What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-21 compared with 2022-09-28 · 256 added, 270 removed, 590 unchanged (47% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited interim consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited for the three and six months ended August 31, 2022, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated financial statements and accompanying notes and MD&A for the fiscal year ended February 28, 2022 (the “Annual MD&A”).

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited interim consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited for the three and nine months ended November 30, 2022, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated financial statements and accompanying notes and MD&A for the fiscal year ended February 28, 2022 (the “Annual MD&A”).

The Consolidated Financial Statements are presented in U.S.

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• the Company’s plans, strategies and objectives, including its intentions to increase and enhance its product and service offerings, to patent new innovations, and to increase staffing in its Cybersecurity and IoT businesses;

• the Company’s expectations with respect to the impact of the COVID-19 pandemic and global semiconductor shortage on its results of operations and financial condition;

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

• the Company’s expectations with respect to its revenue and billings in fiscal 2023, the annual recurring revenue of its Cybersecurity business in fiscal 2024, installations of the BlackBerry IVY™ platform and the sale of substantially all of its non-core patent assets;

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• the Company’s expectations with respect to the sufficiency of its financial resources.

The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “could”, “intend”, “believe”, “target”, “plan” and similar expressions are intended to identify forward-looking statements in this MD&A, including in the sections entitled “Business Overview - Strategy”, “Business Overview - Products and Services”, “Business Overview - COVID-19 and Macroeconomic Factors”, “Non-GAAP Financial Measures - Key Metrics”, “Results of Operations - Three months ended August 31, 2022 compared to the three months ended August 31, 2021 - Revenue - Revenue by Segment” and “Financial Condition - Contractual and Other Obligations”.

The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “could”, “intend”, “believe”, “target”, “plan” and similar expressions are intended to identify forward-looking statements in this MD&A, including in the sections entitled “Business Overview - Strategy”, “Business Overview - Products and Services”, “Business Overview - COVID-19 and Macroeconomic Factors”, “Non-GAAP Financial Measures - Key Metrics”, “Results of Operations - Three months ended November 30, 2022 compared to the three months ended November 30, 2021 - Revenue - Revenue by Segment” and “Financial Condition - Contractual and Other Obligations”.

Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances, including but not limited to, the Company’s expectations regarding its business, strategy, opportunities and prospects, the launch of new products and services, general economic conditions, the ongoing COVID-19 pandemic, competition, and the Company’s expectations regarding its financial performance.

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Cybersecurity

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

The Cybersecurity business consists of BlackBerry Spark, BlackBerry® AtHoc® and BlackBerry® SecuSUITE®.

The Company’s core secure software and services offering is its BlackBerry Spark software platform, which integrates a unified endpoint security (“UES”) layer with BlackBerry unified endpoint management (“UEM”) to enable secure endpoint communications in a zero-trust environment.

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

BlackBerry UEM is a central software component of the Company’s secure communications platform,

offering a “single pane of glass”, or unified console view, for managing and securing devices, applications, identity, content and endpoints across all leading operating systems.

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

endpoints across all leading operating systems.

BlackBerry Dynamics offers a best-in-class development platform and secure container for mobile applications, including the Company’s own enterprise applications such as BlackBerry® Work and BlackBerry® Connect for secure collaboration.

The BlackBerry Spark platform also includes BBM Enterprise, an enterprise-grade secure instant messaging solution for messaging, voice and video.

BlackBerry AtHoc and BlackBerry Alert are secure, networked critical event management solutions that enable people, devices and organizations to exchange critical information in real time during business continuity and life safety operations.

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SecuSUITE is a certified, multi-OS voice and text messaging solution with advanced encryption, anti-eavesdropping and continuous authentication capabilities, providing a maximum level of security on conventional mobile devices for government and businesses.

The Company also offers BBM Enterprise, an enterprise-grade secure instant messaging solution for messaging, voice and video.

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

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Completion of the Patent Sale Transaction is subject to the satisfaction of financing and other closing conditions.

Catapult continues to work on securing its required financing;

however, the Company is no longer under exclusivity with Catapult and is continuing to explore alternative options in parallel.

Catapult is working with a financing partner and the parties are negotiating definitive closing documents.

In parallel, the Company is in advanced term sheet discussions with a second interested party which has completed its due diligence on the portfolio.

This alternate party is a prominent private equity firm that would not require external financing.

The Company’s Other business generates revenue from SAF charged to subscribers using the Company’s legacy BlackBerry 7 and prior BlackBerry operating systems, which are no longer supported or maintained as of January 4, 2022.

Recent Developments

The Company continued to execute on its strategy in fiscal 2023 and announced the following achievements:

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

Products and Innovation:

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

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

• Achieved conformance for the QNX® Software Development Platform 7.1 with the “Future Airborne Capability Environment” (FACE) technical standard, extending BlackBerry QNX’s support for the aerospace and defense market;

• Achieved the certification of QNX® OS for Safety 2.2 to the highest integrity level of the functional safety standard for the railway industry;

• Received the Frost & Sullivan 2022 Enabling Technology Leadership Award for BlackBerry IVY;

• Launched CylanceGATEWAY, BlackBerry’s Zero Trust Network Access (ZTNA) service offering;

• Named as a ‘Leader’ for a third consecutive year in the IDC MarketScape:

Worldwide UEM Software 2022 Vendor Assessment;

• Together with Google, launched Chrome Enterprise Management with BlackBerry UEM to support devices running Google Chrome OS and Chrome browser;

• Enhanced the BlackBerry Managed Security Service Provider (MSSP) channel program, including an expansion of the range of products available, increased partner support and more comprehensive training.

• Released Cyber Threat Intelligence (CTI) offering, a professional threat intelligence service to help customers prevent, detect, and effectively respond to cyberattacks;

• Strengthened cybersecurity platform to provide customers with improved threat identification, remediation capabilities, and endpoint support, as well as an improved user experience and investigation speed and significant updates across triage and analysis workflows;

• Announced CylanceAVERT™, a data loss detection module that provides data access and leakage visibility via CylanceGATEWAY;

• Announced new features for BlackBerry UEM, including new eSIM and Android management capabilities as well as enhanced Google Chromebook integration;

• Announced that NATO Communications and Information Agency (NCI Agency) has awarded security accreditation to BlackBerry’s SecuSUITE® for Government for global use in official NATO secure communications.

Customers and Partners:

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

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

• Selected by PATEO, a leading Chinese Tier 1, for its intelligent cockpit, PATEO CONNECT+, to be mass produced in more than ten individual models across five automakers;

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

• Selected by BDStar Intelligent & Connected Vehicle Technology Co., Ltd.

(BICV) to power an intelligent digital cockpit, featuring augmented reality, artificial intelligence, and hologram functions for the new Renault Jiangling all-electric sedan;

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

• Entered into a multi-year agreement with Magna International Inc.

to collaborate on next-generation Advanced Driver Assistance System (ADAS) solutions for global automakers;

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

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

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

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

• Announced the availability of BlackBerry Radar on AWS Marketplace;

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

Environmental, Sustainability and Corporate Governance:

• Appointed Phil Kurtz as Chief Legal Officer and Corporate Secretary;

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

• Expanded work with AWS to elevate BlackBerry QNX foundational software to the cloud, accelerating time to market for mission-critical embedded systems;

• Selected by Dayin Technology to develop acoustic solutions for Great Wall Motors’ premium, next-generation vehicles;

• Selected by Human Horizons to power its autonomous driving controller and intelligent digital cockpit in the HiPhi Z vehicle;

• Expanded BlackBerry SecuSUITE secure communications partner network in Asia Pacific, with the addition of NSI Global, Praesidum Group and Teletrol-One.

Pearlstein Settlement

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On June 14, 2022, the Court granted plaintiffs’ motion for preliminary approval of the settlement and scheduled the final approval hearing for September 29, 2022.

While the Company believes that the allegations in the case were without merit, it also believes that eliminating the distraction, expense and risk of continued litigation is in the best interests of the Company and its shareholders.

On September 29, 2022, the Court granted final approval of the settlement and entered final judgment.

While the Company believes that the allegations in the case were without merit, it also believes that eliminating the distraction, expense and risk of continued litigation was in the best interests of the Company and its shareholders.

In the first quarter of fiscal 2023, the Company accrued $165 million associated with this settlement within the line Litigation settlement on the consolidated statement of operations.

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During the second quarter of fiscal 2023, the Company shifted from a remote working model to a hybrid model for most of its global offices with employees returning to work in person on a part-time basis, subject to local rules and regulations.

Although the Company experienced higher Software & Services revenue in the first six months of fiscal 2023 compared to the first six months of fiscal 2022, the COVID-19 pandemic and ensuing global semiconductor shortage have had and may continue to have a material adverse impact on production-based royalties for the Company’s QNX automotive software business.

This chip supply disruption and its impact on the Company’s business, results of operations and financial condition may be exacerbated by the invasion of Ukraine by Russia and resulting global sanctions against Russia.

Economic weakness or inflation resulting directly or indirectly from the COVID-19 pandemic and the invasion of Ukraine, as well as higher interest rates implemented in response to inflation, may negatively impact consumer demand for automobiles and may contribute to reduced spending and longer sales cycles for cybersecurity solutions, which in turn may adversely affect the Company’s business.

The Company does not believe that inflation had a material effect on its business, results of operations and financial condition in the first six months of fiscal 2023.

The long-term impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on, among other things, the pandemic’s duration and severity, including resurgences in some geographic areas as a result of new strains and variants, the governmental restrictions that may be sustained or imposed in response to the pandemic, and the effectiveness of actions taken to contain or mitigate the pandemic (including the distribution, efficacy and acceptance of vaccines, particularly against emergent viral variants).

Although the Company experienced higher Software & Services revenue in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022, the COVID-19 pandemic and ensuing global semiconductor shortage have had and continue to have a material adverse impact on production-based royalties for the Company’s QNX automotive software business.

The invasion of Ukraine by Russia and resulting global sanctions against Russia have exacerbated the disruption of automotive supply chains and its impact on the Company’s business.

Economic weakness or inflation resulting directly or indirectly from the COVID-19 pandemic and the invasion of Ukraine, as well as higher interest rates implemented in response to inflation and resulting fears of recession, may negatively impact consumer demand for automobiles and may contribute to reduced spending and longer sales cycles for cybersecurity solutions, which in turn may adversely affect the Company’s business.

The Company does not believe that inflation had a material effect on its business, results of operations and financial condition in the first nine months of fiscal 2023.

The long-term impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on, among other things, the emergence and virulence of new variants, the governmental restrictions that may be sustained or imposed in response, and the effectiveness of actions taken to contain or mitigate the pandemic, including vaccination programs.

This impact cannot be reasonably estimated at this time and may not be fully reflected until future periods.

Refer to Part II, Item 1A “Risk Factors” in the Annual Report for a discussion of these factors and other risks.

Second Quarter Fiscal 2023 Summary Results of Operations

The following table sets forth certain consolidated statements of operations data for the quarter ended August 31, 2022 compared to the quarter ended August 31, 2021 under U.S.

In its annual goodwill impairment test in the fourth quarter of fiscal 2022, the Company’s estimates of cash flows indicated that such carrying values were expected to be recovered for all reporting units.

Nonetheless, it is reasonably possible that future judgements, assumptions, market inputs into valuation methods and estimates of cash flows may change resulting in the need to write down certain assets to fair value.

Assumptions and estimates about future cash flows and discount rates are complex and often subjective and require significant judgement.

The analysis 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 impact of global economic weaknesses and high inflation levels resulting directly or indirectly from, among other things, the ongoing COVID-19 pandemic and the invasion of Ukraine have resulted in higher interest rates.

The impact of any of these situations on inputs into valuation estimates could potentially be material to the consolidated financial statements, including the fair value of the Company’s goodwill, particularly in relation to its BlackBerry Spark reporting unit.

Third Quarter Fiscal 2023 Summary Results of Operations

The following table sets forth certain consolidated statements of operations data for the quarter ended November 30, 2022 compared to the quarter ended November 30, 2021 under U.S.

For the Three Months Ended

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

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Revenue $ 169 $ 184 $ (15)

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Operating expenses 111 66 45

Investment loss, net (2) (1) (1)

Loss before income taxes (49) (142) 93

Investment income, net 2 25 (23)

Income before income taxes — 76 (76)

Provision for income taxes 4 2 2

Net loss $ (54) $ (144) $ 90

Loss per share - reported

Net income (loss) $ (4) $ 74 $ (78)

Earnings (loss) per share - reported

Basic $ (0.01) $ 0.13

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______________________________

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

GAAP basis for the three months ended August 31, 2021 includes 1,421,945 common shares that were subsequently issued on the third anniversary date of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition.

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

GAAP basis for the three months ended August 31, 2021 does not include the dilutive effect of the 1.75% Debentures (defined below), as to do so would be anti-dilutive.

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

GAAP basis for the three months ended November 30, 2021 includes 1,421,945 common shares that were subsequently issued on the third anniversary date of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition.

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

GAAP basis for the three months ended August 31, 2022 and August 31, 2021 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

GAAP basis for the three months ended November 30, 2022 and November 30, 2021 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

See Note 7 to the Consolidated Financial Statements for the Company’s calculation of the diluted weighted average number of shares outstanding.

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

The following table shows information by operating segment for the three and nine months ended November 30, 2022 and November 30, 2021.

The Company reports segment information in accordance with U.S.

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Cybersecurity IoT Licensing and Other Segment Totals

August 31, Change August 31, Change August 31, Change August 31, Change

November 30, Change November 30, Change November 30, Change November 30, Change

2022 2021 2022 2021 2022 2021 2022 2021

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Segment gross margin $ 60 $ 76 $ (16) $ 41 $ 35 $ 6 $ 8 $ 7 $ 1 $ 109 $ 118 $ (9)

For the Six Months Ended

For the Nine Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

August 31, Change August 31, Change August 31, Change August 31, Change

November 30, Change November 30, Change November 30, Change November 30, Change

2022 2021 2022 2021 2022 2021 2022 2021

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Segment gross margin $ 181 $ 208 $ (27) $ 126 $ 104 $ 22 $ 14 $ 34 $ (20) $ 321 $ 346 $ (25)

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

The following table reconciles the Company’s segment results for the three and nine months ended November 30, 2022 to consolidated U.S.

GAAP results:

For the Three Months Ended August 31, 2022

For the Three Months Ended November 30, 2022

(in millions)

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Operating expenses 111 111

Investment loss, net 2 2

Loss before income taxes $ (49)

For the Six Months Ended August 31, 2022

Investment income, net (2) (2)

Income before income taxes $ —

For the Nine Months Ended November 30, 2022

(in millions)

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

GAAP-based measures to adjusted measures for the three and six months ended August 31, 2022.

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

GAAP-based measures to adjusted measures for the three and nine months ended November 30, 2022.

The following table reconciles the Company’s segment results for the three and nine months ended November 30, 2021 to consolidated U.S.

GAAP results:

For the Three Months Ended August 31, 2021

For the Three Months Ended November 30, 2021

(in millions)

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Operating expenses 66 66

Investment loss, net 1 1

Loss before income taxes $ (142)

For the Six Months Ended August 31, 2021

Investment income, net (25) (25)

Income before income taxes $ 76

For the Nine Months Ended November 30, 2021

(in millions)

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Operating expenses 491 491

Investment loss, net 3 3

Investment income, net (22) (22)

Loss before income taxes $ (126)

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

GAAP-based measures to adjusted measures for the three and six months ended August 31, 2021.

GAAP-based measures to adjusted measures for the three and nine months ended November 30, 2021.

Financial Highlights

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

In the second quarter of fiscal 2023, the Company recognized revenue of $168 million and a net loss of $54 million, or $0.09 basic loss per share and $0.10 diluted loss per share on a U.S.

GAAP basis (second quarter of fiscal 2022 - revenue of $175 million and net loss of $144 million, or $0.25 basic and diluted loss per share).

The Company recognized an adjusted net loss of $29 million, and an adjusted loss of $0.05 per share, on a non-GAAP basis in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - adjusted net loss of $33 million, and adjusted loss of $0.06 per share).

The Company had approximately $505 million in cash, cash equivalents and investments as of November 30, 2022 (February 28, 2022 - $770 million).

In the third quarter of fiscal 2023, the Company recognized revenue of $169 million and a net loss of $4 million, or $0.01 basic loss per share and $0.09 diluted loss per share on a U.S.

GAAP basis (third quarter of fiscal 2022 - revenue of $184 million and net income of $74 million, or $0.13 basic earnings per share and $0.05 diluted loss per share).

The Company recognized an adjusted net loss of $30 million, and an adjusted loss of $0.05 per share, on a non-GAAP basis in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - adjusted net loss of $1 million, and adjusted loss of $0.00 per share).

See “Non-GAAP Financial Measures” below.

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The fair value adjustment does not impact the terms of the 1.75% Debentures such as the face value, the redemption features or the conversion price.

As at August 31, 2022, the fair value of the 1.75% Debentures was approximately $449 million, a decrease of approximately $10 million during the second quarter of fiscal 2023.

For the three months ended August 31, 2022, the Company recorded non-cash income relating to changes in fair value from non-credit components of $10 million (pre-tax and after tax) (the “Q2 Fiscal 2023 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and a non-cash charge relating to changes in fair value from instrument specific credit risk of nil in Other Comprehensive Loss (“OCL”) relating to the 1.75% Debentures.

For the six months ended August 31, 2022, the Company recorded non-cash income relating to changes in fair value from non-credit components of $56 million (pre-tax and after tax) (the “Fiscal 2023 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and non-cash income relating to changes in fair value from instrument specific credit risk of $2 million in OCL relating to the 1.75% Debentures.

As at November 30, 2022, the fair value of the 1.75% Debentures was approximately $392 million, a decrease of approximately $57 million during the third quarter of fiscal 2023.

For the three months ended November 30, 2022, the Company recorded non-cash income relating to changes in fair value from non-credit components of $56 million (pre-tax and after tax) (the “Q3 Fiscal 2023 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and a non-cash charge relating to changes in fair value from instrument specific credit risk of $1 million in Other Comprehensive Loss (“OCL”) relating to the 1.75% Debentures.

For the nine months ended November 30, 2022, the Company recorded non-cash income relating to changes in fair value from non-credit components of $112 million (pre-tax and after tax) (the “Fiscal 2023 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and non-cash income relating to changes in fair value from instrument specific credit risk of $3 million in OCL relating to the 1.75% Debentures.

See Note 5 to the Consolidated Financial Statements for further details on the 1.75% Debentures.

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

On September 27, 2022, the Company announced financial results for the three and six months ended August 31, 2022, which included certain non-GAAP financial measures and non-GAAP ratios, including adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted net loss, adjusted loss per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense, adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage, adjusted EBITDA margin percentage and free cash flow (usage).

On December 20, 2022, the Company announced financial results for the three and nine months ended November 30, 2022, which included certain non-GAAP financial measures and non-GAAP ratios, including adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted net loss, adjusted loss per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense, adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage, adjusted EBITDA margin percentage and free cash usage.

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

GAAP financial results.

The Company believes that these non-GAAP financial measures and non-GAAP ratios provide management, as well as readers of the Company’s financial statements with a consistent basis for comparison across accounting periods and is useful in helping management and readers

understand the Company’s operating results and underlying operational trends.

Non-GAAP financial measures and non-GAAP ratios exclude certain amounts as described below:

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

GAAP based measures for the three months ended August 31, 2022 and August 31, 2021

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

GAAP based measures for the three months ended November 30, 2022 and November 30, 2021

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

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

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A reconciliation of the most directly comparable U.S.

GAAP financial measures for the three months ended August 31, 2022 and August 31, 2021 to adjusted financial measures is reflected in the table below:

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

GAAP financial measures for the three months ended November 30, 2022 and November 30, 2021 to adjusted financial measures is reflected in the table below:

For the Three Months Ended (in millions) November 30, 2022 November 30, 2021

Gross margin $ 109 $ 117

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Reconciliation of U.S.

GAAP operating expense for the three months ended August 31, 2022, May 31, 2022 and August 31, 2021 to adjusted operating expense is reflected in the table below:

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

GAAP operating expense for the three months ended November 30, 2022, August 31, 2022 and November 30, 2021 to adjusted operating expense is reflected in the table below:

For the Three Months Ended (in millions) November 30, 2022 August 31, 2022 November 30, 2021

Operating expense $ 111 $ 153 $ 66

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Debentures fair value adjustment (1)

(56) (10) (110)

Acquired intangibles amortization 22 22 29

LLA impairment charge — 4 —

Litigation settlement — 165 —

Adjusted operating expense $ 137 $ 129 $ 142

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(1) See “Second Quarter Fiscal 2023 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”

(1) See “Third Quarter Fiscal 2023 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”

Reconciliation of U.S.

GAAP net loss and U.S.

GAAP basic loss per share for the three months ended August 31, 2022 and August 31, 2021 to adjusted net loss and adjusted basic loss per share is reflected in the table below:

For the Three Months Ended (in millions, except per share amounts) August 31, 2022 August 31, 2021

per share Basic loss

Net loss $ (54) $(0.09) $ (144) $(0.25)

Restructuring charges 3 —

GAAP net income (loss) and U.S.

GAAP basic earnings (loss) per share for the three months ended November 30, 2022 and November 30, 2021 to adjusted net loss and adjusted basic loss per share is reflected in the table below:

For the Three Months Ended (in millions, except per share amounts) November 30, 2022 November 30, 2021

per share Basic earnings (loss)

Net income (loss) $ (4) $(0.01) $ 74 $0.13

Stock compensation expense 8 6

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Acquired intangibles amortization 22 29

LLA impairment charge 4 —

Adjusted net loss $ (30) $(0.05) $ (1) $0.00

Reconciliation of U.S.

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended August 31, 2022 and August 31, 2021 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:

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

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended November 30, 2022 and November 30, 2021 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:

For the Three Months Ended (in millions) November 30, 2022 November 30, 2021

Research and development $ 52 $ 57

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Selling, marketing and administration $ 89 $ 77

Restructuring charges 3 —

Stock compensation expense 6 3

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Adjusted amortization $ 4 $ 13

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

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

Operating loss $ (47) $ (141)

Non-GAAP adjustments to operating loss

Restructuring charges 3 —

Adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage and adjusted EBITDA margin percentage for the three months ended November 30, 2022 and November 30, 2021 are reflected in the table below.

For the Three Months Ended (in millions) November 30, 2022 November 30, 2021

Operating income (loss) $ (2) $ 51

Non-GAAP adjustments to operating income (loss)

Stock compensation expense 8 6

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Acquired intangibles amortization 22 29

LLA impairment charge 4 —

Total non-GAAP adjustments to operating loss 25 111

Total non-GAAP adjustments to operating income (loss) (26) (75)

Adjusted operating loss (28) (24)

9 unchanged sentences

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

GAAP based measures for the six months ended August 31, 2022 and August 31, 2021

GAAP based measures for the nine months ended November 30, 2022 and November 30, 2021

A reconciliation of the most directly comparable U.S.

GAAP financial measures for the six months ended August 31, 2022 and August 31, 2021 to adjusted financial measures is reflected in the table below:

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

GAAP financial measures for the nine months ended November 30, 2022 and November 30, 2021 to adjusted financial measures is reflected in the table below:

For the Nine Months Ended (in millions) November 30, 2022 November 30, 2021

Gross margin $ 319 $ 343

5 unchanged sentences

Reconciliation of U.S.

GAAP operating expense for the six months ended August 31, 2022 and August 31, 2021 to adjusted operating expense is reflected in the table below:

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

GAAP operating expense for the nine months ended November 30, 2022 and November 30, 2021 to adjusted operating expense is reflected in the table below:

For the Nine Months Ended (in millions) November 30, 2022 November 30, 2021

Operating expense $ 545 $ 491

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______________________________

(1) See “Second Quarter Fiscal 2023 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”

(1) See “Third Quarter Fiscal 2023 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”

Reconciliation of U.S.

GAAP net loss and U.S.

GAAP basic loss per share for the six months ended August 31, 2022 and August 31, 2021 to adjusted net loss and adjusted basic loss per share is reflected in the table below:

For the Six Months Ended (in millions, except per share amounts) August 31, 2022 August 31, 2021

GAAP basic loss per share for the nine months ended November 30, 2022 and November 30, 2021 to adjusted net loss and adjusted basic loss per share is reflected in the table below:

For the Nine Months Ended (in millions, except per share amounts) November 30, 2022 November 30, 2021

Basic loss per share Basic loss per share

8 unchanged sentences

Reconciliation of U.S.

GAAP research and development, selling, marketing and administration, and amortization expense for the six months ended August 31, 2022 and August 31, 2021 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:

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

GAAP research and development, selling, marketing and administration, and amortization expense for the nine months ended November 30, 2022 and November 30, 2021 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:

For the Nine Months Ended (in millions) November 30, 2022 November 30, 2021

Research and development $ 159 $ 172

8 unchanged sentences

Adjusted amortization $ 11 $ 40

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

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

Adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage and adjusted EBITDA margin percentage for the nine months ended November 30, 2022 and November 30, 2021 are reflected in the table below.

For the Nine Months Ended (in millions) November 30, 2022 November 30, 2021

Operating loss $ (226) $ (148)

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

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

The Company believes that free cash flow (usage) is helpful in understanding the Company’s capital requirements and provides an additional means to reflect the cash flow trends in the Company’s business.

The Company uses free cash usage when assessing its sources of liquidity, capital resources, and quality of earnings.

The Company believes that free cash usage is helpful in understanding the Company’s capital requirements and provides an additional means to reflect the cash flow trends in the Company’s business.

Reconciliation of U.S.

GAAP net cash flow provided by (used in) operating activities for the three months ended August 31, 2022 and August 31, 2021 to free cash flow (usage) is reflected in the table below:

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

Net cash provided by (used in) operating activities $ (23) $ 12

GAAP net cash flow used in operating activities for the three months ended November 30, 2022 and November 30, 2021 to free cash usage is reflected in the table below:

For the Three Months Ended (in millions) November 30, 2022 November 30, 2021

Net cash used in operating activities $ (185) $ (19)

Acquisition of property, plant and equipment (1) (2)

Free cash flow (usage) $ (26) $ 10

Free cash usage $ (186) $ (21)

For the three months ended November 30, 2022, free cash usage includes $164 million paid in relation to the Pearlstein settlement discussed above in “Business Overview - Pearlstein Settlement”.

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

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

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

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

Comparative breakdowns of certain key metrics for the three months ended November 30, 2022 and November 30, 2021 are set forth below.

For the Three Months Ended (in millions) November 30, 2022 November 30, 2021 Change

Cybersecurity Annual Recurring Revenue $ 313 $ 358 $ (45)

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

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

The Company expects Cybersecurity ARR to return to growth in early fiscal 2024.

Cybersecurity ARR was approximately $313 million in the third quarter of fiscal 2023 and decreased compared to $321 million in the second quarter of fiscal 2023 and compared to $358 million in the third quarter of fiscal 2022.

The Company previously stated that it expected Cybersecurity ARR to return to growth in early fiscal 2024.

The Company no longer expects to meet this expectation due to macroeconomic factors resulting in longer sales cycles for cybersecurity solutions.

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

Dollar-Based Net Retention Rate

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

Cybersecurity DBNRR was 85% in the second quarter of fiscal 2023 and decreased compared to 88% in the first quarter of fiscal 2023 and compared to 95% in the second quarter of fiscal 2022.

Cybersecurity DBNRR was 84% in the third quarter of fiscal 2023 and decreased compared to 85% in the second quarter of fiscal 2023 and compared to 95% in the third quarter of fiscal 2022.

Total Contract Value Billings

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

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

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

Cybersecurity TCV billings was $103 million in the third quarter of fiscal 2023 and increased compared to $102 million in the second quarter of fiscal 2023 and decreased compared to $112 million in the third quarter of fiscal 2022.

The Company previously stated that it expected quarterly year-over-year Cybersecurity billings growth throughout fiscal 2023 when compared to the same quarter in the prior year.

In the second quarter of fiscal 2023, Cybersecurity TCV billings decreased compared to the second quarter of fiscal 2022 primarily due to customer churn in the BlackBerry Spark business.

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

In the third quarter of fiscal 2023, Cybersecurity TCV billings decreased compared to the third quarter of fiscal 2022 primarily due to macroeconomic factors resulting in longer sales cycles for cybersecurity solutions.

The Company expects sequential billings growth in the fourth quarter of fiscal 2023 and billings in the fourth quarter of fiscal 2023 to exceed Cybersecurity revenue in the fourth quarter of fiscal 2023.

Recurring Software Product Revenue

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

Total Software and Services product revenue, excluding professional services, was approximately 80% recurring in the second quarter of fiscal 2023, consistent with the first quarter of fiscal 2023 and the second quarter of fiscal 2022.

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

Total Software and Services product revenue, excluding professional services, was approximately 80% recurring in the third quarter of fiscal 2023, consistent with the second quarter of fiscal 2023 and the third quarter of fiscal 2022.

Results of Operations - Three months ended November 30, 2022 compared to the three months ended November 30, 2021

Revenue by Segment

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(in millions)

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Revenue by Segment

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Cybersecurity

The decrease in Cybersecurity revenue of $9 million was primarily due to a decrease of $11 million relating to product revenue in BlackBerry Spark and a decrease of $3 million relating to professional services, partially offset by an increase of $5 million related to the sale of Secusmart solutions.

The increase in IoT revenue of $11 million was primarily due to an increase of $5 million in BlackBerry QNX development seat revenue, an increase of $3 million in BlackBerry QNX royalty revenue and an increase of $2 million relating to professional services.

The decrease in Cybersecurity revenue of $22 million was primarily due to a decrease of $19 million relating to product revenue in BlackBerry Spark and a decrease of $3 million relating to professional services.

The Company expects sequential Cybersecurity revenue growth in the fourth quarter of fiscal 2023.

The increase in IoT revenue of $8 million was primarily due to an increase of $6 million in BlackBerry QNX royalty revenue and an increase of $5 million in BlackBerry QNX development seat revenue, partially offset by a decrease of $3 million relating to professional services.

The Company previously stated that it expected IoT revenue to be between $200 million and $210 million in fiscal 2023.

The Company now expects IoT revenue to be between $205 million and $210 million in fiscal 2023.

Licensing and Other

The decrease in Licensing and Other revenue of $9 million was primarily due to a decrease of $8 million in revenue from the Company’s intellectual property licensing arrangements due to the pending Patent Sale Transaction in the second quarter of 2023 and associated restrictions on monetization activity and a decrease of $1 million in SAF revenue.

The decrease in Licensing and Other revenue of $1 million was primarily due to a decrease of $3 million in SAF revenue, partially offset by an increase of $3 million in revenue from the Company’s intellectual property licensing arrangements.

Revenue by Geography

2 unchanged sentences

(in millions)

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Revenue by Geography

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North America Revenue

The decrease in North America revenue of $16 million was primarily due to a decrease of $8 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment”, a decrease of $7 million in product revenue in BlackBerry Spark and a decrease of $4 million in professional services, partially offset by an increase of $1 million in BlackBerry QNX development seat revenue and an increase of $1 million in BlackBerry QNX royalty revenue.

The decrease in North America revenue of $9 million was primarily due to a decrease of $11 million in product revenue in BlackBerry Spark and a decrease of $6 million in professional services, partially offset by an increase of $3 million in BlackBerry QNX royalty revenue, an increase of $3 million in revenue from the Company’s intellectual property licensing arrangements and an increase of $2 million in BlackBerry QNX development seat revenue.

Europe, Middle East and Africa Revenue

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

The decrease in Europe, Middle East and Africa revenue of $11 million was primarily due to a decrease of $7 million in product revenue in BlackBerry Spark, a decrease of $2 million in SAF revenue, a decrease of $1 million in BlackBerry QNX development seat revenue and a decrease of $1 million relating to professional services, partially offset by an increase of $1 million in BlackBerry QNX royalty revenue.

Other Regions Revenue

The increase in Other regions revenue of $5 million was primarily due to an increase of $3 million in BlackBerry QNX development seat revenue and an increase of $1 million in professional services.

The increase in Other regions revenue of $5 million was primarily due to an increase of $4 million in BlackBerry QNX development seat revenue and an increase of $1 million in BlackBerry QNX royalty revenue.

Consolidated Gross Margin

Consolidated gross margin decreased by $6 million to approximately $106 million in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - $112 million).

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

Consolidated gross margin decreased by $8 million to approximately $109 million in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - $117 million).

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

Consolidated Gross Margin Percentage

Consolidated gross margin percentage decreased by 0.9% to approximately 63.1% of consolidated revenue in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - 64.0%).

The decrease was primarily due to a lower gross margin contribution from BlackBerry Spark and Licensing and Other due to the reasons discussed above in “Revenue by Segment”,

partially offset by a higher gross margin contribution from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”.

Consolidated gross margin percentage increased by 0.9% to approximately 64.5% of consolidated revenue in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - 63.6%).

The increase was primarily due to a higher gross margin contribution from BlackBerry QNX due to the reasons discussed above in “Revenue by Segment” and a higher gross margin percentage from mix within Secusmart, partially offset by a lower gross margin contribution from BlackBerry Spark due to the reasons discussed above in “Revenue by Segment”.

Gross Margin by Segment

See “Second Quarter Fiscal 2023 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results.

See “Third Quarter Fiscal 2023 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results.

For the Three Months Ended

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Cybersecurity IoT Licensing and Other Segment Totals

August 31, Change August 31, Change August 31, Change August 31, Change

November 30, Change November 30, Change November 30, Change November 30, Change

2022 2021 2022 2021 2022 2021 2022 2021

4 unchanged sentences

Cybersecurity

The decrease in Cybersecurity gross margin of $10 million was primarily due to the reasons discussed above in “Revenue by Segment”, as the cost of sales for most Cybersecurity products does not significantly fluctuate based on business volume.

The decrease in Cybersecurity gross margin percentage of 4% was primarily due to an increase in revenue from the sale of Secusmart solutions, which has a lower relative gross margin percentage.

The increase in IoT gross margin of $9 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by an increase in salaries expense.

The decrease in IoT gross margin percentage of 1% was primarily due to an increase in professional service revenue, which has a lower relative gross margin percentage.

The decrease in Cybersecurity gross margin of $16 million was primarily due to the reasons discussed above in “Revenue by Segment”, as the cost of sales for most Cybersecurity products does not significantly fluctuate based on business volume, and to an increase in infrastructure costs allocated due to the Company no longer supporting or maintaining legacy device operating systems as discussed above in “Business Overview - Products and Services - Licensing and Other”

The decrease in Cybersecurity gross margin percentage of 2% was primarily due to an increase in infrastructure costs allocated.

The increase in IoT gross margin of $6 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by an increase in cost of sales associated with development seat revenue.

The decrease in IoT gross margin percentage of 1% was primarily due to an increase in cost of sales associated with development seat revenue.

Licensing and Other

The decrease in Licensing and Other gross margin of $5 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease in infrastructure costs due to the Company no longer supporting or maintaining legacy device operating systems.

The increase in Licensing and Other gross margin of $1 million was primarily due a decrease in infrastructure costs due to the Company no longer supporting or maintaining legacy device operating systems, partially offset by the reasons discussed above in “Revenue by Segment”.

The increase in Licensing and Other gross margin percentage of 13% was primarily due to a decrease in infrastructure costs due to the Company no longer supporting or maintaining legacy device operating systems.

Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended August 31, 2022, compared to the quarter ended May 31, 2022 and the quarter ended August 31, 2021.

The Company believes it is meaningful to provide a sequential comparison between the second quarter of fiscal 2023 and the first quarter of fiscal 2023.

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended November 30, 2022, compared to the quarter ended August 31, 2022 and the quarter ended November 30, 2021.

The Company believes it is meaningful to provide a sequential comparison between the third quarter of fiscal 2023 and the second quarter of fiscal 2023.

For the Three Months Ended

(in millions)

August 31, 2022 May 31, 2022 August 31, 2021

November 30, 2022 August 31, 2022 November 30, 2021

Revenue $ 169 $ 168 $ 184

6 unchanged sentences

Debentures fair value adjustment (56) (10) (110)

Litigation settlement — 165 —

Total $ 111 $ 153 $ 66

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Debentures fair value adjustment (33.1 %) (6.0 %) (59.8 %)

Litigation settlement — % 98.2 % — %

Total 65.7 % 91.1 % 35.9 %

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

GAAP-based measures to adjusted measures for the three months ended August 31, 2022, May 31, 2022 and August 31, 2021.

GAAP-based measures to adjusted measures for the three months ended November 30, 2022, August 31, 2022 and November 30, 2021.

GAAP Operating Expenses

Operating expenses decreased by $128 million, or 45.6% in the second quarter of fiscal 2023, compared to the first quarter of fiscal 2023 primarily due to a $165 million litigation settlement in the first quarter of fiscal 2023 and a $6 million gain on sale of property, plant and equipment, net, partially offset by the difference between the Q2 Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment related to the 1.75% Debentures incurred in the first quarter of fiscal 2023 of $36 million, a decrease in benefits of $4 million in government subsidies resulting from claims filed for the Canada Emergency Wage Subsidy and Hardest-Hit Business Recovery Program programs (“COVID-19 subsidies”) to support the business through the COVID-19 pandemic and an increase of $4 million in impairment of long-lived assets.

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

Operating expenses decreased by $42 million, or 27.5% in the third quarter of fiscal 2023, compared to the second quarter of fiscal 2023 primarily due to the difference between the Q3 Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment related to the 1.75% Debentures incurred in the second quarter of fiscal 2023 of $46 million, a decrease of $4 million in impairment of long-lived assets and a decrease of $2 million in restructuring costs, partially offset by a $6 million gain on sale of property, plant and equipment, net, in the second quarter of fiscal 2023 which did not recur and an increase in variable incentive plan costs of $4 million.

Operating expenses increased by $45 million, or 68.2%, compared to the third quarter of fiscal 2022 primarily due to the difference between the Q3 Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment related to the 1.75% Debentures incurred in the third quarter of fiscal 2022 of $54 million, an increase of $4 million in variable incentive plan costs and a decrease in benefits of $3 million in government subsidies resulting from claims filed for the Canada Emergency Wage Subsidy and Hardest-Hit Business Recovery Program programs (“COVID-19 subsidies”) to support the business through the COVID-19 pandemic, partially offset by a decrease of $16 million in amortization expense and a decrease of $6 million in salaries and benefits expenses.

Adjusted Operating Expenses

Adjusted operating expenses decreased by $3 million, or 2.3%, to $129 million in the second quarter of fiscal 2023 compared to $132 million in the first quarter of fiscal 2023.

The decrease was primarily attributable to a $6 million gain on sale of property, plant and equipment, net, a decrease of $5 million in legal expenses and a decrease of $4 million in salaries and benefits expenses, partially offset by a decrease in benefits of $4 million in COVID-19 subsidies.

Adjusted operating expenses decreased by $14 million, or 9.8%, to $129 million in the second quarter of fiscal 2023 compared to $143 million in the second quarter of fiscal 2022.

The decrease was primarily attributable to a decrease of $10 million in amortization expense, a decrease of $7 million in salaries and benefits expense and a $6 million gain on sale of property, plant and equipment, net, partially offset by a decrease in benefits of $12 million in COVID-19 subsidies and an increase of $4 million in impairment of long-lived assets.

Adjusted operating expenses increased by $8 million, or 6.2%, to $137 million in the third quarter of fiscal 2023 compared to $129 million in the second quarter of fiscal 2023.

The increase was primarily attributable to a $6 million gain on sale of property, plant and equipment, net, in the second quarter of fiscal 2023 which did not recur and an increase in variable incentive plan costs of $4 million, partially offset by a decrease of $2 million in salaries and benefits expenses and a decrease of $1 million in the Company’s deferred share unit liability due to a decrease in the Company’s stock price.

Adjusted operating expenses decreased by $5 million, or 3.5%, to $137 million in the third quarter of fiscal 2023 compared to $142 million in the third quarter of fiscal 2022.

The decrease was primarily attributable to a decrease of $10 million in amortization expense, a decrease of $6 million in salaries and benefits expenses and a decrease of $1 million in sales incentive plan costs, partially offset by an increase in variable incentive plan costs of $4 million and a decrease in benefits of $3 million in COVID-19 subsidies.

Research and Development Expenses

Research and development expenses consist primarily of salaries and benefits costs for technical personnel, new product development costs, travel expenses, office and building costs, infrastructure costs and other employee costs.

Research and development expenses decreased by $4 million, or 6.9%, in the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022 primarily due to a decrease of $2 million in salaries and benefits expenses and a decrease of $1 million in consulting fees, partially offset by a decrease in benefits of $1 million in claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund (“SIF”) program’s investment in BlackBerry QNX.

Adjusted research and development expenses decreased by $4 million, or 7.1%, to $52 million in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - $56 million).

Research and development expenses decreased by $5 million, or 8.8%, in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 primarily due to a decrease of $3 million in salaries and benefits expenses.

Adjusted research and development expenses decreased by $5 million, or 9.1%, to $50 million in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - $55 million).

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

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

Selling, marketing and administration expenses increased by $3 million, or 3.6%, in the second quarter of fiscal 2023 compared the second quarter of fiscal 2022 primarily due to a decrease in benefits of $12 million in COVID-19 subsidies, partially offset by a decrease of $6 million in stock compensation expenses and a decrease of $4 million in salaries and benefits expenses.

Adjusted selling, marketing and administration expenses increased by $6 million, or 8.1%, to $80 million in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - $74 million).

This increase was primarily due to a decrease in benefits of $12 million in COVID-19 subsidies, partially offset by a decrease of $4 million in salaries and benefits expenses and a decrease of $3 million in sales incentive plan costs.

Selling, marketing and administration expenses increased by $12 million, or 15.6%, in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 primarily due to an increase in variable incentive plan costs of $5 million, a decrease in benefits of $3 million in COVID-19 subsidies and an increase of $3 million in stock compensation costs, partially offset by a decrease of $3 million in salaries and benefits expenses.

Adjusted selling, marketing and administration expenses increased by $9 million, or 12.2%, to $83 million in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - $74 million).

This increase was primarily due to an increase in variable incentive plan costs of $5 million and a decrease in benefits of $3 million in COVID-19 subsidies, partially offset by a decrease of $3 million in salaries and benefits expenses.

Amortization Expense

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the quarter ended August 31, 2022 compared to the quarter ended August 31, 2021.

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the quarter ended November 30, 2022 compared to the quarter ended November 30, 2021.

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

2 unchanged sentences

Included in Operating Expense

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Property, plant and equipment $ 2 $ 4 $ (2)

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Included in Cost of Sales

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Property, plant and equipment $ — $ — $ —

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The decrease in amortization expense included in operating expense of $16 million was due to a decrease in intellectual property held and used related to the Patent Sale Transaction and due to the lower cost base of assets.

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

Adjusted amortization expense decreased by $9 million to $4 million in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - $13 million) due to the reasons described above on a U.S.

Amortization included in Cost of Sales

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

Investment Loss, Net

Investment loss, net, which includes the interest expense from the 1.75% Debentures, increased by $1 million to investment loss, net of $2 million in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - investment loss, net of $1 million).

The increase in investment loss, net is primarily due to investment mix.

For the second quarter of fiscal 2023, the Company’s net effective income tax expense rate was approximately 10% (second quarter of fiscal 2022 - net effective income tax expense rate of approximately 1%).

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

Investment Income, Net

Investment income, net, which includes the interest expense from the 1.75% Debentures, decreased by $23 million to investment income, net of $2 million in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - investment income, net of $25 million).

The decrease in investment income, net is primarily due to gains recognized from a return of capital from a non-marketable equity investment and observable price changes on non-marketable equity investments without readily determinable fair value that occurred in the third quarter of fiscal 2022.

For the third quarter of fiscal 2023, the Company’s net effective income tax expense rate was undefined due to net income before taxes of nil (third quarter of fiscal 2022 - net effective income tax expense rate of approximately 3%).

The Company’s net effective income tax rate reflects the change in unrecognized income tax benefits, if any, and the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the 1.75% Debentures, amongst other items, was offset by a corresponding adjustment of the valuation allowance.

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

The Company’s net loss for the second quarter of fiscal 2023 was $54 million, or $0.09 basic loss per share and $0.10 diluted loss per share on a U.S.

GAAP basis (second quarter of fiscal 2022 - net loss of $144 million, or $0.25 basic and diluted loss per share).

The decrease in net loss of $90 million was primarily due to a decrease in operating expenses, as described above in “Operating Expenses”, partially offset by a decrease in revenue, as described above in “Revenue by Segment” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net loss was $29 million in the second quarter of fiscal 2023 (second quarter of fiscal 2022 - adjusted net loss of $33 million).

The decrease in adjusted net loss of $4 million was primarily due to a decrease in operating expenses as described above in “Operating Expenses”, partially offset by a decrease in revenue as described above in “Revenue by Segment” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

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

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

The following section sets forth certain consolidated statements of operations data, which is expressed in millions of dollars, except for share and per share amounts and as a percentage of revenue, for the six months ended August 31, 2022 and August 31, 2021:

For the Six Months Ended

Net Income (Loss)

The Company’s net loss for the third quarter of fiscal 2023 was $4 million, or $0.01 basic loss per share and $0.09 diluted loss per share on a U.S.

GAAP basis (third quarter of fiscal 2022 - net income of $74 million, or $0.13 basic earnings per share and $0.05 diluted loss per share).

The decrease in net income of $78 million was primarily due to an increase in operating expenses, as described above in “Operating Expenses”, a decrease in investment income, net, a decrease in revenue, as described above in “Revenue by Segment”, partially offset by an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net loss was $30 million in the third quarter of fiscal 2023 (third quarter of fiscal 2022 - adjusted net loss of $1 million).

The increase in adjusted net loss of $29 million was primarily due to a decrease in investment income, net, a decrease in revenue as described above in “Revenue by Segment”, partially offset by a decrease in operating expenses as described above in “Operating Expenses” and an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

The weighted average number of shares outstanding was 579 million common shares for basic loss per share and 640 million common shares for diluted loss per share for the third quarter of fiscal 2023 (third quarter of fiscal 2022 - 571 million common shares for basic earnings per share and 632 million common shares for diluted loss per share).

Results of Operations - Nine months ended November 30, 2022 compared to the nine months ended November 30, 2021

The following section sets forth certain consolidated statements of operations data, which is expressed in millions of dollars, except for share and per share amounts and as a percentage of revenue, for the nine months ended November 30, 2022 and November 30, 2021:

For the Nine Months Ended

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

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Revenue $ 505 $ 533 $ (28)

1 unchanged sentence

Operating expenses 545 491 54

Investment loss, net (3) (3) —

Investment income (loss), net (1) 22 (23)

Loss before income taxes (227) (126) (101)

9 unchanged sentences

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

GAAP basis for the first six months of fiscal 2022 includes 1,421,945 common shares that were subsequently issued on the third anniversary dates of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition.

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

GAAP basis for the first six months of fiscal 2022 does not include the dilutive effect of the 1.75% Debentures as to do so would be anti-dilutive.

GAAP basis for the first nine months of fiscal 2022 includes 1,421,945 common shares that were subsequently issued on the third anniversary dates of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition.

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

GAAP basis for the first six months of fiscal 2023 and fiscal 2022 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

GAAP basis for the first nine months of fiscal 2023 and fiscal 2022 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

Revenue by Segment

Comparative breakdowns of revenue by segment are set forth below.

For the Six Months Ended

For the Nine Months Ended

(in millions)

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Revenue by Segment

9 unchanged sentences

Cybersecurity

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

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

The decrease in Cybersecurity revenue of $25 million was primarily due to a decrease of $35 million relating to product revenue in BlackBerry Spark, a decrease of $8 million relating to professional services and a decrease of $2 million relating to non-automotive OEM business, partially offset by an increase of $19 million relating to product revenue in Secusmart.

The increase in IoT revenue of $27 million was primarily due to an increase of $16 million in BlackBerry QNX development seat revenue, an increase of $9 million in BlackBerry QNX royalty revenue and an increase of $2 million relating to professional services.

Licensing and Other

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

The decrease in Licensing and Other revenue of $30 million was primarily due to a decrease of $23 million in revenue from the Company’s intellectual property licensing arrangements due to the pending Patent Sale Transaction in the third quarter of fiscal 2023 and associated restrictions on monetization activity and a decrease of $7 million in SAF revenue.

GAAP Revenue by Geography

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GAAP basis are set forth in the following table:

For the Six Months Ended

For the Nine Months Ended

(in millions)

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Revenue by Geography

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Europe, Middle East and Africa Revenue

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

The increase in Europe, Middle East and Africa revenue of $8 million was primarily due to an increase of $19 million relating to product revenue in Secusmart and an increase of $4 million in BlackBerry QNX development seat revenue, partially offset by a decrease of $15 million in product revenue in BlackBerry Spark.

Other Regions Revenue

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

The increase in Other regions revenue of $11 million was primarily due to an increase of $8 million in BlackBerry QNX development seat revenue, an increase of $2 million related to professional services and an increase of $2 million in BlackBerry QNX royalty revenue, partially offset by a decrease of $2 million in SAF revenue.

Consolidated Gross Margin

Consolidated gross margin decreased by $16 million to approximately $210 million in the first six months of fiscal 2023 (first six months of fiscal 2022 - $226 million).

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

Consolidated gross margin decreased by $24 million to approximately $319 million in the first nine months of fiscal 2023 (first nine months of fiscal 2022 - $343 million).

Consolidated Gross Margin Percentage

Consolidated gross margin percentage decreased by 2.3%, to approximately 62.5% of consolidated revenue in the first six months of fiscal 2023 (first six months of fiscal 2022 - 64.8%).

The decrease was primarily due to a lower gross margin contribution from Licensing and Other and BlackBerry Spark due to the reasons discussed above in “Revenue by Segment”, partially offset by a higher gross margin contribution from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”.

Consolidated gross margin percentage decreased by 1.2%, to approximately 63.2% of consolidated revenue in the first nine months of fiscal 2023 (first nine months of fiscal 2022 - 64.4%).

The decrease was primarily due to a lower gross margin contribution from BlackBerry Spark and Licensing and Other due to the reasons discussed above in “Revenue by Segment”, partially offset by a higher gross margin contribution from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”.

Gross Margin by Segment

See “Business Overview” and “Second Quarter Fiscal 2023 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results.

For the Six Months Ended

See “Business Overview” and “Third Quarter Fiscal 2023 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results.

For the Nine Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

August 31, Change August 31, Change August 31, Change August 31, Change

November 30, Change November 30, Change November 30, Change November 30, Change

2022 2021 2022 2021 2022 2021 2022 2021

4 unchanged sentences

Cybersecurity

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

The decrease in Cybersecurity gross margin percentage of 4% was primarily due to an increase in revenue from the sale of Secusmart solutions, which has a lower relative gross margin percentage.

The decrease in Cybersecurity gross margin of $27 million was primarily due to the reasons discussed above in “Revenue by Segment”, as the cost of sales for most Cybersecurity products does not significantly fluctuate based on business volume, and to an increase in infrastructure costs allocated due to the Company no longer supporting or maintaining legacy device operating systems as discussed above in “Business Overview - Products and Services - Licensing and Other”.

The decrease in Cybersecurity gross margin percentage of 4% was primarily due to an increase in infrastructure costs allocated and an increase in product revenue in Secusmart, which has a lower relative gross margin percentage.

The increase in IoT gross margin of $22 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by an increase in salaries expense.

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

The decrease in IoT gross margin percentage of 1% was primarily due to an increase in salaries expense.

Licensing and Other

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Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the six months ended August 31, 2022, compared to the six months ended August 31, 2021.

For the Six Months Ended

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the nine months ended November 30, 2022, compared to the nine months ended November 30, 2021.

For the Nine Months Ended

(in millions)

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Revenue $ 505 $ 533 $ (28)

18 unchanged sentences

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

GAAP-based measures to adjusted measures for the six months ended August 31, 2022 and August 31, 2021.

GAAP-based measures to adjusted measures for the nine months ended November 30, 2022 and November 30, 2021.

GAAP Operating Expenses

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

Operating expenses increased by $54 million, or 11.0% in the first nine months of fiscal 2023, compared to the first nine months of fiscal 2022 primarily due to a $165 million litigation settlement, a decrease in benefits of $28 million in COVID-19 subsidies and an increase of $4 million in restructuring costs, partially offset by the difference between the Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment of $65 million related to the 1.75% Debentures incurred in the first nine months of fiscal 2022, a decrease of $55 million in amortization expense, a decrease of $17 million in salaries and benefits expenses and a $6 million gain on sale of property, plant and equipment, net.

Adjusted Operating Expenses

Adjusted operating expenses decreased by $20 million, or 7.1%, to $261 million in the first six months of fiscal 2023, compared to $281 million in the first six months of 2022.

Adjusted operating expenses decreased by $25 million, or 5.9%, to $398 million in the first nine months of fiscal 2023, compared to $423 million in the first nine months of 2022.

The decrease was primarily attributable to a decrease of $29 million in amortization expense, a decrease of $17 million in salaries and benefits expenses and a $6 million gain on sale of property, plant and equipment, net, partially offset by a decrease in benefits of $28 million in COVID-19 subsidies.

1 unchanged sentence

Research and development expenses consist primarily of salaries and benefits for technical personnel, new product development costs, travel, office and building costs, infrastructure costs and other employee costs.

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

Adjusted research and development expenses decreased by $8 million, or 7.2% to $103 million in the first six months of fiscal 2023 (first six months of fiscal 2022 - $111 million).

Research and development expenses decreased by $13 million, or 7.6%, in the first nine months of fiscal 2023, compared to the first nine months of fiscal 2022 primarily due to a decrease of $8 million in salaries and benefits expenses and a decrease of $4 million in consulting costs, partially offset by a decrease in benefits of $1 million in claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX.

Adjusted research and development expenses decreased by $13 million, or 7.8% to $153 million in the first nine months of fiscal 2023 (first nine months of fiscal 2022 - $166 million).

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

1 unchanged sentence

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

Adjusted selling, marketing and administration expenses increased by $14 million, or 9.8%, to $157 million in the first six months of fiscal 2023 (first six months of fiscal 2022 - $143 million).

The increase was primarily due to a decrease in benefits of $25 million in COVID-19 subsidies, partially offset by a decrease of $8 million in salaries and benefits expenses and a decrease of $4 million in sales incentive plan costs.

Selling, marketing and administration expenses increased by $24 million, or 10.3%, in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 primarily due to a decrease in benefits of $28 million in COVID-19 subsidies, an increase of $4 million in variable incentive plan costs, an increase of $4 million in restructuring costs and an increase of $3 million in bad debt expense, partially offset by a decrease of $11 million in salaries and benefits expenses and a decrease of $6 million in sales incentive plan costs.

Adjusted selling, marketing and administration expenses increased by $23 million, or 10.6%, to $240 million in the first nine months of fiscal 2023 (first nine months of fiscal 2022 - $217 million).

The increase was primarily due to a decrease in benefits of $28 million in COVID-19 subsidies, an increase of $4 million in variable incentive plan costs, an increase of $3 million in bad debt expense and an increase of $2 million in travel expenses, partially offset by a decrease of $11 million in salaries and benefits expenses and a decrease of $6 million in sales incentive plan costs.

Amortization Expense

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the six months ended August 31, 2022 compared to the six months ended August 31, 2021.

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the nine months ended November 30, 2022 compared to the nine months ended November 30, 2021.

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

For the Six Months Ended

For the Nine Months Ended

(in millions)

Included in Operating Expense

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Property, plant and equipment $ 7 $ 10 $ (3)

2 unchanged sentences

Included in Cost of Sales

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Property, plant and equipment $ 2 $ 2 $ —

3 unchanged sentences

The decrease in amortization expense included in operating expense of $55 million was due to a decrease in intellectual property held and used related to the Patent Sale Transaction and due to the lower cost base of assets.

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

Adjusted amortization expense decreased by $29 million in the first nine months of fiscal 2023 to $11 million (first nine months of fiscal 2022 - $40 million) due to the reasons described above on a U.S.

Amortization included in Cost of Sales

The decrease in amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s service operations of $2 million was due to the lower cost base of assets.

Investment Loss, Net

Investment loss, net, which includes the interest expense from the 1.75% Debentures was $3 million in the first six months of fiscal 2023 and was consistent with the first six months of fiscal 2022.

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

Investment Income (Loss), Net

Investment income (loss), net, which includes the interest expense from the 1.75% Debentures, decreased by $23 million to investment loss, net of $1 million in the first nine months of fiscal 2023 (first nine months of fiscal 2022 - investment income, net of $22 million).

For the first nine months of fiscal 2023, the Company’s net effective income tax expense rate was approximately 5% (first nine months of fiscal 2022 - net effective income tax expense rate of approximately 5%).

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

The Company’s net loss for the first six months of fiscal 2023 was $235 million, or $0.41 basic loss per share and $0.45 diluted loss per share on a U.S.

GAAP basis (first six months of fiscal 2022 - net loss of $206 million, or $0.36 basic and diluted loss per share).

The increase in net loss of $29 million was primarily due to a decrease in revenue as described above in “Revenue by Segment”, 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”.

Adjusted net loss in the first six months of fiscal 2023 was $60 million and was consistent with the first six months of fiscal 2022.

The decrease in operating expenditures as described above in “Operating Expenses” was partially offset by a decrease in revenue as described above in “Revenue by Segment” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

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

The weighted average number of shares outstanding was 568 million for basic and diluted loss per share for the first six months of August 31, 2021.

The Company’s net loss for the first nine months of fiscal 2023 was $239 million, or $0.41 basic loss per share and $0.54 diluted loss per share on a U.S.

GAAP basis (first nine months of fiscal 2022 - net loss of $132 million, or $0.23 basic loss per share and $0.28 diluted loss per share).

The increase in net loss of $107 million was primarily due to an increase in operating expenses, as described above in “Operating Expenses”, a decrease in revenue as described above in “Revenue by Segment”, a decrease in investment income (loss), net, and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net loss in the first nine months of fiscal 2023 was $90 million (first nine months of fiscal 2022 - adjusted net loss of $61 million).

The increase in adjusted net loss of $29 million was primarily due to a decrease in revenue as described above in “Revenue by Segment”, a decrease in investment income (loss), net 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 578 million for basic loss per share and 639 million for diluted loss per share for the first nine months of November 30, 2022.

The weighted average number of shares outstanding was 569 million for basic loss per share and 630 million for diluted loss per share for the first nine months of November 30, 2021.

Common Shares Outstanding

On September 23, 2022, there were 577 million voting common shares, options to purchase 1 million voting common shares, 15 million restricted share units and 1 million deferred share units outstanding.

On December 16, 2022, there were 580 million voting common shares, options to purchase 0.5 million voting common shares, 13 million restricted share units and 2 million deferred share units outstanding.

In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 5 to the Consolidated Financial Statements.

2 unchanged sentences

Liquidity and Capital Resources

Cash, cash equivalents, and investments decreased by $71 million to $699 million as at August 31, 2022 from $770 million as at February 28, 2022, primarily as a result of changes in working capital.

Cash, cash equivalents, and investments decreased by $265 million to $505 million as at November 30, 2022 from $770 million as at February 28, 2022, primarily as a result of the U.S.

securities class actions settlement discussed in “Business Overview - Pearlstein Settlement” and changes in working capital excluding the amounts payable in respect of the 1.75% Debentures.

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

dollars as at August 31, 2022.

dollars as at November 30, 2022.

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

(in millions)

August 31, 2022 February 28, 2022 Change

November 30, 2022 February 28, 2022 Change

Cash and cash equivalents $ 255 $ 378 $ (123)

5 unchanged sentences

(in millions)

August 31, 2022 February 28, 2022 Change

November 30, 2022 February 28, 2022 Change

Current assets $ 769 $ 1,043 $ (274)

2 unchanged sentences

Current Assets

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

At August 31, 2022, accounts receivable was $100 million, a decrease of $38 million from February 28, 2022.

The decrease was primarily due to lower revenue recognized over the three months ended August 31, 2022 compared to the three months ended February 28, 2022, and a decrease in days sales outstanding to 56 days at the end of the second quarter of fiscal 2023 from 67 days at the end of the fourth quarter of fiscal 2022.

At August 31, 2022, other receivables was $15 million, a decrease of $10 million from February 28, 2022.

The decrease was primarily due to a decrease of $8 million relating to COVID-19 subsidies.

At August 31, 2022, other current assets was $173 million, an increase of $14 million from February 28, 2022.

The increase was primarily due to an increase of $13 million in intellectual property related to patent maintenance and an increase of $4 million in prepaid software, partially offset by a decrease of $4 million in prepaid rent.

The decrease in current assets of $274 million at the end of the third quarter of fiscal 2023 from the end of the fourth quarter of fiscal 2022 was primarily due to a decrease in short term investments of $140 million, a decrease in cash and cash equivalents of $123 million, a decrease in other receivables of $16 million, a decrease in accounts receivable, net of allowance of $7 million and a decrease in income taxes receivable of $4 million, partially offset and an increase of $16 million in other current assets.

At November 30, 2022, other receivables was $9 million, a decrease of $16 million from February 28, 2022.

The decrease was primarily due to a decrease of $8 million relating to COVID-19 subsidies and a decrease of $6 million in intellectual property licensing receivable.

At November 30, 2022, accounts receivable was $131 million, a decrease of $7 million from February 28, 2022.

The decrease was primarily due to lower revenue recognized over the three months ended November 30, 2022 compared to the three months ended February 28, 2022, and a decrease in days sales outstanding to 62 days at the end of the third quarter of fiscal 2023 from 67 days at the end of the fourth quarter of fiscal 2022.

At November 30, 2022, income taxes receivable was $5 million, a decrease of $4 million from February 28, 2022.

The decrease was primarily due to tax refunds received.

At November 30, 2022, other current assets was $175 million, an increase of $16 million from February 28, 2022.

The increase was primarily due to an increase of $16 million in intellectual property related to patent maintenance and an increase of $2 million in prepaid software, partially offset by a decrease of $2 million in prepaid hardware.

Current Liabilities

The increase in current liabilities of $119 million at the end of the second quarter of 2023 from the end of the fourth quarter of fiscal 2022 was primarily due an increase in accruals of $143 million and an increase in income taxes payable of $6 million, partially offset by a decrease in deferred revenue, current of $28 million and a decrease in accounts payable of $2 million.

Accrued liabilities were $300 million, reflecting an increase of $143 million compared to February 28, 2022.

The increase was primarily due to a $164 million legal settlement accrual, partially offset by a decrease of $6 million in payroll accruals and a decrease of $5 million in variable incentive plan costs.

The increase in current liabilities of $370 million at the end of the third quarter of 2023 from the end of the fourth quarter of fiscal 2022 was primarily due to an increase in the amounts payable in respect of the 1.75% Debentures of $392 million and an increase in income taxes payable of $10 million, partially offset by a decrease in deferred revenue, current of $28 million, a decrease in accruals of $3 million and a decrease in accounts payable of $1 million.

Income taxes payable were $21 million, reflecting an increase of $10 million compared to February 28, 2022, which was primarily due to income earned in taxable jurisdictions.

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

Deferred revenue, current was $179 million, reflecting a decrease of $28 million compared to February 28, 2022 that was attributable to a $26 million decrease in deferred revenue, current related to BlackBerry Spark and $3 million related to BlackBerry QNX, partially offset by an increase in deferred revenue, current of $2 million related to BlackBerry AtHoc.

Accrued liabilities were $154 million, reflecting a decrease of $3 million compared to February 28, 2022.

The decrease was primarily due a decrease of $4 million in director share liability, a decrease of $3 million in payroll accruals and a decrease of $2 million in operating lease liability, current, partially offset by an increase of $6 million in variable incentive plan costs.

Accounts payable were $21 million, reflecting a decrease of $1 million from February 28, 2022, which was primarily due to timing of payments.

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

For the Six Months Ended

Cash flows for the nine months ended November 30, 2022 compared to the nine months ended November 30, 2021 were as follows:

For the Nine Months Ended

(in millions)

August 31, 2022 August 31, 2021 Change

November 30, 2022 November 30, 2021 Change

Net cash flows provided by (used in):

5 unchanged sentences

Operating Activities

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

The increase in net cash flows used in operating activities of $216 million primarily reflects the net changes in working capital which includes the payment of the $165 million U.S.

securities class actions settlement.

Investing Activities

During the six months ended August 31, 2022, cash flows provided by investing activities were $117 million and included cash provided by transactions involving the acquisitions of short-term investments, net of the proceeds on sale or maturity in the amount of $120 million and proceeds on sale of property, plant and equipment of $17 million, offset by cash used in the acquisition of intangible assets of $16 million, and the acquisition of property, plant and equipment of $4 million.

For the same period in the prior fiscal year, cash flows provided by investing activities were $113 million and included cash provided by transactions involving the acquisitions of short-term investments, net of the proceeds on sale or maturity in the amount of $131 million, offset by cash used in the acquisition intangible assets of $14 million, and the acquisitions of property, plant and equipment of $4 million.

During the nine months ended November 30, 2022, cash flows provided by investing activities were $126 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $138 million and proceeds on sale of property, plant and equipment of $17 million, offset by cash used in the acquisition of intangible assets of $24 million and the acquisition of property, plant and equipment of $5 million.

For the same period in the prior fiscal year, cash flows provided by investing activities were $111 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $104 million and distribution from a non-marketable equity investment without readily determinable fair value in the amount of $35 million, offset by cash used in the acquisition intangible assets of $22 million, and the acquisitions of property, plant and equipment of $6 million.

Financing Activities

The decrease in cash flows provided by financing activities of $2 million for the first six months of fiscal 2023 was primarily due to a decrease in common shares issued upon the exercise of stock options.

The decrease in cash flows provided by financing activities of $3 million for the first nine months of fiscal 2023 was primarily due to a decrease in common shares issued upon the exercise of stock options.

Debenture Financing and Other Funding Sources

2 unchanged sentences

See Note 2 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.

Cash, cash equivalents, and investments were approximately $699 million as at August 31, 2022.

Cash, cash equivalents, and investments were approximately $505 million as at November 30, 2022.

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

1 unchanged sentence

Contractual and Other Obligations

The following table sets out aggregate information about the Company’s contractual and other obligations and the periods in which payments are due as at August 31, 2022:

The following table sets out aggregate information about the Company’s contractual and other obligations and the periods in which payments are due as at November 30, 2022:

(in millions)

2 unchanged sentences

Purchase obligations and commitments 119 116 3

Litigation settlement 164 164 —

Debt interest and principal payments 373 373 —

Total $ 580 $ 517 $ 63

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

Total contractual and other obligations as at November 30, 2022 decreased by approximately $23 million as compared to the February 28, 2022 balance of approximately $603 million, which was attributable to a decrease in operation lease obligations and purchase obligations and commitments.

The Company does not have any material off-balance sheet arrangements.

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis