What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-12-18 compared with 2020-09-24 · 262 added, 251 removed, 633 unchanged (45% of the section changed)

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 31, 2020, included in Part I, Item 1 of this 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 29, 2020 (the “Annual MD&A”).

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 nine months ended November 30, 2020, included in Part I, Item 1 of this 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 29, 2020 (the “Annual MD&A”).

The Consolidated Financial Statements are presented in U.S.

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• 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 - COVID-19”, “Results of Operations - Three months ended August 31, 2020 compared to the three months ended August 31, 2019 - Revenue - Revenue by Product and Service”, “Financial Condition - Debenture Financing and Other Funding Sources”, and in Part III of this Form 10-Q “Quantitative and Qualitative Disclosures About Market Risk - Credit and Customer Concentration”.

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 - Software and Services - BlackBerry IoT Solutions”, “Business Overview - COVID-19”, “Non-GAAP Financial Measures - Key Metrics”, “Results of Operations - Three months ended November 30, 2020 compared to the three months ended November 30, 2019 - Revenue - Revenue by Product and Service”, “Financial Condition - Debenture Financing and Other Funding Sources”, and in Part III of this Form 10-Q “Quantitative and Qualitative Disclosures About Market Risk - Credit and Customer Concentration”.

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 particularly in light of COVID-19, competition, and the Company’s expectations regarding its financial performance.

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Based in Waterloo, Ontario, the Company leverages artificial intelligence 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 management, encryption, and embedded systems.

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, secure and manage every endpoint in the Internet of Things (IoT).

The Company is widely recognized for its intelligent security software and services, and believes that it delivers the broadest set of security capabilities to connect, secure and manage endpoints in the Internet of Things (IoT).

The Company leverages its extensive technology portfolio to offer best-in-class security, safety and reliability to enterprise customers in growing segments of the IoT, cybersecurity, connected transportation, healthcare, financial services and government markets.

The Company’s goal is to remain a leader in regulated industries and other core verticals by continuing to extend the functionality of its secure BlackBerry Spark® software platform through organic investments and strategic acquisitions and partnerships.

The Company intends to drive revenue growth and to achieve adjusted margins that are consistent with those of other enterprise software companies over the long term.

The Company’s go-to-market strategy focuses principally on generating revenue from enterprise software, services and licensing.

The Company intends to drive revenue growth and to achieve adjusted margins that are generally consistent with those of other enterprise software companies over the long term.

The Company’s go-to-market strategy focuses principally on generating revenue from enterprise software and services, and licensing.

The Company continues to build its channel partner and developer programs to bolster its direct sales and marketing efforts and promote the growth of an IoT ecosystem.

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BlackBerry Spark

The Company’s core software and services offering is its secure BlackBerry Spark software platform that comprises continuous authentication, endpoint protection platform (“EPP”), endpoint detection and response (“EDR”), and mobile threat defense (“MTD”) capabilities.

The Company’s core software and services offering is its secure BlackBerry Spark software platform that comprises endpoint protection platform (“EPP”), endpoint detection and response (“EDR”), mobile threat defense (“MTD”), and user and entity behavior analytics (“UEBA”) capabilities.

BlackBerry Spark includes a unified endpoint security (“UES”) layer which integrates with BlackBerry unified endpoint management (“UEM”) to enable secure endpoint communications in a zero trust environment.

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The Company is currently executing on a robust schedule of product launches for BlackBerry Spark to deliver a comprehensive security approach operating on one agent across all endpoints, administered from one console, leveraging one crowd-sourced threat data repository and managed in one cloud environment.

The BlackBerry Spark platform is a comprehensive offering of security software products and services, including the BlackBerry Spark® Unified Endpoint Security Suite, BlackBerry® UEM, BlackBerry® Dynamics™ and BlackBerry® Workspaces.

These solutions are offered primarily through BlackBerry Spark® Suites, a range of tailored cybersecurity and endpoint management options.

The BlackBerry Spark UES Suite offers leading AI and machine learning-based cybersecurity solutions, including:

BlackBerry® Protect, an EPP solution that uses machine learning to prevent suspicious behavior and the execution of malicious code on an endpoint;

The BlackBerry Spark platform is a comprehensive offering of security software products and services, including the BlackBerry® Cyber Suite and the BlackBerry Spark® UEM 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 Cyber Suite offers leading AI and machine learning-based cybersecurity solutions, including:

BlackBerry® Protect, an EPP and available MTD solution that uses machine learning to prevent suspicious behavior and the execution of malicious code on an endpoint;

BlackBerry® Optics, an EDR solution that provides both visibility into and prevention of malicious activity on an endpoint;

and BlackBerry® Guard, a managed detection and response solution that provides continuous threat hunting and monitoring.

BlackBerry® Guard, a managed detection and response solution that provides continuous threat hunting and monitoring;

and BlackBerry® Persona, a UEBA solution that provides continuous authentication by validating user identity in real time.

The Company also offers incident response, compromised assessment and containment services to assist clients with forensic analysis, state of existing systems and remediation of attacks.

The BlackBerry Spark® UEM Suite includes the Company’s BlackBerry® UEM, BlackBerry® Dynamics™ and BlackBerry® Workspaces solutions.

BlackBerry UEM is a central software component of the Company’s secure communications platform, offering a “single pane of glass”, or unified console view, for managing and securing devices, applications, identity, content and endpoints across all leading operating systems.

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BlackBerry IoT Solutions

The BlackBerry IoT Solutions business consists of BlackBerry Technology Solutions (“BTS”), BlackBerry® AtHoc® and SecuSUITE.

The BlackBerry IoT Solutions business consists of BlackBerry Technology Solutions (“BTS”) and Secure Communications.

The principal component of BTS is BlackBerry QNX, a global provider of real-time operating systems, middleware, development tools, and professional services for connected embedded systems in the automotive, medical, industrial automation and other markets.

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Additionally, the Company’s secure automotive over-the-air software update management service allows OEMs to manage the life cycle of the software and security in their vehicles.

The Company is developing a concept system to integrate BlackBerry Spark capabilities, including AI and machine learning technologies, with BlackBerry QNX automotive solutions.

The Company recently announced that it has entered into an agreement with Amazon Web Services, Inc.

(“AWS”) to develop and market BlackBerry IVY, an intelligent vehicle data platform leveraging BlackBerry QNX’s automotive capabilities.

The Company expects that BlackBerry IVY will generate recurring revenue beginning with 2023 model year vehicles, which would launch in the Company’s fiscal 2023 fiscal year, and will greatly increase BTS revenue over time thereafter.

The Company is also developing a concept system to integrate BlackBerry Spark capabilities, including AI and machine learning technologies, with BlackBerry QNX automotive solutions.

In addition to BlackBerry QNX, BTS includes the BlackBerry Radar® asset tracking solution, BlackBerry Certicom® cryptography and key management products, and BlackBerry Messenger (BBM®) Enterprise service.

Secure Communications consists of BlackBerry® AtHoc® and SecuSUITE.

BlackBerry AtHoc is a secure critical event management platform that enables people, devices and organizations to exchange critical information in real time during business continuity and life safety operations.

The platform securely connects 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 earned Federal Risk and Authorization Management Program (“FedRAMP”) authorization in fiscal 2018 and helps to protect more than 70% of U.S.

BlackBerry AtHoc has earned Federal Risk and Authorization Management Program (“FedRAMP”) authorization and helps to protect more than 70% of U.S.

government personnel.

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Products and Innovation:

• Announced an agreement with AWS to develop and market the new BlackBerry IVY intelligent vehicle data platform;

• Launched BlackBerry Spark Suites, offering enterprises a range of tailored cybersecurity and endpoint management options to help protect data, minimize risk, and reduce cost and complexity;

• Launched BlackBerry Cyber Suite, the industry’s first comprehensive AI-powered UES solution;

• Announced that an independent Frost & Sullivan study reported that the Company’s solutions can secure all IoT endpoints against upwards of 96% of all cyberthreats;

• Announced that BlackBerry QNX software is embedded in more than 175 million cars on the road;

• Launched Zoom™ for BlackBerry®, a secure, containerized version of the Zoom app enabled by BlackBerry Dynamics;

• Launched BlackBerry Persona, the industry’s first UEBA solution using AI technology for continuous authentication;

• Launched BlackBerry Protect® Mobile, an MTD solution to protect against mobile malware and phishing attacks;

• Announced that BlackBerry UEM has achieved National Security Agency (NSA) Commercial Solutions for Classified Program (CSfC) approval;

• Announced that BlackBerry UEM achieved National Information Assurance Partnership (NIAP) and U.S.

Department of Defense Information Network (DoDIN) approvals;

• Launched QNX® OS for Safety 2.2 and announced its certification by TÜV Rheinland to IEC 61508 SIL3 (industrial), ISO 26262 ASIL D (automotive), and IEC 62304 Class C (medical devices) functional safety standards;

• Announced that BlackBerry® UES was validated by MITRE ATT&CK APT29, which examines the ability to detect sophisticated tactics and techniques used by APT29, a group that cybersecurity experts believe operates on behalf of the Russian government;

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• Announced the launch of BlackBerry AtHoc Public Safety Edition to support local governments and universities with critical event management programs;

• Announced the integration of BlackBerry AtHoc with Microsoft Teams;

• Announced dedicated European Union market version of the BlackBerry AtHoc service to comply with data residency mandates;

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• Launched QNX Black Channel Communications Technology, a new software solution that OEMs and embedded software developers can use to ensure safe data communication exchanges within their safety-critical systems;

• Released new research that examines how five related Chinese Advanced Persistent Threat (APT) groups have compromised Linux servers, Windows systems and mobile Android devices for nearly a decade;

• Released proprietary research uncovering attacks by BAHAMUT, a massive hack-for-hire group targeting governments, businesses, human rights groups and influential individuals;

• Released new research that examines how five related Chinese Advanced Persistent Threat groups have compromised Linux servers, Windows systems and mobile Android devices for nearly a decade;

• Announced feature updates to its SecuSUITE for Government and BlackBerry AtHoc solutions;

Customers and Partners:

• Partnered with Bell to become Bell’s preferred mobile threat defense solution provider, delivering BlackBerry Protect to Canadian enterprise customers;

• Partnered with Bell to become Bell’s preferred MTD solution provider, delivering BlackBerry Protect to Canadian enterprise customers;

• Announced expanded partnerships with Vodafone and TELUS to offer BlackBerry AtHoc as their secure critical event management and crisis communications solution;

• Launched the BlackBerry Partner Program to unify the BlackBerry Enterprise Partner Program and BlackBerry Cylance Partner Programs into one comprehensive structure;

• Announced that the BlackBerry Enterprise Partner Program and the BlackBerry Cylance Partner Program both received a 5-Star rating from CRN for the fourth consecutive year;

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federal government;

• Announced the integration of the BlackBerry AtHoc service with ServiceNow’s Now platform for rapid crisis communications and IT service management;

• Announced that the German Development Agency chose BlackBerry AtHoc as its emergency mass notification system;

• Announced that Plus has selected BlackBerry QNX technology for the global commercial deployment of their automated driving system for Class 8 trucks;

• Announced that BlackBerry QNX technology will power the innovative digital cockpit in ARCFOX αT, a high-end, intelligent, electric SUV;

• Announced that StradVision will utilize the QNX® Software Development Platform within a number of next generation advanced driver assistance systems (ADAS) and autonomous vehicles from South Korean automakers;

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On September 1, 2020, the Company redeemed its outstanding 3.75% unsecured convertible debentures (the “3.75% Debentures”) for a redemption amount of approximately $615 million (the “Redemption Amount”), which settled all outstanding obligations of the Company in respect of the 3.75% Debentures.

On September 1, 2020, the Company issued an aggregate of $365 million principal amount of new 1.75% unsecured convertible debentures maturing on November 13, 2023 (the “1.75% Debentures” and collectively with the 3.75% Debentures, the “Debentures”) to Hamblin Watsa Investment Counsel Ltd., in its capacity as investment manager of Fairfax Financial Holdings Limited ("Fairfax") and another institutional investor on a private placement basis.

Fairfax agreed to acquire $330 million principal amount of the 1.75% Debentures and receives interest at the same rate as the other holder of the 1.75% Debentures.

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Quarterly and annual interest expense on the 1.75% Debentures will be approximately $2 million and $6 million, respectively.

In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) as a global pandemic and extraordinary actions have been taken by international, federal, state, provincial and local governmental authorities to contain and combat the spread of COVID-19 in regions throughout the world.

The COVID-19 outbreak and related public health measures, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, consumers, economies, and financial markets globally, leading to an economic downturn and increased market volatility.

In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) as a pandemic and extraordinary actions have been taken by international, federal, state, provincial and local governmental authorities to contain and combat the spread of COVID-19 in regions throughout the world.

The COVID-19 outbreak and related public health measures, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, consumers and economies leading to an economic downturn and increased market volatility.

The pandemic has also disrupted the normal operations of the Company and the businesses of many of the Company’s customers, suppliers and distribution partners.

To protect the health and safety of the Company’s employees, contractors, customers and visitors, the Company responded rapidly to COVID-19 by proactively mandating remote working, utilizing virtual meetings and suspending employee travel.

All of the Company’s currently planned customer, industry and other stakeholder events have been shifted to virtual-only experiences, and the Company may deem it advisable to similarly alter, postpone, or cancel entirely, additional events in the future.

All of the Company’s recent and planned customer, industry and other stakeholder events have shifted to virtual-only experiences, and the Company may deem it advisable to similarly alter, postpone, or cancel entirely, additional events in the future.

To the extent that public health protocols have accommodated returning to work at certain of the Company’s facilities, the Company has implemented additional safety measures at its facilities, including increased frequency in cleaning and disinfecting as well as hygiene and social distancing practices.

The Company has a limited history of having a remote workforce and the long-term impact on, and the resulting types of continuing investments for, the Company’s employee base is uncertain.

The Company has a limited history of having a remote

workforce and the long-term impact on, and the resulting types of continuing investments for, the Company’s employee base is uncertain.

In response to certain anticipated and ongoing impacts from the COVID-19 pandemic, the Company has also implemented a series of temporary cost reduction measures to further preserve financial flexibility.

These actions include the postponement of certain discretionary spending and capital expenditures, taking advantage of the broad-based employer relief provided by governments in Canada, the United States and other jurisdictions, temporarily suspending certain company matching contributions to employee retirement savings plans and deferring increases in the base salaries of many employees and executives.

The economic downturn and uncertainty caused by the COVID-19 outbreak and the measures undertaken to contain its spread are expected to continue to negatively affect the Company’s QNX automotive software business and have caused volatility in demand for the Company’s products and services, adversely affected the ability of the Company’s sales and professional services teams to meet with customers and provide service, negatively impacted expected spending from new customers and increased sales cycle times.

Although the Company experienced sequential revenue growth and observed a partial recovery in global automotive production volumes in the second quarter of fiscal 2021, the Company believes that the COVID-19 pandemic has had and may continue to have a material adverse impact on the Company’s consolidated business, results of operations and financial condition in fiscal 2021.

These actions include the postponement of certain discretionary spending, taking advantage of the broad-based employer relief provided by governments in Canada, the United States and other jurisdictions, temporarily suspending certain company matching contributions to employee retirement savings plans and deferring increases in the base salaries of many employees and executives.

These cost reduction measures and their estimated savings for the nine months ended November 30, 2020 included measures impacting employee salaries and benefits of approximately $12 million, a reduction in travel spending of approximately $13 million, and a reduction in discretionary selling and administrative expenses relating to marketing and facilities of $14 million.

In addition, the Company has recorded approximately $37 million in offsets to salaries for amounts under the CEWS and has deferred approximately $6 million of payments related to payroll taxes in the United States under the U.S.

CARES Act, which amounts have been accrued.

The economic downturn and uncertainty caused by the COVID-19 outbreak and the measures undertaken to contain its spread are expected to continue to negatively affect the Company’s QNX automotive software business until early in fiscal 2022 and have caused volatility in demand for the Company’s products and services, adversely affected the ability of the Company’s sales and professional services teams to meet with customers and provide service, negatively impacted expected spending from new customers and increased sales cycle times.

Although the Company experienced sequential Software & Services revenue growth and observed a partial recovery in global automotive production volumes in the second and third quarter of fiscal 2021, the COVID-19 pandemic has had and the Company believes may continue to have a material adverse impact on the Company’s consolidated business, results of operations and financial condition in fiscal 2021.

The Company does not expect the COVID-19 pandemic and its related economic impact to materially adversely affect its liquidity position.

The ultimate impact of the COVID-19 pandemic will depend on, among other things, the duration and severity of the pandemic, the governmental restrictions that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, and global economic conditions.

In light of the changing nature of the COVID-19 pandemic and uncertainty regarding the duration, severity, and possible resurgence of the pandemic and government actions in response thereto, the long-term impact on the Company’s business may not be fully reflected until future periods.

The Company continues to evaluate the current and potential impact of the COVID-19 outbreak on its business, results of operations and consolidated financial statements, including the impairment of goodwill, indefinite-lived intangible assets and

long-lived assets and the collectability of receivables.

In light of the changing nature of the COVID-19 pandemic and uncertainty regarding the duration, severity, and recent resurgence of the pandemic and government actions in response thereto, the long-term impact on the Company’s business may not be fully reflected until future periods.

The Company continues to evaluate the current and potential impact of the COVID-19 pandemic on its business, results of operations and consolidated financial statements, including the impairment of goodwill, indefinite-lived intangible assets and long-lived assets and the collectability of receivables.

The Company also continues to actively monitor developments and business conditions that may cause it to take further actions that alter business operations as may be required by applicable authorities or that the Company determines are in the best interests of its employees, customers, suppliers and stockholders.

Second Quarter Fiscal 2021 Summary Results of Operations

The following table sets forth certain unaudited consolidated statements of operations data for the quarter ended August 31, 2020 compared to the quarter ended August 31, 2019 under U.S.

Third Quarter Fiscal 2021 Summary Results of Operations

The following table sets forth certain unaudited consolidated statements of operations data for the quarter ended November 30, 2020 compared to the quarter ended November 30, 2019 under U.S.

For the Three Months Ended

(in millions, except for share and per share amounts)

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Revenue $ 218 $ 267 $ (49)

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(1) Basic loss per share on a U.S.

GAAP basis for second quarter of fiscal 2021 includes 2,802,067 common shares remaining to be issued in equal installments on the next two anniversary dates of the Cylance acquisition, in consideration for the acquisition.

GAAP basis for third quarter of fiscal 2021 includes 2,802,067 common shares remaining to be issued in equal installments on the next two anniversary dates of the Cylance acquisition, in consideration for the acquisition.

Basic loss per share on a U.S.

GAAP basis for the second quarter of fiscal 2020 includes 4,182,189 common shares to be issued in equal installments on the three anniversary dates of the Cylance acquisition, in consideration for the acquisition.

GAAP basis for the third quarter of fiscal 2020 includes 4,182,189 common shares to be issued in equal installments on the three anniversary dates of the Cylance acquisition, in consideration for the acquisition.

There are no service or other requirements associated with the issuance of these shares.

(2) Diluted loss per share on a U.S.

GAAP basis for the second quarter of fiscal 2021 does not include the dilutive effect of the 3.75% Debentures as to do so would be anti-dilutive.

GAAP basis for the third quarter of fiscal 2021 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive.

Diluted loss per share on a U.S.

GAAP basis for the second quarter of fiscal 2021 and 2020 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

GAAP basis for the third quarter of fiscal 2021 and 2020 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

See Note 8 to the Consolidated Financial Statements for the Company’s calculation of the diluted weighted average number of shares outstanding.

Financial Highlights

The Company had approximately $977 million in cash, cash equivalents and investments as of August 31, 2020 and $990 million in cash, cash equivalents and investments as of February 29, 2020.

In the second quarter of fiscal 2021, the Company recognized revenue of $259 million and incurred a net loss of $23 million, or $0.04 basic and diluted loss per share on a U.S.

In the second quarter of fiscal 2020, the Company recognized revenue of $244 million and incurred a net loss of $44 million, or $0.08 basic and $0.10 diluted loss per share on a U.S.

The Company recognized adjusted revenue of $266 million and adjusted net income of $62 million, and adjusted earnings of $0.11 per share, in the second quarter of fiscal 2021.

The Company recognized adjusted revenue of $261 million and adjusted net income of $1 million, and adjusted earnings of nil per share, in the second quarter of fiscal 2020.

The Company had approximately $757 million in cash, cash equivalents and investments as of November 30, 2020 and $990 million in cash, cash equivalents and investments as of February 29, 2020.

In the third quarter of fiscal 2021, the Company recognized revenue of $218 million and incurred a net loss of $130 million, or $0.23 basic and diluted loss per share on a U.S.

In the third quarter of fiscal 2020, the Company recognized revenue of $267 million and incurred a net loss of $32 million, or $0.06 basic and $0.07 diluted loss per share on a U.S.

The Company recognized adjusted revenue of $224 million and adjusted net income of $11 million, and adjusted earnings of $0.02 per share, in the third quarter of fiscal 2021.

The Company recognized adjusted revenue of $280 million and adjusted net income of $17 million, and adjusted earnings of $0.03 per share, in the third quarter of fiscal 2020.

See “Non-GAAP Financial Measures” below.

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The fair value adjustment does not impact the terms of the Debentures such as the face value, the redemption features or the conversion price.

The fair value as at August 31, 2020

was determined to be the Redemption Amount established in connection with the announced redemption of the 3.75% Debentures, as described above in “Business Overview - Debt Redemption and New Issuance”.

In the second quarter of fiscal 2021, the fair value of the 3.75% Debentures increased by approximately $11 million.

For the three months ended August 31, 2020, the Company recorded non-cash income relating to changes in fair value from instrument specific credit risk of $7 million in Other Comprehensive Income (Loss) (“OCI”) and a non-cash charge relating to changes in fair value from non-credit components of $18 million (pre-tax and after tax) (the “Q2 Fiscal 2021 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

For the six months ended August 31, 2020, the Company recorded non-cash income relating to changes in fair value from instrument specific credit risk of $15 million in OCI and a non-cash charge relating to changes in fair value from non-credit components of $19 million (pre-tax and after tax) (the “Fiscal 2021 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

As at November 30, 2020, the fair value of the 1.75% Debentures was approximately $459 million versus the principal value of $365 million, an increase of approximately $94 million during the third quarter of fiscal 2021.

For the three months ended November 30, 2020, the Company recorded non-cash income relating to changes in fair value from instrument specific credit risk of $1 million in Other Comprehensive Income (Loss) (“OCI”) and a non-cash charge relating to changes in fair value from

non-credit components of $95 million (pre-tax and after tax) (the “Q3 Fiscal 2021 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations relating to the Debentures.

For the nine months ended November 30, 2020, the Company recorded non-cash income relating to changes in fair value from instrument specific credit risk of $16 million in OCI and a non-cash charge relating to changes in fair value from non-credit components of $114 million (pre-tax and after tax) (the “Fiscal 2021 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations relating to the Debentures.

See Note 6 to the Consolidated Financial Statements for further details on the Debentures.

The following table shows the impact of the changes in fair value of the Debentures for the three and nine months ended November 30, 2020:

Three Months Ended Nine Months Ended

November 30, 2020 November 30, 2020

Income associated with the change in fair value from instrument-specific credit components on the 3.75% Debentures recorded in accumulated other comprehensive loss (“AOCL”) $ — $ 15

Realized charges associated with the change in fair value from credit components released from AOCL on redemption of the 3.75% Debentures 6 6

Charge associated with the change in fair value from instrument-specific credit components on the 1.75% Debentures recorded in OCI (5) (5)

Total non-cash income recorded in OCI.

Three Months Ended Nine Months Ended

November 30, 2020 November 30, 2020

Charge associated with the change in fair value from non-credit components on the 3.75% Debentures recorded in the consolidated statements of operations $ — $ (19)

Realized charges associated with the change in fair value from credit components recorded in the consolidated statements of operations on redemption of the 3.75% Debentures (6) (6)

Charge associated with the change in fair value from non-credit components on the 1.75% Debentures recorded in the consolidated statements of operations (89) (89)

Total non-cash charge recorded in the consolidated statements of operations $ (95) $ (114)

Non-GAAP Financial Measures

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GAAP, and information contained in this MD&A is presented on that basis.

On September 24, 2020, the Company announced financial results for the three and six months ended August 31, 2020, which included certain non-GAAP financial measures, including adjusted revenue, adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage, adjusted EBITDA margin percentage, adjusted net income (loss), adjusted income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense and free cash flow.

On December 17, 2020, the Company announced financial results for the three and nine months ended November 30, 2020, which included certain non-GAAP financial measures, including adjusted revenue, adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage, adjusted EBITDA margin percentage, adjusted net income (loss), adjusted income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense and free cash flow.

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.

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• Debentures fair value adjustment .

The Company has elected to measure its outstanding 3.75% Debentures at fair value in accordance with the fair value option under U.S.

The Company has elected to measure its Debentures outstanding from time to time at fair value in accordance with the fair value option under U.S.

Each period, the fair value of the Debentures is recalculated and resulting non-cash income and charges from the change in fair value from non-credit components of the Debentures are recognized in income.

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• Restructuring charges .

The Company believes that restructuring costs relating to employee termination benefits, facilities, and manufacturing network simplification efforts pursuant to the Resource Allocation Program (“RAP”) entered into in order to transition the Company from a legacy hardware manufacturer to a licensing driven software business do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful in comparison to the Company’s past operating performance.

The Company believes that restructuring costs relating to employee termination benefits and facilities pursuant to the Resource Allocation Program (“RAP”) entered into in order to transition the Company from a legacy hardware manufacturer to a licensing driven software business do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful in comparison to the Company’s past operating performance.

• Software deferred revenue acquired.

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Reconciliation of non-GAAP based measures with most directly comparable U.S.

GAAP based measures for the three months ended August 31, 2020 and August 31, 2019

GAAP based measures for the three months ended November 30, 2020 and November 30, 2019

Readers are cautioned that adjusted revenue, adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage, adjusted EBITDA margin percentage, adjusted net income (loss), adjusted income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense and free cash flow and similar measures do not have any standardized meaning prescribed by U.S.

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A reconciliation of the most directly comparable U.S.

GAAP financial measures for the three months ended August 31, 2020 and August 31, 2019 to adjusted financial measures is reflected in the tables below:

For the Three Months Ended (in millions) August 31, 2020 August 31, 2019

GAAP financial measures for the three months ended November 30, 2020 and November 30, 2019 to adjusted financial measures is reflected in the tables below:

For the Three Months Ended (in millions) November 30, 2020 November 30, 2019

Revenue $ 218 $ 267

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GAAP Software and Services revenue to adjusted Software and Services revenue

Reconciliation of operating expense for the three months ended August 31, 2020, May 31, 2020 and August 31, 2019 to adjusted operating expense is reflected in the tables below:

For the Three Months Ended (in millions) August 31, 2020 May 31, 2020 August 31, 2019

Reconciliation of operating expense for the three months ended November 30, 2020, August 31, 2020 and November 30, 2019 to adjusted operating expense is reflected in the tables below:

For the Three Months Ended (in millions) November 30, 2020 August 31, 2020 November 30, 2019

Operating expense $ 276 $ 221 $ 227

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Acquired intangibles amortization 32 32 35

Business acquisition and integration costs — — 2

Goodwill impairment charge — 594 —

LLA impairment charge — 21 3

1 unchanged sentence

______________________________

(1) See “Second Quarter Fiscal 2021 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”

(1) See “Third Quarter Fiscal 2021 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 31, 2020 and August 31, 2019 to adjusted net income and adjusted basic earnings per share is reflected in the tables below:

For the Three Months Ended (in millions, except per share amounts) August 31, 2020 August 31, 2019

GAAP basic loss per share for the three months ended November 30, 2020 and November 30, 2019 to adjusted net income and adjusted basic earnings per share is reflected in the tables below:

For the Three Months Ended (in millions, except per share amounts) November 30, 2020 November 30, 2019

Basic earnings (loss) per share Basic earnings (loss) per share

6 unchanged sentences

Acquired intangibles amortization 32 35

Business acquisition and integration costs — 2

LLA impairment charge — 3

1 unchanged sentence

Reconciliation of U.S.

GAAP Software and Services revenue for the three months ended August 31, 2020 and August 31, 2019 to adjusted Software and Services revenue is reflected in the tables below:

For the Three Months Ended (in millions) August 31, 2020 August 31, 2019

GAAP Software and Services revenue for the three months ended November 30, 2020 and November 30, 2019 to adjusted Software and Services revenue is reflected in the tables below:

For the Three Months Ended (in millions) November 30, 2020 November 30, 2019

Software and Services Revenue $ 162 $ 185

2 unchanged sentences

Reconciliation of U.S.

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended August 31, 2020 and August 31, 2019 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the tables below:

For the Three Months Ended (in millions) August 31, 2020 August 31, 2019

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended November 30, 2020 and November 30, 2019 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the tables below:

For the Three Months Ended (in millions) November 30, 2020 November 30, 2019

Research and development $ 53 $ 66

5 unchanged sentences

Stock compensation expense 8 10

Business acquisition and integration costs — 2

Adjusted selling, marketing and administration $ 79 $ 119

2 unchanged sentences

Adjusted amortization $ 13 $ 14

Adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage and adjusted EBITDA margin percentage for the three months ended August 31, 2020 and August 31, 2019 are reflected in the table below.

For the Three Months Ended (in millions) August 31, 2020 August 31, 2019

Adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage and adjusted EBITDA margin percentage for the three months ended November 30, 2020 and November 30, 2019 are reflected in the table below.

For the Three Months Ended (in millions) November 30, 2020 November 30, 2019

Operating loss $ (127) $ (29)

6 unchanged sentences

Acquired intangibles amortization 32 35

Business acquisition and integration costs — 2

LLA impairment charge — 3

11 unchanged sentences

Reconciliation of non-GAAP based measures with most directly comparable U.S.

GAAP based measures for the six months ended August 31, 2020 and August 31, 2019.

GAAP based measures for the nine months ended November 30, 2020 and November 30, 2019.

A reconciliation of the most directly comparable U.S.

GAAP financial measures for the six months ended August 31, 2020 and August 31, 2019 to adjusted financial measures is reflected in the tables below:

For the six months ended (in millions) August 31, 2020 August 31, 2019

GAAP financial measures for the nine months ended November 30, 2020 and November 30, 2019 to adjusted financial measures is reflected in the tables below:

For the Nine Months Ended (in millions) November 30, 2020 November 30, 2019

Revenue $ 683 $ 758

24 unchanged sentences

GAAP Software and Services revenue to adjusted Software and Service revenue

(2) See “Second Quarter Fiscal 2021 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”

(2) See “Third Quarter Fiscal 2021 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, 2020 and August 31, 2019 to the adjusted net income and adjusted basic earnings per share is reflected in the tables below:

For the six months ended (in millions, except per share amounts) August 31, 2020 August 31, 2019

GAAP basic loss per share for the nine months ended November 30, 2020 and November 30, 2019 to the adjusted net income and adjusted basic earnings per share is reflected in the tables below:

For the Nine Months Ended (in millions, except per share amounts) November 30, 2020 November 30, 2019

Basic earnings (loss) per share Basic earnings (loss) per share

12 unchanged sentences

Reconciliation of U.S.

GAAP Software and Services revenue for the six months ended August 31, 2020 and August 31, 2019 to adjusted Software and Services revenue is reflected in the tables below:

For the six months ended (in millions) August 31, 2020 August 31, 2019

GAAP Software and Services revenue for the nine months ended November 30, 2020 and November 30, 2019 to adjusted Software and Services revenue is reflected in the tables below:

For the Nine Months Ended (in millions) November 30, 2020 November 30, 2019

Software and Services Revenue $ 461 $ 521

2 unchanged sentences

Reconciliation of U.S.

GAAP research and development, selling, marketing and administration, and amortization expense for the six months ended August 31, 2020 and August 31, 2019 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the tables below:

For the six months ended (in millions) August 31, 2020 August 31, 2019

GAAP research and development, selling, marketing and administration, and amortization expense for the nine months ended November 30, 2020 and November 30, 2019 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the tables below:

For the Nine Months Ended (in millions) November 30, 2020 November 30, 2019

Research and development $ 167 $ 199

10 unchanged sentences

Adjusted amortization $ 40 $ 40

Adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage and adjusted EBITDA margin percentage for the six months ended August 31, 2020 and August 31, 2019 are reflected in the table below.

For the six months ended (in millions) August 31, 2020 August 31, 2019

Adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage and adjusted EBITDA margin percentage for the nine months ended November 30, 2020 and November 30, 2019 are reflected in the table below.

For the Nine Months Ended (in millions) November 30, 2020 November 30, 2019

Operating loss $ (794) $ (108)

25 unchanged sentences

The Company considers billings to be a useful metric because billings drive deferred revenue, which is an important indicator of the health and visibility of the business, and represents a significant percentage of future revenue.

Total Company billings increased in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 and compared to the first quarter of fiscal 2021.

Total Software and Services billings increased 23% in the second quarter of fiscal 2021 compared to the first quarter of fiscal 2021.

Total Company billings decreased in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and compared to the second quarter of fiscal 2021.

Recurring Software Product Revenue

2 unchanged sentences

Total software and services revenue is comprised of recurring product revenue, non-recurring product revenue and professional services.

uses recurring software product revenue percentage to provide visibility into the revenue expected to be recognized in the current and future periods.

Total adjusted Software and Services product revenue, excluding professional services, was approximately 90% recurring in the second quarter of fiscal 2021 and greater than 90% recurring in the second quarter of fiscal 2020.

The Company uses recurring software product revenue percentage to provide visibility into the revenue expected to be recognized in the current and future periods.

Total adjusted Software and Services product revenue, excluding professional services, was approximately 83% recurring in the third quarter of fiscal 2021 and decreased from greater than 90% recurring in the third quarter of fiscal 2020 due to product mix.

Annual Recurring Revenue

1 unchanged sentence

The Company uses ARR as an indicator of business momentum for software and services.

Software and Services ARR was approximately $486 million in the second quarter of fiscal 2021.

Software and Services ARR was approximately $475 million in the third quarter of fiscal 2021 and decreased compared to the second quarter of fiscal 2021 primarily due to the impact of COVID-19 on BTS.

The Company expects to see the negative impact of COVID-19 on ARR until early in fiscal 2022, as the Company returns to its normal revenue run rate for BTS.

Dollar-Based Net Retention Rate

2 unchanged sentences

The Company then divides the Current Period ARR by the Prior Period ARR to calculate the DBNRR.

Software and Services DBNRR was 92% in the second quarter of fiscal 2021.

Software and Services DBNRR was 90% in the third quarter of fiscal 2021.

Net Customer Churn Rate

1 unchanged sentence

The Company uses net customer churn rate to evaluate the rate the Company is obtaining new customers to offset customers lost due to account cancellations or non-renewal of subscriptions.

Net customer churn rate was approximately 3% in the second quarter of fiscal 2021.

Net customer churn rate was approximately 1% in the third quarter of fiscal 2021.

Free Cash Flow

4 unchanged sentences

Free cash flow is helpful in understanding the Company’s capital requirements and provides an additional means to reflect the cash flow trends in the Company’s business.

For the three months ended August 31, 2020, the Company’s net cash flow provided by operating activities was $31 million and capital expenditures were $2 million, resulting in the Company reporting free cash flow of $29 million.

Results of Operations - Three months ended August 31, 2020 compared to the three months ended August 31, 2019

For the three months ended November 30, 2020, the Company’s net cash flow provided by operating activities was $29 million and capital expenditures were $2 million, resulting in the Company reporting free cash flow of $27 million.

Results of Operations - Three months ended November 30, 2020 compared to the three months ended November 30, 2019

Revenue by Product and Service

3 unchanged sentences

(in millions)

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Revenue by Product and Service

7 unchanged sentences

Software and Services

Software and Services revenue was $151 million, or 58.3% of revenue, in the second quarter of fiscal 2021, a decrease of $17 million compared to $168 million, or 68.9% of revenue, in the second quarter of fiscal 2020.

The decrease in Software and Services revenue of $17 million was primarily due to a decrease of $21 million in recurring royalties in BlackBerry QNX, due to the slowdown in the automotive market related to the COVID-19 pandemic and the conversion in the prior fiscal year of certain existing royalty-bearing licenses to fixed pricing from volume-based pricing, a decrease of $4 million in renewal billings in BlackBerry AtHoc, a decrease of $4 million relating to professional services and a decrease of $4 million relating to non-automotive OEM business, partially offset by an increase of $15 million related to sales of products and services in BlackBerry Spark.

Adjusted Software and Services revenue was $158 million in the second quarter of fiscal 2021, a decrease of $27 million compared to $185 million in the second quarter of fiscal 2020.

Software and Services revenue was $162 million, or 74.3% of revenue, in the third quarter of fiscal 2021, a decrease of $23 million compared to $185 million, or 69.3% of revenue, in the third quarter of fiscal 2020.

The decrease in Software and Services revenue of $23 million was primarily due to a decrease of $29 million in recurring royalties in BlackBerry QNX, due to the slowdown in the automotive market related to the COVID-19 pandemic and the conversion in the prior fiscal year of certain existing royalty-bearing licenses to fixed pricing from volume-based pricing, a decrease of $5 million relating to professional services and a decrease of $3 million relating to non-automotive OEM business, partially offset by an increase of $14 million related to hardware sales in Secusmart and an increase of $5 million related to product revenue in BlackBerry Spark.

Adjusted Software and Services revenue was $168 million in the third quarter of fiscal 2021, a decrease of $30 million compared to $198 million in the third quarter of fiscal 2020.

Adjusted Software and Services revenue decreased due to the reasons described above on a U.S.

GAAP basis and due to a decrease of $10 million in the non-GAAP adjustment of deferred software revenue acquired to $7 million in the second quarter of fiscal 2021 from $17 million in the second quarter of fiscal 2020.

The Company expects Software and Services, excluding BTS, to have a slight U.S.

GAAP and adjusted revenue growth in the second half of fiscal 2021.

The Company expects sequential BTS revenue growth in the third quarter and fourth quarter of fiscal 2021, returning to a revenue run rate of approximately $50 million per quarter in early fiscal 2022.

GAAP basis and due to a decrease of $7 million in the non-GAAP adjustment of deferred software revenue acquired to $6 million in the third quarter of fiscal 2021 from $13 million in the third quarter of fiscal 2020.

The Company expects Software and Services to have sequential non-GAAP revenue growth in the fourth quarter of fiscal 2021.

The Company previously stated that it expected sequential BTS revenue growth in the third quarter of fiscal 2021.

BTS revenue grew sequentially in the third quarter of fiscal 2021.

Licensing and Other

Licensing and Other revenue was $108 million, or 41.7% of revenue, in the second quarter of fiscal 2021, an increase of $32 million compared to $76 million, or 31.1% of revenue, in the second quarter of fiscal 2020.

The increase in Licensing and Other revenue of $32 million was primarily due to an increase in revenue from the Company’s patent licensing agreement with Teletry, partially offset by a decrease in direct licensing arrangements.

SAF revenue, which is generated from users of BlackBerry 7 and prior BlackBerry operating systems, also decreased by $2 million, primarily due to a lower number of BlackBerry 7 users and lower revenue from those users compared to the second quarter of fiscal 2020.

The Company previously stated that it expected total Company adjusted revenue to be higher in the second quarter of fiscal 2021 than in the first quarter of fiscal 2021.

The Company’s total adjusted revenue was higher in the second quarter of fiscal 2021 than in the first quarter of fiscal 2021.

The Company previously stated that it expected the rate of sequential adjusted revenue growth to be higher for the Licensing and Other group than for the Software and Services group.

The Company’s rate of sequential adjusted revenue growth was higher for the Licensing and Other group than for the Software and Services group.

The Company expects Licensing revenue to be modestly above $250 million in fiscal 2021.

The Company previously stated that it expected Licensing revenue to be approximately $250 million in fiscal 2021.

Licensing and Other revenue was $56 million, or 25.7% of revenue, in the third quarter of fiscal 2021, a decrease of $26 million compared to $82 million, or 30.7% of revenue, in the third quarter of fiscal 2020.

The decrease in Licensing and Other revenue of $26 million was primarily due to a decrease in revenue from the Company’s patent licensing agreement with Teletry and a decrease in direct intellectual property (“IP”) licensing arrangements.

GAAP Revenue by Geography

2 unchanged sentences

(in millions)

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Revenue by Geography

9 unchanged sentences

North America Revenue

Revenue in North America was $195 million, or 75.3% of revenue, in the second quarter of fiscal 2021, reflecting an increase of $16 million compared to $179 million, or 73.4% of revenue, in the second quarter of fiscal 2020.

Revenue in North America increased compared to the second quarter of fiscal 2020 primarily due to an increase of $34 million in Licensing and Other revenue, partially offset by a decrease of $16 million in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by Product and Service” and a decrease of $4 million in renewal billings in BlackBerry AtHoc.

Revenue in North America was $147 million, or 67.5% of revenue, in the third quarter of fiscal 2021, reflecting a decrease of $41 million compared to $188 million, or 70.4% of revenue, in the third quarter of fiscal 2020.

Revenue in North America decreased compared to the third quarter of fiscal 2020 primarily due to a decrease of $26 million in Licensing and Other revenue and a decrease of $8 million in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by Product and Service”, a decrease of $4 million relating to professional services, a decrease of $3 million relating to non-automotive OEM business and a decrease of $2 million in BlackBerry AtHoc revenue, partially offset by an increase of $4 million in product revenue in BlackBerry Spark.

Europe, Middle East and Africa Revenue

Revenue in Europe, Middle East and Africa was $48 million or 18.5% of revenue in the second quarter of fiscal 2021, reflecting an increase of $1 million compared to $47 million or 19.3% of revenue in the second quarter of fiscal 2020.

The increase in revenue is primarily due to an increase of $4 million in BlackBerry Spark revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by a decrease of $3 million in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by Product and Service”.

Revenue in Europe, Middle East and Africa was $55 million or 25.2% of revenue in the third quarter of fiscal 2021, reflecting a decrease of $5 million compared to $60 million or 22.5% of revenue in the third quarter of fiscal 2020.

The decrease in revenue is primarily due to a decrease of $15 million in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by

Product and Service”, a decrease of $1 million SAF revenue and a decrease of $1 million relating to professional services, partially offset by an increase of $14 million related to hardware sales in Secusmart.

Other Regions Revenue

Revenue in other regions was $16 million or 6.2% of revenue in the second quarter of fiscal 2021, reflecting a decrease of $2 million compared to $18 million or 7.3% of revenue in the second quarter of fiscal 2020.

Revenue in other regions was $16 million or 7.3% of revenue in the third quarter of fiscal 2021, reflecting a decrease of $3 million compared to $19 million or 7.1% of revenue in the third quarter of fiscal 2020.

The decrease in revenue is primarily due to a $6 million decrease in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by an increase of $2 million in BlackBerry Spark revenue due to the reasons discussed above in “Revenue by Product and Service”.

Consolidated Gross Margin

Consolidated gross margin increased by $23 million to approximately $199 million in the second quarter of fiscal 2021 from $176 million in the second quarter of fiscal 2020.

The increase was primarily due to an increase in revenue from Licensing and Other and BlackBerry Spark, partially offset by a decrease in gross margin in BlackBerry QNX due to the reasons discussed above in “Revenue by Product and Service”, as the Company’s cost of sales does not significantly fluctuate based on business volume.

Consolidated gross margin decreased by $49 million to approximately $149 million in the third quarter of fiscal 2021 from $198 million in the third quarter of fiscal 2020.

The decrease was primarily due to a decrease in revenue from Licensing and Other and BlackBerry QNX, partially offset by an increase in revenue from Secusmart due to the reasons discussed above in “Revenue by Product and Service”, as the Company’s cost of sales does not significantly fluctuate based on business volume.

Consolidated Gross Margin Percentage

Consolidated gross margin percentage increased by 4.7% to approximately 76.8% of consolidated revenue in the second quarter of fiscal 2021 from 72.1% of consolidated revenue in the second quarter of fiscal 2020.

The increase was primarily due to a higher gross margin percentage associated with Licensing and Other, partially offset by a lower gross margin percentage associated with BlackBerry QNX due to the reasons discussed above in “Revenue by Product and Service”.

Consolidated gross margin percentage decreased by 5.9% to approximately 68.3% of consolidated revenue in the third quarter of fiscal 2021 from 74.2% of consolidated revenue in the third quarter of fiscal 2020.

The decrease was primarily due to a lower gross margin contribution from Licensing and Other and BlackBerry QNX (at a higher relative gross margin percentage in each case) due to the reasons discussed above in “Revenue by Product and Service” and a higher gross margin contribution from Secusmart (at a lower relative gross margin percentage) due to the reasons discussed above in “Revenue by Product and Service”.

Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended August 31, 2020, compared to the quarter ended May 31, 2020 and the quarter ended August 31, 2019.

The Company believes it is meaningful to provide a sequential comparison between the second quarter of fiscal 2021 and the first quarter of fiscal 2021.

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended November 30, 2020, compared to the quarter ended August 31, 2020 and the quarter ended November 30, 2019.

The Company believes it is meaningful to provide a sequential comparison between the third quarter of fiscal 2021 and the second quarter of fiscal 2021.

For the Three Months Ended

(in millions)

August 31, 2020 May 31, 2020 August 31, 2019

November 30, 2020 August 31, 2020 November 30, 2019

Revenue $ 218 $ 259 $ 267

4 unchanged sentences

Impairment of long-lived assets — 21 3

Impairment of goodwill — 594 —

Debentures fair value adjustment 95 18 (20)

5 unchanged sentences

Impairment of long-lived assets — % 8.1 % 1.1 %

Impairment of goodwill — % 288.3 % — %

Debentures fair value adjustment 43.6 % 6.9 % (7.5) %

1 unchanged sentence

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, 2020, May 31, 2020 and August 31, 2019.

GAAP-based measures to adjusted measures for the three months ended November 30, 2020, August 31, 2020 and November 30, 2019.

GAAP Operating Expenses

Operating expenses decreased by $567 million, or 72.0%, to $221 million, or 85.3% of revenue, in the second quarter of fiscal 2021, compared to $788 million, or 382.5% of revenue, in the first quarter of fiscal 2021.

The decrease was primarily attributable to goodwill impairment of $594 million in the first quarter of fiscal 2021 which did not recur, an increase of $9 million in government subsidies resulting from claims filed for the Canada Emergency Wage Subsidy (“CEWS”) program to support the business through the COVID-19 pandemic, and a decrease of $5 million in stock compensation expense, partially offset by a $21 million increase in long-lived asset impairment, the difference between the Q2 Fiscal 2021 Debentures Fair Value Adjustment and Q1 fiscal 2021 debentures fair value adjustment of $17 million, and an increase of $5 million in legal expenses.

Operating expenses increased by $2 million, or 0.9%, to $221 million, or 85.3% of revenue, in the second quarter of fiscal 2021, compared to $219 million, or 89.8% of revenue, in the second quarter of fiscal 2020.

The increase was primarily attributable to the difference between the Q2 Fiscal 2021 Debentures Fair Value Adjustment and Q2 fiscal 2020 debentures fair value adjustment of $41 million and an increase of $19 million in impairment of long-lived assets, partially offset by the benefit of $18 million in CEWS funding, costs associated with a direct intellectual property (“IP”) licensing arrangements of $18 million in the second quarter of fiscal 2020 which did not recur, a decrease of $8 million in salaries and benefits expenses and a decrease of $5 million in travel expenses.

Operating expenses increased by $55 million, or 24.9%, to $276 million, or 126.6% of revenue, in the third quarter of fiscal 2021, compared to $221 million, or 85.3% of revenue, in the second quarter of fiscal 2021.

The increase was primarily attributable to the difference between the Q3 Fiscal 2021 Debentures Fair Value Adjustment and the fair value adjustment of $77 million related to the Debentures incurred in the second quarter of fiscal 2021, and a decrease of $8 million in government subsidies resulting from claims filed for the CEWS program to support the business through the COVID-19 pandemic, partially offset by $21 million in impairment of long-lived assets in the second quarter of fiscal 2021 which did not recur, and a decrease of $9 million in salaries and benefits expenses.

Operating expenses increased by $49 million, or 21.6%, to $276 million, or 126.6% of revenue, in the third quarter of fiscal 2021, compared to $227 million, or 85.0% of revenue, in the third quarter of fiscal 2020.

The increase was primarily attributable to the difference between the Q3 Fiscal 2021 Debentures Fair Value Adjustment and the fair value adjustment of $115 million related to the Debentures incurred in the third quarter of fiscal 2020, partially offset by a decrease of $12 million in salaries and benefits expenses, a benefit from CEWS funding of $10 million, a decrease of $7 million in variable incentive plan costs, a decrease of $5 million in marketing and advertising expenses, a decrease of $5 million in bad debt expense and a decrease of $5 million in travel expense.

Adjusted Operating Expenses

Adjusted operating expenses decreased by $6 million, or 4.0%, to $144 million in the second quarter of fiscal 2021 compared to $150 million in the first quarter of fiscal 2021.

The decrease was primarily attributable to an increase of $9 million in CEWS funding and a foreign exchange benefit of $3 million, partially offset by an increase of $5 million in legal expenses and a

decrease of $1 million in claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX (“SIF”).

Adjusted operating expenses decreased by $49 million, or 25.4%, to $144 million in the second quarter of fiscal 2021, compared to $193 million in the second quarter of fiscal 2020.

The decrease was primarily attributable to the benefit of $18 million in CEWS funding, costs associated with direct IP licensing arrangements of $18 million in the second quarter of fiscal 2020 which did not recur, a decrease of $9 million in salaries and benefits expenses, and a decrease of $5 million in travel expenses.

Adjusted operating expenses decreased by $2 million, or 1.4%, to $142 million in the third quarter of fiscal 2021 compared to $144 million in the second quarter of fiscal 2021.

The decrease was primarily attributable to a decrease of $8 million in salaries and benefits expenses and a decrease of $3 million in bad debt expenses, partially offset by a decrease in the benefit from CEWS funding of $8 million.

Adjusted operating expenses decreased by $53 million, or 27.2%, to $142 million in the third quarter of fiscal 2021, compared to $195 million in the third quarter of fiscal 2020.

The decrease was primarily attributable to a decrease of $12 million in salaries and benefits expenses, the benefit of $10 million in CEWS funding, a decrease of $7 million in variable incentive plan costs, a decrease of $5 million in marketing and advertising expenses, a decrease of $5 million in bad debt expense, and a decrease of $5 million travel expense.

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 by $5 million, or 8.1%, to $57 million in the second quarter of fiscal 2021 compared to $62 million in the second quarter of fiscal 2020.

The decrease was primarily attributable to a decrease of $5 million in salaries and benefits expenses and a decrease of $2 million in consulting fees, partially offset by a decrease of $3 million in SIF claims.

Adjusted research and development expenses decreased by $4 million, or 6.8%, to $55 million in the second quarter of fiscal 2021 compared to $59 million in the second quarter of fiscal 2020.

The decrease was due to the reasons described above on a U.S.

Research and development expenses decreased by $13 million, or 19.7%, to $53 million in the third quarter of fiscal 2021 compared to $66 million in the third quarter of fiscal 2020.

The decrease was primarily attributable to a decrease of $8 million in salaries and benefits expenses and a decrease of $2 million in consulting fees, partially offset by an increase of $2 million in variable incentive plan costs.

Adjusted research and development expenses decreased by $12 million, or 19.4%, to $50 million in the third quarter of fiscal 2021 compared to $62 million in the third quarter of fiscal 2020.

The decrease was primarily due to the reasons described above on a U.S.

Selling, Marketing and Administration Expenses

Selling, marketing and administration expenses consist primarily of marketing, advertising and promotion, salaries and benefits, external advisory fees, information technology costs, office and related staffing infrastructure costs and travel expenses.

Selling, marketing and administration expenses decreased by $51 million, or 39.2%, to $79 million in the second quarter of fiscal 2021 compared to $130 million in the second quarter of fiscal 2020.

This decrease was primarily attributable to the benefit of $18 million in CEWS funding, costs associated with direct IP licensing arrangements of $18 million in the second quarter of fiscal 2020 which did not recur, a decrease of $4 million in travel expenses, a decrease of $4 million in stock compensation expense, and a decrease of $4 million in marketing and advertising expenses, partially offset by an increase of $2 million in variable incentive plan costs.

Adjusted selling, marketing and administration expenses decreased by $47 million, or 38.5%, to $75 million in the second quarter of fiscal 2021 compared to $122 million in the second quarter of fiscal 2020.

This decrease was primarily attributable to the benefit of $18 million in CEWS funding, costs associated with direct IP licensing arrangements of $18 million in the second quarter of fiscal 2020 which did not recur, a decrease of $4 million in travel expenses, a decrease of $4 million in marketing and advertising expenses and a decrease of $3 million in salaries and benefits expenses, partially offset by an increase of $2 million in variable incentive plan costs.

Selling, marketing and administration expenses decreased by $46 million, or 35.7%, to $83 million in the third quarter of fiscal 2021 compared to $129 million in the third quarter of fiscal 2020.

This decrease was primarily attributable to the benefit of $10 million in CEWS funding, a decrease of $8 million in variable incentive plan costs, a decrease of $5 million in marketing and advertising expenses, a decrease of $5 million in bad debt expenses and a decrease of $4 million in salaries and benefits expenses.

Adjusted selling, marketing and administration expenses decreased by $40 million, or 33.6%, to $79 million in the third quarter of fiscal 2021 compared to $119 million in the third quarter of fiscal 2020.

This decrease was primarily due to the reasons described above on a U.S.

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 31, 2020 compared to the quarter ended August 31, 2019.

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 November 30, 2020 compared to the quarter ended November 30, 2019.

Intangible assets are comprised of patents, licenses and acquired technology.

2 unchanged sentences

Included in Operating Expense

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Property, plant and equipment $ 4 $ 5 $ (1)

2 unchanged sentences

Included in Cost of Sales

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Property, plant and equipment $ 1 $ 1 $ —

2 unchanged sentences

Amortization included in Operating Expense

Amortization expense relating to property, plant and equipment and certain intangible assets decreased by $2 million to $46 million for the second quarter of fiscal 2021 compared to $48 million for the second quarter of fiscal 2020.

Amortization expense relating to property, plant and equipment and certain intangible assets decreased by $4 million to $45 million for the third quarter of fiscal 2021 compared to $49 million for the third quarter of fiscal 2020.

The decrease in amortization expense was due to the lower cost base of assets.

Adjusted amortization increased by $2 million to $14 million in the second quarter of fiscal 2021 compared to $12 million in the second quarter of fiscal 2020 due to an increase in intangible assets.

Adjusted amortization decreased by $1 million to $13 million in the third quarter of fiscal 2021 compared to $14 million in the third quarter of fiscal 2020 due to the lower cost base of assets.

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 decreased by $2 million to $4 million in the second quarter of fiscal 2021 compared to $6 million in the second quarter of fiscal 2020.

The decrease in amortization expense was due to the lower cost base of assets.

Investment Income (Loss), Net

Investment income (loss), net, which includes the interest expense from the 3.75% Debentures, decreased by $5 million to investment loss of $5 million in the second quarter of fiscal 2021, compared to income of nil in the second quarter of fiscal 2020.

The decrease in investment income was due to a lower yield on cash and investments in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020.

For the second quarter of fiscal 2021, the Company’s net effective income tax recovery rate was approximately 15%, compared to an effective income tax expense rate of approximately 2% for the same period in the prior fiscal year.

Amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the Company’s service operations was $4 million in the third quarter of fiscal 2021, consistent with $4 million in the third quarter of fiscal 2020.

Investment Loss, Net

Investment loss, net, which includes the interest expense from the 1.75% Debentures, was $1 million in the third quarter of fiscal 2021, consistent with $1 million in the third quarter of fiscal 2020.

The decrease in interest expense from the Debentures in the third quarter of fiscal 2021 was offset by a decrease in investment income due to a lower yield on cash and investments and a lower cash and investments balance compared to the third quarter of fiscal 2020.

For the third quarter of fiscal 2021, the Company’s net effective income tax expense rate was approximately 2%, compared to an effective income tax expense rate of approximately 7% for the same period in the prior fiscal year.

The Company’s net effective income tax rate reflects the change in unrecognized income tax benefits and the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the Debentures, amongst other items, was offset by a corresponding adjustment of the valuation allowance.

The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.

The Company’s net loss for the second quarter of fiscal 2021 was $23 million, or $0.04 basic and diluted loss per share on a U.S.

GAAP basis, reflecting a decrease in net loss of $21 million compared to a net loss of $44 million, or $0.08 basic loss per share and $0.10 diluted loss per share, in the second quarter of fiscal 2020.

The decrease in net loss of $21 million was primarily due to an increase in revenue, as described above in “Revenue by Product and Service” and an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by to an increase in operating expenses, as described above in “Operating Expenses”.

Adjusted net income was $62 million in the second quarter of fiscal 2021 compared to $1 million in the second quarter of fiscal 2020, reflecting an increase in adjusted net income of $61 million primarily due to a decrease in operating expenses as described above in “Operating Expenses”, an increase in revenue as described above in “Revenue by Product and Service” and an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

The weighted average number of shares outstanding was 559 million common shares for basic and diluted loss per share for the second quarter of fiscal 2021.

The weighted average number of shares outstanding was 552 million common shares for basic loss per share and 613 million common shares for diluted loss per share for the second quarter of fiscal 2020.

Results of Operations - Six months ended August 31, 2020 compared to the six months ended August 31, 2019

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, 2020 and August 31, 2019:

For the six months ended

The Company’s net loss for the third quarter of fiscal 2021 was $130 million, or $0.23 basic and diluted loss per share on a U.S.

GAAP basis, reflecting an increase in net loss of $98 million compared to a net loss of $32 million, or $0.06 basic loss per share and $0.07 diluted loss per share, in the third quarter of fiscal 2020.

The increase in net loss of $98 million was primarily due to an increase in operating expenses primarily due to the Q3 Fiscal 2021 Debentures Fair Value Adjustment, as described above in “Operating Expenses”, a decrease in revenue, as described above in “Revenue by Product and Service” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net income was $11 million in the third quarter of fiscal 2021 compared to $17 million in the third quarter of fiscal 2020, reflecting a decrease in adjusted net income of $6 million primarily due to a decrease in revenue as described above in “Revenue by Product and Service” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by a decrease in operating expenses as described above in “Operating Expenses”.

The weighted average number of shares outstanding was 562 million common shares for basic and diluted loss per share for the third quarter of fiscal 2021.

The weighted average number of shares outstanding was 555 million common shares for basic loss per share and 615 million common shares for diluted loss per share for the third quarter of fiscal 2020.

Results of Operations - Nine months ended November 30, 2020 compared to the nine months ended November 30, 2019

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 nine months ended November 30, 2020 and November 30, 2019:

For the Nine Months Ended

(in millions, except for share and per share amounts)

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Revenue $ 683 $ 758 $ (75)

13 unchanged sentences

(1) Basic loss per share on a U.S.

GAAP basis for the first six months of fiscal 2021 includes approximately 2,802,067 common shares remaining to be issued in equal installments on the next two anniversary dates of the Cylance acquisition, in consideration for the acquisition.

GAAP basis for the first nine months of fiscal 2021 includes approximately 2,802,067 common shares remaining to be issued in equal installments on the next two anniversary dates of the Cylance acquisition, in consideration for the acquisition.

Basic loss per share on a U.S.

GAAP basis for the first six months of fiscal 2020 includes approximately 4,182,189 common shares to be issued in equal installments on the three anniversary dates of the Cylance acquisition, in consideration for the acquisition.

GAAP basis for the first nine months of fiscal 2020 includes approximately 4,182,189 common shares to be issued in equal installments on the three anniversary dates of the Cylance acquisition, in consideration for the acquisition.

There are no service or other requirements associated with the issuance of these shares.

(2) Diluted loss per share on a U.S.

GAAP basis for the first six months of fiscal 2021 does not include the dilutive effect of the 3.75% Debentures as to do so would be anti-dilutive.

GAAP basis for the first nine months of fiscal 2021 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive.

Diluted loss per share on a U.S.

GAAP basis for the first six months of fiscal 2021 and fiscal 2020 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

GAAP basis for the first nine months of fiscal 2021 and fiscal 2020 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

Revenue by Product and Service

1 unchanged sentence

GAAP basis are set forth below.

For the six months ended

For the Nine Months Ended

(in millions)

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Revenue by Product and Service

7 unchanged sentences

Software and Services

Software and Services revenue was $299 million, or 64.3% of revenue in the first six months of fiscal 2021, a decrease of $37 million compared to $336 million, or 68.4% of revenue in the first six months of fiscal 2020.

The decrease in Software and Services revenue of $37 million was primarily due to a decrease of $40 million in recurring royalties in BlackBerry QNX, due to the slowdown in the automotive market related to the COVID-19 pandemic and the conversion in the prior fiscal year of certain existing royalty-bearing licenses to fixed pricing from volume-based pricing, a decrease of $8 million relating to professional services and a decrease of $7 million relating to non-automotive OEM business, partially offset by an increase of $21 million related to sales of products and services in BlackBerry Spark.

Adjusted Software and Services revenue was $314 million in the first six months of fiscal 2021 compared to $373 million in the first six months of fiscal 2020, representing a decrease of $59 million.

Software and Services revenue was $461 million, or 67.5% of revenue in the first nine months of fiscal 2021, a decrease of $60 million compared to $521 million, or 68.7% of revenue in the first nine months of fiscal 2020.

The decrease in Software and Services revenue of $60 million was primarily due to a decrease of $69 million in recurring royalties in BlackBerry QNX, due to the slowdown in the automotive market related to the COVID-19 pandemic and the conversion in the prior fiscal year of certain existing royalty-bearing licenses to fixed pricing from volume-based pricing, a decrease of $14 million relating to professional services, a decrease of $9 million relating to non-automotive OEM business and a decrease of $7 million in BlackBerry AtHoc revenue, partially offset by an increase of $28 million related to product revenue in BlackBerry Spark and an increase of $17 million in hardware sales in Secusmart.

Adjusted Software and Services revenue was $482 million in the first nine months of fiscal 2021 compared to $571 million in the first nine months of fiscal 2020, representing a decrease of $89 million.

The $89 million decrease in adjusted Software and Services revenue was primarily attributable to the same reasons described above on a U.S.

GAAP basis and due to a decrease of $22 million in the non-GAAP adjustment of deferred software revenue acquired to $15 million in the first six months of fiscal 2021 from $37 million in the first six months of fiscal 2020.

GAAP basis and due to a decrease of $29 million in the non-GAAP adjustment of deferred software revenue acquired to $21 million in the first nine months of fiscal 2021 from $50 million in the first nine months of fiscal 2020.

Licensing and Other

Licensing and Other revenue was $166 million, or 35.7% of revenue in the first six months of fiscal 2021, an increase of $11 million compared to $155 million, or 31.6% of revenue in the first six months of fiscal 2020.

The increase in Licensing and Other revenue of $11 million was primarily due to a $49 million increase in revenue from the Company’s patent licensing agreement with Teletry, partially offset by a decrease in direct licensing arrangements, a decrease of $23 million in revenue from the BBM Consumer licensing arrangement and a decrease of $8 million from mobility licensing arrangements.

SAF revenue, which is generated from users of BlackBerry 7 and prior BlackBerry operating systems, also decreased by $6 million, primarily due to a lower number of BlackBerry 7 users and lower revenue from those users compared to the first six months of fiscal 2020.

Licensing and Other revenue was $222 million, or 32.5% of revenue in the first nine months of fiscal 2021, a decrease of $15 million compared to $237 million, or 31.3% of revenue in the first nine months of fiscal 2020.

The decrease in Licensing and Other revenue of $15 million was primarily due to a decrease of $23 million in revenue from the BBM Consumer licensing arrangement and a decrease of $8 million from mobility licensing arrangements, partially offset by an increase of $22 million in revenue from the Company’s patent licensing agreement with Teletry, partially offset by a decrease in direct IP licensing arrangements.

GAAP Revenue by Geography

1 unchanged sentence

GAAP basis are set forth in the following table:

For the six months ended

For the Nine Months Ended

(in millions)

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Revenue by Geography

9 unchanged sentences

North America Revenue

Revenue in North America was $345 million, or 74.2% of revenue, in the first six months of fiscal 2021, reflecting an increase of $6 million compared to $339 million, or 69.0% of revenue in the first six months of fiscal 2020.

The increase in North American revenue is primarily due to an increase of $49 million in Licensing and Other revenue and $9 million in BlackBerry Spark revenue, partially offset by a decrease of $24 million in BlackBerry QNX revenue, due to the reasons discussed above in “Revenue by Product and Service” and a decrease of $23 million in revenue from the BBM Consumer licensing arrangement.

Revenue in North America was $492 million, or 72.0% of revenue, in the first nine months of fiscal 2021, reflecting a decrease of $35 million compared to $527 million, or 69.5% of revenue in the first nine months of fiscal 2020.

The decrease in North American revenue is primarily due to a decrease of $32 million in BlackBerry QNX revenue, due to the reasons discussed above in “Revenue by Product and Service”, a decrease of $23 million in revenue from the BBM Consumer licensing arrangement, a decrease of $9 million relating to non-automotive OEM business, a decrease of $7 million relating to professional services and a decrease of $6 million in BlackBerry AtHoc revenue, partially offset by an increase of $27 million in product revenue in BlackBerry Spark and an increase of $22 million in Licensing and Other revenue related to Teletry and direct IP licensing due to the reasons discussed above in “Revenue by Product and Service”.

Europe, Middle East and Africa Revenue

Revenue in Europe, Middle East and Africa was $89 million, or 19.1% of revenue, in the first six months of fiscal 2021, reflecting a decrease of $19 million compared to $108 million, or 22.0% of revenue, in the first six months of fiscal 2020.

The decrease in revenue is primarily due to decreases of $13 million in BlackBerry QNX revenue and $4 million in SAF revenue, due to the reasons discussed above in “Revenue by Product and Service”, partially offset by an increase of $4 million in hardware sales in Secusmart.

Revenue in Europe, Middle East and Africa was $144 million, or 21.1% of revenue, in the first nine months of fiscal 2021, reflecting a decrease of $24 million compared to $168 million, or 22.2% of revenue, in the first nine months of fiscal 2020.

The decrease in revenue is primarily due to decreases of $26 million in BlackBerry QNX revenue and a decrease of $6 million in SAF revenue due to the reasons discussed above in “Revenue by Product and Service”, a decrease of $2 million in development seat revenue and a decrease of $2 million in product revenue in BlackBerry Spark, partially offset by an increase of $17 million in hardware sales in Secusmart.

Other Regions Revenue

Revenue in other regions was $31 million, or 6.7% of revenue, in the first six months of fiscal 2021, reflecting a decrease of $13 million compared to $44 million, or 9.0% of revenue, in the first six months of fiscal 2020.

The decrease in revenue is primarily due to a decrease of $8 million from mobility licensing arrangements and a decrease of $4 million in BlackBerry QNX revenue, due to the reasons discussed above in “Revenue by Product and Service”, partially offset by an increase of $3 million in BlackBerry Spark revenue due to the reasons discussed above in “Revenue by Product and Service”.

Revenue in other regions was $47 million, or 6.9% of revenue, in the first nine months of fiscal 2021, reflecting a decrease of $16 million compared to $63 million, or 8.3% of revenue, in the first nine months of fiscal 2020.

The decrease in revenue is primarily due to a decrease of $10 million in BlackBerry QNX revenue, due to the reasons discussed above in “Revenue by Product and Service”, a decrease of $8 million from mobility licensing arrangements and a decrease of $2 million in development seat revenue, partially offset by an increase of $5 million in product revenue in BlackBerry Spark.

Consolidated Gross Margin

Consolidated gross margin decreased by $11 million to approximately $342 million in the first six months of fiscal 2021 from $353 million in the first six months of fiscal 2020.

The decrease was primarily due to a decrease in gross margin in BlackBerry QNX, partially offset by increases in revenue in Licensing and Other and BlackBerry Spark, due to the reasons discussed above in “Revenue by Product and Service”.

Consolidated gross margin decreased by $60 million to approximately $491 million in the first nine months of fiscal 2021 from $551 million in the first nine months of fiscal 2020.

The decrease was primarily due to a decrease in gross margin in BlackBerry QNX, partially offset by increases in revenue in BlackBerry Spark, due to the reasons discussed above in “Revenue by Product and Service”, as the Company’s cost of sales does not significantly fluctuate based on business volume.

Consolidated Gross Margin Percentage

Consolidated gross margin percentage increased by 1.6%, to approximately 73.5% of consolidated revenue in the first six months of fiscal 2021 from 71.9% of consolidated revenue in the first six months of fiscal 2020.

Consolidated gross margin percentage decreased by 0.8%, to approximately 71.9% of consolidated revenue in the first nine months of fiscal 2021 from 72.7% of consolidated revenue in the first nine months of fiscal 2020.

The decrease was primarily due a lower proportion of gross margin percentage associated with BlackBerry QNX due to the reasons discussed above in “Revenue by Product and Service”, partially offset by a higher proportion of gross margin percentage associated with Licensing and Other.

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, 2020, compared to the six months ended August 31, 2019.

For the six months ended

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the nine months ended November 30, 2020, compared to the nine months ended November 30, 2019.

For the Nine Months Ended

(in millions)

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Revenue $ 683 $ 758 $ (75)

6 unchanged sentences

Debentures fair value adjustment 114 (71) 185

Arbitration awards and settlements, net — — —

Total $ 1,285 $ 659 $ 626

6 unchanged sentences

Debentures fair value adjustment 16.7 % (9.4) %

Arbitration awards and settlements, net — % — %

Total 188.1 % 86.9 %

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, 2020 and August 31, 2019.

GAAP-based measures to adjusted measures for the nine months ended November 30, 2020 and November 30, 2019.

GAAP Operating Expenses

Operating expenses increased by $577 million, or 133.6%, to $1,009 million, or 217.0% of revenue in the first six months of fiscal 2021, compared to $432 million, or 87.9% of revenue, in the first six months of fiscal 2020.

The increase was primarily attributable to an increase of $594 million in goodwill impairment, the difference between the Fiscal 2021 Debentures Fair Value Adjustment and fiscal 2020 debentures fair value adjustment of $70 million, and an increase of $19 million in impairment of long-lived assets, partially offset by the benefit of $27 million in CEWS funding, costs associated with direct IP licensing arrangements of $18 million in the first six months of fiscal 2020 which did not recur, a decrease of $21 million in salaries and benefits expense, a decrease of $10 million in travel expense and a decrease of $8 million in stock compensation expense.

Operating expenses increased by $626 million, or 95.0%, to $1,285 million, or 188.1% of revenue in the first nine months of fiscal 2021, compared to $659 million, or 86.9% of revenue, in the first nine months of fiscal 2020.

The increase was primarily attributable to an increase of $594 million in goodwill impairment, the difference between the Fiscal 2021 Debentures Fair Value Adjustment and the fair value adjustment of $185 million related to the Debentures incurred in the first nine months of fiscal 2020 and an increase of $16 million in impairment of long-lived assets, partially offset by the benefit of $37 million in CEWS funding, a decrease of $32 million in salaries and benefits expense, costs associated with direct IP licensing arrangements of $18 million in the first nine months of fiscal 2020 which did not recur, and a decrease of $15 million in travel expense.

Adjusted Operating Expenses

Adjusted operating expenses decreased by $93 million, or 24.0%, to $294 million in the first six months of fiscal 2021, compared to $387 million in the first six months of 2020.

The decrease was primarily attributable to the benefit of $27 million in CEWS funding, costs associated with direct IP licensing arrangements of $18 million in the first six months of 2020 which did not recur, a decrease of $21 million in salaries and benefits expense, a decrease of $10 million in travel expense and a decrease of $8 million in marketing and advertising expense.

Adjusted operating expenses decreased by $146 million, or 25.1%, to $436 million in the first nine months of fiscal 2021, compared to $582 million in the first nine months of 2020.

The decrease was primarily attributable to the benefit of $37 million in CEWS funding, a decrease of $31 million in salaries and benefits expense, costs associated with direct IP licensing arrangements of $18 million in the first nine months of 2020 which did not recur, a decrease of $15 million in travel expense and a decrease of $13 million in marketing and advertising expense.

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 $19 million, or 14.3%, to $114 million, or 24.5% of revenue, in the first six months of fiscal 2021, compared to $133 million, or 27.1% of revenue, in the first six months of fiscal 2020.

The decrease was primarily attributable to a decrease of $13 million in salaries and benefits expense, a decrease of $3 million in consulting fees and a decrease of $1 million in variable incentive plan costs, partially offset by a decrease of $3 million in SIF claims.

Adjusted research and development expenses decreased by $18 million, or 14.2% to $109 million in the first six months of fiscal 2021 compared to $127 million in the first six months of fiscal 2020.

Research and development expenses decreased by $32 million, or 16.1%, to $167 million, or 24.5% of revenue, in the first nine months of fiscal 2021, compared to $199 million, or 26.3% of revenue, in the first nine months of fiscal 2020.

The decrease was primarily attributable to a decrease of $21 million in salaries and benefits expense, a decrease of $6 million in consulting fees and a decrease of $3 million in infrastructure costs, partially offset by a decrease of $4 million in claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX.

Adjusted research and development expenses decreased by $30 million, or 15.9% to $159 million in the first nine months of fiscal 2021 compared to $189 million in the first nine months of fiscal 2020.

The decrease was primarily due to the same reasons described above on a U.S.

1 unchanged sentence

Selling, marketing and administration expenses decreased by $82 million, or 32.7%, to $169 million, or 36.3% of revenue, in the first six months of fiscal 2021 compared to $251 million in the first six months of fiscal 2020, or 51.1% of revenue.

The decrease was primarily attributable to the benefit of $27 million in CEWS funding, costs associated with direct IP licensing arrangements of $18 million in the first six months of 2020 which did not recur, a decrease of $9 million in travel expense, a decrease of $8 million salaries and benefits expense and a decrease of $8 million in stock compensation expense.

Adjusted selling, marketing and administration expenses decreased by $76 million, or 32.5%, to $158 million in the first six months of fiscal 2021 compared to $234 million in the first six months of fiscal 2020.

The decrease was primarily attributable to the benefit of $27 million in CEWS funding, costs associated with direct IP licensing arrangements of $18 million in the first six months of 2020 which did not recur, a decrease of $9 million in travel expense due to the impact of COVID-19, a decrease of $8 million salaries and benefits expense and a decrease of $7 million in marketing and advertising expense.

Selling, marketing and administration expenses decreased by $128 million, or 33.7%, to $252 million, or 36.9% of revenue, in the first nine months of fiscal 2021 compared to $380 million in the first nine months of fiscal 2020, or 50.1% of revenue.

The decrease was primarily attributable to the benefit of $37 million in CEWS funding, a decrease in costs associated with direct IP licensing arrangements of $18 million in the first nine months of 2020 which did not recur, a decrease of $13 million in travel expense, a decrease of $11 million in variable incentive plan costs, and a decrease of $11 million in salaries and benefits expenses.

Adjusted selling, marketing and administration expenses decreased by $116 million, or 32.9%, to $237 million in the first nine months of fiscal 2021 compared to $353 million in the first nine months of fiscal 2020.

The decrease was primarily due to the same reasons described above on a U.S.

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, 2020 compared to the six months ended August 31, 2019.

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 nine months ended November 30, 2020 compared to the nine months ended November 30, 2019.

Intangible assets are comprised of patents, licenses and acquired technology.

For the six months ended

For the Nine Months Ended

(in millions)

Included in Operating Expense

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Property, plant and equipment $ 13 $ 14 $ (1)

2 unchanged sentences

Included in Cost of Sales

August 31, 2020 August 31, 2019 Change

November 30, 2020 November 30, 2019 Change

Property, plant and equipment $ 3 $ 4 $ (1)

2 unchanged sentences

Amortization included in Operating Expense

Amortization expense relating to certain property, plant and equipment and intangible assets decreased by $5 million to $92 million in the first six months of fiscal 2021, compared to $97 million in the first six months of fiscal 2020.

Amortization expense relating to certain property, plant and equipment and intangible assets decreased by $9 million to $137 million in the first nine months of fiscal 2021, compared to $146 million in the first nine months of fiscal 2020.

The decrease in amortization expense was due to the lower cost base of assets.

Adjusted amortization expense increased by $1 million to $27 million in the first six months of fiscal 2021 compared to $26 million in the first six months of fiscal 2020 due to the increase in intangible assets.

Adjusted amortization expense was $40 million in the first nine months of fiscal 2021, consistent with $40 million in the first nine months of fiscal 2020.

Amortization included in Cost of Sales

Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s service operations decreased by $2 million to $8 million in the first six months of fiscal 2021, compared to $10 million in the first six months of fiscal 2020.

Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s service operations decreased by $2 million to $12 million in the first nine months of fiscal 2021, compared to $14 million in the first nine months of fiscal 2020.

The decrease in amortization expense was due to the lower cost base of assets.

Investment Income (Loss), Net

Investment income (loss), net, which includes the interest expense from the 3.75% Debentures, decreased by $8 million to investment loss of $5 million in the first six months of fiscal 2021, from investment income of $3 million in the first six months of fiscal 2020.

The decrease in investment income was due to a lower yield on cash and investments in the first six months of fiscal 2021 compared to the first six months of fiscal 2020.

For the first six months of fiscal 2021, the Company’s net effective income tax recovery rate was approximately 2%, compared to a net effective income tax expense of approximately 4% for the same period in the prior fiscal year.

Investment income (loss), net, which includes the interest expense from the Debentures, decreased by $8 million to investment loss of $6 million in the first nine months of fiscal 2021, from investment income of $2 million in the first nine months of fiscal 2020.

The decrease in investment income was due to lower yields on cash and investments in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020, partially offset by a decrease in interest expense from the Debentures.

For the first nine months of fiscal 2021, the Company’s net effective income tax recovery rate was approximately 1%, compared to a net effective income tax expense of approximately 5% for the same period in the prior fiscal year.

2 unchanged sentences

The change is due to prior years taxable items that could not be offset with carried forward tax attributes such as tax losses.

The Company’s net loss for the first six months of fiscal 2021 was $659 million, reflecting an increase in net loss of $580 million compared to net loss of $79 million in the first six months of fiscal 2020, primarily due to an increase in operating expenses due to the goodwill impairment, as described above in “Operating Expenses” and a decrease in revenue as described above in “Revenue by Product and Service”, partially offset by an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net income in the first six months of fiscal 2021 was $74 million compared to $6 million in the first six months of fiscal 2020, reflecting an increase in adjusted net income of $68 million, primarily due to a decrease in operating expenditures as described above in “Operating Expenses”, partially offset by a decrease in revenue as described above in “Revenue by Product and Service”.

The Company’s net loss for the first nine months of fiscal 2021 was $789 million, reflecting an increase in net loss of $678 million compared to net loss of $111 million in the first nine months of fiscal 2020, primarily due to increases in operating expenses due to the goodwill impairment and increase in debenture fair value adjustment, as described above in “Operating Expenses”, and a decrease in revenue as described above in “Revenue by Product and Service”.

Adjusted net income in the first nine months of fiscal 2021 was $85 million compared to $23 million in the first nine months of fiscal 2020, reflecting an increase in adjusted net income of $62 million, primarily due to a decrease in operating expenditures as described above in “Operating Expenses”, partially offset by a decrease in revenue as described above in “Revenue by Product and Service”.

Basic and diluted loss per share on a U.S.

GAAP basis was $1.18 in the first six months of fiscal 2021, an increase in basic and diluted loss per share of $1.04 and $0.99, respectively, compared to basic loss per share on a U.S.

GAAP basis was $1.41 in the first nine months of fiscal 2021, an increase in basic and diluted loss per share of $1.21 and $1.14, respectively, compared to basic loss per share on a U.S.

GAAP basis of $0.20 and diluted loss per share on a U.S.

GAAP basis of $0.19 in the first six months of fiscal 2020.

The weighted average number of shares outstanding was 558 million for basic and diluted loss per share for the first six months of August 31, 2020.

The weighted average number of shares outstanding was 552 million and 613 million for basic and diluted loss per share, respectively, for the first six months of August 31, 2019.

GAAP basis of $0.27 in the first nine months of fiscal 2020.

The weighted average number of shares outstanding was 560 million for basic and diluted loss per share for the first nine months of November 30, 2020.

The weighted average number of shares outstanding was 553 million and 613 million for basic and diluted loss per share, respectively, for the first nine months of November 30, 2019.

Common Shares Outstanding

On September 21, 2020, there were 557 million voting common shares, options to purchase 4 million voting common shares, 24 million restricted share units and 1 million deferred share units outstanding.

On December 15, 2020, there were 563 million voting common shares, options to purchase 3 million voting common shares, 19 million restricted share units and 1 million deferred share units outstanding.

In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 6 to the Consolidated Financial Statements.

1 unchanged sentence

Selected Quarterly Financial Data

The following table sets forth the Company’s unaudited quarterly consolidated results of operations data for each of the eight most recent quarters, including the quarter ended August 31, 2020.

The following table sets forth the Company’s unaudited quarterly consolidated results of operations data for each of the eight most recent quarters, including the quarter ended November 30, 2020.

The information in the table below has been derived from the Company’s unaudited interim consolidated financial statements that, in management’s opinion, have been prepared on a basis consistent with the audited consolidated financial statements of the Company and include all adjustments necessary for a fair presentation of information when read in conjunction with the audited consolidated financial statements of the Company.

3 unchanged sentences

Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

Third Quarter Second

Quarter First

4 unchanged sentences

Quarter Fourth

Quarter Third

Revenue $ 218 $ 259 $ 206 $ 282 $ 267 $ 244 $ 247 $ 255

9 unchanged sentences

Liquidity and Capital Resources

Cash, cash equivalents, and investments decreased by $13 million to $977 million as at August 31, 2020 from $990 million as at February 29, 2020, primarily due to the acquisition of intangible assets.

Cash, cash equivalents, and investments decreased by $233 million to $757 million as at November 30, 2020 from $990 million as at February 29, 2020, primarily due to the redemption of the 3.75% Debentures which was partially offset by the issuance of the 1.75% Debentures.

The majority of the Company’s cash, cash equivalents, and investments were denominated in U.S.

dollars as at August 31, 2020.

dollars as at November 30, 2020.

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

(in millions)

August 31, 2020 February 29, 2020 Change

November 30, 2020 February 29, 2020 Change

Cash and cash equivalents $ 223 $ 377 $ (154)

5 unchanged sentences

(in millions)

August 31, 2020 February 29, 2020 Change

November 30, 2020 February 29, 2020 Change

Current assets $ 971 $ 1,196 $ (225)

2 unchanged sentences

Current Assets

The increase in current assets of $23 million at the end of the second quarter of fiscal 2021 from the end of fourth quarter of fiscal 2020 was primarily due to increases in cash and cash equivalents of $460 million, accounts receivable, net of $25 million, other receivables of $11 million and income taxes receivable of $3 million, partially offset by decreases in short term investments of $474 million and other current assets of $2 million.

The Company’s cash and cash equivalents increased significantly due to liquidation of investments in anticipation of the redemption of the 3.75% Debentures on September 1, 2020 as described above in “Business Overview - Debt Redemption and New Issuance”.

At August 31, 2020, accounts receivable was $240 million, an increase of $25 million from February 29, 2020.

The increase was primarily due an increase in days sales outstanding to 80 days at the end of the second quarter of fiscal 2021 from 70 days at the end of the fourth quarter of fiscal 2020 due to an increase in IP licensing receivables which have longer net payment terms than Software and Services receivables and due to an increase in overdue balances as a result of COVID-19, partially offset by lower revenue recognized over the three months ended August 31, 2020 and an increase in the allowance for credit losses from the adoption of ASC 326.

At August 31, 2020, other receivables increased by $11 million to $25 million compared to $14 million as at February 29, 2020.

The decrease in current assets of $225 million at the end of the third quarter of fiscal 2021 from the end of fourth quarter of fiscal 2020 was primarily due to decreases in cash and cash equivalents of $154 million, short term investments of $81 million and accounts receivable, net of $3 million, partially offset by increases in other receivables of $7 million and income taxes receivable of $4 million.

The Company’s cash and cash equivalents decreased due to the redemption of the 3.75% Debentures on September 1, 2020, partially offset by the issuance of the 1.75% Debentures as described above in “Business Overview - Debt Redemption and New Issuance”.

At November 30, 2020, accounts receivable was $212 million, a decrease of $3 million from February 29, 2020.

The decrease was primarily due to lower revenue recognized over the three months ended November 30, 2020 compared to the three months ended February 29, 2020 and an increase in the allowance for credit losses from the adoption of ASC 326, partially offset by an increase in days sales outstanding to 94 days at the end of the third quarter of fiscal 2021 from 70 days at the end of the fourth quarter of fiscal 2020 due to extending payment terms and to an increase in overdue balances as a result of COVID-19.

At November 30, 2020, other receivables increased by $7 million to $21 million compared to $14 million as at February 29, 2020.

The increase was primarily due to an increase of $7 million relating to the CEWS program.

At August 31, 2020, income taxes receivable was $9 million, an increase of $3 million from February 29, 2020.

At November 30, 2020, income taxes receivable was $10 million, an increase of $4 million from February 29, 2020.

The increase was primarily due to the U.S.

CARES Act resulting in an increase in taxes receivable from tax loss carry backs.

At August 31, 2020, other current assets was $50 million, a decrease of $2 million from February 29, 2020.

The decrease was primarily due to a decrease in prepaid rent and utilities of $5 million and deferred commission of $2 million, partially offset by an increase in derivative asset of $3 million and prepaid software maintenance of $2 million.

Current Liabilities

The decrease in current liabilities of $65 million at the end of the second quarter of 2021 from the end of the fourth quarter of fiscal 2020 was primarily due to a decrease in deferred revenue of $35 million, a decrease in accrued liabilities of $23 million, a decrease in income taxes payable of $9 million and a decrease in accounts payable of $2 million, partially offset by an increase of $4 million in the amounts payable in respect of the 3.75% Debentures.

The decrease in current liabilities of $694 million at the end of the third quarter of 2021 from the end of the fourth quarter of fiscal 2020 was primarily due to a decrease in Debentures of $606 million due to the redemption of the 3.75% Debentures, a decrease in deferred revenue of $47 million, a decrease in accrued liabilities of $29 million, a decrease in income taxes payable of $10 million and a decrease in accounts payable of $2 million.

Deferred revenue, current was $217 million, which reflects a decrease of $47 million compared to February 29, 2020 that was attributable to a $41 million decrease in deferred revenue, current related to BlackBerry Spark and $10 million related to IP licensing, partially offset by a $2 million increase in deferred revenue, current related to BlackBerry AtHoc.

Accrued liabilities were $179 million, reflecting a decrease of $23 million compared to February 29, 2020, which was primarily attributable to a $17 million decrease in variable incentive plan costs.

Accrued liabilities were $173 million, reflecting a decrease of $29 million compared to February 29, 2020, which was primarily attributable to a $10 million decrease in variable incentive plan costs and a decrease of $8 million in payroll accrual.

Income taxes payable were $18 million, reflecting a decrease of $10 million compared to February 29, 2020, which was primarily attributable to the reversal of uncertain tax positions.

Accounts payable were $29 million, reflecting a decrease of $2 million from February 29, 2020, which was primarily attributable to payments of accounts payable.

Cash flows for the six months ended August 31, 2020 compared to the six months ended August 31, 2019 were as follows:

For the six months ended

August 31, 2020 August 31, 2019 Change

Cash flows for the nine months ended November 30, 2020 compared to the nine months ended November 30, 2019 were as follows:

For the Nine Months Ended

(in millions)

November 30, 2020 November 30, 2019 Change

Net cash flows provided by (used in):

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Effect of foreign exchange gain (loss) on cash and cash equivalents 1 (1) 2

Net increase (decrease) in cash and cash equivalents $ 460 $ (88) $ 548

Net decrease in cash and cash equivalents $ (153) $ (35) $ (118)

Operating Activities

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Investing Activities

During the six months ended August 31, 2020, cash flows provided by investing activities were $454 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $473 million, offset by cash used in the acquisition of intangible assets of $16 million, and the acquisition of property, plant and equipment of $3 million.

For the same period in the prior fiscal year, cash flows used in investing activities were $42 million and included cash 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 $21 million, intangible asset additions of $16 million, and acquisitions of property, plant and equipment of $6 million, offset by proceeds from the decrease in consideration paid for the Cylance acquisition.

During the nine months ended November 30, 2020, cash flows provided by investing activities were $52 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 $80 million, offset by cash used in the acquisition of intangible assets of $23 million, and the acquisition of property, plant and equipment of $5 million.

For the same period in the prior fiscal year, cash flows used in investing activities were $32 million and included cash used in transactions involving intangible asset additions of $24 million, and acquisitions of property, plant and equipment of $9 million, offset by proceeds from the decrease in consideration paid for the Cylance acquisition.

Financing Activities

The increase in cash flows provided by financing activities was $3 million for the first six months of fiscal 2021 due to an increase in common shares issued for stock options exercised and employee share purchase plan.

The decrease in cash flows used in financing activities was $242 million for the first nine months of fiscal 2021 due to the redemption of the 3.75% Debentures on September 1, 2020, partially offset by the issuance of the 1.75% Debentures as described above in “Business Overview - Debt Redemption and New Issuance” and an increase in common shares issued for stock options exercised and employee share purchase plan.

Aggregate Contractual Obligations

The following table sets out aggregate information about the Company’s contractual obligations and the periods in which payments are due as at August 31, 2020:

The following table sets out aggregate information about the Company’s contractual obligations and the periods in which payments are due as at November 30, 2020:

(in millions)

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Total $ 693 $ 132 $ 505 $ 36 $ 20

Purchase obligations and commitments amounted to approximately $955 million as at August 31, 2020, including the Redemption Amount and operating lease obligations of $148 million.

Purchase obligations and commitments amounted to approximately $693 million as at November 30, 2020, including the principal amount of the 1.75% Debentures of $365 million and operating lease obligations of $144 million.

The remaining balance consists of purchase orders for goods and services utilized in the operations of the Company.

Total aggregate contractual obligations as at August 31, 2020 decreased by approximately $58 million as compared to the February 29, 2020 balance of approximately $1,013 million, which was attributable to a decrease in purchase obligations and commitments and a decrease in operating lease obligations.

As noted in "Business Overview - Debt Redemption and New Issuance", the Company announced on July 22, 2020 that it would redeem the 3.75% Debentures and issue the 1.75% Debentures.

These events occurred after the end of the second quarter of fiscal 2021.

If these subsequent events are included as at August 31, 2020, the Company’s future debt interest would include an additional $20 million plus the principal payment of $365 million due in one to three years.

Total aggregate contractual obligations as at November 30, 2020 decreased by approximately $320 million as compared to the February 29, 2020 balance of approximately $1,013 million, which was attributable to the redemption of the 3.75% Debentures on September 1, 2020, partially offset by the issuance of the 1.75% Debentures as described above in “Business Overview - Debt Redemption and New Issuance”, a decrease in purchase obligations and commitments and a decrease in operating lease obligations.

Debenture Financing and Other Funding Sources

See Note 6 to the Consolidated Financial Statements for a description of the Debentures.

As discussed above in “Business Overview - Debt Redemption and New Issuance”, the 3.75% Debentures were redeemed on September 1, 2020 and the 1.75% Debentures issued.

The Company has $50 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business.

See Note 3 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.

Cash, cash equivalents, and investments were approximately $977 million as at August 31, 2020.

Cash, cash equivalents, and investments were approximately $757 million as at November 30, 2020.

The Company’s management remains focused on maintaining appropriate cash balances, efficiently managing working capital balances and managing the liquidity needs of the business.

Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities and access to other potential financing arrangements, should be sufficient to meet funding requirements for current financial commitments and future operating expenditures not yet committed, and should provide the necessary financial capacity for the foreseeable future.

Had the refinancing of the 3.75% Debentures been completed on August 31, 2020 instead of September 1, 2020, the Company’s cash, cash equivalents and investments would have been $727 million on August 31, 2020.

The Company does not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act, or under applicable Canadian securities laws.

Accounting Policies and Critical Accounting Estimates

See Note 1 to the Consolidated Financial Statements for policies updated to reflect the adoption of the new standard in accounting for credit losses on financial instruments and goodwill.

See Note 1 to the Consolidated Financial Statements for policies updated to reflect the issuance of the 1.75% Debentures and the adoption of the new standard in accounting for credit losses on financial instruments and goodwill.

See Note 2 to the Consolidated Financial Statements for accounting pronouncements not yet adopted.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis