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 OEMs, Tier 1 vendors and automotive semiconductor suppliers. These solutions include the ~~Neutrino®~~BlackBerry QNX real-time operating system, QNX® Hypervisor and ~~the BlackBerry~~ QNX® ~~CAR platform, the most advanced embedded software platform for the autonomous vehicle market,~~Software Development Platform (SDP), 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 QNX® Acoustics Management Platform provides software-defined audio solutions.

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.

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 IVY, an intelligent vehicle data platform leveraging BlackBerry QNX’s automotive capabilities. BlackBerry IVY ~~will allow~~allows 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~~supports 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 announced the ~~Company released a version of BlackBerry IVY~~first design win for ~~proof-of-concept testing and the Company expects installations of~~ BlackBerry IVY in ~~vehicles~~January 2023 and recently released the platform for general availability in May 2023. The Company expects in-vehicle installations to begin during the ~~2024 or~~ 2025 model year. The Company is targeting additional BlackBerry IVY design wins in fiscal 2024.

The BlackBerry Cybersecurity and IoT groups are 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 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”).~~business.

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 the fourth quarter of fiscal 2022, the Company announced its entry into a patent sale agreement with Catapult IP Innovations (“Catapult”) for the sale of substantially all of the Company’s non-core patent assets 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 mobile devices, messaging and wireless networking. The Patent Sale Transaction will not impact customers’ use of any of the Company’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 its required financing; however, the Company is no longer under exclusivity with Catapult and is continuing to explore alternative options in 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, which are no longer supported or maintained as of January 4, 2022.

Recent Developments

The Company continued to execute on its strategy in fiscal ~~2023~~2024 and announced the following ~~achievements:~~significant achievements during the most recent quarter:

Products and Innovation:

•~~Strengthened QNX® Advanced Virtualization Framework for Android Automotive OS to simplify and accelerate building IVI systems on~~Launched the ~~QNX® Hypervisor;~~

•~~Released QNX® Hypervisor 2.2 for Safety, the latest edition~~early access release of ~~the Company’s safety-certified, real-time embedded hypervisor product, certified to the highest level of functional safety for both automotive and medical device software;~~

•~~Achieved conformance for the~~ QNX® Software Development Platform ~~7.1 with~~8.0, powered by the ~~“Future Airborne Capability Environment” (FACE) technical standard, extending BlackBerry QNX’s support~~new, ultra-scalable QNX® operating system for ~~the aerospace and defense market;~~

•~~Achieved 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 2022 Enabling Technology Leadership Award for BlackBerry IVY;~~high-performance, multi-core computing;

•Launched ~~CylanceGATEWAY, BlackBerry’s Zero Trust Network Access (ZTNA) service offering;~~an enhanced AI-based Cylance cybersecurity solutions portfolio, reducing alert fatigue, offering faster incident response and expanding cloud defense coverage;

•~~Named as a ‘Leader’~~Announced an integration of CylanceGUARD and BlackBerry AtHoc technologies for ~~a third consecutive year in the IDC MarketScape: Worldwide UEM Software 2022 Vendor Assessment;~~

•~~Together with Google, launched Chrome Enterprise Management with BlackBerry UEM to support devices running Google Chrome OS and Chrome browser;~~secure bi-directional response communications during cyber incidents; and

•~~Enhanced~~Announced a partnership with leading automotive cybersecurity platform Upstream Security to enable automakers to strengthen the overall security posture of their vehicles, by leveraging BlackBerry ~~Managed Security Service Provider (MSSP) channel program, including an expansion of the range of products available, increased partner support and more comprehensive training.~~IVY capabilities.

Customers and Partners:

•~~Selected by Volkswagen Group’s software company, Cariad, for its VW.OS, part of a unified software platform to be deployed across all Volkswagen Group brands;~~

•Announced that BlackBerry QNX software is embedded in over ~~215~~235 million vehicles;

•~~Selected by PATEO, a~~Announced an extended partnership with leading ~~Chinese Tier 1, for its intelligent cockpit, PATEO CONNECT+,~~managed security services provider (MSSP) Solutions Granted, enabling better scale to ~~be mass produced in more than ten individual models across five automakers;~~

•~~Selected by NETA Auto (Hozon’s EV brand) for the digital cockpit~~address small and ~~ADAS sockets in the NETA S, a next generation EV Sedan aimed at the Chinese market;~~

•~~Selected by BDStar Intelligent & Connected Vehicle Technology Co., Ltd. (BICV) to power an intelligent digital cockpit, featuring augmented reality, artificial intelligence,~~medium-sized businesses (SMBs); and ~~hologram functions for the new Renault Jiangling all-electric sedan;~~

•~~Jointly developed a digital LCD instrument cluster with BiTECH for Changan’s next-generation high-end UNI-V Coupe;~~

•~~Entered into a multi-year agreement with Magna International Inc. to collaborate on next-generation Advanced Driver Assistance System (ADAS) solutions for global automakers;~~

•~~Launched the Software-Defined Vehicle Innovator Awards with MotorTrend;~~

•~~Joined with L-SPARK to announce four smart mobility start-ups for the BlackBerry IVY connected car accelerator program;~~

•~~Collaborated with LeapXpert to enable the BlackBerry Dynamics platform to provide secure communications through leading messaging applications such as iMessage, WhatsApp and SMS;~~

•~~Partnered with Midis Group to expand go-to-market activities in Eastern Europe, the Middle East, and Africa;~~

•Announced a strategic partnership with McLeod Software, a leading Transportation Management System (TMS) provider, delivering enterprise software solutions to the ~~availability of BlackBerry Radar on AWS Marketplace;~~transportation and

•~~Joined forces with NXP to help companies prepare for, and prevent, Y2Q post-quantum cyberattacks.~~ logistics industry.

Environmental, Sustainability and Corporate Governance:

•~~Appointed Phil Kurtz as Chief Legal Officer~~McKinsey named BlackBerry a cybersecurity and ~~Corporate Secretary; and~~IoT convergence leader, well positioned in an addressable market of up to $750 billion by 2030.

•~~Released the Company’s 2022 Environmental, Social, and Governance (ESG) report.~~

~~Pearlstein Settlement~~Strategic Review of Businesses

On ~~April 7, 2022,~~May 1, 2023, the Company announced that ~~it had reached an agreement in principle~~the Board would initiate a review of the Company’s portfolio of businesses, with the assistance of its financial advisors, as the Board considers strategic alternatives to ~~settle~~drive enhanced shareholder value, including but not limited to the ~~consolidated securities class action lawsuit captioned~~ ~~Pearlstein v. Blackberry Limited, et al.,~~ ~~Case No. 13 Civ. 7060 (CM) (KHP) pending against~~possible separation of one or more of the Company’s businesses. During the review process, the Company remains focused on achieving its business plan and remains committed to its customers, partners and employees. The Board has not set a timetable for the process and there can be no assurance that the review will result in any transaction.

Patent Sale

On May 11, 2023, the Company completed its previously announced patent sale with Malikie Innovations Limited and sold certain non-core patent assets for $170 million in cash on closing, an additional $30 million in cash by no later than the third anniversary of ~~its former officers~~closing and potential future royalties in the ~~U.S. District Court for~~aggregate amount of up to $700 million (the “Malikie Transaction”). Pursuant to the ~~Southern District~~terms of ~~New York. A formal settlement agreement was signed on June 9, 2022, and contemplated an aggregate cash payment by~~the Malikie Transaction, the Company ~~of $165 million~~received a license back to ~~settle~~ the ~~claims brought on behalf of all persons who purchased or otherwise acquired BlackBerry shares on the NASDAQ between March 28, 2013~~sold patents, which relate primarily to mobile devices, messaging and ~~September 20, 2013.~~wireless networking. The ~~Stipulation of Settlement was executed effective June 7, 2022. On June 14, 2022, the Court granted plaintiffs’ motion for preliminary approval~~Malikie Transaction will not impact our customers’ right to use any of the settlement and scheduled the final approval hearing for September 29, 2022. While the Company believes that the allegations in the case were without merit, it also believes that eliminating the distraction, expense and risk of continued litigation is in the best interests of the Company and its shareholders. Company’s products, solutions or services.

In the first quarter of fiscal ~~2023,~~2024, the Company ~~accrued $165~~recognized revenue of $218 million ~~associated with this settlement within~~and cost of sales of $147 million related to non-core intellectual property sold. The revenue recognized reflects the ~~line~~ ~~Litigation settlement~~application of the Company’s accounting policies and critical accounting estimates, as described in Note 1 to the Consolidated Financial Statements, which resulted in a substantial majority of the potential future royalties from the Malikie Transaction being constrained until future periods. In evaluating the Malikie Transaction, the Company considered estimates of value, among other factors, which are not fully reflected when applying the principles of revenue recognition, such as the variable consideration constraint that is recognized at the inception of the Malikie Transaction. Accordingly, amounts initially recognized in the first quarter of fiscal 2024 do not reflect the full fair value of the overall transaction as determined by the Company. Additional variable consideration is expected to be recognized in future quarters, as determined quarterly based on the ~~consolidated statement of operations. On June 29, 2022,~~revenue recognition accounting framework. See Note 10 to the ~~Company paid $1 million~~Consolidated Financial Statements.

Macroeconomic Factors

The ongoing impact of the ~~settlement amount. The remaining $164 million was paid on September 6, 2022.~~

~~COVID-19 and Macroeconomic Factors~~

~~In response to~~global semiconductor shortage resulting from the COVID-19 pandemic the Company continues to focus on protecting the health and safety of its employees, customers and partners, while also providing technology to help them do their best wherever they operate. During the second quarter of fiscal 2023, the Company shifted from a remote working model 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 regulations.

Although the Company experienced higher Software & Services revenue in the first six months of fiscal 2023 compared to the first six months of fiscal 2022, the COVID-19 pandemic and ensuing global semiconductor shortage havehas had and ~~may continue~~continues to have a material adverse impact on production-based royalties for the Company’s QNX automotive software business. ~~This chip supply disruption and its impact on the Company’s business, results of operations and financial condition may be exacerbated by the~~The invasion of Ukraine by Russia and resulting global sanctions against ~~Russia.~~Russia have exacerbated the disruption of automotive supply chains and its impact on the Company’s business.

Economic weakness or inflation resulting directly or indirectly from the COVID-19 pandemic and the Russian invasion of Ukraine, as well as higher interest rates implemented in response to inflation and resulting fears of recession, may negatively impact consumer demand for automobiles and ~~may contribute~~is contributing to reduced spending and longer sales cycles for cybersecurity solutions, which in turn may continue to adversely affect the Company’s business. The Company does not believe that inflation had a ~~material~~direct effect on its ~~business, results of~~ operations ~~and financial condition in the~~during first ~~six~~three months of fiscal ~~2023.~~

The long-term impact of the COVID-19 pandemic on the Company’s operational and financial performance will 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 acceptance of vaccines, particularly against emergent viral variants). This impact cannot be reasonably estimated at this time and may not be fully reflected until future periods. Refer to Part II, Item 1A “Risk Factors” in the Annual Report for a discussion of these factors and other risks.

2024.

~~Second~~First Quarter Fiscal ~~2023~~2024 Summary Results of Operations

The following table sets forth certain consolidated statements of operations data for the quarter ended ~~August~~May 31, ~~2022~~2023 compared to the quarter ended ~~August~~May 31, ~~2021~~2022 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, 2022		August 31, 2021		Change				May 31, 2023		May 31, 2022		Change
Revenue	Revenue	$	168	$	175	$	(7)		Revenue	$	373	$	168	$	205
Gross margin	Gross margin	106		112		(6)			Gross margin	179		104		75
Operating expenses	Operating expenses	153		253		(100)			Operating expenses	190		281		(91)
Investment loss, net		(2)		(1)		(1)
Investment income (loss), net									Investment income (loss), net	3		(1)		4
Loss before income taxes	Loss before income taxes	(49)		(142)		93			Loss before income taxes	(8)		(178)		170
Provision for income taxes	Provision for income taxes	5		2		3			Provision for income taxes	3		3		—
Net loss	Net loss	$	(54)	$	(144)	$	90		Net loss	$	(11)	$	(181)	$	170
Loss per share - reported	Loss per share - reported								Loss per share - reported
Basic	Basic	$	(0.09)	$	(0.25)				Basic	$	(0.02)	$	(0.31)
Diluted	Diluted	$	(0.10)	$	(0.25)				Diluted	$	(0.02)	$	(0.35)

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)~~	577,314		568,082					Basic ~~(1)~~	582,812		576,877
Diluted ~~(2)~~(1)	Diluted ~~(2)~~(1)	638,147		568,082					Diluted ~~(2)~~(1)	582,812		637,710

(1)Basic loss per share on a U.S. GAAP basis for the three months ended August 31, 2021 includes 1,421,945 common shares that were subsequently issued on the third anniversary date of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition.

~~(2)~~Diluted loss per share on a U.S. GAAP basis for the ~~three months ended August 31, 2021~~first quarter of fiscal 2024 does not include the dilutive effect of the ~~1.75%~~ Debentures (defined below), as to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for the ~~three months ended August 31, 2022~~first quarter of fiscal 2024 and ~~August 31, 2021~~first quarter of 2023 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive. See Note 7 to the Consolidated Financial Statements for the Company’s calculation of the diluted weighted average number of shares outstanding.

The following table shows information by operating segment for the three ~~and six~~ months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021.~~2022. 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~~Chief Operating Decision Maker for making decisions and assessing performance of the Company’s reportable operating segments. See Note 10 to the Consolidated Financial Statements for a description of the Company’s operating segments.

For the Three Months Ended
(in millions)
Cybersecurity IoT Licensing and Other Segment Totals
August 31, Change August 31, Change August 31, Change August 31, Change
2022 2021 2022 2021 2022 2021 2022 2021
Segment revenue $ 111 $ 120 $ (9) $ 51 $ 40 $ 11 $ 6 $ 15 $ (9) $ 168 $ 175 $ (7)
Segment cost of sales 50 49 1 9 7 2 2 6 (4) 61 62 (1)
Segment gross margin $ 61 $ 71 $ (10) $ 42 $ 33 $ 9 $ 4 $ 9 $ (5) $ 107 $ 113 $ (6)


		For the Six Months Ended
		(in millions)																																								For the Three Months Ended (in millions)
		Cybersecurity								IoT												Licensing and Other												Segment Totals															Cybersecurity												IoT										Licensing and Other										Segment Totals
		August 31,				Change				August 31,								Change				August 31,								Change				August 31,								Change							May 31,							Change					May 31,						Change				May 31,						Change				May 31,						Change
		2022		2021				2022				2021								2022				2021								2022				2021										2023	2022				Change	2023							2022				Change	2023					2022				Change	2023					2022				Change
Segment revenue	Segment revenue	$	224	$	227			$	(3)			$	102			$	83			$	19			$	10			$	39			$	(29)			$	336			$	349			$	(13)							Segment revenue		$	93			$	113	$	(20)			$	45		$	51	$	(6)				$	235		$	4	$	231				$	373		$	168	$	205
Segment cost of sales	Segment cost of sales	103		95		8				17				14				3				4				12				(8)				124				121				3						Segment cost of sales	37				53				(16)					9				8			1				147			2			145				193			63			130
Segment gross margin	Segment gross margin	$	121	$	132	$	(11)			$	85			$	69			$	16			$	6			$	27			$	(21)			$	212			$	228			$	(16)					Segment gross margin	$	56		$	60			$	(4)				$	36		$	43		$	(7)			$	88		$	2		$	86			$	180		$	105		$	75

3432

The following table reconciles the Company’s segment results for the three ~~and six~~ months ended ~~August~~May 31, ~~2022~~2023 to consolidated U.S. GAAP results:

For the Three Months Ended August 31, 2022
(in millions)
Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S. GAAP
Revenue $ 111 $ 51 $ 6 $ 168 $ — $ 168
Cost of sales 50 9 2 61 1 62
Gross margin (1)
$ 61 $ 42 $ 4 $ 107 $ (1) $ 106
Operating expenses 153 153
Investment loss, net 2 2
Loss before income taxes $ (49)


		For the Six Months Ended August 31, 2022												For the Three Months Ended May 31, 2023
		(in millions)														(in millions)
		Cybersecurity		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	$	224	$	102	$	10	$	336	$	—	$	336		Revenue	$	93	$	45	$	235	$	373	$	—	$	373
Cost of sales	Cost of sales	103		17		4		124		2		126			Cost of sales	37		9		147		193		1		194
Gross margin (1)	Gross margin (1)	$	121	$	85	$	6	$	212	$	(2)	$	210		Gross margin (1)	$	56	$	36	$	88	$	180	$	(1)	$	179
Operating expenses	Operating expenses									434		434			Operating expenses									190		190
Investment loss, net										3		3
Investment income, net															Investment income, net									(3)		(3)
Loss before income taxes	Loss before income taxes											$	(227)		Loss before income taxes											$	(8)

(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 ~~August~~May 31, ~~2022.~~2023.

The following table reconciles the Company’s segment results for the three ~~and six~~ months ended ~~August~~May 31, ~~2021~~2022 to consolidated U.S. GAAP results:

For the Three Months Ended August 31, 2021
(in millions)
Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S. GAAP
Revenue $ 120 $ 40 $ 15 $ 175 $ — $ 175
Cost of sales 49 7 6 62 1 63
Gross margin (1)
$ 71 $ 33 $ 9 $ 113 $ (1) $ 112
Operating expenses 253 253
Investment loss, net 1 1
Loss before income taxes $ (142)


		For the Six Months Ended August 31, 2021												For the Three Months Ended May 31, 2022
		(in millions)														(in millions)
		Cybersecurity		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	$	227	$	83	$	39	$	349	$	—	$	349		Revenue	$	113	$	51	$	4	$	168	$	—	$	168
Cost of sales	Cost of sales	95		14		12		121		2		123			Cost of sales	53		8		2		63		1		64
Gross margin (1)	Gross margin (1)	$	132	$	69	$	27	$	228	$	(2)	$	226		Gross margin (1)	$	60	$	43	$	2	$	105	$	(1)	$	104
Operating expenses	Operating expenses									425		425			Operating expenses									281		281
Investment loss, net	Investment loss, net									3		3			Investment loss, net									1		1
Loss before income taxes	Loss before income taxes											$	(202)		Loss before income taxes											$	(178)

(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 ~~August~~May 31, ~~2021.~~2022.

Financial Highlights

The Company had approximately ~~$699~~$578 million in cash, cash equivalents and investments as of ~~August~~May 31, ~~2022~~2023 (February 28, ~~2022~~2023 - ~~$770~~$487 million).

In the ~~second~~first quarter of fiscal ~~2023,~~2024, the Company recognized revenue of ~~$168~~$373 million and incurred a net loss of ~~$54~~$11 million, or ~~$0.09~~$0.02 basic ~~loss per share~~ and ~~$0.10~~ diluted loss per share on a U.S. GAAP basis ~~(second~~(first quarter of fiscal ~~2022~~2023 - revenue of ~~$175~~$168 million and net loss of ~~$144~~$181 million, or ~~$0.25~~$0.31 basic loss per share and $0.35 diluted loss per share).

The Company recognized an adjusted net ~~loss~~income of ~~$29~~$35 million, and an adjusted ~~loss~~earnings of ~~$0.05~~$0.06 per share, on a non-GAAP basis in the ~~second~~first quarter of fiscal ~~2023 (second~~2024 (first quarter of fiscal ~~2022~~2023 - adjusted net loss of ~~$33~~$31 million, and adjusted loss of ~~$0.06~~$0.05 per 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”~~“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 ~~August~~May 31, ~~2022,~~2023, the fair value of the ~~1.75%~~ Debentures was approximately ~~$449~~$389 million, ~~a decrease~~an increase of approximately ~~$10~~$22 million during the ~~second~~first quarter of fiscal ~~2023.~~2024. For the three months ended ~~August~~May 31, ~~2022,~~2023, the Company recorded a non-cash ~~income~~charge relating to changes in fair value from non-credit components of ~~$10~~$22 million (pre-tax and after tax) (the ~~“Q2~~“Q1 Fiscal ~~2023~~2024 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and a non-cash ~~charge~~income relating to

changes in fair value from instrument specific credit risk of nil in Other Comprehensive Loss (“OCL”) relating to the 1.75% Debentures. For the six months ended August 31, 2022, the Company recorded non-cash income relating to changes in fair value from non-credit components of $56 million (pre-tax and after tax) (the “Fiscal 2023 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 $2 million in OCL relating to the 1.75% Debentures. See Note 5 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 27, 2022,~~June 28, 2023, the Company announced financial results for the three ~~and six~~ months ended ~~August~~May 31, ~~2022,~~2023, which included certain non-GAAP financial measures and non-GAAP ratios, including adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted net ~~loss,~~income (loss), adjusted ~~loss~~income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense, adjusted operating ~~loss,~~income (loss), adjusted EBITDA, adjusted operating ~~loss~~income (loss) margin percentage, adjusted EBITDA margin percentage and free cash flow (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. Non-GAAP financial measures and non-GAAP ratios exclude certain amounts as described below:

•Debentures fair value adjustment. The Company has elected to measure its outstanding ~~1.75%~~ Debentures 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 the 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, share price volatility and credit indices. This is not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

•Restructuring charges. The Company believes that restructuring costs relating to employee termination benefits, facilities and other costs pursuant to the Cost Optimization Program to reduce 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 when comparing the Company’s operating 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 when comparing the Company’s operating performance against that of prior periods.

•Long-lived asset impairment charge. The Company believes that long-lived asset impairment charges do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

•Goodwill impairment charge.The Company believes that goodwill impairment charges do not reflect expected future operating expenses, are non-cash, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

•Litigation settlement. The Company believes that litigation settlements do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

On a U.S. GAAP basis, the impacts of these items are reflected in the Company’s income statement. However, the Company believes that the provision of supplemental non-GAAP measures allows 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 ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022

Readers are cautioned that adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted net ~~loss,~~income (loss), adjusted ~~loss~~income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense, adjusted operating ~~loss,~~income (loss), adjusted EBITDA, adjusted operating ~~loss~~income (loss) margin percentage, adjusted EBITDA margin percentage and free cash flow (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 ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 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, 2022			August 31, 2021			For the Three Months Ended (in millions)	May 31, 2023			May 31, 2022

Gross margin	Gross margin	$	106		$	112		Gross margin	$	179		$	104

Stock compensation expense	Stock compensation expense	1			1			Stock compensation expense	1			1
Adjusted gross margin	Adjusted gross margin	$	107		$	113		Adjusted gross margin	$	180		$	105

Gross margin %	Gross margin %	63.1		%	64.0		%	Gross margin %	48.0		%	61.9		%

Stock compensation expense	Stock compensation expense	0.6		%	0.6		%	Stock compensation expense	0.3		%	0.6		%
Adjusted gross margin %	Adjusted gross margin %	63.7		%	64.6		%	Adjusted gross margin %	48.3		%	62.5		%

Reconciliation of U.S. GAAP operating expense for the three months ended ~~August~~May 31, ~~2022,~~2023, February 28, 2023 and May 31, 2022 ~~and August 31, 2021~~ 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, 2022		May 31, 2022		August 31, 2021		For the Three Months Ended (in millions)	May 31, 2023		February 28, 2023		May 31, 2022
Operating expense	Operating expense	$	153	$	281	$	253	Operating expense	$	190	$	599	$	281
Restructuring charges	Restructuring charges	3		1		—		Restructuring charges	5		7		1
Stock compensation expense	Stock compensation expense	5		6		11		Stock compensation expense	8		9		6
Debentures fair value adjustment (1)	Debentures fair value adjustment (1)	(10)		(46)		67		Debentures fair value adjustment (1)	22		(26)		(46)

Acquired intangibles amortization	Acquired intangibles amortization	22		23		32		Acquired intangibles amortization	10		15		23

Goodwill impairment charge								Goodwill impairment charge	—		245		—
LLA impairment charge	LLA impairment charge	4		—		—		LLA impairment charge	—		231		—

Litigation settlement	Litigation settlement	—		165		—		Litigation settlement	—		—		165
Adjusted operating expense	Adjusted operating expense	$	129	$	132	$	143	Adjusted operating expense	$	145	$	118	$	132

(1) See ~~“Second~~“First Quarter Fiscal ~~2023~~2024 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 ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 to adjusted net ~~loss~~income (loss) and adjusted basic ~~loss~~earnings (loss) per share is reflected in the table below:

For the Three Months Ended (in millions, except per share amounts) August 31, 2022 August 31, 2021
Basic loss
per share Basic loss
per share
Net loss $ (54) $(0.09) $ (144) $(0.25)
Restructuring charges 3 —
Stock compensation expense 6 12
Debentures fair value adjustment (10) 67
Acquired intangibles amortization 22 32
LLA impairment charge 4 —
Adjusted net loss $ (29) $(0.05) $ (33) $(0.06)


For the Three Months Ended (in millions, except per share amounts)	May 31, 2023			May 31, 2022
			Basic earnings (loss) per share			Basic loss per share
Net loss	$	(11)	$(0.02)	$	(181)	$(0.31)


Restructuring charges	5			1
Stock compensation expense	9			7
Debentures fair value adjustment	22			(46)

Acquired intangibles amortization	10			23




Litigation settlement	—			165

Adjusted net income (loss)	$	35	$0.06	$	(31)	$(0.05)

Reconciliation of U.S. GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 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, 2022		August 31, 2021		For the Three Months Ended (in millions)	May 31, 2023		May 31, 2022
Research and development	Research and development	$	54	$	58	Research and development	$	54	$	53

Stock compensation expense	Stock compensation expense	2		2		Stock compensation expense	2		2
Adjusted research and development	Adjusted research and development	$	52	$	56	Adjusted research and development	$	52	$	51

Selling, marketing and administration	Selling, marketing and administration	$	86	$	83	Selling, marketing and administration	$	99	$	82
Restructuring charges	Restructuring charges	3		—		Restructuring charges	5		1

Stock compensation expense	Stock compensation expense	3		9		Stock compensation expense	6		4

Adjusted selling, marketing and administration	Adjusted selling, marketing and administration	$	80	$	74	Adjusted selling, marketing and administration	$	88	$	77

Amortization	Amortization	$	25	$	45	Amortization	$	15	$	27
Acquired intangibles amortization	Acquired intangibles amortization	22		32		Acquired intangibles amortization	10		23
Adjusted amortization	Adjusted amortization	$	3	$	13	Adjusted amortization	$	5	$	4

Adjusted operating ~~loss,~~income (loss), adjusted EBITDA, adjusted operating ~~loss~~income (loss) margin percentage and adjusted EBITDA margin percentage for the three months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 are reflected in the table below.


For the Three Months Ended (in millions)	For the Three Months Ended (in millions)	August 31, 2022		August 31, 2021		For the Three Months Ended (in millions)	May 31, 2023		May 31, 2022
Operating loss	Operating loss	$	(47)	$	(141)	Operating loss	$	(11)	$	(177)
Non-GAAP adjustments to operating loss	Non-GAAP adjustments to operating loss					Non-GAAP adjustments to operating loss

Restructuring charges	Restructuring charges	3		—		Restructuring charges	5		1
Stock compensation expense	Stock compensation expense	6		12		Stock compensation expense	9		7
Debentures fair value adjustment	Debentures fair value adjustment	(10)		67		Debentures fair value adjustment	22		(46)

Acquired intangibles amortization	Acquired intangibles amortization	22		32		Acquired intangibles amortization	10		23

LLA impairment charge		4		—

Litigation settlement						Litigation settlement	—		165
Total non-GAAP adjustments to operating loss	Total non-GAAP adjustments to operating loss	25		111		Total non-GAAP adjustments to operating loss	46		150
Adjusted operating loss		(22)		(30)
Adjusted operating income (loss)						Adjusted operating income (loss)	35		(27)
Amortization	Amortization	28		48		Amortization	16		29
Acquired intangibles amortization	Acquired intangibles amortization	(22)		(32)		Acquired intangibles amortization	(10)		(23)
Adjusted EBITDA	Adjusted EBITDA	$	(16)	$	(14)	Adjusted EBITDA	$	41	$	(21)

Revenue	Revenue	$	168	$	175	Revenue	$	373	$	168
Adjusted operating loss margin % (1)		(13%)		(17%)
Adjusted operating income (loss) margin % (1)						Adjusted operating income (loss) margin % (1)	9%		(16%)
Adjusted EBITDA margin % (2)	Adjusted EBITDA margin % (2)	(10%)		(8%)		Adjusted EBITDA margin % (2)	11%		(13%)

(1) Adjusted operating ~~loss~~income (loss) margin % is calculated by dividing adjusted operating ~~loss by revenue.~~

~~(2)~~ ~~Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by revenue.~~

~~Reconciliation of non-GAAP based measures with most directly comparable U.S. GAAP based measures for the six months ended August 31, 2022 and August 31, 2021~~

A reconciliation of the most directly comparable U.S. GAAP financial measures for the six months ended August 31, 2022 and August 31, 2021 to adjusted financial measures is reflected in the table below:

For the Six Months Ended (in millions) August 31, 2022 August 31, 2021
Gross margin $ 210 $ 226
Stock compensation expense 2 2
Adjusted gross margin $ 212 $ 228
Gross margin % 62.5 % 64.8 %
Stock compensation expense 0.6 % 0.5 %
Adjusted gross margin % 63.1 % 65.3 %

~~Reconciliation of U.S. GAAP operating expense for the six months ended August 31, 2022 and August 31, 2021 to adjusted operating expense is reflected in the table below:~~

For the Six Months Ended (in millions) August 31, 2022 August 31, 2021
Operating expense $ 434 $ 425
Restructuring charges 4 —
Stock compensation expense 11 17
Debentures fair value adjustment (1)
(56) 63
Acquired intangibles amortization 45 64
LLA impairment charge 4 —
Litigation settlement 165 —
Adjusted operating expense $ 261 $ 281

~~(1)~~ ~~See “Second Quarter Fiscal 2023 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 six months ended August 31, 2022 and August 31, 2021 to adjusted net loss and adjusted basic loss per share is reflected in the table below:

For the Six Months Ended (in millions, except per share amounts) August 31, 2022 August 31, 2021
Basic loss per share Basic loss per share
Net loss $ (235) $(0.41) $ (206) $(0.36)
Restructuring charges 4 —
Stock compensation expense 13 19
Debentures fair value adjustment (56) 63
Acquired intangibles amortization 45 64
LLA impairment charge 4 —
Litigation settlement 165 —
Adjusted net loss $ (60) $(0.10) $ (60) $(0.11)

Reconciliation of U.S. GAAP research and development, selling, marketing and administration, and amortization expense for the six months ended August 31, 2022 and August 31, 2021 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, 2022 August 31, 2021
Research and development $ 107 $ 115
Stock compensation expense 4 4
Adjusted research and development $ 103 $ 111
Selling, marketing and administration $ 168 $ 156
Restructuring charges 4 —
Stock compensation expense 7 13
Adjusted selling, marketing and administration $ 157 $ 143
Amortization $ 52 $ 91
Acquired intangibles amortization 45 64
Adjusted amortization $ 7 $ 27

Adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage and adjusted EBITDA margin percentage for the six months ended August 31, 2022 and August 31, 2021 are reflected in the table below.

For the Six Months Ended (in millions) August 31, 2022 August 31, 2021
Operating loss $ (224) $ (199)
Non-GAAP adjustments to operating loss
Restructuring charges 4 —
Stock compensation expense 13 19
Debentures fair value adjustment (56) 63
Acquired intangibles amortization 45 64
LLA impairment charge 4 —
Litigation settlement 165 —
Total non-GAAP adjustments to operating loss 175 146
Adjusted operating loss (49) (53)
Amortization 57 97
Acquired intangibles amortization (45) (64)
Adjusted EBITDA $ (37) $ (20)
Revenue $ 336 $ 349
Adjusted operating loss margin % (1)
(15 %) (15 %)
Adjusted EBITDA margin % (2)
(11 %) (6 %)

~~(1)~~ ~~Adjusted operating loss margin % is calculated by dividing adjusted operating loss~~income (loss) by revenue.

(2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by revenue.

The Company uses free cash flow (usage) when assessing its sources of liquidity, capital resources, and quality of earnings. The Company believes that free cash flow (usage) 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.

Reconciliation of U.S. GAAP net cash ~~flow~~ provided by (used in) operating activities for the three months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 to free cash flow (usage) is reflected in the table below:


For the Three Months Ended (in millions)	For the Three Months Ended (in millions)	August 31, 2022		August 31, 2021		For the Three Months Ended (in millions)	May 31, 2023		May 31, 2022
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	(23)	$	12	Net cash provided by (used in) operating activities	$	99	$	(42)
Acquisition of property, plant and equipment	Acquisition of property, plant and equipment	(3)		(2)		Acquisition of property, plant and equipment	(2)		(1)
Free cash flow (usage)	Free cash flow (usage)	$	(26)	$	10	Free cash flow (usage)	$	97	$	(43)

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 estimated future performance. Readers are cautioned that annual recurring revenue (“ARR”), dollar-based net retention rate (“DBNRR”), Cybersecurity total contract value (“TCV”) billings, and recurring revenue percentage do not have any standardized meaning and are unlikely to be comparable to similarly titled measures reported by other companies.

Comparative breakdowns of certain key metrics for the three months ended ~~August~~May 31, ~~2022~~2023 and ~~August~~May 31, ~~2021~~2022 are set forth below.


For the Three Months Ended (in millions)	For the Three Months Ended (in millions)	August 31, 2022			August 31, 2021			Change			For the Three Months Ended (in millions)	May 31, 2023			May 31, 2022			Change

Cybersecurity Annual Recurring Revenue	Cybersecurity Annual Recurring Revenue	$	321		$	364		$	(43)		Cybersecurity Annual Recurring Revenue	$	289		$	334		$	(45)

Cybersecurity Dollar-Based Net Retention Rate	Cybersecurity Dollar-Based Net Retention Rate	85		%	95		%	(10		%)	Cybersecurity Dollar-Based Net Retention Rate	81		%	88		%	(7		%)

Cybersecurity Total Contract Value Billings	Cybersecurity Total Contract Value Billings	$	102		$	104		$	(2)		Cybersecurity Total Contract Value Billings	$	122		$	89		$	33
Recurring Software Product Revenue	Recurring Software Product Revenue	~ 80%			~ 80%			—		%	Recurring Software Product Revenue	~ 90%			~ 80%			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.~~the Cybersecurity business.

Cybersecurity ARR was approximately ~~$321~~$289 million in the ~~second~~first quarter of fiscal 2024 and decreased compared to $298 million in the fourth quarter of fiscal 2023 and decreased compared to $334 million in the first quarter of fiscal ~~2023 and compared to $364 million in the second quarter of fiscal 2022.~~2023.

The Company expects Cybersecurity ARR to return to sequential growth in ~~early~~the second half of fiscal 2024.

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.

Cybersecurity DBNRR was ~~85%~~81% in the ~~second~~first quarter of fiscal 2024 and was consistent with 81% in the fourth quarter of fiscal 2023 and decreased compared to 88% in the first quarter of fiscal ~~2023 and compared to 95% in the second quarter of fiscal 2022.~~2023.

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.

Cybersecurity TCV billings was ~~$102~~$122 million in the ~~second~~first quarter of fiscal 2024 and increased compared to $107 million in the fourth quarter of fiscal 2023 and increased compared to $89 million in the first quarter ~~of fiscal 2023 and decreased compared to $104 million in the second quarter of fiscal 2022.~~

~~Cybersecurity TCV billings for the first half of fiscal 2023 grew 6% year over year.~~

The Company previously stated that it expected quarterly year-over-year Cybersecurity billings growth throughout fiscal 2023 when compared to the same quarter in the prior year. In the second quarter of fiscal 2023, Cybersecurity TCV billings decreased compared to the second quarter of fiscal 2022 primarily due to customer churn in the BlackBerry Spark business. The

~~Company continues to expect quarterly year-over-year Cybersecurity billings growth in each of the third and fourth quarters~~ of fiscal 2023.

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 Software and Services product revenue, excluding professional services, was approximately ~~80%~~90% recurring in the ~~second~~first quarter of fiscal 2024 and was consistent with approximately 90% recurring in the fourth quarter of fiscal 2023 ~~consistent with~~and increased compared to approximately 80% in the first quarter of fiscal 2023 ~~and the second quarter of fiscal 2022.~~due to product mix.

Results of Operations - Three months ended ~~August~~May 31, ~~2022~~2023 compared to the three months ended ~~August~~May 31, ~~2021~~2022

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, 2022			August 31, 2021			Change			May 31, 2023					May 31, 2022				Change
Revenue by Segment	Revenue by Segment											Revenue by Segment
Cybersecurity	Cybersecurity	$	111		$	120		$	(9)			Cybersecurity	$	93			$	113			$	(20)
IoT	IoT	51			40			11				IoT	45				51				(6)
Licensing and Other	Licensing and Other	6			15			(9)				Licensing and Other	235				4				231

		$	168		$	175		$	(7)				$	373			$	168			$	205

% Revenue by Segment	% Revenue by Segment											% Revenue by Segment
Cybersecurity	Cybersecurity	66.1		%	68.6		%					Cybersecurity	24.9		%		67.3		%
IoT	IoT	30.4		%	22.9		%					IoT	12.1		%		30.4		%
Licensing and Other	Licensing and Other	3.5		%	8.5		%					Licensing and Other	63.0		%		2.3		%

		100.0		%	100.0		%						100.0		%		100.0		%

Cybersecurity

The decrease in Cybersecurity revenue of $9$20 million was primarily due to a decrease of ~~$11~~$14 million relating to product revenue in Secusmart and a decrease of $2 million relating to product revenue in BlackBerry ~~Spark~~Spark.

The Company previously stated that it expected Cybersecurity revenue in the first quarter of fiscal 2024 to increase sequentially. Cybersecurity revenue was $93 million and ~~a decrease of $3 million relating to professional services, partially offset by an increase of $5 million related~~increased sequentially compared to the ~~sale~~fourth quarter of ~~Secusmart solutions.~~fiscal 2023.

The Company previously stated that it expected Cybersecurity revenue in the first quarter of fiscal 2024 to be in the range of $100 million to $110 million. Cybersecurity revenue was lower than expected primarily due to delays from elongated sales cycles, with additional layers of required customer approvals compared to previous quarters.

The Company expects Cybersecurity revenue for fiscal 2024 as a whole to be in the range of $425 million to $450 million.

The Company is targeting Cybersecurity revenue for fiscal 2026 as a whole to be in the range of $540 million to $590 million.

IoT

The ~~increase~~decrease in IoT revenue of ~~$11~~$6 million was primarily due to an ~~increase~~decrease of $5$4 million in professional services and a decrease of $3 million in BlackBerry QNX development seat revenue, partially offset by an increase of $3$1 million in BlackBerry QNX royalty revenue.

The Company previously stated that it expected IoT revenue to be in the range of $50 million to $53 million in the first quarter of fiscal 2024. IoT revenue was $45 million and ~~an increase~~was lower than expected due to customer delays in the deployment of ~~$2 million~~development seat licenses relating to ~~professional services.~~confirmed design wins and to the negative impact of macroeconomic factors on automotive production volumes.

The Company expects IoT revenue to be at the lower end of a range from $240 million to $250 million for fiscal 2024 as a whole. The Company is targeting IoT revenue, excluding potential revenue from BlackBerry IVY, to be in the range of $340 million and $370 million for fiscal 2026 as a whole.

The Company expects total Software & Services revenue, excluding potential revenue from BlackBerry IVY, to be higher in the second quarter of fiscal 2024 than in the first quarter of fiscal 2024, and to be in the range of $665 million and $700 million for fiscal 2024 as a whole. The Company is targeting total Software & Services revenue, excluding potential revenue from BlackBerry IVY, to be in the range of $880 million and $960 million for fiscal 2026 as a whole.

4339

Licensing and Other

The ~~decrease~~increase in Licensing and Other revenue of $9$231 million was primarily due to ~~a decrease~~an increase of $8$218 million related to the completed Malikie Transaction and an increase of $13 million in revenue from the Company’s intellectual property licensing ~~arrangements due~~arrangements.

The Company previously stated that it expected revenue from intellectual property licensing to be approximately $5 million per quarter in fiscal 2024, excluding the ~~pending Patent Sale Transaction in~~Malikie Transaction. Revenue from intellectual property licensing was approximately $17 million excluding the ~~second quarter of 2023 and associated restrictions on monetization activity and a decrease of $1 million in SAF revenue.~~Malikie Transaction.

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, 2022			August 31, 2021			Change		May 31, 2023		May 31, 2022			Change
Revenue by Geography	Revenue by Geography										Revenue by Geography
North America	North America	$	85		$	101		$	(16)		North America	$	317		$	89		$	228
Europe, Middle East and Africa	Europe, Middle East and Africa	61			57			4			Europe, Middle East and Africa	37			60			(23)
Other regions	Other regions	22			17			5			Other regions	19			19			—
		$	168		$	175		$	(7)			$	373		$	168		$	205

% Revenue by Geography	% Revenue by Geography										% Revenue by Geography
North America	North America	50.6		%	57.7		%				North America	85.0		%	53.0		%
Europe, Middle East and Africa	Europe, Middle East and Africa	36.3		%	32.6		%				Europe, Middle East and Africa	9.9		%	35.7		%
Other regions	Other regions	13.1		%	9.7		%				Other regions	5.1		%	11.3		%
		100.0		%	100.0		%					100.0		%	100.0		%

North America Revenue

The ~~decrease~~increase in North America revenue of ~~$16~~$228 million was primarily due to ~~a decrease~~an increase of $8$231 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment”, and an increase of $3 million relating to product revenue in Secusmart, partially offset by a decrease of $7$8 million in professional services.

Europe, Middle East and Africa Revenue

The decrease in Europe, Middle East and Africa revenue of $23 million was primarily due to a decrease of $17 million relating to product revenue in Secusmart, a decrease of $4 million in product revenue in BlackBerry Spark and a decrease of $4$3 million in ~~professional services,~~BlackBerry QNX development seat revenue, partially offset by an increase of $1 million in BlackBerry QNX ~~development seat revenue and an increase of $1 million in BlackBerry QNX~~ royalty revenue.

~~Europe, Middle East and Africa Revenue~~

The increase in Europe, Middle East and Africa revenue of $4 million was primarily due to an increase of $5 million related to the sale of Secusmart solutions, an increase of $2 million in professional services and an increase of $1 million in BlackBerry QNX development seat revenue, partially offset by a decrease of $4 million in product revenue in BlackBerry Spark.

Other Regions Revenue

~~The increase in~~ Other regions revenue in the first quarter of ~~$5 million~~fiscal 2024 was ~~primarily due to an increase~~consistent with the first quarter of ~~$3 million in BlackBerry QNX development seat revenue and an increase of $1 million in professional services.~~fiscal 2023.

Gross Margin

Consolidated Gross Margin

Consolidated gross margin ~~decreased~~increased by $6$75 million to approximately ~~$106~~$179 million in the ~~second~~first quarter of fiscal 2024 (first quarter of fiscal 2023 ~~(second quarter of fiscal 2022~~ - ~~$112~~$104 million). The ~~decrease~~increase was primarily due to ~~a decrease in revenue from BlackBerry Spark and Licensing and Other,~~the completed Malikie Transaction, partially offset by ~~an increase~~a decrease in revenue from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”, as much of the Company’s cost of sales does not significantly fluctuate based on business volume.

Consolidated Gross Margin Percentage

Consolidated gross margin percentage decreased by ~~0.9%~~13.9% to approximately ~~63.1%~~48.0% of consolidated revenue in the ~~second~~first quarter of fiscal 2024 (first quarter of fiscal 2023 ~~(second quarter of fiscal 2022~~ - ~~64.0%~~61.9%). The decrease was primarily due to a change in mix, specifically higher contribution from Licensing and Other, which had a lower gross margin ~~contribution from BlackBerry Spark and Licensing and Other~~percentage due to the ~~reasons discussed above in “Revenue by Segment”,~~completed Malikie Transaction,

4440

partially offset by a ~~higher~~lower gross margin contribution from ~~BlackBerry QNX and~~ Secusmart, which has a lower relative gross margin percentage, due to the reasons discussed above in “Revenue by Segment”.

Gross Margin by Segment

See ~~“Second~~“First Quarter Fiscal ~~2023~~2024 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																		Cybersecurity													IoT												Licensing and Other												Segment Totals
		August 31,						Change					August 31,										Change					August 31,										Change					August 31,										Change								May 31,								Change					May 31,							Change					May 31,							Change					May 31,							Change
		2022			2021						2022					2021										2022					2021										2022					2021												2023	2022					Change	2023							2022					Change	2023						2022					Change	2023						2022					Change
Segment revenue	Segment revenue	$	111		$	120					$	(9)				$	51				$	40				$	11				$	6				$	15				$	(9)				$	168				$	175				$	(7)								Segment revenue		$	93			$	113	$	(20)				$	45		$	51		$	(6)					$	235		$	4		$	231					$	373		$	168		$	205
Segment cost of sales	Segment cost of sales	50			49			1					9					7					2					2					6					(4)					61					62					(1)							Segment cost of sales	37					53				(16)					9					8			1					147				2			145					193				63			130
Segment gross margin	Segment gross margin	$	61		$	71		$	(10)				$	42				$	33				$	9				$	4				$	9				$	(5)				$	107				$	113				$	(6)						Segment gross margin	$	56			$	60			$	(4)				$	36				$	43		$	(7)				$	88			$	2		$	86				$	180			$	105		$	75
Segment gross margin %	Segment gross margin %	55		%	59		%	(4		%)			82		%			83		%			(1)		%			67		%			60		%			7		%			64		%			65		%			(1		%)					Segment gross margin %	60		%		53		%		7		%			80		%		84		%	(4)		%			37		%		50		%	(13		%)			48		%		63		%	(15		%)

Cybersecurity

The decrease in Cybersecurity gross margin of ~~$10~~$4 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease of $3 million in infrastructure costs and a change in mix, specifically a lower gross margin contribution from Secusmart, which had a lower relative gross margin percentage.

The increase in Cybersecurity gross margin percentage of 7% was primarily due to a decrease of $3 million in infrastructure costs and a change in mix, specifically a lower gross margin contribution from Secusmart, which had a lower relative gross margin percentage.

The Company expects the gross margin percentage for Cybersecurity to increase by between 4% and 6% by fiscal 2026.

IoT

The decrease in IoT gross margin of $7 million was primarily due to the reasons discussed above in “Revenue by Segment”, as the cost of sales ~~for most Cybersecurity products~~ does not significantly fluctuate based on business volume.

The decrease in ~~Cybersecurity~~IoT gross margin percentage of 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 $9 million~~ was primarily due to the reasons discussed above in “Revenue by Segment”, ~~partially offset by an~~as the cost of sales does not significantly fluctuate based on business volume.

The Company expects the gross margin for IoT to increase in ~~salaries expense.~~the long term due to a change in revenue mix.

Licensing and Other

The ~~decrease~~increase in ~~IoT~~Licensing and Other gross margin ~~percentage~~ of 1%$86 million was primarily due to ~~an increase in professional service revenue, which has a lower relative gross margin percentage.~~

~~Licensing and Other~~the completed Malikie Transaction.

The decrease in Licensing and Other gross margin percentage of ~~$5 million~~13% was primarily due to the ~~reasons discussed above in “Revenue by Segment”, partially offset by~~completed Malikie Transaction, which had a ~~decrease in infrastructure costs~~lower relative gross margin percentage due to the ~~Company no longer supporting or maintaining legacy device operating systems.~~cost basis of the sold assets which was de-recognized.

The increase in Licensing and Other gross margin percentage of 7% was primarily due to a decrease in infrastructure costs due to the Company no longer supporting or maintaining legacy device operating systems.

4541

Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended ~~August~~May 31, ~~2022,~~2023, compared to the quarter ended ~~May 31, 2022~~February 28, 2023 and the quarter ended ~~August~~May 31, ~~2021.~~2022. The Company believes it is meaningful to provide a sequential comparison between the ~~second~~first quarter of fiscal ~~2023~~2024 and the ~~first~~fourth quarter of fiscal 2023.


		For the Three Months Ended (in millions)						For the Three Months Ended (in millions)
		August 31, 2022			May 31, 2022				August 31, 2021				May 31, 2023			February 28, 2023			May 31, 2022
Revenue	Revenue	$	168		$	168			$	175		Revenue	$	373		$	151		$	168
Operating expenses	Operating expenses											Operating expenses
Research and development	Research and development	54			53				58			Research and development	54			48			53
Selling, marketing and administration	Selling, marketing and administration	86			82				83			Selling, marketing and administration	99			83			82
Amortization	Amortization	25			27				45			Amortization	15			18			27
Impairment of long-lived assets	Impairment of long-lived assets	4			—				—			Impairment of long-lived assets	—			231			—
Impairment of goodwill												Impairment of goodwill	—			245			—

Gain on sale of property, plant and equipment, net		(6)			—				—
Debentures fair value adjustment	Debentures fair value adjustment	(10)			(46)				67			Debentures fair value adjustment	22			(26)			(46)
Litigation settlement	Litigation settlement	—			165				—			Litigation settlement	—			—			165
Total	Total	$	153		$	281			$	253		Total	$	190		$	599		$	281

Operating Expenses as % of Revenue	Operating Expenses as % of Revenue											Operating Expenses as % of Revenue
Research and development	Research and development	32.1		%	31.5		%		33.1		%	Research and development	14.5		%	31.8		%	31.5		%
Selling, marketing and administration	Selling, marketing and administration	51.2		%	48.8		%		47.4		%	Selling, marketing and administration	26.5		%	55.0		%	48.8		%
Amortization	Amortization	14.9		%	16.1		%		25.7		%	Amortization	4.0		%	11.9		%	16.1		%
Impairment of long-lived assets	Impairment of long-lived assets	2.4		%	—		%		—		%	Impairment of long-lived assets	—		%	153.0		%	—		%
Impairment of goodwill												Impairment of goodwill	—		%	162.3		%	—		%

Gain on sale of property, plant and equipment, net		(3.6		%)	—		%		—		%
Debentures fair value adjustment	Debentures fair value adjustment	(6.0		%)	(27.4		%)		38.3		%	Debentures fair value adjustment	5.9		%	(17.2		%)	(27.4		%)
Litigation settlement	Litigation settlement	—		%	98.2		%		—		%	Litigation settlement	—		%	—		%	98.2		%
Total	Total	91.1		%	167.3		%		144.6		%	Total	50.9		%	396.7		%	167.3		%

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, 2022,~~ May 31, ~~2022~~2023, February 28, 2023 and ~~August~~May 31, ~~2021.~~2022.

U.S. GAAP Operating Expenses

Operating expenses decreased by ~~$128~~$409 million, or ~~45.6%~~68.3%, in the ~~second~~first quarter of fiscal 2024, compared to the fourth quarter of fiscal 2023 primarily due to the $245 million goodwill impairment charge in the fourth quarter of fiscal 2023 which did not recur and the $231 million impairment of long-lived assets in the fourth quarter of fiscal 2023 which did not recur, partially offset by the difference between the Q1 Fiscal 2024 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the fourth quarter of fiscal 2023 of $48 million, an increase of $15 million in variable incentive plan costs and an increase of $4 million in the Company’s deferred share unit costs.

Operating expenses decreased by $91 million, or 32.4%, in the first quarter of fiscal 2024, compared to the first quarter of fiscal 2023 primarily due to a $165 million litigation settlement in the first quarter of fiscal 2023 which did not recur and a $6decrease of $12 million ~~gain on sale of property, plant and equipment, net,~~in amortization costs, partially offset by the difference between the Q2Q1 Fiscal ~~2023~~2024 Debentures Fair Value Adjustment and the fair value adjustment related to the ~~1.75%~~ Debentures incurred in the first quarter of fiscal 2023 of ~~$36~~$68 million, an increase of $4 million in allowance for credit losses, a decrease ~~in benefits~~ of $4 million in government subsidies resulting from claims filed for the Canada Emergency Wage Subsidy and Hardest-Hit Business Recovery Program programs (“COVID-19 subsidies”) to support the business through the COVID-19 pandemic, an increase of $4 million in the Company’s deferred share unit costs and an increase of $4 million in ~~impairment of long-lived assets.~~

Operating expenses decreased by $100 million, or 39.5%, compared to the second quarter of fiscal 2022 primarily due to the difference between the Q2 Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment related to the 1.75% Debentures incurred in the second quarter of fiscal 2022 of $77 million, a decrease of $20 million in amortization expense and a decrease of $7 million in stock compensation expenses, partially offset by a decrease in benefits of $12 million in COVID-19 subsidies and an increase of $4 million in impairment of long-lived assets.restructuring costs.

4642

Adjusted Operating Expenses

Adjusted operating expenses ~~decreased~~increased by $3$27 million, or ~~2.3%~~22.9%, to ~~$129~~$145 million in the ~~second~~first quarter of fiscal ~~2023~~2024 compared to $118 million in the fourth quarter of fiscal 2023. The increase was primarily attributable to an increase of $15 million in variable incentive plan costs, an increase of $4 million in the Company’s deferred share unit costs and an increase of $3 million in allowance for credit losses.

Adjusted operating expenses increased by $13 million, or 9.8%, to $145 million in the first quarter of fiscal 2024, compared to $132 million in the first quarter of fiscal 2023. The ~~decrease~~increase was primarily attributable to ~~a $6 million gain on sale of property, plant and equipment, net, a decrease of $5 million in legal expenses and a decrease~~an increase of $4 million in ~~salaries and benefits expenses, partially offset by~~allowance for credit losses, a decrease in benefits of $4 ~~million in COVID-19 subsidies.~~

Adjusted operating expenses decreased by $14 million, or 9.8%, to $129 million in the second quarter of fiscal 2023 compared to $143 million in the second quarter of fiscal 2022. The decrease was primarily attributable to a decrease of $10 million in amortization expense, a decrease of $7 million in salaries and benefits expense and a $6 million gain on sale of property, plant and equipment, net, partially offset by a decrease in benefits of $12 million in COVID-19 subsidies and an increase of $4 million ~~in impairment of long-lived assets.~~deferred share unit costs.

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 ~~decreased~~increased by $4$1 million, or ~~6.9%~~1.9%, in the ~~second~~first quarter of fiscal 2024 compared to $53 million in the first quarter of fiscal 2023 ~~compared to the second quarter of fiscal 2022~~ primarily due to ~~a decrease of $2 million in salaries and benefits expenses and a decrease~~an increase of $1 million in consulting fees, partially offset by a decrease in benefits of $1 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.variable incentive plan costs.

Adjusted research and development expenses ~~decreased~~increased by $4$1 million, or ~~7.1%~~2.0%, to $52 million in the ~~second~~first quarter of fiscal ~~2023 (second~~2024, compared to $51 million in the first quarter of fiscal ~~2022 - $56 million).~~2023. The ~~decrease~~increase was primarily due to the same reasons described above on a 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 $3$17 million, or ~~3.6%~~20.7%, in the ~~second~~first quarter of fiscal 2024 compared to $82 million in the first quarter of fiscal 2023 ~~compared the second quarter of fiscal 2022~~ primarily due to an increase of $4 million in allowance for credit losses, a decrease in benefits of ~~$12~~$4 million in COVID-19 subsidies, ~~partially offset by a decrease of $6 million in stock compensation expenses and a decrease~~an increase of $4 million in ~~salaries~~the Company’s deferred share unit costs and ~~benefits expenses.~~an increase of $4 million in restructuring costs.

Adjusted selling, marketing and administration expenses increased by $6$11 million, or ~~8.1%~~14.3%, to ~~$80~~$88 million in the ~~second~~first quarter of fiscal ~~2023 (second~~2024, compared to $77 million in the first quarter of fiscal ~~2022 - $74 million). This~~2023. The increase was primarily due to an increase of $4 million in allowance for credit losses, a decrease in benefits of ~~$12~~$4 million in COVID-19 subsidies and an increase of $4 million in the Company’s deferred share unit costs, partially offset by a decrease of $4$2 million in ~~salaries and benefits expenses and a decrease of $3 million in sales incentive plan costs.~~legal expenses.

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 ~~August~~May 31, ~~2022~~2023 compared to the quarter ended ~~August~~May 31, ~~2021.~~2022. Intangible assets are comprised of patents, licenses and acquired technology.

For the Three Months Ended
(in millions)
Included in Operating Expense
August 31, 2022 August 31, 2021 Change
Property, plant and equipment $ 1 $ 3 $ (2)
Intangible assets 24 42 (18)
Total $ 25 $ 45 $ (20)
Included in Cost of Sales
August 31, 2022 August 31, 2021 Change
Property, plant and equipment $ 2 $ 1 $ 1
Intangible assets 1 2 (1)
Total $ 3 $ 3 $ —


	For the Three Months Ended (in millions)
	Included in Operating Expense
	May 31, 2023		May 31, 2022		Change
Property, plant and equipment	$	3	$	4	$	(1)
Intangible assets	12		23		(11)
Total	$	15	$	27	$	(12)

	Included in Cost of Sales
	May 31, 2023		May 31, 2022		Change

Intangible assets	1		2		(1)

Amortization included in Operating Expense

The decrease in amortization expense included in operating expense of ~~$20~~$12 million was ~~due to a decrease in intellectual property held and used related to the Patent Sale Transaction and~~primarily due to the lower cost base of acquired technology assets.

Adjusted amortization expense ~~decreased by $10 million to $3 million in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - $13 million) due to the reasons described above on a U.S. GAAP basis.~~

~~Amortization included in Cost of Sales~~

Amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the Company’s service operations of $3 million, was consistent with the second quarter of fiscal 2022.

~~Investment Loss, Net~~

~~Investment loss, net, which includes the interest expense from the 1.75% Debentures,~~ increased by $1 million to ~~investment loss, net of $2~~$5 million in the ~~second~~first quarter of fiscal 2024 compared to $4 million in the first quarter of fiscal 2023 ~~(second quarter of fiscal 2022 - investment loss, net of $1 million). The increase in investment loss, net is primarily~~ due to ~~investment mix.~~

~~Income Taxes~~

~~For~~ the ~~second quarter~~higher cost base of fiscal 2023, the Company’s net effective income tax expense rate was approximately 10% (second quarter of fiscal 2022 - net effective income tax expense rate of approximately 1%). The Company’s net effective income tax rate reflects the change in unrecognized income tax benefits, if any,BlackBerry operations 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 1.75% 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 2023 was $54 million, or $0.09 basic loss per share and $0.10 diluted loss per share on a U.S. GAAP basis (second quarter of fiscal 2022 - net loss of $144 million, or $0.25 basic and diluted loss per share). The decrease in net loss of $90 million was primarily due to a decrease in operating expenses, 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 was $29 million in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - adjusted net loss of $33 million). The decrease in adjusted net loss of $4 million was primarily due to a decrease in operating expenses 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”.

The weighted average number of shares outstanding was 577 million common shares for basic loss per share and 638 million common shares for diluted loss per share for the second quarter of fiscal 2023 (second quarter of fiscal 2022 - 568 million common shares for basic and diluted loss per share).information technology assets.

~~Results of Operations - Six months ended August 31, 2022 compared to the six months ended August 31, 2021~~

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, 2022 and August 31, 2021:

For the Six Months Ended
(in millions, except for share and per share amounts)
August 31, 2022 August 31, 2021 Change
Revenue $ 336 $ 349 $ (13)
Gross margin 210 226 (16)
Operating expenses 434 425 9
Investment loss, net (3) (3) —
Loss before income taxes (227) (202) (25)
Provision for income taxes 8 4 4
Net loss $ (235) $ (206) $ (29)
Loss per share - reported
Basic $ (0.41) $ (0.36) $ (0.05)
Diluted $ (0.45) $ (0.36) $ (0.09)
Weighted-average number of shares outstanding (000’s)
Basic (1)
577,097 567,724
Diluted (2)
637,930 567,724

~~(1)~~Basic loss per share on a U.S. GAAP basis for the first six months of fiscal 2022 includes 1,421,945 common shares that were subsequently issued on the third anniversary dates of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition.

~~(2)~~Diluted loss per share on a U.S. GAAP basis for the first six months of fiscal 2022 does not include the dilutive effect of the 1.75% 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 2023 and fiscal 2022 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, 2022 August 31, 2021 Change
Revenue by Segment
Cybersecurity $ 224 $ 227 $ (3)
IoT 102 83 19
Licensing and Other 10 39 (29)
$ 336 $ 349 $ (13)
% Revenue by Segment
Cybersecurity 66.7 % 65.0 %
IoT 30.4 % 23.8 %
Licensing and Other 2.9 % 11.2 %
100.0 % 100.0 %

4943

~~Cybersecurity~~

The decrease in Cybersecurity revenue of $3 million was primarily due to a decrease of $17 million relating to product revenue in BlackBerry Spark, a decrease of $3 million relating to professional services and a decrease of $2 million relating to non-automotive OEM business, partially offset by an increase of $20 million related to the sale of Secusmart solutions.

~~IoT~~

The increase in IoT revenue of $19 million was primarily due to an increase of $11 million in BlackBerry QNX development seat revenue, an increase of $5 million relating to professional services and an increase of $4 million in BlackBerry QNX royalty revenue.

~~Licensing and Other~~

The decrease in Licensing and Other revenue of $29 million was primarily due to a decrease of $26 million in revenue from the Company’s intellectual property licensing arrangements due to the pending Patent Sale Transaction in the second quarter of fiscal 2023 and associated restrictions on monetization activity and a decrease of $4 million in SAF revenue.

~~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, 2022 August 31, 2021 Change
Revenue by Geography
North America $ 174 $ 212 $ (38)
Europe, Middle East and Africa 121 102 19
Other regions 41 35 6
$ 336 $ 349 $ (13)
% Revenue by Geography
North America 51.8 % 60.8 %
Europe, Middle East and Africa 36.0 % 29.2 %
Other regions 12.2 % 10.0 %
100.0 % 100.0 %

~~North America Revenue~~

The decrease in North American revenue of $38 million was primarily due to a decrease of $26 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment”, a decrease of $10 million in product revenue in BlackBerry Spark and a decrease of $2 million relating to professional services, partially offset by an increase of $3 million in BlackBerry QNX royalty revenue.

~~Europe, Middle East and Africa Revenue~~

The increase in Europe, Middle East and Africa revenue of $19 million was primarily due to an increase of $20 million related to the sale of Secusmart solutions and an increase of $5 million in BlackBerry QNX development seat revenue, partially offset by a decrease of $7 million in product revenue in BlackBerry Spark.

~~Other Regions Revenue~~

The increase in Other regions revenue of $6 million was primarily due to an increase of $4 million in BlackBerry QNX development seat revenue and an increase of $2 million related to professional services.

~~Gross Margin~~

~~Consolidated Gross Margin~~

Consolidated gross margin decreased by $16 million to approximately $210 million in the first six months of fiscal 2023 (first six months of fiscal 2022 - $226 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 2.3%, to approximately 62.5% of consolidated revenue in the first six months of fiscal 2023 (first six months of fiscal 2022 - 64.8%). 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 Quarter Fiscal 2023 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)
Cybersecurity IoT Licensing and Other Segment Totals
August 31, Change August 31, Change August 31, Change August 31, Change
2022 2021 2022 2021 2022 2021 2022 2021
Segment revenue $ 224 $ 227 $ (3) $ 102 $ 83 $ 19 $ 10 $ 39 $ (29) $ 336 $ 349 $ (13)
Segment cost of sales 103 95 8 17 14 3 4 12 (8) 124 121 3
Segment gross margin $ 121 $ 132 $ (11) $ 85 $ 69 $ 16 $ 6 $ 27 $ (21) $ 212 $ 228 $ (16)
Segment gross margin % 54 % 58 % (4 %) 83 % 83 % — % 60 % 69 % (9 %) 63 % 65 % (2 %)

~~Cybersecurity~~

The decrease in Cybersecurity gross margin of $11 million was primarily due to the reasons discussed above in “Revenue by Segment”, as the cost of sales for most Cybersecurity products does not significantly fluctuate based on business volume.

~~The decrease in Cybersecurity gross margin percentage of 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 $16 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by an increase in salaries expense.~~

~~IoT gross margin percentage was consistent with the first six months of fiscal 2022.~~

~~Licensing and Other~~

The decrease in Licensing and Other gross margin of $21 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease in infrastructure costs due to the Company no longer supporting or maintaining legacy device operating systems.

The decrease in Licensing and Other gross margin percentage of 9% was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease in infrastructure costs due to the Company no longer supporting or maintaining legacy device operating systems.

~~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, 2022, compared to the six months ended August 31, 2021.

For the Six Months Ended
(in millions)
August 31, 2022 August 31, 2021 Change
Revenue $ 336 $ 349 $ (13)
Operating expenses
Research and development 107 115 (8)
Selling, marketing and administration 168 156 12
Amortization 52 91 (39)
Impairment of long-lived assets 4 — 4
Gain on sale of property, plant and equipment, net (6) — (6)
Debentures fair value adjustment (56) 63 (119)
Litigation settlement 165 — 165
Total $ 434 $ 425 $ 9
Operating Expense as % of Revenue
Research and development 31.8 % 33.0 %
Selling, marketing and administration 50.0 % 44.7 %
Amortization 15.5 % 26.1 %
Impairment of long-lived assets 1.2 % — %
Gain on sale of property, plant and equipment, net (1.8) % — %
Debentures fair value adjustment (16.7) % 18.1 %
Litigation settlement 49.1 % — %
Total 129.2 % 121.8 %

~~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, 2022 and August 31, 2021.~~

~~U.S. GAAP Operating Expenses~~

Operating expenses increased by $9 million, or 2.1% in the first six months of fiscal 2023, compared to the first six months of fiscal 2022 primarily due to a $165 million litigation settlement, a decrease in benefits of $25 million in COVID-19 subsidies and an increase of $4 million in restructuring costs, partially offset by the difference between the Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment of $119 million related to the 1.75% Debentures incurred in the first six months of fiscal 2022, a decrease of $39 million in amortization expense, a decrease of $12 million in salaries and benefits expenses and a decrease of $7 million in stock compensation expense.

~~Adjusted Operating Expenses~~

Adjusted operating expenses decreased by $20 million, or 7.1%, to $261 million in the first six months of fiscal 2023, compared to $281 million in the first six months of 2022. The decrease was primarily attributable to a decrease of $20 million in amortization expense, a decrease of $12 million in salaries and benefits expenses and a $6 million gain on sale of property, plant and equipment, net, partially offset by a decrease in benefits of $25 million in COVID-19 subsidies.

~~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 decreased by $8 million, or 7.0%, in the first six months of fiscal 2023, compared to the first six months of fiscal 2022 primarily due to a decrease of $4 million in salaries and benefits expenses and a decrease of $3 million in consulting costs, partially offset by a decrease in benefits of $2 million in SIF claims.

Adjusted research and development expenses decreased by $8 million, or 7.2% to $103 million in the first six months of fiscal 2023 (first six months of fiscal 2022 - $111 million). The decrease was primarily due to the same reasons described above on a U.S. GAAP basis.

~~Selling, Marketing and Administration Expenses~~

Selling, marketing and administration expenses increased by $12 million, or 7.7%, in the first six months of fiscal 2023 compared to the first six months of fiscal 2022 primarily due to a decrease in benefits of $25 million in COVID-19 subsidies and an increase of $4 million in restructuring costs, partially offset by a decrease of $8 million in salaries and benefits expenses, a decrease of $6 million in stock compensation expense and a decrease of $4 million in sales incentive plan costs.

Adjusted selling, marketing and administration expenses increased by $14 million, or 9.8%, to $157 million in the first six months of fiscal 2023 (first six months of fiscal 2022 - $143 million). The increase was primarily due to a decrease in benefits of $25 million in COVID-19 subsidies, partially offset by a decrease of $8 million in salaries and benefits expenses and a decrease of $4 million in sales incentive plan costs.

~~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, 2022 compared to the six months ended August 31, 2021. Intangible assets are comprised of patents, licenses and acquired technology.

For the Six Months Ended
(in millions)
Included in Operating Expense
August 31, 2022 August 31, 2021 Change
Property, plant and equipment $ 5 $ 6 $ (1)
Intangible assets 47 85 (38)
Total $ 52 $ 91 $ (39)
Included in Cost of Sales
August 31, 2022 August 31, 2021 Change
Property, plant and equipment $ 2 $ 2 $ —
Intangible assets 3 4 (1)
Total $ 5 $ 6 $ (1)

~~Amortization included in Operating Expense~~

The decrease in amortization expense included in operating expense of $39 million was due to a decrease in intellectual property held and used related to the Patent Sale Transaction and due to the lower cost base of assets.

Adjusted amortization expense decreased by $20 million in the first six months of fiscal 2023 to $7 million (first six months of fiscal 2022 - $27 million) due to the reasons described above on a U.S. GAAP basis.

Amortization included in Cost of Sales

The decrease in amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the Company’s service operations of $1 million was due to the lower cost base of assets.

Investment ~~Loss,~~Income (Loss), Net

Investment ~~loss,~~income (loss), net, which includes the interest expense from the ~~1.75%~~ Debentures, ~~was~~increased by $4 million to investment income, net of $3 million in the first ~~six months~~quarter of fiscal ~~2023 and was consistent with~~2024, compared to investment loss, net of $1 million in the first ~~six months~~quarter of fiscal ~~2022.~~

2023. The increase in investment income (loss), net is primarily due to higher yield on cash and investments and a higher cash and investments balance.

Income Taxes

For the first ~~six months~~quarter of fiscal ~~2023,~~2024, the Company’s net effective income tax expense rate was approximately 4%38% (first ~~six months~~quarter of fiscal ~~2022~~2023 - net effective income tax expense rate of approximately 2%). 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 ~~1.75%~~ 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~~Income (Loss)

The Company’s net loss for the first ~~six months~~quarter of fiscal ~~2023~~2024 was ~~$235~~$11 million, or ~~$0.41~~$0.02 basic ~~loss per share~~ and ~~$0.45~~ diluted loss per share on a U.S. GAAP basis (first ~~six months~~quarter of fiscal ~~2022~~2023 - net loss of ~~$206~~$181 million, or ~~$0.36~~$0.31 basic loss per share and $0.35 diluted loss per share). The ~~increase~~decrease in net loss of ~~$29~~$170 million was primarily due to a decrease in operating expenses, as described above in “Operating Expenses” and an increase in revenue, as described above in “Revenue by Segment”, ~~an increase in operating expenses, as described above in “Operating Expenses” and~~partially offset by a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net ~~loss~~income was $35 million in the first ~~six months~~quarter of fiscal 2024 (first quarter of fiscal 2023 - adjusted net loss of $31 million). The increase in adjusted net income of $66 million was ~~$60 million and was consistent with the first six months of fiscal 2022. The decrease in operating expenditures as described above in “Operating Expenses” was partially offset by a decrease~~primarily due to an increase in revenue as described above in “Revenue by Segment” ~~and~~, partially offset by 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 Company expects to deliver significant year-over-year improvements in non-GAAP EPS loss and cash flow usage in fiscal 2024, and to achieve non-GAAP profitability in the fourth quarter of fiscal 2024.

The Company is targeting to generate positive full-year non-GAAP EPS and cash flow beginning in fiscal 2025.

The weighted average number of shares outstanding was ~~577~~583 million ~~for basic loss per share and 638 million for diluted loss per share for the first six months of August 31, 2022. The weighted average number of~~common shares ~~outstanding was 568 million~~ for basic and diluted loss per share for the first ~~six months~~quarter of ~~August 31, 2021.~~

~~Common Shares Outstanding~~

~~On September 23, 2022, there were~~fiscal 2024 (first quarter of fiscal 2023 - 577 ~~million voting common shares, options to purchase 1 million voting common shares, 15 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 5 to the Consolidated Financial Statements.~~

~~The Company has not paid any cash dividends during the last three fiscal years.~~for basic loss per share and 638 million common shares for diluted loss per share).

Financial Condition

Liquidity and Capital Resources

Cash, cash equivalents, and investments ~~decreased~~increased by ~~$71~~$91 million to ~~$699~~$578 million as at ~~August~~May 31, ~~2022~~2023 from ~~$770~~$487 million as at February 28, ~~2022,~~2023, primarily as a result of the completed Malikie Transaction and changes in working ~~capital.~~capital, excluding the amounts payable in respect of the Debentures. The majority of the Company’s cash, cash equivalents, and investments were denominated in U.S. dollars as at ~~August~~May 31, ~~2022.~~2023.

A comparative summary of cash, cash equivalents, and investments is set out below:

As at
(in millions)
August 31, 2022 February 28, 2022 Change
Cash and cash equivalents $ 431 $ 378 $ 53
Restricted cash and cash equivalents 27 28 (1)
Short-term investments 212 334 (122)
Long-term investments 29 30 (1)
Cash, cash equivalents, and investments $ 699 $ 770 $ (71)


	As at (in millions)
	May 31, 2023		February 28, 2023		Change
Cash and cash equivalents	$	358	$	295	$	63
Restricted cash and cash equivalents	27		27		—
Short-term investments	158		131		27
Long-term investments	35		34		1
Cash, cash equivalents, and investments	$	578	$	487	$	91

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, 2022		February 28, 2022		Change			May 31, 2023		February 28, 2023		Change
Current assets	Current assets	$	940	$	1,043	$	(103)	Current assets	$	696	$	743	$	(47)
Current liabilities	Current liabilities	516		397		119		Current liabilities	736		729		7
Working capital	Working capital	$	424	$	646	$	(222)	Working capital	$	(40)	$	14	$	(54)

Current Assets

The decrease in current assets of ~~$103~~$47 million at the end of the ~~second~~first quarter of fiscal ~~2023~~2024 from the end of the fourth quarter of fiscal ~~2022~~2023 was primarily due to a decrease of $130 million in ~~short term investments~~other current assets, a decrease in other receivables of ~~$122~~$4 million and a decrease in accounts receivable, net of allowance of ~~$38 million and a decrease in other receivables of $10~~$3 million, partially offset by an increase in cash and cash equivalents of ~~$53~~$63 million and an increase in short term investments of ~~$14 million in~~$27 million.

At May 31, 2023, other current ~~assets.~~

~~At August 31, 2022, accounts receivable~~assets was ~~$100~~$52 million, a decrease of ~~$38~~$130 million from February 28, ~~2022.~~2023. The decrease was primarily due to a decrease in intellectual property of $141 million as a result of the completed Malikie Transaction, partially offset by an increase of $5 million in prepaid software and an increase of $2 million in prepaid insurance.

At May 31, 2023, accounts receivable, net of allowance was $117 million, a decrease of $3 million from February 28, 2023. The decrease was primarily due to lower software and services revenue recognized over the three months ended ~~August~~May 31, ~~2022~~2023 compared to the three months ended February 28, ~~2022,~~2023, and a decrease in days sales outstanding to 5633 days at the end of the ~~second~~first quarter of fiscal ~~2023~~2024 due to the completed Malikie Transaction from 6775 days at the end of the fourth quarter of fiscal ~~2022.~~2023.

At ~~August~~May 31, ~~2022,~~2023, other receivables was ~~$15~~$8 million, a decrease of ~~$10~~$4 million from February 28, ~~2022.~~2023. The decrease was primarily due to a decrease of $8$4 million relating to ~~COVID-19 subsidies.~~GST/VAT receivables.

At ~~August~~May 31, ~~2022, other current assets~~2023, income taxes receivable was ~~$173~~$3 million, ~~an increase of $14 million from~~consistent with February 28, ~~2022.~~ 2023.

Current Liabilities

The increase in current liabilities of $7 million at the end of the first quarter of 2024 from the end of the fourth quarter of fiscal 2023 was primarily due to an increase in the fair value of ~~$13~~the Debentures of $22 million, an increase in ~~intellectual property related to patent maintenance~~deferred revenue, current of $2 million and an increase in income taxes payable of $4$1 million, partially offset by a decrease in ~~prepaid software,~~accrued liabilities of $15 million and a decrease in accounts payable of $3 million.

Deferred revenue, current was $177 million, which reflects an increase of $2 million compared to February 28, 2023 that was attributable to a $7 million increase in deferred revenue, current related to BlackBerry Spark, partially offset by a decrease of $4 million in ~~prepaid rent.~~deferred revenue, current related to BlackBerry QNX, and a $1 million decrease related to BlackBerry AtHoc.

~~Current Liabilities~~Income taxes payable were $21 million, reflecting an increase of $1 million compared to February 28, 2023, which was primarily due to changes in the quarterly tax provision.

~~The increase in current~~Accrued liabilities ~~of $119~~were $128 million at the end of the ~~second~~first quarter of 2024, reflecting a decrease of $15 million compared to February 28, 2023, ~~from the end of the fourth quarter of fiscal 2022~~which was primarily due ~~an increase in accruals of $143 million and an increase in income taxes payable of $6 million, partially offset by~~to a decrease in ~~deferred revenue, current~~variable incentive plan accrual of ~~$28~~$8 million, a decrease in payroll accruals of $6 million and a decrease in ~~accounts payable~~marketing accruals of $2 ~~million.~~

~~Accrued liabilities were $300~~ million, ~~reflecting an increase of $143 million compared to February 28, 2022. The increase was primarily due to a $164 million legal settlement accrual,~~ partially offset by ~~a decrease~~an increase in directors fee accruals of ~~$6 million in payroll accruals and a decrease of $5 million in variable incentive plan costs.~~$4 million.

~~Income taxes~~Accounts payable were ~~$17 million, reflecting an increase of $6 million compared to February 28, 2022, which was primarily due to income earned in taxable jurisdictions.~~

~~Deferred revenue, current was $179~~$21 million, reflecting a decrease of ~~$28 million compared to February 28, 2022 that was attributable to a $20 million decrease in deferred revenue, current related to BlackBerry Spark and $6 million related to BlackBerry AtHoc.~~

~~Accounts payable were $20 million, reflecting a decrease of $2~~$3 million from February 28, ~~2022,~~2023, which was primarily due to timing of ~~payments.~~payments of accounts payable.

5545

Cash flows for the ~~six~~three months ended ~~August~~May 31, ~~2022~~2023 compared to the ~~six~~three months ended ~~August~~May 31, ~~2021~~2022 were as follows:


		For the Six Months Ended							For the Three Months Ended
		(in millions)							(in millions)
		August 31, 2022		August 31, 2021		Change			May 31, 2023		May 31, 2022		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	$	(66)	$	(18)	$	(48)	Operating activities	$	99	$	(42)	$	141
Investing activities	Investing activities	117		113		4		Investing activities	(38)		53		(91)
Financing activities	Financing activities	3		5		(2)		Financing activities	2		3		(1)
Effect of foreign exchange loss on cash and cash equivalents	Effect of foreign exchange loss on cash and cash equivalents	(2)		—		(2)		Effect of foreign exchange loss on cash and cash equivalents	—		(1)		1
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	$	52	$	100	$	(48)	Net increase in cash and cash equivalents	$	63	$	13	$	50

Operating Activities

The increase in net cash flows used in operating activities of ~~$48~~$141 million primarily reflects the net changes in working capital.

Investing Activities

During the ~~six~~three months ended ~~August~~May 31, ~~2022,~~2023, cash flows ~~provided by~~used in investing activities were ~~$117~~$38 million and included cash ~~provided by~~used in transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of ~~$120~~$28 million, ~~and proceeds on sale of property, plant and equipment of $17 million, offset by cash used in the~~ acquisition of intangible assets of ~~$16~~$8 million, and the acquisition of property, plant and equipment of $4$2 million. For the same period in the prior fiscal year, 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 intangible assets of ~~$14~~$8 million, and the acquisitions of property, plant and equipment of $4$1 million.

Financing Activities

The decrease in cash flows provided by financing activities ~~of $2~~was $1 million for the first ~~six~~three months of fiscal ~~2023 was primarily~~2024 due to a decrease in common shares issued upon the exercise of stock ~~options.~~options and under the employee share purchase plan.

Debenture Financing and Other Funding Sources

See Note 5 to the Consolidated Financial Statements for a description of the ~~1.75%~~ Debentures.

The Company has $26 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business. See Note 2 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.

Cash, cash equivalents, and investments were approximately ~~$699~~$578 million as at ~~August~~May 31, ~~2022.~~2023. 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~~The Company has experienced recent operating losses and the Debentures will mature on November 13, 2023, as described in Note 5, but the Company has the ability and intent to access other potential financing arrangements on commercially reasonable terms. Taking these factors into account and 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 ~~August~~May 31, ~~2022:~~2023:

(in millions)
Total Short-term (next 12 months) Long-term (>12 months)
Operating lease obligations $ 86 $ 28 $ 58
Purchase obligations and commitments 125 113 12
Litigation settlement 164 164 —
Debt interest and principal payments 374 6 368
Total $ 749 $ 311 $ 438


	(in millions)
	Total		Short-term (next 12 months)		Long-term (>12 months)
Operating lease obligations	$	81	$	25	$	56
Purchase obligations and commitments	92		92		—
Debt interest and principal payments	369		369		—
Total	$	542	$	486	$	56

Total contractual and other obligations as at ~~August~~May 31, ~~2022 increased~~2023 decreased by approximately ~~$146~~$14 million as compared to the February 28, ~~2022~~2023 balance of approximately ~~$603~~$556 million, which was attributable to ~~a litigation settlement, partially offset by a decrease~~decreases in ~~operation lease obligations.~~purchase obligations and commitments.

The Company does not have any material off-balance sheet 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.~~&A, other than those noted in Note 1 to the Consolidated Financial Statements.

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 ~~second~~first quarter of fiscal ~~2023~~2024 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 ~~August~~May 31, ~~2022,~~2023, approximately ~~11%~~21% of cash and cash equivalents, ~~19%~~35% of accounts receivables and ~~43%~~38% of accounts payable were denominated in foreign currencies (February 28, ~~2022~~2023 – ~~37%~~19%, ~~23%~~24% and ~~30%~~36%, 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 ~~August~~May 31, ~~2022~~2023 (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 5 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 ~~August~~May 31, ~~2022~~2023 was $4$6 million (February 28, ~~2022~~2023 - $4$1 million). There was noone customer that comprised more than 10% of accounts receivable as at ~~August~~May 31, ~~2022~~2023 (February 28, ~~2022~~2023 - ~~no customer~~two customers that comprised more than 10%). During the ~~second~~first quarter of fiscal ~~2023,~~2024, the percentage of the Company’s receivable balance that was past due ~~increased~~decreased by ~~6.0%~~0.9% compared to the fourth quarter of fiscal ~~2022.~~2023. 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 ~~16% and 15%~~58% of the Company’s revenue in the three ~~and six~~ months ended ~~August~~May 31, ~~2022~~2023 due to the completed Malikie Transaction (three ~~and six~~ months ended ~~August~~May 31, ~~2021~~2022 - one customer that comprised ~~12% and no customer that comprised more than 10%~~15% 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.

See Note 11 to the Consolidated Financial Statements for additional information regarding the Company’s credit risk as it pertains to its foreign exchange derivative counterparties.

ITEM 4. CONTROLS AND PROCEDURES

As of ~~August~~May 31, ~~2022,~~2023, 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 ~~August~~May 31, ~~2022,~~2023, 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 9 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





31.1*						Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a)
31.2*						Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a)
32.1†						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2†						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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
104*						Cover Page Interactive Data File – formatted as Inline XBRL and contained in Exhibit 101

* Filed herewith

† Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of the SEC’s Regulation S-K

5849

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 28, 2022~~June 29, 2023	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)

5950


	Three Months Ended August 31, 2022
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total
Balance as at May 31, 2022	$	2,880	$	(1,475)	$	(20)	$	1,385
Net loss	—		(54)		—		(54)
Other comprehensive loss	—		—		(8)		(8)

Stock-based compensation	7		—		—		7




Balance as at August 31, 2022	$	2,887	$	(1,529)	$	(28)	$	1,330


	Six Months Ended August 31, 2022
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total























Balance as at February 28, 2022	$	2,869	$	(1,294)	$	(19)	$	1,556
Net loss	—		(235)		—		(235)
Other comprehensive loss	—		—		(9)		(9)

Stock-based compensation (note 6)	15		—		—		15
Shares issued:


Employee share purchase plan (note 6)	3		—		—		3
Balance as at August 31, 2022	$	2,887	$	(1,529)	$	(28)	$	1,330


	Six Months Ended August 31, 2021
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total























Balance as at February 28, 2021	$	2,823	$	(1,306)	$	(13)	$	1,504
Net loss	—		(206)		—		(206)
Other comprehensive loss	—		—		(2)		(2)

Stock-based compensation	17		—		—		17
Shares issued:
Exercise of stock options	2		—		—		2

Employee share purchase plan	3		—		—		3
Balance as at August 31, 2021	$	2,845	$	(1,512)	$	(15)	$	1,318


	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	326		283		11
Decrease due to payment, fulfillment of performance obligations, or other	(364)		(318)		(11)

Decrease, net	(38)		(35)		—
Closing balance as at August 31, 2022	$	100	$	209	$	16


For the Six Months Ended (in millions)	August 31, 2022			August 31, 2021




Gross margin	$	210		$	226



Stock compensation expense	2			2
Adjusted gross margin	$	212		$	228

Gross margin %	62.5		%	64.8		%



Stock compensation expense	0.6		%	0.5		%
Adjusted gross margin %	63.1		%	65.3		%


	For the Six Months Ended
	(in millions, except for share and per share amounts)
	August 31, 2022		August 31, 2021	Change
Revenue	$	336		$	349	$	(13)
Gross margin	210			226		(16)
Operating expenses	434			425		9
Investment loss, net	(3)			(3)		—
Loss before income taxes	(227)			(202)		(25)
Provision for income taxes	8			4		4


Net loss	$	(235)		$	(206)	$	(29)
Loss per share - reported
Basic	$	(0.41)		$	(0.36)	$	(0.05)
Diluted	$	(0.45)		$	(0.36)	$	(0.09)

Weighted-average number of shares outstanding (000’s)
Basic (1)	577,097			567,724
Diluted (2)	637,930			567,724


	(in millions)

	Total		Short-term (next 12 months)		Long-term (>12 months)
Operating lease obligations	$	86	$	28	$	58
Purchase obligations and commitments	125		113		12
Litigation settlement	164		164		—
Debt interest and principal payments	374		6		368
Total	$	749	$	311	$	438