What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-31 compared with 2020-04-07 · 398 added, 455 removed, 567 unchanged (60% of the section changed)

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Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results.

Please refer to our MD&A of our Annual Report on Form 40-F for Fiscal 2019 for a comparative discussion of our Fiscal 2019 financial results as compared to our Fiscal 2018.

Please refer to our MD&A included in our Annual Report on 10-K for the fiscal year ended February 29, 2020 for a comparative discussion of our Fiscal 2020 financial results as compared to our Fiscal 2019, which is incorporated herein by reference.

Additional information about the Company, which is included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2021 (the “Annual Report”), can be found on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov.

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Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including statements relating to:

• the Company’s plans, strategies and objectives, including its intentions to achieve long-term profitable revenue growth and increase and enhance its product and service offerings;

• the Company’s expectations with respect to its financial performance in fiscal 2021;

• the Company’s plans, strategies and objectives, including its intentions to increase and enhance its product and service offerings;

• the Company’s expectations with respect to its revenue and billings in fiscal 2022 and with respect to the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition on a consolidated basis, including its liquidity position;

• the Company’s estimates of purchase obligations and other contractual commitments;

• 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 “Results of Operations - Fiscal year ended February 29, 2020 compared to fiscal year ended February 28, 2019 - Revenue - Revenue by Product and Service”, “Results of Operations - Three months ended February 29, 2020 compared to the three months ended February 28, 2019 - Net Income”, and “Financial Condition - Debenture Financing and Other Funding Sources ”.

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, competition, and the Company’s expectations regarding its financial performance.

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 - COVID-19”, “Key Metrics - Billings”, “Results of Operations - Fiscal year ended February 28, 2021 compared to fiscal year ended February 29, 2020 - Revenue - Revenue by Product and Service”, “Financial Condition - Aggregate Contractual Obligations” and “Financial Condition - Debenture Financing and Other Funding Sources ”.

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.

Many factors could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in Part I, Item 1A “Risk Factors” in the Annual Report on Form 10-K.

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The Company provides intelligent security software and services to enterprises and governments around the world.

The Company secures more than 500 million endpoints, including 150 million cars.

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 solutions, and is a leader in the areas of endpoint security management, encryption, and embedded systems.

Company’s common shares trade under the ticker symbol “BB” on the New York Stock Exchange and the Toronto Stock Exchange.

The Company secures more than 500 million endpoints including more than 175 million cars on the road today.

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, endpoint management, encryption, and embedded systems.

The Company’s common shares trade under the ticker symbol “BB” on the New York Stock Exchange and the Toronto Stock Exchange.

The Company was incorporated under the Business Corporations Act (Ontario) (“OBCA”) on March 7, 1984.

The Company continued to execute on its strategy in fiscal 2020.

The Company also announced the following achievements:

• Announced that the German Development Agency, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, selected BlackBerry AtHoc as its emergency mass notification system;

• Launched enhancements and feature updates to SecuSUITE for Government and BlackBerry AtHoc that enable government agencies to securely communicate and safeguard sensitive data;

• Announced the appointment of Marjorie Dickman as the Company’s first Chief Government Affairs and Public Policy Officer;

• Announced product enhancements to CylancePROTECT and CylanceOPTICS;

• Launched the BlackBerry Spark platform with a new unified endpoint security (UES) layer which can work with BlackBerry UEM to deliver zero trust security;

• Released the 2020 Threat Report, which examines the latest adversarial techniques and tactics analyzed by BlackBerry Cylance threat researchers and provides guidance organizations can leverage to mitigate risk;

• Launched BlackBerry Digital Workplace, a robust workspace that provides secure online and offline access to corporate on-premise or cloud content including Microsoft Office 365 resources;

• Announced that the BlackBerry Radar solution integrates with Trimble’s TMW.Suite and TruckMate transportation management system solutions;

• Announced that BlackBerry Cylance integrates with SafeBreach to help organizations improve their overall security posture with continuous enterprise endpoint security validation;

• Entered into a collaboration with Ansys to support BlackBerry QNX’s industry-leading real-time operating system (“RTOS”) for connected and autonomous vehicles;

• Collaborated with Amazon Web Services, Inc.

(AWS) to demonstrate a connected vehicle software platform for in-vehicle applications that combines the BlackBerry QNX RTOS with AWS’ IoT Services in the cloud and in the car;

• Announced that Damon Motorcycles’ CoPilot advanced warning system will be powered by BlackBerry QNX technology across its entire line-up of advanced electric motorcycles;

• Announced that Renovo and BlackBerry QNX will cooperate to jointly develop and market safety-critical data management solutions for use in the next generation of connected and autonomous vehicles;

• Entered into a partnership that will provide advanced digital infrastructure to students as part of the Government of Romania’s National Wireless Campus Project;

• Entered into an agreement with electric carmaker WM Motor to embed BlackBerry’s QNX Neutrino Realtime Operating System and other BlackBerry QNX software products within the company’s third-generation SUVs;

• Entered into a strategic collaboration to integrate the QNX Platform for Digital Cockpits in MARELLI Electronics China’s eCockpit and Digital Cluster solution;

• Announced the second cohort of companies for the Company’s joint accelerator program with L-SPARK to advance Canadian startups that are focused on connected vehicle technologies;

• Announced that its QNX Hypervisor 2.0 for Safety has been recognized as ISO 26262 ASIL D compliant by the independent auditors at TÜV Rheinland, making it the world’s first ASIL D safety-certified commercial hypervisor;

• Announced that Reece Group has deployed BlackBerry Cylance technology to protect thousands of endpoints across its retail stores and offices in Australia and the United States;

• Entered into an agreement with Canadian Pacific Railway to deploy BlackBerry Radar across 2,000 of its domestic intermodal chassis;

• Entered into an agreement for BlackBerry QNX technology to power Arrival’s Generation 2.0 autonomous-ready commercial electric vehicles;

• Announced an agreement with ETAS GmbH, a subsidiary of Bosch, to cooperate on the joint development and marketing of an automotive software platform based on the AUTOSAR Adaptive standard;

• Announced that Hyundai Autron selected BlackBerry QNX technology to power its next-generation advanced driver-assistance systems (ADAS) and autonomous driving software platform;

• Launched BlackBerry AtHoc & BlackBerry SecuSUITE solutions on AWS;

• Launched CylancePROTECT for mobile devices managed by BlackBerry UEM;

• Announced the promotion of John McClurg to the role of Chief Information Security Officer and Christopher Hummel to the role of Chief Information Officer;

• Announced the integration of CylancePROTECT and CylanceOPTICS with Chronicle’s Backstory security analytics platform;

• Launched BlackBerry Solutions on the Microsoft Azure Marketplace;

• Launched the BlackBerry Advanced Technology Development Labs to develop cutting-edge security innovations;

• Announced the transition of Steve Capelli to the role of Chief Revenue Officer and the promotion of Steve Rai to the role of Chief Financial Officer;

• Entered into an agreement with Matson Logistics to deploy the BlackBerry Radar-M solution across its entire fleet of domestic intermodal containers;

• Announced, along with DENSO Corporation, that the first integrated Human Machine Interface digital cockpit system with BlackBerry QNX technology has shipped in SUBARU vehicles;

• Launched the BlackBerry QNX Acoustics Management Platform 3.0, the latest version of its automotive acoustics software;

• Announced a deeper partnership with Jaguar Land Rover for the use of the Company’s AI and machine learning technologies, BlackBerry QNX software and BlackBerry Cybersecurity Consulting services in the development of the automaker’s next-generation vehicles;

• Appointed Lisa Disbrow to the Company’s Board of Directors (the “Board”) and to the audit and risk management committee of the Board;

• Named as a Leader in Gartner’s 2019 Magic Quadrant for Unified Endpoint Management Tools for the fourth consecutive year;

• Launched BlackBerry Intelligent Security, the first cloud-based solution that leverages the power of adaptive security, continuous authentication and artificial intelligence to enhance mobile endpoint security in zero trust environments;

• Entered into an agreement with SYNNEX Corporation to distribute the BlackBerry Enterprise Mobility Suite in the United States and accelerate partner recruitment for the BlackBerry Enterprise Partner Program;

• Introduced CylanceGUARD, a managed detection and response solution that leverages BlackBerry Cylance security experts and its industry-leading native AI platform to provide continuous threat hunting and monitoring;

• Entered into a collaborative supply agreement expanding the Company’s partnership with LG Electronics Inc.

to accelerate the deployment of connected and autonomous vehicle technology for automotive OEMs and Tier 1 vendors;

• Announced that BlackBerry QNX Software is embedded in more than 150 million vehicles;

• Achieved Federal Risk and Authorization Management Program (“FedRAMP”) Ready status for the BlackBerry Government Mobility Suite, a cloud-based endpoint management solution developed specifically for U.S.

government agencies;

• Announced support of Canada’s Digital Charter, aimed at protecting the privacy and data security of Canadians, and that the Company has been recognized by the Government of Canada as a benchmark for trusted technology;

• Announced that Forrester found that BlackBerry Cylance’s AI-driven endpoint security products delivered a 99 percent return on investment;

• Announced that BlackBerry Cylance has completed an Australian Information Security Registered Assessors Program (IRAP) assessment to obtain certification as a security solutions provider to Australian federal government agencies;

• With WITTENSTEIN high integrity systems, announced a new embedded software platform that enables the development of safety-certified and mission-critical applications on heterogenous system-on-chip processors;

• Launched BlackBerry Radar H2, a new intelligent, data-driven asset monitoring device that can help automate operations, improve utilization of trailers, containers, chassis and other remote assets, as well as ensure assets are safe and secure;

• Established BlackBerry Government Solutions, to accelerate the Company’s FedRAMP initiatives and deepen ties with U.S.

The Company continued to execute on its strategy in fiscal 2021 and announced the following achievements:

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

• 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;

• 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;

• 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;

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

• 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;

• Announced that the BlackBerry® Government Mobility Suite has achieved Federal Risk and Authorization Management Program (FedRAMP) authorization;

• 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;

• Launched BlackBerry QNX® Hypervisor 2.2, the latest edition of the Company’s real-time embedded hypervisor;

• 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;

• Launched the BlackBerry® Alert next-generation critical event management solution for the commercial sector;

• Introduced AtHoc® Managed Service to enable organizations of any size to maintain crisis communications capability;

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

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

• Announced enhancements to BlackBerry Radar® devices to help transportation businesses improve asset utilization and visibility;

• Announced that BlackBerry is making available PE Tree, a free open-source tool for cybersecurity professionals that significantly reduces the time and effort required to reverse engineer malware;

• Announced a collaboration with Intel to deliver a new release of BlackBerry Optics to stop cryptojacking malware;

• Released the 2021 BlackBerry Threat Report, detailing a sharp rise in cyberthreats facing organizations since the onset of the COVID-19 pandemic;

• 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:

• Launched the BlackBerry IVY Innovation Fund to drive innovation and new products using BlackBerry IVY;

• Announced that the U.S.

Air Force chose BlackBerry Spark for secure productivity;

• Announced expanded partnership with Baidu to power high-definition map technology for autonomous driving;

• Announced that Scania AB chose BlackBerry QNX to provide the safety-critical operating system and hypervisor in its next generation of heavy goods vehicles;

• Announced the development of an autonomous driving domain controller for the Xpeng P7 intelligent electric sports sedan with Desay SV Automotive;

• Teamed up with Desay SV Automotive to launch a virtual smart cabin domain controller in Chery’s Tiggo 8 Plus and Jetour X90 models;

• Announced that QNX Black Channel Communications Technology will be used in Motional’s driverless vehicle platform;

• 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;

• Announced that the Neutrino operating system will power ADAS systems in Canoo’s next generation electric vehicles;

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

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

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

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

• 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;

• Expanded the leadership position of the BlackBerry AtHoc crisis communication system within the U.S.

federal government;

• Announced that BlackBerry AtHoc introduced Derived Credentials and FedRAMP authorization on AWS GovCloud to better support U.S.

Federal agencies;

• BlackBerry Limited announced that the NATO Communications and Information (NCI) Agency has awarded a contract for BlackBerry’s SecuSUITE® for Government to encrypt the conversations of its technology and cyber leaders;

• Announced that Verizon added BlackBerry Cylance’s AI-driven antivirus security solutions to its Managed Security Services portfolio;

• Introduced CylancePERSONA, the first proactive endpoint behavioral analytics solution.

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

• Entered into a partnership with Dedrone, a market and technology leader in airspace security, to deliver advanced counter-drone technology to secure the world’s most critical sites;

• Announced that Sliced Tech will host SecuSUITE for Government for Australian government and enterprise customers;

• Announced that BlackBerry Radar added more than 12 new channel partners including two within Mexico, expanding the company’s asset monitoring solutions outside of the U.S.

and Canada for the first time;

• Entered into a partnership with ZTR to offer railcar owners, operators and suppliers a powerful new digital monitoring solution;

• Announced that BlackBerry® Jarvis™ was named “Best In Breed” binary analysis tool for embedded software by an Internal Research & Development (IRAD) program study;

• Announced the success of a joint cybersecurity skills-based education program with Girl Guides of Canada;

• Entered into a partnership with University of Windsor to develop and deliver a cybersecurity curriculum for the University’s Graduate Master’s Program in Applied Computing.

Environmental, Sustainability and Corporate Governance:

• Announced that the Company received eleven “Employer of Choice” and “Best Place to Work” Awards in 2020;

• Expanded the Company’s commitment to the United Nations Global Compact Sustainable Development Goals;

• Extended the Company’s partnership with the American Red Cross by donating BlackBerry AtHoc software to support community safety and resilience;

• Appointed Thomas Eacobacci as President;

• Appointed Marjorie Dickman as Chief Government Affairs and Public Policy Officer.

Debt Redemption and New Issuance

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.

The 1.75% Debentures have terms that are substantially identical to those of the 3.75% Debentures except that the 1.75% Debentures are convertible into common shares at a price of $6.00 per common share, bear a lower rate of interest at 1.75% per annum, are subject to a higher approval threshold for extraordinary resolutions and mature in 2023.

Additionally, the 1.75% Debentures cannot be converted to the extent that, after giving effect to the conversion, the holder would beneficially own or exercise control or direction over more than 19.99% of the Company’s then issued and outstanding shares.

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

In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) as 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 pandemic 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 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, throughout most of fiscal 2021, the Company mandated remote working, utilizing virtual meetings and suspending employee travel, to protect the health and safety of its employees, contractors, customers and visitors.

The Company also shifted customer, industry and other stakeholder events to virtual-only experiences, and may similarly alter, postpone or cancel other events in the future.

The Company has a limited history with substantially remote operations and the long-term impacts of it are 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, 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 year ended February 28, 2021 included measures impacting employee salaries and benefits of approximately $18 million, a reduction in travel spending of approximately $18 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 $53 million in offsets to salaries for amounts under the Canada Emergency Wage Subsidy (“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 Company estimates that savings from temporary cost reduction measures and governmental

assistance related to COVID-19 will be lower in fiscal 2022 and will primarily depend on the speed and extent of the easing of pandemic-related restrictions and the extent of ongoing government programs.

In fiscal 2021, the economic downturn and uncertainty caused by the COVID-19 pandemic and the measures undertaken to contain its spread negatively affected the Company’s QNX automotive software business, caused volatility in demand for many of 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 higher quarterly Software & Services revenue in the fourth quarter of fiscal 2021 compared to the first quarter of fiscal 2021 when the COVID-19 pandemic first materially negatively impacted the Company’s operations and observed a partial recovery in global automotive production volumes by the end of the fiscal year, the COVID-19 pandemic and related global chip shortage have had and, in fiscal 2022, may continue to have a material adverse impact on the Company’s QNX automotive software business in particular and on the Company’s business, results of operations and financial condition on a consolidated basis.

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

The ultimate impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on, among other things, the pandemic’s duration and severity, the governmental restrictions that may be sustained or imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the pandemic (including the availability and distribution of vaccines), the impact of the global chip shortage and global economic conditions.

The long-term impact of the COVID-19 pandemic 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 pandemic on its business, results of operations and consolidated financial statements, including potential asset impairment.

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

Fiscal 2021 Summary Results of Operations

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Diluted loss per share on a U.S.

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

See Note 9 to the Consolidated Financial Statements for the fiscal year ended February 29, 2020 for calculation of the diluted weighted average number of shares outstanding.

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

See Note 9 to the Consolidated Financial

Statements for the fiscal year ended February 28, 2021 for calculation of the diluted weighted average number of shares outstanding.

Financial Highlights

The Company had approximately $804 million in cash, cash equivalents and investments as of February 28, 2021.

In fiscal 2020, the Company recognized revenue of $1.04 billion and incurred a net loss of $152 million, or $0.27 basic loss per share on a U.S.

The Company incurred a diluted loss per share of $0.32 on a U.S.

The Company recognized adjusted revenue of $1.10 billion and adjusted net income of $74 million, or adjusted earnings of $0.13 per share, on a non-GAAP basis in fiscal 2020.

In fiscal 2021, the Company recognized revenue of $893 million and incurred a net loss of $1.10 billion, or $1.97 basic and diluted loss per share on a U.S.

In fiscal 2020, the Company recognized revenue of $1.04 billion and incurred a net loss of $152 million, or $0.27 basic and $0.32 diluted loss per share on a U.S.

The Company recognized adjusted revenue of $919 million and adjusted net income of $101 million, or adjusted earnings of $0.18 per share, on a non-GAAP basis in fiscal 2021.

The Company recognized adjusted revenue of $1.10 billion and adjusted net income of $74 million, and adjusted earnings of $0.13 per share, in fiscal 2020.

See “Non-GAAP Financial Measures” below.

Debentures Fair Value Adjustment

As previously disclosed, the Company elected the fair value option to account for the 3.75% unsecured convertible debentures (the “Debentures”);

As previously disclosed, the Company elected the fair value option to account for the Debentures;

therefore, periodic revaluation has been and continues to be required under U.S.

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

In fiscal 2020, the fair value of the Debentures decreased by approximately $59 million.

For the three months ended February 29, 2020, the Company recorded non-cash income relating to changes in fair value from instrument specific credit risk of $7 million in AOCI and a non-cash charge relating to changes in fair value from non-credit components of $5 million (pre-tax and after tax) (the “Q4 Fiscal 2020 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

In fiscal 2020, the Company recorded a non-cash charge relating to changes in fair value from instrument-specific credit risk of $7 million in AOCI and non-cash income relating to changes in fair value from non-credit components of $66 million (pre-tax and after tax) (the “Fiscal 2020 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

As of February 28, 2021, the fair value of the 1.75% Debentures was approximately $720 million versus the principal value of $365 million.

For the three months ended February 28, 2021, the Company recorded a non-cash charge relating to changes in fair value from instrument specific credit risk of $4 million in Other Comprehensive Income (Loss) (“OCI”) and a non-cash charge relating to changes in fair value from non-credit components of $258 million (pre-tax and after tax) (the “Q4 Fiscal 2021 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

In fiscal 2021, the Company recorded non-cash income relating to changes in fair value from instrument-specific credit risk of $13 million in OCI and a non-cash charge relating to changes in fair value from non-credit components of $372 million (pre-tax and after tax) (the “Fiscal 2021 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

See Note 7 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 months and year ended February 28, 2021:

Three Months Ended For the Year Ended

February 28, 2021 February 28, 2021

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

Charge associated with the change in fair value from instrument-specific credit components on the 1.75% Debentures recorded in AOCL (4) (8)

Total non-cash income (charges) recorded in AOCL $ (4) $ 13

Three Months Ended For the Year Ended

February 28, 2021 February 28, 2021

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)

Charge associated with the change in fair value from non-credit components on the 1.75% Debentures recorded in the consolidated statements of operations (258) (347)

Total non-cash charges recorded in the consolidated statements of operations $ (258) $ (372)

Non-GAAP Financial Measures

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

On March 31, 2020, the Company announced financial results for the three months and fiscal year ended February 29, 2020, which included certain non-GAAP financial measures, including adjusted revenue, adjusted gross margin (before taxes), adjusted gross margin percentage (before taxes), 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 the items below from the Company’s financial results.

The Company believes that excluding the below items provides readers of the Company’s financial statements with a more consistent basis for comparison across accounting periods and is more useful in helping readers understand the Company’s operating results and underlying operational trends.

• Debenture fair value adjustment .

The Company has elected to measure its outstanding Debenture 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 gains and losses from the change in fair value from non-credit components of the Debentures are recognized in income.

On March 30, 2021, the Company announced financial results for the three months and fiscal year ended February 28, 2021, which included certain non-GAAP financial measures, including adjusted revenue, adjusted Software and Services 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 and adjusted amortization expense.

In the Company’s internal reports, management evaluates the performance of the Company’s business on a non-GAAP basis by excluding the impact of certain items below from the Company’s U.S.

GAAP financial results.

The Company believes that these non-GAAP measures provide readers of the Company’s financial statements with a consistent basis for comparison across accounting periods and is useful in helping readers understand the Company’s operating results and underlying operational trends.

• Debentures fair value adjustment .

The Company has elected to measure its Debentures outstanding 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.

The amount can vary each period depending on changes to the Company’s share price.

This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.

This is not indicative of the Company’s core operating performance, and may not be meaningful in comparison to the Company’s past operating performance.

• 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 are not 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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As the impacted contracts renew over time, the associated reversal of the acquisition write-downs will trend to zero.

Given the extent of the quantitative decline in this adjustment over time through the end of fiscal 2021, the Company plans to discontinue its usage of this non-GAAP measure beginning in the first quarter of fiscal 2022.

• Software deferred commission expense acquired.

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As the impacted contracts renew over time, the associated reversal of the acquisition write-downs will trend to zero.

• Stock compensation expenses .

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Such acquired intangible assets depreciate over time and the related amortization will recur in future periods until the assets have been fully amortized.

This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.

This is not indicative of the Company’s core operating performance, and may not be meaningful in comparison to the Company’s past operating performance.

• Business acquisition and integration costs.

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These expenditures do not relate to the ongoing operation of the business and they tend to vary significantly based on the circumstances of each transaction.

This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.

This is not indicative of the Company’s core operating performance, and may not be meaningful in comparison to the Company’s past operating performance.

• Acquisition valuation allowance.

The Company records an income tax valuation allowance associated with business acquisitions.

This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.

• Arbitration awards and settlements, net.

The Company believes that arbitration awards and settlements, net related to the Qualcomm Technologies, Inc., Nokia Corporation and Panasonic Corporation arbitration and settlements are unusual items related to legacy operations which are not reflective of the Company’s ongoing operating expense or core operating performance and are not meaningful in comparison to the Company’s past and future operating performance.

This is not indicative of the Company’s core operating performance, and may not be meaningful in comparison to the Company’s past operating performance.

• Settlements, net.

The Company believes that settlements, net is an unusual item related to legacy operations which is not reflective of the Company’s ongoing operating expense or core operating performance and may not be meaningful in comparison to the Company’s past and future operating performance.

• Long-lived asset impairment charge .

The Company believes that long-lived asset impairment charges do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and are not meaningful in comparison to the Company’s past operating performance.

The Company believes that long-lived asset impairment charges do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful in comparison to the Company’s past operating performance.

• Goodwill impairment charge.

The Company believes that goodwill impairment charge does not reflect expected future operating expenses, is not indicative of the Company’s core operating performance as it is associated with a legacy line of business, and is not meaningful in comparison to the Company’s past operating performance.

The Company believes that goodwill impairment charges 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.

GAAP basis, the impact of these items is reflected in the Company’s income statement.

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GAAP measures, supplementary non-GAAP financial measures that exclude certain items from the presentation of its financial results.

Reconciliation of non-GAAP based measures with most directly comparable GAAP based measures for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018

Readers are cautioned that adjusted revenue, adjusted gross margin (before taxes), adjusted gross margin percentage (before taxes), 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.

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

GAAP based measures for the three months ended February 28, 2021, February 29, 2020 and February 28, 2019

Readers are cautioned that adjusted revenue, adjusted Software and Services 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 and adjusted amortization expense and similar measures do not have any standardized meaning prescribed by U.S.

GAAP and are therefore unlikely to be comparable to similarly titled measures reported by other companies.

These non-GAAP financial measures should be considered in the context of the U.S.

GAAP results, which are described in this MD&A and presented in our Consolidated Financial Statements.

GAAP results, which are described in this MD&A and presented in the Consolidated Financial Statements.

A reconciliation of the most directly comparable U.S.

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Adjusted revenue $ 215 $ 291 $ 257

Gross margin (before taxes) $ 212 $ 206 $ 177

Gross margin $ 152 $ 212 $ 206

Software deferred revenue acquired (1)

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Stock compensation expense 1 2 1

Adjusted gross margin (before taxes) $ 223 $ 210 $ 187

Gross margin % (before taxes) 75.2 % 80.8 % 76.0 %

Adjusted gross margin $ 158 $ 223 $ 210

Gross margin % 72.4 % 75.2 % 80.8 %

Software deferred revenue acquired (1)

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Stock compensation expense 0.5 % 0.7 % 0.4 %

Adjusted gross margin % (before taxes) 76.6 % 81.7 % 78.2 %

Adjusted gross margin % 73.5 % 76.6 % 81.7 %

______________________________

(1) See Reconciliation of U.S.

GAAP IoT and BlackBerry Cylance revenue to adjusted IoT and BlackBerry Cylance revenue

Reconciliation of operating expense for the three months ended February 29, 2020, November 30, 2019, February 28, 2019 and February 28, 2018 to adjusted operating expense is reflected in the tables below:

GAAP Software and Services revenue to adjusted Software and Services revenue

Reconciliation of U.S.

GAAP operating expense for the three months ended February 28, 2021, November 30, 2020, February 29, 2020 and February 28, 2019 to adjusted operating expense is reflected in the tables below:

For the Three Months Ended (in millions) February 28, 2021 November 30, 2020 February 29, 2020 February 28, 2019

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Debenture fair value adjustment (1)

5 (20) (6) (34)

Software deferred commission expense acquired (3) (4) (3) —

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LLA impairment charge 22 — 5 —

Arbitration awards and settlements, net — — (9) (1)

Settlements, net — — — (9)

Adjusted operating expense $ 140 $ 142 $ 172 $ 152

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

Reconciliation of GAAP net income (loss) and GAAP basic earnings per share for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted net income and adjusted basic earnings per share is reflected in the tables below:

Reconciliation of U.S.

GAAP net income (loss) and U.S.

GAAP basic earnings (loss) per share for the three months ended February 28, 2021, February 29, 2020 and February 28, 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) February 28, 2021 February 29, 2020 February 28, 2019

Basic earnings per share Basic earnings per share Basic earnings per share

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

Net income (loss) $ (315) $(0.56) $ (41) $(0.07) $ 51 $0.09

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LLA impairment charge 22 5 —

Arbitration awards and settlements, net — (9) (1)

Settlements, net — — (9)

Acquisition valuation allowance — — (21)

Adjusted net income $ 16 $0.03 $ 51 $0.09 $ 60 $0.11

Reconciliation of U.S GAAP IoT, BlackBerry Cylance and software and services revenue for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted IoT, BlackBerry Cylance and software and services revenue is reflected in the tables below:

Reconciliation of U.S.

GAAP Software and Services revenue for the three months ended February 28, 2021, February 29, 2020 and February 28, 2019 to adjusted Software and Services revenue is reflected in the tables below:

For the Three Months Ended (in millions) February 28, 2021 February 29, 2020 February 28, 2019

IoT Revenue $ 127 $ 144 $ 154

Software deferred revenue acquired — 1 6

Adjusted IoT revenue $ 127 $ 145 $ 160

BlackBerry Cylance Revenue $ 43 $ 3 $ —

Software deferred revenue acquired 9 1 —

Adjusted BlackBerry Cylance Revenue $ 52 $ 4 $ —

Software and Services Revenue $ 160 $ 170 $ 147

Revenue $ 282 $ 255 $ 233

Other revenue 4 9 21

Software and Services revenue $ 278 $ 246 $ 212

Software deferred revenue acquired 5 9 2

Adjusted Software and Services revenue $ 165 $ 179 $ 149

Reconciliation of U.S GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the tables below:

Reconciliation of U.S.

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended February 28, 2021, February 29, 2020 and February 28, 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) February 28, 2021 February 29, 2020 February 28, 2019

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Adjusted amortization $ 13 $ 13 $ 13

Reconciliation of selected GAAP-based measures to non-GAAP based measures for the years ended February 29, 2020, February 28, 2019 and February 28, 2018

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

GAAP measures for the years ended February 28, 2021, February 29, 2020 and February 28, 2019

A reconciliation of the most directly comparable U.S.

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Adjusted revenue $ 919 $ 1,099 $ 916

Gross margin (before taxes) $ 763 $ 698 $ 670

Gross margin $ 643 $ 763 $ 698

Software deferred revenue acquired (1)

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Stock compensation expense 5 5 4

Adjusted gross margin (before taxes) $ 832 $ 716 $ 720

Gross margin % (before taxes) 73.4 % 77.2 % 71.9 %

Adjusted gross margin $ 674 $ 832 $ 716

Gross margin % 72.0 % 73.4 % 77.2 %

Software deferred revenue acquired (1)

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Stock compensation expense 0.5 % 0.4 % 0.5 %

Adjusted gross margin % (before taxes) 75.7 % 78.2 % 74.5 %

Adjusted gross margin % 73.3 % 75.7 % 78.2 %

Operating expense $ 1,750 $ 912 $ 638

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LLA impairment charge 43 10 —

Arbitration awards and settlements, net — (9) (683)

Settlements, net — — (9)

Adjusted operating expense $ 576 $ 754 $ 597

______________________________

(1) See Reconciliation of U.S GAAP IoT and BlackBerry Cylance revenue to adjusted IoT and BlackBerry Cylance revenue

(1) See Reconciliation of U.S.

GAAP Software and Services revenue to adjusted Software and Service revenue

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

Reconciliation of GAAP net income (loss) and GAAP basic earnings per share for the years ended February 29, 2020, February 28, 2019 and February 28, 2018 to the adjusted net income and adjusted basic earnings per share is reflected in the tables below:

Reconciliation of U.S.

GAAP net income (loss) and U.S.

GAAP basic earnings (loss) per share for the years ended February 28, 2021, February 29, 2020 and February 28, 2019 to the adjusted net income and adjusted basic earnings per share is reflected in the tables below:

For the Fiscal Years Ended (in millions, except per share amounts) February 28, 2021 February 29, 2020 February 28, 2019

Basic earnings per share Basic earnings per share Basic earnings per share

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

Net income (loss) $ (1,104) $ (1.97) $ (152) $ (0.27) $ 93 $ 0.17

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LLA impairment charge 43 10 —

Arbitration awards and settlements, net — (9) (806)

Settlements, net — — (9)

Acquisition valuation allowance — (1) (21)

Adjusted net income $ 101 $0.18 $ 74 $0.13 $ 131 $0.24

Reconciliation of U.S GAAP IoT, BlackBerry Cylance and software and services revenue for the years ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted IoT, BlackBerry Cylance and software and services revenue is reflected in the tables below:

Reconciliation of U.S.

GAAP Software and Services revenue for the years ended February 28, 2021, February 29, 2020 and February 28, 2019 to adjusted Software and Services revenue is reflected in the tables below:

For the Fiscal Years Ended (in millions) February 28, 2021 February 29, 2020 February 28, 2019

IoT Revenue $ 540 $ 554 $ 551

Software deferred revenue acquired 2 11 35

Adjusted IoT revenue $ 542 $ 565 $ 586

BlackBerry Cylance Revenue $ 151 $ 5 $ —

Software deferred revenue acquired 57 1 —

Adjusted BlackBerry Cylance revenue $ 208 $ 6 $ —

Software and Services Revenue $ 621 $ 691 $ 559

Revenue $ 1,040 $ 904 $ 932

Other revenue 21 59 185

Software and Services revenue $ 1,019 $ 845 $ 747

Software deferred revenue acquired 26 59 12

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LLA impairment charge 22 5 —

Arbitration awards and settlements, net — (9) —

Total non-GAAP adjustments to operating loss 92 30 33

Settlements, net — — (9)

Total non-GAAP adjustments to operating income (loss) 331 92 30

Adjusted operating income 18 51 58

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Adjusted operating income margin % (1)

18 % 23 % 7 %

Adjusted EBITDA margin % (2)

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

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LLA impairment charge 43 10 —

Arbitration awards and settlements, net — (9) (683)

Total non-GAAP adjustments to operating income 227 59 (210)

Settlements, net — — (9)

Total non-GAAP adjustments to operating income (loss) 1,205 227 59

Adjusted operating income 98 78 119

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Adjusted operating income margin % (1)

11 % 7 % 13 %

Adjusted EBITDA margin % (2)

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The Company regularly monitors a number of financial and operating metrics, including the following key metrics, in order to measure the Company’s current performance and estimate future performance.

Readers are cautioned that recurring revenue percentage, annual recurring revenue (“ARR”), dollar-based net retention rate (“DBNRR”) and free cash flow do not have any standardized meaning prescribed by U.S.

Readers are cautioned that billings, recurring revenue percentage, annual recurring revenue (“ARR”), dollar-based net retention rate (“DBNRR”), net customer churn rate and free cash flow do not have any standardized meaning prescribed by U.S.

GAAP and are therefore unlikely to be comparable to similarly titled measures reported by other companies.

The Company defines billings as amounts invoiced less credits issued, with the exception of BlackBerry Cylance for which billings are defined as revenue recognized plus the change in deferred revenue from the beginning to the end of the period.

The Company defines billings as amounts invoiced less credits issued.

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.

The Company previously stated that it expected double-digit percentage billings growth in fiscal 2020.

The Company’s billings grew by a double-digit percentage in fiscal 2020.

Enterprise achieved sequential billings growth in the high teen percentage in the fourth quarter of fiscal 2020, which quarter also marked the highest level of Enterprise billings in fiscal 2020.

BlackBerry Cylance billings also increased sequentially in the fourth quarter of fiscal 2020.

Recurring Revenue Percentage

The Company defines recurring revenue percentage as subscription, license and support revenue (which includes revenue relating to support for perpetual licenses), less IP licensing and professional services, for the period divided by total software and services revenue for the period.

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

The Company previously stated that it expected approximately 90% of total adjusted software and services revenue, excluding IP licensing and professional services, to be recurring in fiscal 2020.

Total adjusted software and services revenue, excluding IP licensing and professional services, was greater than 90% recurring in the fourth quarter of fiscal 2020.

Total software and services includes IoT, BlackBerry Cylance and Licensing.

Both Software and Services and total Company billings increased in the fourth quarter of fiscal 2021 compared to the third quarter of fiscal 2021.

Software and Services billings were consistent with the fourth quarter of fiscal 2020, but total Company billings decreased.

In fiscal 2022, the Company expects Cyber Security and BTS billings to grow by double-digit percentages.

Recurring Software Product Revenue

The Company defines recurring software product revenue percentage as recurring software product revenue divided by total software and services revenue.

Recurring software product revenue is comprised of subscription and term licenses, maintenance arrangements, royalty arrangements and perpetual licenses recognized ratably under ASC 606.

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

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 fourth quarter of fiscal 2021 and decreased from greater than 90% recurring in the fourth quarter of fiscal 2020 due to product mix.

Annual Recurring Revenue

The Company defines ARR as the annualized value of all active subscription contracts as of the end of the reporting period.

The Company uses ARR as an indicator of business momentum for the BlackBerry Cylance product line.

BlackBerry Cylance ARR was approximately $167 million in the fourth quarter of fiscal 2020, an increase of approximately $14 million, or 9%, compared to approximately $153 million in the fourth quarter of fiscal 2019.

The Company defines ARR as the annualized value of all subscription, term, maintenance, services, and royalty contracts that generate recurring revenue as of the end of the reporting period.

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

Software and Services ARR was approximately $468 million in the fourth quarter of fiscal 2021 and decreased compared to the third quarter of fiscal 2021 primarily due to the impact of COVID-19 on BTS, specifically on QNX production-based royalties.

QNX royalties are included in the ARR calculation on a trailing four quarter basis.

Dollar-Based Net Retention Rate

The Company defines DBNRR as the percentage of total annual contract value (“ACV”) from its subscription customer base at the end of a trailing 12-month period over the ACV of the same tranche of customers at the beginning of that 12-month period.

The Company uses DBNRR to evaluate the long-term value of BlackBerry Cylance’s customer relationships, measuring the ability of the business to retain and expand recurring revenue from its existing customer base.

BlackBerry Cylance DBNRR was greater than 90% in the fourth quarter of fiscal 2020 and greater than 100% in the fourth quarter of fiscal 2019.

The Company calculates the DBNRR as of any period end by first calculating the ARR from the customer base as at 12 months prior to the current period end (“Prior Period ARR”).

The Company then calculates the ARR for the same cohort of customers as at the current period end (“Current Period ARR”).

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

Software and Services DBNRR was 91% in the fourth quarter of fiscal 2021 and increased compared to 90% in the third quarter of fiscal 2021.

Net Customer Churn Rate

The Company defines net customer churn rate as the difference between the gross customer churn rate and the new customer acquisition rate, divided by the number of active customers in the prior quarter, expressed as a percentage.

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 1% in the fourth quarter of fiscal 2021 consistent with the third quarter of fiscal 2021.

Free Cash Flow

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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 February 29, 2020, the Company’s net cash flow from operating activities was $35 million and capital expenditures were $3 million, resulting in the Company reporting free cash flow of $32 million which includes $4 million in restructuring payments associated with facilities.

For the fiscal year ended February 29, 2020, the Company’s net cash provided by operating activities was $26 million and capital expenditures were $12 million, resulting in the Company reporting free cash flow of $14 million which includes $17 million relating to acquisition and integration expenses, restructuring costs and legal proceeding.

For the three months ended February 28, 2021, the Company’s net cash flow provided by operating activities was $51 million and capital expenditures were $3 million, resulting in the Company reporting free cash flow of $48 million.

For the fiscal year ended February 28, 2021, the Company’s net cash provided by operating activities was $82 million and capital expenditures were $8 million, resulting in the Company reporting free cash flow of $74 million.

The Company previously stated that it expected to generate positive free cash flow in fiscal 2021.

The Company has generated positive free cash flow in fiscal 2021.

Results of Operations - Fiscal year ended February 28, 2021 compared to fiscal year ended February 29, 2020

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Revenue by Product and Service

IoT $ 540 $ 554 $ (14) $ 551 $ 3

BlackBerry Cylance 151 5 146 — 5

Licensing 328 286 42 196 90

Other 21 59 (38) 185 (126)

Software and Services $ 621 $ 691 $ (70) $ 559 $ 132

Licensing and Other 272 349 (77) 345 4

$ 893 $ 1,040 $ (147) $ 904 $ 136

% Revenue by Product and Service

IoT 51.9 % 61.3 % 59.1 %

BlackBerry Cylance 14.5 % 0.6 % — %

Licensing 31.5 % 31.6 % 21.0 %

Other 2.1 % 6.5 % 19.9 %

Software and Services 69.5 % 66.4 % 61.8 %

Licensing and Other 30.5 % 33.6 % 38.2 %

100.0 % 100.0 % 100.0 %

IoT revenue was $540 million, or 51.9% of revenue in fiscal 2020, a decrease of $14 million compared to $554 million, or 61.3% of revenue in fiscal 2019.

The decrease in IoT revenue of $14 million was primarily due to a decrease of $28 million from a lower number of Enterprise software licenses sold due to the reorganization of the Enterprise sales force in fiscal 2020 and a decrease of $13 million from lower BlackBerry QNX royalty volumes, partially offset by an increase of $19 million due to conversions of certain existing BlackBerry QNX royalty-bearing licenses to fixed pricing from volume-based pricing, resulting in recognition of the fixed price in the current period rather than as units are shipped (net of recurring royalties that would have been recognized without conversion) and an increase of $6 million related to BlackBerry QNX development seat revenues.

Adjusted IoT revenue was $542 million in fiscal 2020 compared to $565 million in fiscal 2019, representing a decrease of $23 million.

The $23 million decrease in IoT revenue was primarily attributable to the same reasons described above on a U.S.

Software and Services

Software and Services revenue was $621 million, or 69.5% of revenue in fiscal 2021, a decrease of $70 million compared to $691 million, or 66.4% of revenue in fiscal 2020.

The decrease in Software and Services revenue of $70 million was primarily due to a decrease of $75 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 $16 million relating to professional services, a decrease of $9 million in BlackBerry AtHoc revenue and a decrease of $7 million relating to non-automotive OEM business, partially offset by an increase of $24 million related to product revenue in BlackBerry Spark and an increase of $18 million related to the sale of Secusmart solutions.

Adjusted Software and Services revenue was $647 million in fiscal 2021 compared to $750 million in fiscal 2020, representing a decrease of $103 million.

The $103 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 $33 million in the non-GAAP adjustment of deferred software revenue acquired to $26 million in fiscal 2021 from $59 million in fiscal 2020.

The Company previously stated it expected BTS revenue growth of mid to high teen percentage in fiscal 2020 compared to 2019.

BTS revenue grew by 5.9%, which was lower than expected due to the negative impacts of a slowdown in the automotive market and the COVID-19 pandemic.

BTS revenue includes revenue from BlackBerry QNX, BlackBerry Certicom, BlackBerry Radar, Paratek and BlackBerry Jarvis.

The Company previously stated it expected Enterprise adjusted revenue growth of less than 12% in fiscal 2020.

The Company also previously stated that it expected modest sequential growth in Enterprise adjusted revenue for the remainder of fiscal 2020.

Enterprise adjusted revenue declined by 9.8% in fiscal 2020 and Enterprise adjusted revenue declined in the fourth quarter of fiscal 2020 versus the third quarter of fiscal 2020 due to reorganizations of the Enterprise sales force during fiscal 2020, which caused delays in developing and closing Enterprise sales transactions, and due to competitive upgrades to the Company’s Enterprise product features and suites not being introduced until late in the fiscal year.

In the second quarter of fiscal 2019, the Company previously stated that it expected to generate $100 million in cumulative revenue from its BlackBerry Radar asset tracking solution over the next three years.

The Company no longer expects to generate this revenue within this time frame.

In fiscal 2021, the Company expects BlackBerry QNX revenue to be negatively impacted by a slowdown in automotive market related to the COVID-19 pandemic, the impact of which could be partially offset by increased customer demand for the Company’s endpoint security and productivity solutions that support business continuity and remote working environments, including the BlackBerry Spark platform, SecuSUITE and BlackBerry AtHoc.

BlackBerry Cylance

BlackBerry Cylance revenue was $151 million, or 14.5% of revenue in fiscal 2020, an increase of $146 million compared to $5 million, or 0.6% of revenue in fiscal 2019.

The increase in BlackBerry Cylance revenue of $146 million was due to the acquisition of Cylance late in the fourth quarter of fiscal 2019;

revenue reported in the prior year period related to BlackBerry Cybersecurity Services and seven days of BlackBerry Cylance revenue following its acquisition on February 21, 2019.

Adjusted BlackBerry Cylance revenue increased by $202 million to $208 million in fiscal 2020, compared to $6 million in fiscal 2019.

The increase was primarily due to the same reason described above on a U.S.

GAAP basis and due to an increase of $56 million in the non-GAAP adjustment of deferred software revenue acquired to $57 million in fiscal 2020 from $1 million in fiscal 2019.

Cylance recorded U.S.

GAAP revenue of $175 million for the year ended February 28, 2019.

After including BlackBerry Cybersecurity Services revenue, BlackBerry Cylance revenue was $178 million for the year ended February 28, 2019.

Adjusted BlackBerry Cylance revenue was $208 million for the year ended February 29, 2020, representing an increase of $30 million, or 16.9% over the prior year period.

The Company previously stated that it expected adjusted BlackBerry Cylance revenue growth excluding BlackBerry Cybersecurity Services to be approximately 20% in fiscal 2020 on a base of $170 million.

Adjusted BlackBerry Cylance revenue growth was 20.5% in fiscal 2020.

The Company previously stated that it expected the profitability of BlackBerry Cylance to improve through fiscal 2020.

BlackBerry Cylance profitability at the end of fiscal 2020 was greater than at the end of fiscal 2019.

Licensing revenue was $328 million, or 31.5% of revenue in fiscal 2020, an increase of $42 million compared to $286 million, or 31.6% of revenue in fiscal 2019.

The increase in Licensing revenue of $42 million was primarily due to a $126 million increase in direct licensing arrangements consisting of patent licensing transactions and the BBM Consumer licensing arrangement and $4 million related to the sale of IP, partially offset by a $78 million decrease in revenue from the Company’s patent licensing agreement with Teletry and the impact of $11 million received from an IP settlement in fiscal 2019 which did not recur in fiscal 2020.

The revenue recognized for the BBM Consumer licensing arrangement was due to the shut down of the BBM Consumer service by the licensee, as a result of which all of the Company’s performance obligations were completed and an assessment of the amount of revenue for which significant reversal was not probable was performed.

The Company previously stated that it expected IP revenue to grow in fiscal 2020 over the prior fiscal year.

Licensing revenue grew in fiscal 2020.

The Company previously stated that it expected Licensing revenue in the second half of fiscal 2020 to be higher than in the first half of fiscal 2020.

Licensing revenue in the second half of fiscal 2020 was higher than the first half of fiscal 2020.

The Company expects Licensing revenue of approximately $250 million in fiscal 2021.

Other revenue was $21 million, or 2.1% of revenue in fiscal 2020 compared to $59 million, or 6.5% of revenue in fiscal 2019, representing a decrease of $38 million.

The decrease in Other revenue of $38 million was primarily attributable to a decrease in SAF revenue and revenue from the legacy handheld business.

The decrease in SAF revenue is primarily attributable to a lower number of BlackBerry 7 users and lower revenue from those users compared to fiscal 2019.

The decrease in revenue from the legacy handheld business is primarily attributable to the release of previously accrued amounts in fiscal 2019 when the Company determined it had no further performance obligations, which did not recur in fiscal 2020.

The Company previously stated that it expected SAF revenue of between $10 million and $20 million in fiscal 2020.

SAF revenue was approximately $21 million in fiscal 2020.

Adjusted Total Revenue and Software and Services

The Company previously stated that it expected adjusted total Company revenue growth of between 23% and 25% over the prior fiscal year.

Adjusted total Company revenue growth was 20.0% in fiscal 2020, lower than expectations due to the reasons described above in IoT.

The Company previously stated that it expected total adjusted software and services revenue growth, excluding the revenue growth of BlackBerry Cylance, over the prior fiscal year.

Total adjusted software and services revenue excluding BlackBerry Cylance grew by 2.2% in fiscal 2020.

The Company previously stated that in fiscal 2021, the Company expected BlackBerry QNX revenue to be negatively impacted by a slowdown in automotive market related to the COVID-19 pandemic, the impact of which could be partially offset by increased customer demand for the Company’s endpoint security and productivity solutions that support business continuity and remote working environments, including the BlackBerry Spark platform, SecuSUITE and BlackBerry AtHoc.

This is reflected in the Company’s results as noted above, with the exception of BlackBerry AtHoc which also declined.

The Company previously stated that it expected Software and Services, excluding BTS, to have slight U.S.

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

Software and Services, excluding BTS, had slight U.S.

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

In fiscal 2022, the Company expects that Cyber Security revenue and BTS revenue will be higher in the second half of the year than in the first half of the year, and that Cyber Security revenue will be between $495 million and $515 million.

Assuming that the global chip shortage has been alleviated by the middle of fiscal 2022, the Company expects that BTS revenue will return to a pre-pandemic run-rate of approximately $50 million per quarter by that time and will be between $180 million and $200 million for fiscal 2022 as a whole, such that full-year Software and Services revenue will be between $675 million and $715 million.

Licensing and Other

Licensing and Other revenue was $272 million, or 30.5% of revenue in fiscal 2021, a decrease of $77 million compared to $349 million, or 33.6% of revenue in fiscal 2020.

The decrease in Licensing and Other revenue of $77 million was primarily due to a decrease of $93 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 $16 million in revenue from the Company’s intellectual property (“IP”) licensing arrangements including its patent licensing agreement with Teletry, and an increase in $16 million in revenue generated from IP sales.

SAF revenue, which is generated from users of BlackBerry 7 and prior BlackBerry operating systems, also decreased by $8 million, primarily due to a lower number of BlackBerry 7 users and lower revenue from those users compared to fiscal 2020.

The Company previously stated that it expects Licensing revenue to be modestly above $250 million in fiscal 2021, which is reflected in the above results.

The Company previously stated that it expected to generate total Company adjusted revenue of approximately $950 to $965 million in fiscal 2021, assuming a gradual re-opening of the global economy as the measures undertaken to contain the COVID-19 pandemic are reduced.

Total adjusted revenue was $919 million in fiscal 2021 primarily due to the impact on the Company’s Licensing and Other business of the Company having entered into negotiations in the fourth quarter of fiscal 2021 for the potential sale of a portion of the Company’s patent portfolio.

The Company has limited its patent monetization activities due to the negotiations and because revenue from additional transactions that could have been completed in the fourth quarter of fiscal 2021 would have been treated as contingent revenue and deferred to future periods.

Had negotiations not been in progress during the quarter, the Company believes that Licensing and Other revenue would have been higher.

Throughout the period in which negotiations or anticipated regulatory reviews related to the potential patent portfolio transaction are ongoing, the Company expects to continue to limit its monetization activities and expects to generate Licensing and Other revenue of $10 million to $15 million per fiscal quarter.

If the sale process concludes in the middle of fiscal 2022 without the completion of a transaction, the Company will resume its prior monetization activities and expects that Licensing and Other revenue will be approximately $100 million in fiscal 2022.

If a sale transaction is completed, the Company expects that Licensing and Other revenue will be significantly higher than $100 million in fiscal 2022 and the Company expects to use the transaction proceeds primarily to support the growth of the Software and Services business.

GAAP Revenue by Geography

7 unchanged sentences

Europe, Middle East and Africa 197 221 (24) 222 (1)

Other 76 83 (7) 114 (31)

Other regions 63 76 (13) 83 (7)

$ 893 $ 1,040 $ (147) $ 904 $ 136

2 unchanged sentences

Europe, Middle East and Africa 22.1 % 21.3 % 24.6 %

Latin America 7.3 % 9.2 % 12.2 %

Other regions 7.0 % 7.3 % 9.2 %

100.0 % 100.0 % 100.0 %

North America Revenue

Revenue in North America was $743 million, or 71.4% of revenue, in fiscal 2020, reflecting an increase of $144 million compared to $599 million, or 66.2% of revenue in fiscal 2019.

The increase in North American revenue is primarily due to increases of $121 million in BlackBerry Cylance and $47 million in Licensing revenue, partially offset by decreases of $13 million in Other revenue and $12 million in IoT revenue, due to the reasons discussed above in “Revenue by Product and Service”.

Revenue in North America was $633 million, or 70.9% of revenue, in fiscal 2021, reflecting a decrease of $110 million compared to $743 million, or 71.4% of revenue in fiscal 2020.

The decrease in North American revenue is primarily due to a decrease of $93 million in revenue from the BBM Consumer licensing arrangement and a decrease of $37 million in BlackBerry QNX revenue, due to the reasons discussed above in “Revenue by Product and Service”, a decrease of $11 million relating to professional services, a decrease of $9 million in BlackBerry AtHoc revenue and a decrease of $7 million relating to non-automotive OEM business, partially offset by an increase of $32 million in IP licensing and sale revenue due to the reasons discussed above in “Revenue by Product and Service” and an increase of $18 million in product revenue in BlackBerry Spark.

Europe, Middle East and Africa Revenue

Revenue in Europe, Middle East and Africa was $197 million, or 22.1% of revenue, in fiscal 2021, reflecting a decrease of $24 million compared to $221 million, or 21.3% of revenue, in fiscal 2020.

The decrease in revenue is primarily due to decrease of $18 million in Other revenue, partially offset by an increase of $17 million in BlackBerry Cylance revenue, due to the reasons discussed above in “Revenue by Product and Service”.

The decrease in revenue is primarily due to a decrease of $30 million in BlackBerry QNX revenue, a decrease of $7 million in SAF revenue due to the reasons discussed above in “Revenue by Product and Service” and a decrease of $5 million in professional services, partially offset by an increase of $18 million related to the sale of Secusmart solutions.

Other Regions Revenue

Revenue in other regions was $63 million, or 7.0% of revenue, in fiscal 2021, reflecting a decrease of $13 million compared to $76 million, or 7.3% of revenue, in fiscal 2020.

The decrease in revenue is primarily due to decreases in Other, Licensing and IoT revenue, partially offset by an increase in BlackBerry Cylance revenue.

The decrease of $8 million in Other revenue and $4 million in IoT revenue are primarily due to the reasons discussed above in “Revenue by Product and Service”.

The decrease in Licensing revenue is primarily due to a decrease of $5 million in revenue from mobility licensing arrangements.

The increase in BlackBerry Cylance revenue of $10 million was primarily due to the reasons discussed above in “Revenue by Product and Service”.

The decrease in revenue is primarily due to a decrease of $8 million from mobility licensing arrangements and a decrease of $7 million in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by Product and Service”, a decrease of $4 million in professional services and a decrease of $2 million in development seat revenue, partially offset by an increase of $6 million in product revenue in BlackBerry Spark.

Consolidated Gross Margin

Consolidated gross margin increased by $65 million to approximately $763 million in fiscal 2020 from $698 million in fiscal 2019.

The increase was primarily due to an increase in gross margin associated with BlackBerry Cylance and Licensing, partially offset by a decrease in gross margin associated with Other and IoT revenue due to the reasons discussed above in “Revenue by Product and Service”.

The increase in gross margin associated with BlackBerry Cylance and Licensing is primarily due to the reasons discussed above in “Revenue by Product and Service”.

The decrease in gross margin associated with Other revenue is primarily due to the decline in SAF revenue discussed above in “Revenue by Product and Service”, as cost of goods sold associated with SAF were consistent in fiscal 2020 and fiscal 2019 due to certain fixed costs associated with SAF infrastructure.

The decrease in gross margin associated with IoT revenue is primarily due to the decline in Enterprise revenue discussed above in “Revenue by Product and Service.

Consolidated gross margin decreased by $120 million to approximately $643 million in fiscal 2021 from $763 million in fiscal 2020.

The decrease was primarily due to a decrease in revenue in BlackBerry QNX and Licensing and Other, partially offset by increases in revenue in Secusmart and 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 decreased by 1.4%, to approximately 72.0% of consolidated revenue in fiscal 2021 from 73.4% of consolidated revenue in fiscal 2020.

The decrease was primarily due to a lower gross margin percentage associated with BlackBerry Cylance, which has a higher proportion of revenue related to professional services and due to a lower gross margin percentage in IoT revenue due to the decline in Enterprise revenue discussed above in “Revenue by Product and Service.

The Company previously stated that it expected adjusted gross margin to be between 74% and 75% for fiscal 2020.

Adjusted gross margin was 75.7% for 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”.

Operating Expenses

11 unchanged sentences

Debentures fair value adjustment 372 (66) 438 (117) 51

Arbitration awards and settlements, net — (9) 9 (683) 674

Settlements, net — — — (9) 9

Total $ 1,750 $ 912 $ 838 $ 638 $ 274

6 unchanged sentences

Debentures fair value adjustment 41.7 % (6.3) % (12.9) %

Arbitration awards and settlements, net — % (1.0) % (73.3) %

Settlements, net — % — % (1.0) %

Total 196.0 % 87.7 % 70.6 %

See “Non-GAAP Financial Measures” for a reconciliation of selected GAAP-based measures to adjusted measures for the years ended February 29, 2020, February 28, 2019 and February 28, 2018.

See “Non-GAAP Financial Measures” for a reconciliation of selected U.S.

GAAP-based measures to adjusted measures for the years ended February 28, 2021, February 29, 2020 and February 28, 2019.

GAAP Operating Expenses

Operating expenses increased by $838 million, or 91.9%, to $1,750 million, or 196.0% of revenue in fiscal 2021, compared to $912 million, or 87.7% of revenue, in fiscal 2020.

The increase was attributable to an increase in salaries and benefits expense of $82 million and an increase in amortization expense of $58 million primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, the difference between the Fiscal 2020 Debentures Fair Value Adjustment and Fiscal 2019 Debentures Fair Value Adjustment of $51 million, an increase of $22 million in goodwill impairment, costs associated with direct IP licensing arrangements of $18 million, an increase in marketing and advertising costs of $17 million, and long-lived asset impairment of $10 million, partially offset by $10 million in expenses reimbursed by the Ministry of Innovation, Science and Economic Development Canada through its Strategic Innovation Fund program’s investment in BlackBerry QNX (the “SIF Claims”) and a decrease of $8 million in Cylance acquisition costs from fiscal 2019 which did not recur.

The increase was primarily attributable to an increase of $572 million in goodwill impairment, the difference between the Fiscal 2021 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in fiscal 2020 (the “Fiscal 2020 Debentures Fair Value Adjustment”) of $438 million, and an increase of $33 million in impairment of long-lived assets, partially offset by the benefit of $53 million in government subsidies resulting from claims filed for the CEWS program to support the business through the COVID-19 pandemic, a decrease of $42 million in salaries and benefits expense, and a decrease of $19 million in variable incentive plan costs.

Adjusted Operating Expenses

Adjusted operating expenses increased by $157 million, or 26.3%, to $754 million in the fiscal 2020, compared to $597 million in fiscal 2019.

The increase was primarily attributable to an increase in salaries and benefits expense of $83 million, an increase of $22 million in sales incentive plan costs and a $17 million increase in marketing and advertising cost primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by $10 million from the SIF Claims.

Adjusted operating expenses decreased by $178 million, or 23.6%, to $576 million in fiscal 2021, compared to $754 million in fiscal 2020.

The decrease was primarily attributable to the benefit of $53 million in CEWS funding, a decrease of $41 million in salaries and benefits expense, a decrease of $20 million in variable incentive plan costs, a decrease of $19 million in travel expense, a decrease in cost associated with a direct IP licensing arrangement of $18 million in fiscal 2020 which did not recur, and a decrease of $15 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 increased by $40 million, or 18.3%, to $259 million, or 24.9% of revenue, in fiscal 2020, compared to $219 million, or 24.2% of revenue, in fiscal 2019.

The increase was primarily attributable to an increase in salaries and benefits expense of $37 million, an increase of $6 million in professional service costs, and a $4 million increase in infrastructure cost primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by $10 million from the SIF Claims.

Adjusted research and development expenses increased by $41 million, or 20.0% to $246 million in fiscal 2020 compared to $205 million in fiscal 2019.

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

Research and development expenses decreased by $44 million, or 17.0%, to $215 million, or 24.1% of revenue, in fiscal 2021, compared to $259 million, or 24.9% of revenue, in fiscal 2020.

The decrease was primarily attributable to a decrease of $25 million in salaries and benefits expense, a decrease of $8 million in variable incentive plan costs, a decrease of $7 million in consulting fees, and a decrease of $2 million in travel expense, 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 $42 million, or 17.1% to $204 million in fiscal 2021 compared to $246 million in fiscal 2020.

The decrease was primarily due to the same 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 increased by $84 million, or 20.5%, to $493 million, or 47.4% of revenue, in fiscal 2020 compared to $409 million in fiscal 2019, or 45.2% of revenue.

The increase was primarily attributable to an increase in salaries and benefits expense of $44 million and an increase of $7 million in sales incentive plan costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, costs associated with a direct IP licensing arrangement of $18 million, and a marketing and advertising cost increase of $17 million, partially offset by a decrease in stock compensation expense of $9 million and a decrease in professional services of $8 million in Cylance acquisition costs from fiscal 2019 which did not recur.

Adjusted selling, marketing and administration expenses increased by $117 million, or 34.6%, to $455 million in fiscal 2020 compared to $338 million in fiscal 2019.

The increase was primarily attributable to an increase in salaries and benefits expense of $46 million, an increase of $22 million in sales incentive plan costs, a marketing and advertising cost increase of $17 million, and an increase in infrastructure cost of $8 million primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019 and an increase of $8 million in legal costs, partially offset by a decrease in accounting expense of $2 million.

Selling, marketing and administration expenses decreased by $149 million, or 30.2%, to $344 million, or 38.5% of revenue, in fiscal 2021 compared to $493 million in fiscal 2020, or 47.4% of revenue.

The decrease was primarily attributable to the benefit of $53 million in CEWS funding, a decrease in costs associated with direct IP licensing arrangements of $18 million in fiscal 2020 which did not recur, a decrease of $16 million in travel expense, a decrease of $16 million in salaries and benefits expense, a decrease of $15 million in marketing and advertising cost, and a decrease of $11 million in variable incentive plan costs.

Adjusted selling, marketing and administration expenses decreased by $136 million, or 29.9%, to $319 million in fiscal 2021 compared to $455 million in fiscal 2020.

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

Amortization Expense

14 unchanged sentences

Amortization included in Operating Expense

Amortization expense relating to certain property, plant and equipment and intangible assets increased by $58 million to $194 million for fiscal 2020, compared to $136 million for fiscal 2019.

The increase in amortization expense primarily reflects the amortization of assets acquired in the Cylance acquisition.

Adjusted amortization expense decreased by $1 million.

Amortization expense relating to certain property, plant and equipment and intangible assets decreased by $12 million to $182 million for fiscal 2021, compared to $194 million for fiscal 2020.

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

Adjusted amortization expense was $53 million in fiscal 2021, consistent with $53 million in 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 increased by $5 million to $18 million for fiscal 2020, compared to $13 million for fiscal 2019.

This increase primarily reflects the full depreciation of certain assets, partially offset by a portion of the amortization of patents being classified as cost of goods sold due to the Company’s intellectual property licensing arrangements.

Investment Income, Net

Investment income, net, which includes the interest expense from the Debentures, decreased by $16 million to income of $1 million in fiscal 2020, from income of $17 million in fiscal 2019.

The decreased investment income was due to lower cash and investment balances in fiscal 2020 versus fiscal 2019 as a result of the use of cash to fund the Cylance acquisition.

For fiscal 2020, the Company’s net effective income tax expense rate was approximately 3%, compared to a net effective income tax recovery of approximately 21% for the prior fiscal year.

The Company’s net effective income tax rate reflects 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.

Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s service operations decreased by $2 million to $16 million for fiscal 2021, compared to $18 million for 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 Debentures, decreased by $7 million to investment loss, net of $6 million in fiscal 2021, from investment income, net of $1 million in fiscal 2020.

The decrease in investment income, net is primarily due to a lower yield on cash and investments in fiscal 2021 compared to fiscal 2020 and a decrease in average cash and investment balance during fiscal 2021 compared to fiscal 2020 as a result of the redemption of the 3.75% Debentures and issuance of the 1.75% Debentures, partially offset by a decrease in interest expense from the Debentures.

For fiscal 2021, the Company’s net effective income tax recovery rate was approximately 1%, compared to a net effective income tax expense of approximately 3% for 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 adjusted net effective income tax expense rate was approximately 6%, compared to approximately 4% for the same period in the prior fiscal year.

The Company’s adjusted net effective income tax recovery rate was approximately 10%, compared to a net effective income tax expense of approximately 6% for the same period in the prior fiscal year.

The increase is due to current year taxable items that could not be offset with carried forward tax attributes such as tax losses.

The Company’s net loss for fiscal 2020 was $152 million, reflecting a decrease in net income of $245 million compared to net income of $93 million in fiscal 2019, primarily due to an increase in operating expenses, as described above in “Operating Expenses”, and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by an increase in revenue as described above in “Revenue by Product and Service”.

Adjusted net income for fiscal 2020 was $74 million compared to $131 million in fiscal 2019, reflecting a decrease in adjusted net income of $57 million, primarily due to an increase in operating expenditures and a decrease in the gross margin percentage, partially offset by an increase in revenue.

Basic loss per share on a U.S.

GAAP basis was $0.27 and diluted loss per share on a U.S.

GAAP basis was $0.32 in fiscal 2020, a decrease in earnings per share of $0.44 and $0.32, respectively, compared to basic earnings per share on a U.S.

GAAP basis of $0.17 and diluted earnings per share on a U.S.

The Company’s net loss for fiscal 2021 was $1.10 billion, reflecting an increase in net loss of $952 million compared to net loss of $152 million in fiscal 2020, primarily due to an increase 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 for fiscal 2021 was $101 million compared to $74 million in fiscal 2020, reflecting an increase in adjusted net income of $27 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” and a decrease in gross margin percentage, as describe above in “Consolidated Gross Margin Percentage ”.

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

GAAP basis was $1.97 in fiscal 2021, an increase in basic and diluted loss per share of $1.70 and $1.65, respectively, compared to basic loss per share on a U.S.

GAAP basis of $0.27 and diluted loss per share on a U.S.

GAAP basis of $0.32 in fiscal 2020.

The weighted average number of shares outstanding was 561 million for basic and diluted loss per share, respectively, for the fiscal year ended February 28, 2021.

The weighted average number of shares outstanding was 554 million and 614 million for basic and diluted loss per share, respectively, for the fiscal year ended February 29, 2020.

The weighted average number of shares outstanding was 540 million and 616 million for basic and diluted earnings per share, respectively, for the fiscal year ended February 28, 2019.

The Company previously stated its expectations of achieving adjusted earnings per share of approximately $0.08 for fiscal 2020.

Adjusted earnings per share were $0.13 in fiscal 2020 primarily due to better than expected Licensing revenue in the fourth quarter and continued demonstration of cost discipline.

The Company previously stated that it expected to be profitable on a non-GAAP basis for fiscal 2021.

The Company was non-GAAP profitable for fiscal 2021.

Common Shares Outstanding

On March 26, 2021, there were 566 million voting common shares, options to purchase 2 million voting common shares, 22 million restricted share units and 1 million deferred share units outstanding.

In addition, 60.5 million common shares are issuable upon conversion in full of the Debentures.

In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures, as described in Note 7 to the Consolidated Financial Statements.

The Company has not paid any cash dividends during the last three fiscal years.

7 unchanged sentences

Operating expenses 465 253 212 178 75

Investment income, net (1) 4 (5) 3 1

Investment income (loss), net — (1) 1 4 (5)

Income (loss) before income taxes (313) (42) (271) 32 (74)

Recovery of income taxes (1) (19) 18 (4) (15)

Provision for (recovery of) income taxes 2 (1) 3 (19) 18

Net income (loss) $ (315) $ (41) $ (274) $ 51 $ (92)

7 unchanged sentences

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

GAAP basis in the fourth quarter of 2020 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive.

GAAP basis in the fourth quarter of 2021 and 2020 do 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 fiscal 2020 and fiscal 2018 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

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

Revenue by Product and Service

5 unchanged sentences

Revenue by Product and Service

IoT $ 127 $ 144 $ (17) $ 154 $ (10)

BlackBerry Cylance 43 3 40 — 3

Licensing 108 99 9 58 41

Other 4 9 (5) 21 (12)

Software and Services $ 160 $ 170 $ (10) $ 147 $ 23

Licensing and Other 50 112 (62) 108 4

$ 210 $ 282 $ (72) $ 255 $ 27

% Revenue by Product and Service

IoT 45.0 % 56.5 % 66.1 %

BlackBerry Cylance 15.2 % 1.2 % — %

Licensing 38.3 % 38.8 % 24.9 %

Other 1.5 % 3.5 % 9.0 %

Software and Services 76.2 % 60.3 % 57.6 %

Licensing and Other 23.8 % 39.7 % 42.4 %

100.0 % 100.0 % 100.0 %

IoT revenue was $127 million, or 45.0% of revenue, in the fourth quarter of fiscal 2020, a decrease of $17 million compared to $144 million, or 56.5% of revenue, in the fourth quarter of fiscal 2019.

The decrease in IoT revenue of $17 million was primarily due to a decrease of $13 million due to a lower number of Enterprise software licenses sold and a decrease of $7 million in recurring royalties in BlackBerry QNX due to the conversion in prior periods of certain existing royalty-bearing licenses to fixed pricing from volume-based pricing , resulting in recognition of the fixed price in prior periods, partially offset by an increase of $3 million in tablet sales in Secusmart.

Adjusted IoT revenue was $127 million in the fourth quarter of fiscal 2020, a decrease of $18 million compared to $145 million in the fourth quarter of fiscal 2019.

Adjusted IoT revenue decreased due to the reasons described above on a U.S.

GAAP basis and due to a decrease of $1 million in the non-GAAP adjustment of deferred software revenue acquired to nil in the fourth quarter of fiscal 2020 from $1 million in the fourth quarter of fiscal 2019.

The Company believes that BlackBerry QNX revenue was negatively impacted by a slowdown in automotive market related to the COVID-19 pandemic in the fourth quarter of fiscal 2020.

BlackBerry Cylance

BlackBerry Cylance revenue was $43 million, or 15.2% of revenue, in the fourth quarter of fiscal 2020, an increase of $40 million compared to $3 million, or 1.2% of revenue, in the fourth quarter of fiscal 2019.

The increase in BlackBerry Cylance revenue of $40 million was due to the acquisition of Cylance late in the fourth quarter of fiscal 2019;

revenue reported in the prior year period related to BlackBerry Cybersecurity Services which has been reclassified as a component of BlackBerry Cylance revenue, and seven days of BlackBerry Cylance revenue.

Adjusted BlackBerry Cylance revenue was $52 million in the fourth quarter of fiscal 2020, an increase of $48 million compared to $4 million in the fourth quarter of fiscal 2019.

The increase in adjusted BlackBerry Cylance revenue of $48 million was due to the same reason described above on a U.S.

GAAP basis and due to an increase of $8 million in the non-GAAP adjustment of deferred software revenue acquired to $9 million in the fourth quarter of fiscal 2020 from $1 million in the fourth quarter of fiscal 2019;

revenue reported in the prior year period related to BlackBerry Cybersecurity Services and seven days of BlackBerry Cylance revenue.

Cylance recorded U.S.

GAAP revenue of $49 million for the three months ended February 28, 2019.

After including BlackBerry Cybersecurity Services revenue, Cylance revenue was $50 million for the three months ended February 28, 2019.

Adjusted BlackBerry Cylance revenue was $52 million for the three months ended February 29, 2020, representing an increase of $2 million, or 3.9% over the prior year period.

Licensing revenue was $108 million, or 38.3% of revenue, in the fourth quarter of fiscal 2020, an increase of $9 million compared to $99 million, or 38.8% of revenue, in the fourth quarter of fiscal 2019.

The increase in Licensing revenue of $9 million was primarily due to an increase of $75 million in direct licensing arrangements consisting of the BBM Consumer licensing arrangement and patent licensing transactions and $4 million related to the sale of IP, partially offset by a $67 million decrease in revenue from the Company’s patent licensing agreement with Teletry.

Other revenue includes revenue from SAF and the Company’s legacy handheld devices business.

Other revenue was $4 million related to SAF, or 1.5% of revenue, in the fourth quarter of fiscal 2020, compared to $9 million, or 3.5% of revenue, in the fourth quarter of fiscal 2019, representing a decrease of $5 million.

The decrease in Other revenue of $5 million was attributable to a decrease in SAF revenue.

The decrease in SAF revenue, which is generated from users of BlackBerry 7 and prior BlackBerry operating systems is primarily attributable to a lower number of BlackBerry 7 users and lower revenue from those users compared to the fourth quarter of fiscal 2019.

Adjusted Revenue - Fourth Quarter vs.

First Quarter

The Company previously stated that it expected adjusted revenue to be lower in the first quarter of fiscal 2020 than in the fourth quarter of fiscal 2020.

Adjusted revenue was lower in the first quarter of fiscal 2020 compared to the fourth quarter of fiscal 2020.

Software and Services

Software and Services revenue was $160 million, or 76.2% of revenue, in the fourth quarter of fiscal 2021, a decrease of $10 million compared to $170 million, or 60.3% of revenue, in the fourth quarter of fiscal 2020.

The decrease in Software and Services revenue of $10 million was primarily due to a decrease of $6 million 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 relating to professional services and a decrease of $2 million relating to non-automotive OEM business, partially offset by an increase of $2 million related to the sale of Secusmart solutions and an increase of $1 million related to product revenue in BlackBerry Spark.

Adjusted Software and Services revenue was $165 million in the fourth quarter of fiscal 2021, a decrease of $14 million compared to $179 million in the fourth 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 $4 million in the non-GAAP adjustment of deferred software revenue acquired to $5 million in the fourth quarter of fiscal 2021 from $9 million in the fourth quarter of fiscal 2020.

The Company previously stated that it expected Software and Services to have sequential non-GAAP revenue growth in the fourth quarter of fiscal 2021.

Software and Services non-GAAP revenue decreased by approximately 2% sequentially in the fourth quarter of fiscal 2021 primarily due to lower than expected revenue from Secusmart and BlackBerry AtHoc.

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

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

Licensing and Other

Licensing and Other revenue was $50 million, or 23.8% of revenue, in the fourth quarter of fiscal 2021, a decrease of $62 million compared to $112 million, or 39.7% of revenue, in the fourth quarter of fiscal 2020.

The decrease in Licensing and Other revenue of $62 million was primarily due to a decrease of $71 million in revenue from the BBM Consumer licensing arrangement, partially offset by an increase of $10 million in revenue from the Company’s IP licensing and sale arrangements including its patent licensing agreement with Teletry.

GAAP Revenue by Geography

14 unchanged sentences

North America Revenue

Revenue in North America was $213 million, or 75.5% of revenue, in the fourth quarter of fiscal 2020, reflecting an increase of $37 million compared to $176 million, or 69.0% of revenue, in the fourth quarter of fiscal 2019.

Revenue in North America increased compared to the fourth quarter of fiscal 2019 primary due to a $35 million increase in BlackBerry Cylance and $12 million increase in Licensing revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by a decrease in IoT revenue due to a $8 million decrease in Enterprise software licenses sold.

Revenue in North America was $141 million, or 67.1% of revenue, in the fourth quarter of fiscal 2021, reflecting a decrease of $72 million compared to $213 million, or 75.5% of revenue, in the fourth quarter of fiscal 2020.

Revenue in North America decreased compared to the fourth quarter of fiscal 2020 primarily due to a decrease of $71 million in revenue from the BBM Consumer licensing arrangement, a decrease of $2 million in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by Product and Service”, a decrease of $2 million in BlackBerry AtHoc revenue and a decrease of $2 million related to product revenue in BlackBerry Spark, partially offset by an increase of $10 million in IP licensing revenue 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 $53 million or 18.8% of revenue in the fourth quarter of fiscal 2020, reflecting a decrease of $8 million compared to $61 million or 23.9% of revenue in the fourth quarter of fiscal 2019.

The decrease in revenue is primarily due to a decrease of $8 million in IoT revenue and a decrease of $3 million in Other revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by an increase of $4 million in BlackBerry Cylance revenue for the reasons discussed above in “Revenue by Product and Service”.

Revenue in Europe, Middle East and Africa was $53 million or 25.2% of revenue in the fourth quarter of fiscal 2021, consistent with $53 million or 18.8% of revenue in the fourth quarter of fiscal 2020.

An increase of $3 million related to the sale of Secusmart solutions and an increase of $1 million related to product revenue in BlackBerry Spark were offset by a decrease of $3 million in BlackBerry QNX revenue due to the reasons discussed above in “Revenue by Product and Service” and a decrease of $1 million relating to professional services.

Other Regions Revenue

Revenue in other regions was $16 million or 5.7% of revenue in the fourth quarter of fiscal 2020, reflecting a decrease of $2 million compared to $18 million or 7.1% of revenue in the fourth quarter of fiscal 2019.

The decrease in revenue is primarily due to a decrease in Licensing revenue due to a $2 million decrease in revenue from mobility licensing arrangements and a $1 million decrease in Other revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by an increase of $2 million in BlackBerry Cylance revenue due to the reasons discussed above in “Revenue by Product and Service”.

Revenue in other regions was $16 million or 7.7% of revenue in the fourth quarter of fiscal 2021, consistent with $16 million or 5.7% of revenue in the fourth quarter of fiscal 2020.

An increase $2 million related to product revenue in BlackBerry Spark was offset by a decrease of $2 million in revenue relating to professional services.

Consolidated Gross Margin

Consolidated gross margin increased by $6 million to approximately $212 million in the fourth quarter of fiscal 2020 from $206 million in the fourth quarter of fiscal 2019.

The increase was primarily due to increases in gross margin in BlackBerry Cylance and Licensing, partially offset by a decrease in gross margin associated with IoT and Other.

The increase in gross margin associated with BlackBerry Cylance and Licensing is primarily due to the increase in revenue discussed above in “Revenue by Product and Service”.

The decrease in gross margin associated with IoT is primarily due to the reasons discussed above in “Revenue by Product and Service”.

The decrease in gross margin associated with Other is due to the decline in SAF revenue discussed above in “Revenue by Product and Service”, as the cost of goods sold associated with SAF was consistent in the fourth quarter of fiscal 2020 and the fourth quarter of fiscal 2019 due to certain fixed costs associated with SAF infrastructure.

Consolidated Gross Percentage

Consolidated gross margin decreased by $60 million to approximately $152 million in the fourth quarter of fiscal 2021 from $212 million in the fourth 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 decreased by 2.8%, to approximately 72.4% of consolidated revenue in the fourth quarter of fiscal 2021 from 75.2% of consolidated revenue in the fourth quarter of fiscal 2020.

The decrease was primarily due to lower

gross margin percentage associated with BlackBerry Cylance, which has a higher proportion of revenue related to professional services and due to a lower gross margin percentage in IoT revenue due to the decline in Enterprise revenue discussed above in “Revenue by Product and Service”.

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

Operating Expenses

11 unchanged sentences

Impairment of goodwill — — 22 —

Loss on sale, disposal and abandonment of long-lived assets — — — 2

Debentures fair value adjustment 258 95 5 (6)

Arbitration awards and settlements, net — — (9) —

Settlements, net — — — (9)

Total $ 465 $ 276 $ 253 $ 178

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Impairment of goodwill — % — % 7.8 % — %

Loss on sale, disposal and abandonment of long-lived assets — % — % — % 0.9 %

Debentures fair value adjustment 122.9 % 43.6 % 1.8 % (2.4) %

Arbitration awards and settlements, net — % — % (3.5) % — %

Settlements, net — % — % — % (3.5) %

Total 221.4 % 126.6 % 89.7 % 69.8 %

See “Non-GAAP Financial Measures” for a reconciliation of selected GAAP-based measures to adjusted measures for the three months ended February 29, 2020, November 30, 2019, February 28, 2019 and February 28, 2018.

See “Non-GAAP Financial Measures” for a reconciliation of selected U.S.

GAAP-based measures to adjusted measures for the three months ended February 28, 2021, November 30, 2020, February 29, 2020 and February 28, 2019.

GAAP Operating Expenses

Operating expenses increased by $189 million, or 68.5%, to $465 million, or 221.4%% of revenue, in the fourth quarter of fiscal 2021, compared to $276 million, or 126.6% of revenue, in the third quarter of fiscal 2021.

The increase was primarily attributable to the difference between the Q4 Fiscal 2020 Debentures Fair Value Adjustment and Q3 Fiscal 2020 Debentures Fair Value Adjustment of $25 million and an increase of $22 million resulting from goodwill impairment, offset by a decrease in variable incentive plan costs of $8 million.

The increase was primarily attributable to the difference between the Q4 Fiscal 2021 Debentures Fair Value Adjustment and Q3 Fiscal 2021 Debentures Fair Value Adjustment of $163 million and an increase of $22 million in impairment of long-lived assets, partially offset by a decrease of $10 million in variable incentive plan costs and a benefit of $6 million in CEWS funding.

Operating expenses increased by $212 million, or 83.8%, to $465 million, or 221.4%% of revenue, in the fourth quarter of fiscal 2021, compared to $253 million, or 89.7% of revenue, in the fourth quarter of fiscal 2020.

The increase was primarily attributable to the goodwill impairment of $22 million, an increase of $18 million in salaries and benefits expenses primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, an increase of $11 million in the difference between the Q4 Fiscal 2020 Debentures Fair Value Adjustment and Q4 Fiscal 2019 Debentures Fair Value Adjustment and a decrease in arbitration awards and settlements, net of $9 million in fiscal 2019, partially offset by a decrease of $8 million in Cylance acquisition costs from the fourth quarter of fiscal 2019 which did not recur.

The increase was primarily attributable to the difference between the Q4 Fiscal 2021 Debentures Fair Value Adjustment and Q4 Fiscal 2020 Debentures Fair Value Adjustment of $253 million and an increase of $17 million in impairment of long-lived assets, partially offset by $22 million in impairment of goodwill in the fourth quarter of fiscal 2020 which did not recur, a benefit of $16 million in CEWS funding and a decrease of $9 million in salaries and benefits expenses.

Adjusted Operating Expenses

Adjusted operating expenses decreased by $2 million, or 1.4%, to $140 million in the fourth quarter of fiscal 2021 compared to $142 million in the third quarter of fiscal 2021.

The decrease was primarily attributable to a decrease of $8 million in variable incentive plan cost, a decrease of $4 million in bad debt expenses, a decrease of $3 million in marketing and advertising expense, and a $3 million decrease in infrastructure cost, partially offset by an increase of $2 million in sales incentive plan costs.

Adjusted operating expenses increased by $20 million, or 13.2%, to $172 million in the fourth quarter of fiscal 2020, compared to $152 million in the fourth quarter of fiscal 2019.

The increase was primarily attributable to the increase of $18 million in salaries and benefits expense and an increase in sales incentive plan cost of $7 million primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019 and an increase of $3 million in legal cost, partially offset by decreases of $4 million in bad debt expense and $3 million in variable incentive plan costs.

The decrease was primarily attributable to a decrease of $10 million in variable incentive plan cost and a benefit of $6 million in CEWS funding, partially offset by an increase of $5 million in the Company’s

deferred share unit liability due to increases in the Company’s stock price, an increase of $4 million in consulting fees and an increase of $2 million in legal costs.

Adjusted operating expenses decreased by $32 million, or 18.6%, to $140 million in the fourth quarter of fiscal 2021, compared to $172 million in the fourth quarter of fiscal 2020.

The decrease was primarily attributable to the benefit of $16 million in CEWS funding, a decrease of $9 million in salaries and benefits expenses and a decrease of $8 million in variable incentive plan costs, partially offset by an increase of $6 million in the Company’s deferred share unit liability due to increases in the Company’s stock price and an increase of $3 million in legal costs.

Research and Development Expense

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 increased by $8 million, or 15.4%, to $60 million in the fourth quarter of fiscal 2020 compared to $52 million in the fourth quarter of fiscal 2019.

The increase was primarily attributable to the increase of $8 million in salaries and benefits expense primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019.

Adjusted research and development expenses increased by $8 million, or 16.3%, to $57 million in the fourth quarter of fiscal 2020 compared to $49 million in the fourth quarter of fiscal 2019.

This increase was primarily attributable to an increase of $8 million in salaries and benefits costs.

Research and development expenses decreased by $12 million, or 20.0%, to $48 million in the fourth quarter of fiscal 2021 compared to $60 million in the fourth quarter of fiscal 2020.

The decrease was primarily attributable to a decrease of $8 million in variable incentive plan costs and a decrease of $5 million in salaries and benefits expense, partially offset by an increase of $2 million in infrastructure costs.

Adjusted research and development expenses decreased by $12 million, or 21.1%, to $45 million in the fourth quarter of fiscal 2021 compared to $57 million in the fourth quarter of fiscal 2020.

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

Selling, Marketing and Administration Expenses

Selling, marketing and administration expenses increased by $3 million, or 2.7%, to $113 million in the fourth quarter of fiscal 2020 compared to $110 million in the fourth quarter of fiscal 2019.

This increase is primarily attributable to an increase of $10 million in salaries and benefits expense and an increase of $3 million in marketing and advertising expense, partially offset by a decrease of $8 million in Cylance acquisition costs from the fourth quarter of fiscal 2019 which did not recur and a decrease of $5 million in variable incentive plan expense.

Adjusted selling, marketing and administration expenses increased by $12 million, or 13.3%, to $102 million in the fourth quarter of fiscal 2020 compared to $90 million in the fourth quarter of fiscal 2019.

This increase was primarily attributable to an increase of $10 million in salaries and benefits expense and a $7 million increase in sales incentive plan costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by a decrease in variable incentive plan expense of $4 million.

Selling, marketing and administration expenses decreased by $21 million, or 18.6%, to $92 million in the fourth quarter of fiscal 2021 compared to $113 million in the fourth quarter of fiscal 2020.

This decrease was primarily attributable to the increase benefit of $16 million in CEWS funding, a decrease of $4 million in salaries and benefits expenses, a decrease of $3 million in sales incentive plan costs and a decrease of $3 million in travel expense, partially offset by an increase of $6 million in the Company’s deferred share unit liability due to increases in the Company’s stock price and an increase of $3 million in legal costs.

Adjusted selling, marketing and administration expenses decreased by $20 million, or 19.6%, to $82 million in the fourth quarter of fiscal 2021 compared to $102 million in the fourth quarter of fiscal 2020.

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

Amortization Expense

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Amortization included in Operating Expense

Amortization expense relating to certain property, plant and equipment and certain intangible assets increased by $17 million to $48 million for the fourth quarter of fiscal 2020 compared to $31 million for the fourth quarter of fiscal 2019.

The increase in amortization expense reflects the intangible assets acquired as part of the Cylance acquisition in the fourth quarter of fiscal 2019.

Adjusted amortization in the fourth quarter of fiscal 2020 was consistent with the fourth quarter of fiscal 2019.

Amortization expense relating to certain property, plant and equipment and certain intangible assets decreased by $3 million to $45 million for the fourth quarter of fiscal 2021 compared to $48 million for the fourth quarter of fiscal 2020.

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

Adjusted amortization was $13 million in the fourth quarter of fiscal 2021, consistent with $13 million in the fourth quarter of fiscal 2020.

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 were $4 million in the fourth quarter of fiscal 2019 compared to $2 million for the fourth quarter of fiscal 2019.

The increase is due to a higher portion of the amortization of patents being classified as cost of goods sold due to the Company’s IP licensing arrangements.

Investment Income, Net

Investment income, net, which includes the interest expense from the Debentures, decreased by $5 million to a loss of $1 million in the fourth quarter of fiscal 2020, compared to income of $4 million in the fourth quarter of fiscal 2019.

The decrease in investment income was due to lower cash and investment balances in fiscal 2020 versus fiscal 2019 as a result of the use of cash to fund the Cylance acquisition.

For the fourth quarter of fiscal 2020, the Company’s net effective income tax recovery rate was approximately 2%, compared to an effective income tax recovery rate of approximately 59% 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 were $4 million in the fourth quarter of fiscal 2021, consistent with $4 million in the fourth quarter of fiscal 2020.

Investment Loss, Net

Investment loss, net decreased by $1 million to nil in the fourth quarter of fiscal 2021, compared to investment loss, net of $1 million in the fourth quarter of fiscal 2020.

The decrease is primarily due a decrease in interest expense from the Debentures, partially offset by a lower yield on cash and investments in the fourth quarter of fiscal 2021 compared to the fourth quarter of fiscal 2020 and lower average cash and investment balances due to the redemption of the 3.75% Debentures in fiscal 2021 and issuance of the 1.75% Debentures.

For the fourth quarter of fiscal 2021, the Company’s net effective income tax expense rate was approximately 1%, compared to an effective income tax recovery rate of approximately 2% for the same period in the prior fiscal year.

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

The Company’s adjusted net effective income tax recovery rate was approximately 2%, compared to a net effective income tax recovery rate of approximately 3% for the same period in the prior fiscal year.

The increase is due to current year taxable items that could not be offset with carried forward tax attributes such as tax losses.

Net Income (Loss)

The Company’s net loss for the fourth quarter of fiscal 2020 was $41 million, or $0.07 basic loss per share and $0.07 diluted loss per share on a U.S.

GAAP basis, reflecting a decrease in net income of $92 million compared to a net income of $51 million, or $0.09 basic earnings per share and $0.08 diluted earnings per share, in the fourth quarter of fiscal 2019.

The decrease in net income of $92 million was primarily due to an increase in operating expenses, as described above in “Operating

Expenses”, and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by an increase in revenue as described above in “Revenue by Product and Service”.

Adjusted net income was $51 million in the fourth quarter of fiscal 2020 compared to $60 million in the fourth quarter of fiscal 2019, reflecting a decrease in adjusted net income of $9 million primarily due to an increase in operating expenses as described above in “Operating Expenses” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by an increase in revenue as described above in “Revenue by Product and Service”.

The Company previously stated that it expected adjusted earnings to be lower in the first quarter of fiscal 2020 than in the fourth quarter of fiscal 2020.

Adjusted earnings was lower in the first quarter of fiscal 2020 compared to the fourth quarter of fiscal 2020.

The Company expects its financial performance in the first quarter of fiscal 2021 to be below that of the fourth quarter of fiscal 2020 due to the COVID-19 pandemic.

The COVID-19 pandemic may also negatively impact the Company’s financial performance in the second quarter of fiscal 2021.

The Company expects its financial performance in the second half of fiscal 2021 to be stronger than its financial performance in the first half of the fiscal year.

The Company’s net loss for the fourth quarter of fiscal 2021 was $315 million, or $0.56 basic and diluted loss per share on a U.S.

GAAP basis, reflecting an increase in net loss of $274 million compared to a net loss of $41 million, or $0.07 basic and diluted loss per share, in the fourth quarter of fiscal 2020.

The decrease in net income of $274 million was primarily due to an increase in operating expenses due to the increase in debenture 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 $16 million in the fourth quarter of fiscal 2021 compared to $51 million in the fourth quarter of fiscal 2020, reflecting a decrease in adjusted net income of $35 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 566 million common shares for basic and diluted loss per share for the fourth quarter of fiscal 2021.

The weighted average number of shares outstanding was 547 million common shares for basic earnings per share and 616 million common shares for diluted earnings per share for the fourth quarter of fiscal 2019.

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 February 29, 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.

The Company’s quarterly operating results have varied substantially in the past and may vary substantially in the future.

Accordingly, the information below is not necessarily indicative of results for any future quarter.

(in millions, except per share data)

Fiscal Year 2020 Fiscal Year 2019

Quarter Third

Quarter Second

Quarter First

Quarter Fourth

Quarter Third

Quarter Second

Quarter First

Revenue $ 282 $ 267 $ 244 $ 247 $ 255 $ 226 $ 210 $ 213

Gross margin 212 198 176 177 206 170 161 161

Operating expenses 253 227 219 213 178 112 122 226

Income (loss) before income taxes (42) (30) (43) (33) 32 60 44 (59)

Provision for (recovery of) income taxes (1) 2 1 2 (19) 1 1 1

Net income (loss) $ (41) $ (32) $ (44) $ (35) $ 51 $ 59 $ 43 $ (60)

Earnings (loss) per share

Basic earnings (loss) per share $ (0.07) $ (0.06) $ (0.08) $ (0.06) $ 0.09 $ 0.11 $ 0.08 $ (0.11)

Diluted earnings (loss) per share $ (0.07) $ (0.07) $ (0.10) $ (0.09) $ 0.08 $ (0.01) $ (0.04) $ (0.11)

Research and development $ 60 $ 66 $ 62 $ 71 $ 52 $ 55 $ 51 $ 61

Selling, marketing and administration 113 129 130 121 110 93 106 100

Amortization 48 49 48 49 31 33 35 37

Impairment of long-lived assets 5 3 2 — — — — —

Impairment of goodwill 22 — — — — — — —

Debentures fair value adjustment 5 (20) (23) (28) (6) (69) (70) 28

Arbitration awards and settlements, net — — — — (9) — — —

Operating expenses $ 253 $ 227 $ 219 $ 213 $ 178 $ 112 $ 122 $ 226

The weighted average number of shares outstanding was 557 million common shares for basic and diluted loss per share for the fourth quarter of fiscal 2020.

Financial Condition

Liquidity and Capital Resources

Cash, cash equivalents, and investments decreased by $15 million to $990 million as at February 29, 2020 from $1.01 billion as at February 28, 2019, primarily as a result of changes in working capital.

Cash, cash equivalents, and investments decreased by $186 million to $804 million as at February 28, 2021 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 are denominated in U.S.

4 unchanged sentences

Cash and cash equivalents $ 214 $ 377 $ (163) $ 548 $ (171)

Restricted cash 49 34 15 39 (5)

Restricted cash equivalents and restricted short-term investments 28 49 (21) 34 15

Short-term investments 525 532 (7) 368 164

8 unchanged sentences

Current Assets

The decrease in current assets of $37 million at the end of fiscal 2020 from the end of fiscal 2019 was primarily due to a decrease in cash and cash equivalents of $171 million, accounts receivable, net of $18 million, other receivables of $5 million, other current assets of $4 million, and income taxes receivable of $3 million partially offset by increases in short term investments of $164 million.

The decrease in current assets of $190 million at the end of fiscal 2021 from the end of fiscal 2020 was primarily due to a decrease in cash and cash equivalents of $163 million, accounts receivable, net of $33 million, decreases in short term investments of $7 million and other current assets of $2 million partially offset by an increase in other receivables of $11 million and an increase income taxes receivable of $4 million.

At February 28, 2021, accounts receivable was $182 million, a decrease of $33 million from February 29, 2020.

The decrease reflects a decrease in days sales outstanding to 70 days at the end of the fourth quarter of fiscal 2020 from 82 days at the end of the fourth quarter of fiscal 2019, partially offset by higher revenue recognized over the three months ended February 29, 2020.

At February 29, 2020, other receivables decreased by $5 million to $14 million compared to $19 million as at February 28, 2019.

The decrease was primarily due to a decrease of $3 million in GST and VAT receivable.

The decrease was primarily due to lower revenue recognized over the three months ended February 28, 2021 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 85 days at the end of the fourth quarter of fiscal 2021 from 70 days at the end of the fourth quarter of fiscal 2020 primarily due to a significant long-term receivable becoming current, the associated revenue for which was recognized in the prior period, as well as extended payment terms resulting from the COVID-19 pandemic.

At February 28, 2021, other receivables increased by $11 million to $25 million compared to $14 million as at February 29, 2020.

The increase was primarily due to an increase of $11 million relating to the CEWS program.

At February 28, 2021, other current assets was $50 million, a decrease of $2 million from February 29, 2020.

The decrease is primarily due to a decrease in prepaid rent of $4 million, partially offset by an increase in prepaid maintenance of $2 million.

At February 29, 2020, income taxes receivable was $6 million, a decrease of $3 million from February 28, 2019.

The decrease was primarily due to tax refund received in fiscal 2020.

The decrease is primarily due to a decrease in deferred commission of $3 million partially offset by an increase in derivative assets of $2 million.

At February 28, 2021, 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.

Current Liabilities

The increase in current liabilities of $611 million at the end of fiscal 2020 from the end of fiscal 2019 was primarily due to the Debentures balance of $606 million moving from long-term to current liabilities as they mature on November 13, 2020, an increase in deferred revenue of $11 million and an increase in accrued liabilities of $10 million, partially offset by a decrease in accounts payable of $17 million.

Deferred revenue, current was $264 million, which reflects an increase of $11 million compared to February 28, 2019 that was attributable to a $25 million increase in deferred revenue related to BlackBerry Cylance and $10 million related to Licensing, partially offset by a $27 million decrease in deferred revenue, current related to IoT.

The decrease in current liabilities of $692 million at the end of fiscal 2021 from the end of fiscal 2020 was primarily due to a decrease in Debentures of $606 million due to redemption of the 3.75% Debentures, a decrease in deferred revenue of $39 million, a decrease in accrued liabilities of $24 million, a decrease in income taxes payable of $12 million and a decrease in accounts payable of $11 million.

Deferred revenue, current was $225 million, which reflects a decrease of $39 million compared to February 29, 2020 that was attributable to a $39 million decrease in deferred revenue, current related to BlackBerry Spark and $10 million related to IP licensing, partially offset by a $6 million increase in deferred revenue, current related to BlackBerry AtHoc.

As at February 28, 2021, accounts payable were $20 million, reflecting a decrease of $11 million from February 29, 2020, which was primarily attributable to payments of accounts payable.

Accrued liabilities were $202 million, reflecting an increase of $10 million compared to February 28, 2019, which was primarily attributable to a $31 million increase related to the current portion of operating lease liabilities from the adoption of ASC 842, partially offset by a $12 million decrease in vendor liabilities and a $4 million lower variable incentive plan accrual compared to fiscal 2019.

Accrued liabilities were $178 million, reflecting a decrease of $24 million compared to February 29, 2020, which was primarily attributable to a $17 million decrease in variable incentive plan costs and a decrease of $6 million in payroll accrual, partially offset by an increase of $8 million in the Company’s deferred share unit liability due to increases in the Company’s stock price.

Cash flows for the fiscal year ended February 28, 2021 compared to the fiscal year ended February 29, 2020 were as follows:

7 unchanged sentences

Effect of foreign exchange gain (loss) on cash and cash equivalents 2 (1) 3 (3) 2

Net increase (decrease) in cash and cash equivalents $ (156) $ (273) $ 117 $ 70 $ (343)

Net decrease in cash and cash equivalents $ (208) $ (156) $ (52) $ (273) $ 117

Operating Activities

The decrease in net cash flows provided by operating activities of $74 million primarily reflects the net changes in working capital and lower net income after adjustments for non-cash items.

The increase in net cash flows provided by operating activities of $56 million primarily reflects the net changes in working capital.

Investing Activities

During the fiscal year ended February 29, 2020, cash flows used in investing activities were $188 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 $145 million, intangible asset additions of $32 million, and acquisitions of property, plant and equipment of $12 million, partially offset by proceeds received from the decrease in consideration paid for the Cylance acquisition following finalizing the accounting for the acquisition.

During fiscal 2019, cash flows used in investing activities were $375 million and included cash flows used in the Cylance acquisition of $1.40 billion, intangible asset additions of $32 million, and acquisitions of property, plant and equipment of $17 million, partially offset by proceeds on sales of short-term and long-term investments, net of the proceeds used in the acquisition of short-term and long-term investments of $1.08 billion and proceeds on the sale of property, plant and equipment of $1 million.

During the fiscal year ended February 28, 2021, cash flows used in investing activities were $65 million and included cash used in transactions involving the acquisitions of restricted short-term, short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $21 million, intangible asset additions of $36 million, and acquisitions of property, plant and equipment of $8 million.

During fiscal 2020, cash flows used in investing activities were $188 million and included cash flows 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 $145 million, intangible asset additions of $32 million, and acquisitions of property, plant and equipment of $12 million, partially offset by proceeds received from the decrease in consideration paid for the Cylance acquisition following finalizing the accounting for the acquisition.

Financing Activities

The increase in cash flows provided by financing activities was $2 million for fiscal 2020 due to an increase in common shares issued, partially offset by cash used for the finance lease liability.

The decrease in cash flows used in financing activities was $234 million for 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

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

Total aggregate contractual obligations as at February 29, 2020 decreased by approximately $18 million as compared to the February 28, 2019 balance of approximately $1,031 million, which was attributable to a decrease in operating lease obligations and interest payments on the Debentures.

Total aggregate contractual obligations as at February 28, 2021 decreased by approximately $337 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

1 unchanged sentence

The Company has $28 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.

See Note 3 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash and restricted short-term investments.

Cash, cash equivalents, and investments were approximately $804 million as at February 28, 2021.

4 unchanged sentences

Accounting Policies

See Note 1 to the Consolidated Financial Statements for a description of the Company’s significant accounting policies.

See Note 1 to the Consolidated Financial Statements for a description of the Company’s significant accounting policies 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 issued but not yet adopted.

Critical Accounting Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities.

Significant areas requiring the use of management estimates relate to revenue-related estimates including variable consideration, standalone selling price (“SSP”), estimated customer life, if control of the license has transferred, value of non-cash consideration, right of return and customer incentive commitments, fair value of reporting units in relation to potential goodwill impairment, fair value of the Debentures, fair value of long-lived assets in relation to potential impairment, useful lives of property, plant and equipment and intangible assets, fair values of assets acquired and liabilities assumed in business combinations, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for doubtful accounts, incremental borrowing rate in determining the present value of lease liabilities and the determination of reserves for various litigation claims.

Significant areas requiring the use of management estimates relate to revenue-related estimates including variable consideration, standalone selling price (“SSP”), estimated customer life, if control of licenses to intellectual property has transferred, the value of non-cash consideration, right of return and customer incentive commitments, fair value of reporting units in relation to actual or potential goodwill impairment, fair value of the Debentures, fair value of share-based liability award, fair value of long-lived assets in relation to actual or potential impairment, the Company’s long-lived asset groupings, useful lives of property, plant and equipment and intangible assets, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for credit losses, incremental borrowing rate in determining the present value of lease liabilities and the determination of reserves for various litigation claims.

Actual results could differ from these estimates, which were based upon circumstances that existed as of the date of the consolidated financial statements, February 28, 2021.

Subsequent to this date, there have been significant changes to the global economic situation and to public securities markets as a consequence of the COVID-19 pandemic.

It is reasonably possible that this could cause changes to estimates as a result of the financial circumstances of the markets in which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s carrying value, and the health of the global economy.

Such changes to estimates could potentially result in impacts that would be material to the consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment.

Subsequent to this date, it is reasonably possible that the COVID-19 pandemic and its impact on the health of the global economy could cause changes to estimates as a result of the financial circumstances of the markets in which the Company operates and the price of the Company’s publicly traded equity in comparison to the Company’s carrying value.

The Company’s critical accounting estimates have been reviewed and discussed with the Company’s Audit & Risk Management Committee and are set out below.

Except as noted, there have not been any changes to the Company’s critical accounting estimates during the past three fiscal years.

Except as noted, there have not been any changes to the critical accounting estimates made by the Company, during the past three fiscal years.

Valuation of Long-Lived Assets

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To conduct the LLA impairment test, the asset group is tested for recoverability using undiscounted cash flows over the remaining useful life of the primary asset.

If forecasted net cash flows are less than the carrying amount of the asset group, an impairment charge is measured by comparing the fair value of the asset group to its carrying value.

If forecasted net cash flows are less than the carrying value of the asset group, an impairment charge is measured by comparing the fair value of the asset group to its carrying value.

Determining the Company’s asset groups and related primary assets requires significant judgment by management.

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See Part 1, Item 1A “Risk Factors - The market price of the Company’s common shares is volatile”.

The current macroeconomic

environment and competitive dynamics continue to be challenging to the Company’s business and the Company cannot be certain of the duration of these conditions and their potential impact on the Company’s future financial results and cash flows.

The current macroeconomic environment and competitive dynamics continue to be challenging to the Company’s business and the Company cannot be

certain of the duration of these conditions and their potential impact on the Company’s future financial results and cash flows.

A decline in the Company’s performance, the Company’s market capitalization and future changes to the Company’s assumptions and estimates used in the LLA impairment test, particularly the expected future cash flows, remaining useful life of the primary asset and terminal value of the asset group, may result in further impairment charges in future periods of some or all of the assets on the Company’s balance sheet.

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These events and circumstances may include a significant change in legal factors or in the business climate, a significant decline in the Company’s share price, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant disposal activity and the testing of recoverability for a significant asset group.

The Company’s annual impairment test was carried out in two steps.

In the first step, the carrying amount of the reporting unit, including goodwill, was compared with its fair value.

On March 1, 2020 the Company adopted ASU 2017-04 on the topic of Intangibles— Goodwill and Other (ASC 350).

ASU 2017-04 simplifies the subsequent measurement of goodwill, enabling the Company to carry out its goodwill impairment test in one step, instead of two steps.

In the test, the carrying value of the reporting unit, including goodwill, was compared with its fair value.

The estimated fair value was determined utilizing multiple approaches based on the nature of the reporting units being valued.

In its analysis, the Company utilized multiple valuation techniques, including the income approach using a discounted future cash flow model, the market-based approach, and the asset value approach.

The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rates of revenue growth for the Company’s reporting units, estimation of the useful life over which cash flows will occur, terminal growth rates, profitability measures, and determination of the discount rates for the reporting units.

The carrying value of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type.

When the carrying value of a reporting unit exceeds its fair value, goodwill of the reporting unit is considered to be impaired and written down to its fair value.

Different judgments could yield different results.

Events and circumstances resulted in an additional goodwill impairment test being conducted as at May 31, 2020, in addition to the Company’s annual impairment test.

Prior to the adoption of ASU 2017-04, the Company’s annual impairment test was carried out in two steps.

In the first step, the carrying value of the reporting unit, including goodwill, was compared with its fair value.

The estimated fair value was determined utilizing multiple approaches based on the nature of the reporting units being valued.

In its analysis, the Company utilized multiple valuation techniques, including the income approach, discounted future cash flows, the market-based approach, and the asset value approach.

The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of revenue growth for our reporting units, estimation of the useful life over which cash flows will occur, terminal growth rate, profitability measures, and determination of the discount rates for the reporting units.

The carrying amount of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type.

When the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit is considered to be impaired and the second step is necessary.

Different judgments could yield different results.

The carrying value of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type.

When the carrying value of a reporting unit exceeded its fair value, goodwill of the reporting unit was considered to be impaired and the second step was necessary.

Different judgments could have yielded different results.

In fiscal 2020, the Company disaggregated one reporting unit and goodwill was assigned to the disaggregated reporting units based upon the relative fair value allocation approach.

The completion of step one of the goodwill impairment test provided indications of impairment in certain reporting units, necessitating step two.

In the second step, the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any.

The second step involves significant judgment in the selection of assumptions necessary to arrive at an implied fair value of goodwill.

Different judgments could yield different results.

In the second step, the implied fair value of the reporting unit’s goodwill was compared with its carrying value to measure the amount of the impairment loss, if any.

The second step involved significant judgment in the selection of assumptions necessary to arrive at an implied fair value of goodwill.

Different judgments could have yielded different results.

Valuation Allowance Against Deferred Tax Assets

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For interim periods, the Company needs to consider the valuation allowance that it expects to recognize at the end of the fiscal year as part of the estimated annual effective tax rate.

During interim quarters, the Company uses estimates including pre-tax results and ending position of temporary differences as at the end of the fiscal year to estimate the valuation allowance that it expects to recognize at the end of the fiscal year.

During interim quarters, the Company uses estimates

including pre-tax results and ending position of temporary differences as at the end of the fiscal year to estimate the valuation allowance that it expects to recognize at the end of the fiscal year.

This accounting treatment has no effect on the Company’s actual ability to utilize deferred tax assets to reduce future cash tax payments.

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The Company uses historical experience regarding the length of the technology upgrade cycle and the expected life of the product to draw this conclusion.

Adoption of Accounting Policies

ASC 842, Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 on leases.

The standard requires companies to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases.

Both finance leases and operating leases result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred on transition.

For finance leases, the lessee will recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee will recognize a straight-line total lease expense.

The guidance is effective for interim and annual periods beginning after December 15, 2018.

The Company adopted this guidance in the first quarter of fiscal 2020 using the modified retrospective method for all leases that existed at or commence after the date of initial application.

As a result of the adoption of the new standard on leases, the Company recognized ROU assets of approximately $161 million, lease liabilities of approximately $175 million and a cumulative adjustment to increase the deficit of approximately $14 million in the consolidated balance sheet as at March 1, 2019.

Future lease costs included in the RAP of approximately $14 million, which were accrued for prior to adoption of ASC 842, and were previously included in accrued liabilities and other long-term liabilities, are now presented in accrued liabilities and operating lease liabilities in the consolidated balance sheet as at March 1, 2019.

As a result, total operating lease liabilities were $189 million in the consolidated balance sheet as at March 1, 2019.

ASU 2017-12, Hedge Accounting

In August 2017, the FASB issued ASU 2017-12.

This guidance expands the range of strategies that qualify for hedge accounting, changes how certain hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations.

The guidance is effective for interim and annual periods beginning after December 15, 2018.

The Company adopted this guidance in the first quarter of fiscal 2020 and it did not have a material impact to the consolidated financial results.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued guidance related to the measurement of credit losses on financial instruments, ASU 2016-13.

This guidance replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses, requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, and requires entities to estimate an expected lifetime credit loss on its financial assets.

The guidance is effective for interim and annual periods beginning after December 15, 2019.

The Company will adopt this guidance in the first quarter of fiscal 2021 and does not expect the adoption to have a material impact on its results of operations, financial position and disclosures.

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-K

Item 7. Management’s Discussion and Analysis