BLACKBERRY Ltd 10-K

ITEM 7. 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 consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited, for the fiscal year ended February 28, 2023. The Consolidated Financial Statements are presented in U.S. dollars and have been prepared in accordance with U.S. GAAP. All financial information in this MD&A is presented in U.S. dollars, unless otherwise indicated. Readers should carefully review Part I, Item 1A “Risk Factors” and other documents filed from time to time with the Securities and Exchange Commission (“SEC”) and other securities regulators. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in Part I, Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results. Please refer to our MD&A included in our Annual Report on 10-K for the fiscal year ended February 28, 2022 for a comparative discussion of our fiscal 2022 financial results as compared to our fiscal 2021 financial results, which is incorporated herein by reference. Additional information about the Company can be found on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov. Cautionary Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements within the meaning of certain securities laws, including under the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including statements relating to: • the Company’s plans, strategies and objectives, including its intentions to increase and enhance its product and service offerings and to patent new innovations, and to complete the sale of a portfolio of its non-core patent assets; • 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 including inflation and interest rates, on its results of operations and financial condition; • the Company’s expectations with respect to its revenue and billings in fiscal 2024, 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; • the Company’s estimates of purchase obligations and other contractual commitments; and • the Company’s expectations with respect to the sufficiency of its financial resources. The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “could”, “intend”, “believe”, “target”, “plan” and similar expressions are intended to identify forward-looking statements in this Annual Report on Form 10-K, including in the sections in Part I, Item 1 “Business” entitled “Products and Services - IoT”, “Products and Services - Licensing and Other”, “Intellectual Property” and “Human Capital”, and in the sections of this MD&A entitled “Business Overview - COVID-19”, “Business Overview - Russia Ukraine Conflict”, “Non-GAAP Financial Measures - Key Metrics - Annual Recurring Revenue”, “Non-GAAP Financial Measures - Key Metrics - TCV Billings”, “Results of Operations - Fiscal year ended February 28, 2023 28 compared to fiscal year ended February 28, 2022 - Revenue - Revenue by Segment”, “Results of Operations - Three months ended February 28, 2023 compared to the three months ended February 28, 2022 - Revenue - Revenue by Segment” and “Financial Condition - Contractual and Other Obligations”. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances, including but not limited to, the Company’s expectations regarding its business, strategy, opportunities and prospects, the launch of new products and services, general economic conditions, the ongoing COVID-19 pandemic, competition, and the Company’s expectations regarding its financial performance. Many factors could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K. All of these factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. Any statements that are forward-looking statements are intended to enable the Company’s shareholders to view the anticipated performance and prospects of the Company from management’s perspective at the time such statements are made, and they are subject to the risks that are inherent in all forward-looking statements, as described above, as well as difficulties in forecasting the Company’s financial results and performance for future periods, particularly over longer periods, given changes in technology and the Company’s business strategy, evolving industry standards, intense competition and short product life cycles that characterize the industries in which the Company operates. See the “Strategy” subsection in Part I, Item 1 “Business” of this Annual Report on Form 10-K. The Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Business Overview The Company provides intelligent security software and services to enterprises and governments around the world. The Company secures more than 500 million endpoints including more than 215 million vehicles. Based in Waterloo, Ontario, the Company leverages artificial intelligence and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy, and is a leader in the areas of endpoint security, endpoint management, encryption and embedded systems. The Company’s common shares trade under the ticker symbol “BB” on the New York Stock Exchange and the Toronto Stock Exchange. The Company was incorporated under the Business Corporations Act (Ontario) on March 7, 1984. The Company continued to execute on its strategy in fiscal 2023 and announced the following significant achievements: Products and Innovation: • Demonstrated BlackBerry IVY™ running on three commercially-available automotive platforms at CES 2023 and announced general availability for May 2023; • Launched QNX® Accelerate, making the QNX® Neutrino® real time operating system (RTOS) and QNX® OS for Safety available in the cloud and through AWS Marketplace; • 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; • Strengthened QNX® Advanced Virtualization Framework for Android Automotive OS to simplify and accelerate building IVI systems on the QNX® Hypervisor; • Achieved the certification of QNX® OS for Safety 2.2 to the highest integrity level of the functional safety standard for the railway industry; • Launched CylanceGATEWAY, BlackBerry’s Zero Trust Network Access (ZTNA) service offering; • Released CylanceAVERT™, a data loss detection module that provides data access and leakage visibility via CylanceGATEWAY™; • Released Cyber Threat Intelligence (CTI), a professional threat intelligence service to help customers prevent, detect, and effectively respond to cyberattacks; • Recognized as a 2023 Gartner® Peer Insights™ Customers’ Choice for Unified Endpoint Management (UEM) tools, including as the only vendor to be placed in the upper right quadrant; • Named as a ‘Leader’ for a third consecutive year in the IDC MarketScape: Worldwide UEM Software 2022 Vendor Assessment; • Announced that NATO Communications and Information Agency (NCI Agency) awarded security accreditation to SecuSUITE for Government for global use in official NATO secure communications; and • Awarded updated NIAP/Common Criteria and CSfC certification for BlackBerry SecuSUITE® for Government. 29 Customers and Partners: • Announced an agreement to sell substantially all of BlackBerry’s non-core patent assets to Malikie Innovations Limited, a subsidiary of Key Patent Innovations Limited, for a combination of cash at closing and potential future royalties in the aggregate amount of up to $900 million; • Announced first BlackBerry IVY design win as Dongfeng Motor selected PATEO digital cockpit for the next-generation all-electric VOYAH Model; • 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; • Entered into a multi-year agreement with Magna International Inc. to collaborate on next-generation Advanced Driver Assistance System (ADAS) solutions for global automakers; • Selected by Chongqing Yazaki to power a digital LCD cluster for the Chinese market, including deployment within next-generation vehicles from Geely Auto and Dongfeng Liuzhou Auto; • 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; • Selected by Dayin Technology to develop acoustic solutions for Great Wall Motors’ premium, next-generation vehicles; • Announced that BlackBerry QNX software is embedded in over 215 million vehicles; • Launched the Software-Defined Vehicle Innovator Awards with MotorTrend; • 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; and • Expanded BlackBerry SecuSUITE secure communications partner network in Asia Pacific, with the addition of NSI Global, Praesidum Group and Teletrol-One. Environmental, Sustainability and Corporate Governance: • Appointed Phil Kurtz as Chief Legal Officer and Corporate Secretary; and • Released the Company’s 2022 Environmental, Social, and Governance (ESG) report. Pearlstein Settlement On April 7, 2022, the Company announced that it had reached an agreement in principle to settle the consolidated securities class action lawsuit captioned Pearlstein v. Blackberry Limited, et al., Case No. 13 Civ. 7060 (CM) (KHP) pending against the Company and certain of its former officers in the U.S. District Court for the Southern District of New York. A formal settlement agreement was signed on June 9, 2022, and contemplated an aggregate cash payment by the Company of $165 million to settle the claims brought on behalf of all persons who purchased or otherwise acquired BlackBerry shares on the NASDAQ between March 28, 2013 and September 20, 2013. The Stipulation of Settlement was executed effective June 7, 2022. On June 14, 2022, the Court granted plaintiffs’ motion for preliminary approval of the settlement and scheduled the final approval hearing for September 29, 2022. 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. On June 29, 2022, the Company paid $1 million of the settlement amount. The remaining $164 million was paid on September 6, 2022. Goodwill Impairment During the fourth quarter of fiscal 2023, as part of its process for setting the annual operating plan for fiscal 2024, the Company updated its estimates of long-term future cash flows to reflect lower revenue and EBITDA growth rate expectations and a reduction in revenue multiples used in the valuation of the BlackBerry Spark reporting unit. These changes in estimates, combined with the global economic weakness and inflation resulting directly or indirectly from the COVID-19 pandemic and the Russian invasion of Ukraine, higher interest rates implemented in response to inflation, and a broad-based stock market decline impacting the Company’s market capitalization, resulted in the recognition of a goodwill impairment charge of $245 million (the “Fiscal 2023 Goodwill Impairment Charge”) in the BlackBerry Spark reporting unit, which is included within the Company’s Cybersecurity segment. For additional information, see Note 3 to the Consolidated Financial Statements. The estimated fair values of the Company’s other reporting units substantially exceeded their carrying values as at the annual goodwill impairment test date. 30 Long-Lived Asset Impairment (“LLA Impairment”) During the fourth quarter of fiscal 2023, market conditions and changes in the Company’s estimates as described above under “Goodwill Impairment” provided indicators of potential impairment in the Company’s UES asset group, which is primarily composed of intangible assets recognized in the acquisition of Cylance and is included within the Company’s Cybersecurity segment. The Company performed the two-step impairment testing process as described in Note 1, utilizing the income approach using a discounted future cash flow model and market-based approaches, and concluded that the carrying values of the Company’s UES asset group exceeded their fair values, necessitating an impairment charge of $231 million. None of the Company’s other asset groups demonstrated indicators of potential impairment. During fiscal 2023, the Company also recorded a $4 million impairment charge relating to right-of-use assets for a total LLA impairment charge of $235 million (the “Fiscal 2023 LLA Impairment Charge”). For additional information, see Note 3 to the Consolidated Financial Statements. COVID-19 and Macroeconomic Factors 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 Russian invasion of Ukraine, as well as higher interest rates implemented in response to inflation and resulting fears of recession, may negatively impact consumer demand for automobiles and is contributing to reduced spending and longer sales cycles for cybersecurity solutions, which in turn may continue to adversely affect the Company’s business. The Company does not believe that inflation had a direct effect on its operations during fiscal 2023; however, higher interest rates implemented in response to inflation negatively impacted the Company’s estimates of the fair values of its reporting units which, among other factors, resulted in the Fiscal 2023 Goodwill Impairment Charge. Refer to Part I, Item 1A “Risk Factors” in this Annual Report on form 10-K for a discussion of these factors and other risks. Fiscal 2023 Summary Results of Operations The following table sets forth certain consolidated statements of operations data, as well as certain consolidated balance sheet data, as at and for the fiscal years ended February 28, 2023, February 28, 2022, and February 28, 2021: As at and for the Fiscal Years Ended (in millions, except for share and per share amounts) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Revenue $ 656 $ 718 $ (62) $ 893 $ (175) Gross margin 419 467 (48) 643 (176) Operating expenses 1,144 469 675 1,750 (1,281) Investment income (loss), net 5 21 (16) (6) 27 Income (loss) before income taxes (720) 19 (739) (1,113) 1,132 Provision for (recovery of) income taxes 14 7 7 (9) 16 Net income (loss) $ (734) $ 12 $ (746) $ (1,104) $ 1,116 Earnings (loss) per share - reported Basic $ (1.27) $ 0.02 $ (1.97) Diluted $ (1.35) $ (0.31) $ (1.97) Weighted-average number of shares outstanding (000’s) Basic 578,654 570,607 561,305 Diluted (1) 639,487 631,440 561,305 ______________________________ (1) Diluted loss per share on a U.S. GAAP basis for fiscal 2021 does not include the dilutive effect of the Debentures (as defined below) as to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for fiscal 2023, fiscal 2022 and fiscal 2021 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive. See Note 8 to the Consolidated Financial Statements for the fiscal year ended February 28, 2023 for calculation of the diluted weighted average number of shares outstanding. 31 The following tables show information by operating segment for the three months and year ended February 28, 2023 and February 28, 2022. The Company reports segment information in accordance with U.S. GAAP Accounting Standards Codification Section 280 based on the “management” approach. The management approach designates the internal reporting used by the CODM for making decisions and assessing performance of the Company’s reportable operating segments. See “Business Overview - Segment Reporting” for a description of the Company’s operating segments, as well as Note 12 to the Consolidated Financial Statements. For the Three Months Ended (in millions) Cybersecurity IoT Licensing and Other Segment Totals February 28, Change February 28, Change February 28, Change February 28, Change 2023 2022 2023 2022 2023 2022 2023 2022 Segment revenue $ 88 $ 122 $ (34) $ 53 $ 52 $ 1 $ 10 $ 11 $ (1) $ 151 $ 185 $ (34) Segment cost of sales 36 47 (11) 10 8 2 4 5 (1) 50 60 (10) Segment gross margin $ 52 $ 75 $ (23) $ 43 $ 44 $ (1) $ 6 $ 6 $ — $ 101 $ 125 $ (24) For the Year Ended (in millions) Cybersecurity IoT Licensing and Other Segment Totals February 28, Change February 28, Change February 28, Change February 28, Change 2023 2022 2023 2022 2023 2022 2023 2022 Segment revenue $ 418 $ 477 $ (59) $ 206 $ 178 $ 28 $ 32 $ 63 $ (31) $ 656 $ 718 $ (62) Segment cost of sales 185 194 (9) 37 30 7 12 23 (11) 234 247 (13) Segment gross margin $ 233 $ 283 $ (50) $ 169 $ 148 $ 21 $ 20 $ 40 $ (20) $ 422 $ 471 $ (49) The following tables reconcile the Company’s segment results for the three months and year ended February 28, 2023 to consolidated U.S. GAAP results: For the Three Months Ended February 28, 2023 (in millions) Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S. GAAP Revenue $ 88 $ 53 $ 10 $ 151 $ — $ 151 Cost of sales 36 10 4 50 1 51 Gross margin (1) $ 52 $ 43 $ 6 $ 101 $ (1) $ 100 Operating expenses 599 599 Investment income, net (6) (6) Loss before income taxes $ (493) For the Year Ended February 28, 2023 (in millions) Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S. GAAP Revenue $ 418 $ 206 $ 32 $ 656 $ — $ 656 Cost of sales 185 37 12 234 3 237 Gross margin (1) $ 233 $ 169 $ 20 $ 422 $ (3) $ 419 Operating expenses 1,144 1,144 Investment income, net (5) (5) Loss before income taxes $ (720) ______________________________ (1) See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the three months and year ended February 28, 2023. 32 The following tables reconcile the Company’s segment results for the three months and year ended February 28, 2022 to consolidated U.S. GAAP results: For the Three Months Ended February 28, 2022 (in millions) Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S. GAAP Revenue $ 122 $ 52 $ 11 $ 185 $ — $ 185 Cost of sales 47 8 5 60 1 61 Gross margin (1) $ 75 $ 44 $ 6 $ 125 $ (1) $ 124 Operating expenses (22) (22) Investment loss, net 1 1 Income before income taxes $ 145 For the Year Ended February 28, 2022 (in millions) Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S. GAAP Revenue $ 477 $ 178 $ 63 $ 718 $ — $ 718 Cost of sales 194 30 23 247 4 251 Gross margin (1) $ 283 $ 148 $ 40 $ 471 $ (4) $ 467 Operating expenses 469 469 Investment income, net (21) (21) Income before income taxes $ 19 ______________________________ (1) See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the three months and year ended February 28, 2022. Financial Highlights The Company had approximately $487 million in cash, cash equivalents and investments as of February 28, 2023 (Fiscal 2022 - $770 million). In fiscal 2023, the Company recognized revenue of $656 million and incurred a net loss of $734 million, or $1.27 basic loss per share and $1.35 diluted loss per share on a U.S. GAAP basis (fiscal 2022 - revenue of $718 million and net income of $12 million, or $0.02 basic earnings per share and $0.31 diluted loss per share). The net loss was primarily due to the Fiscal 2023 Goodwill Impairment Charge and Fiscal 2023 LLA Impairment Charge, as discussed above in “Business Overview - Goodwill Impairment” and “Business Overview - Long-Lived Asset Impairment”. The Company recognized adjusted net loss of $103 million, or adjusted loss of $0.18 per share, on a non-GAAP basis in fiscal 2023 (fiscal 2022 - adjusted net loss of $55 million and adjusted loss of $0.10 per share). See “Non-GAAP Financial Measures” below. Debentures Fair Value Adjustment As previously disclosed, the Company elected the fair value option to account for its outstanding 1.75% unsecured convertible debentures (the “1.75% Debentures”) and its previously outstanding 3.75% outstanding convertible debentures (the “3.75% Debentures” and together with the 1.75% Debentures, the “Debentures”); therefore, periodic revaluation has been and continues to be required under U.S. GAAP. The fair value adjustment does not impact the terms of the Debentures such as the face value, the redemption features or the conversion price. As of February 28, 2023, the fair value of the 1.75% Debentures was approximately $367 million versus the principal value of $365 million. For the three months ended February 28, 2023, the Company recorded a non-cash loss relating to changes in fair value from instrument specific credit risk of $1 million in other comprehensive income (loss) (“OCI”) and non-cash income relating to changes in fair value from non-credit components of $26 million (pre-tax and after tax) (the “Q4 Fiscal 2023 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations. In fiscal 2023, the Company recorded non-cash income relating to changes in fair value from instrument-specific credit risk of $2 million in OCI and non-cash income relating to changes in fair value from non-credit components of $138 million (pre-tax and after tax) (the “Fiscal 33 2023 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations. See Note 6 to the Consolidated Financial Statements for further details on the Debentures. Non-GAAP Financial Measures The Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, and information contained in this MD&A is presented on that basis. On March 30, 2023, the Company announced financial results for the three months and fiscal year ended February 28, 2023, which included certain non-GAAP financial measures and non-GAAP ratios, including adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted net income (loss), adjusted income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense, adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage, adjusted EBITDA margin percentage and free cash flow (usage). In the Company’s internal reports, management evaluates the performance of the Company’s business on a non-GAAP basis by excluding the impact of certain items below from the Company’s U.S. GAAP financial results. The Company believes that these non-GAAP financial measures and non-GAAP ratios provide management, as well as readers of the Company’s financial statements, with a consistent basis for comparison across accounting periods and is useful in helping management and readers understand the Company’s operating results and underlying operational trends. In the first quarter of fiscal 2022, the Company discontinued its use of software deferred revenue acquired and software deferred commission expense acquired adjustments in its non-GAAP financial measures due to the quantitative decline in the adjustments over time. For purposes of comparability, the Company’s non-GAAP financial measures for the three months ended and year ended February 28, 2021 have been updated to conform to the current year’s presentation. • Debentures fair value adjustment . The Company has elected to measure its outstanding 1.75% Debentures at fair value in accordance with the fair value option under U.S. GAAP. Each period, the fair value of the 1.75% Debentures is recalculated and resulting non-cash income and charges from the change in fair value from non-credit components of the 1.75% Debentures are recognized in income. The amount can vary each period depending on changes to the Company’s share price, share price volatility and credit indices. This is not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. • Restructuring charges . The Company believes that restructuring costs relating to employee termination benefits, facilities and other costs pursuant to the Cost Optimization Program to reduce its annual expenses amongst R&D, infrastructure and other functions do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. • Stock compensation expenses . Equity compensation is a non-cash expense and does not impact the ongoing operating decisions taken by the Company’s management. • Amortization of acquired intangible assets. When the Company acquires intangible assets through business combinations, the assets are recorded as part of purchase accounting and contribute to revenue generation. Such acquired intangible assets depreciate over time and the related amortization will recur in future periods until the assets have been fully amortized. This is not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. • Long-lived asset impairment charge. The Company believes that long-lived asset impairment charges do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. • Goodwill impairment charge. The Company believes that goodwill impairment charges do not reflect expected future operating expenses, are non-cash, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. • Litigation settlement. The Company believes that litigation settlements do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. On a U.S. GAAP basis, the impacts of these items are reflected in the Company’s income statement. However, the Company believes that the provision of supplemental non-GAAP measures allows investors to evaluate the financial performance of the Company’s business using the same evaluation measures that management uses and is therefore a useful indication of the Company’s performance or expected performance of future operations and facilitates period-to-period comparison of operating performance. As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary non-GAAP financial measures that exclude certain items from the presentation of its financial results. 34 Reconciliation of non-GAAP based measures with most directly comparable U.S. GAAP based measures for the three months ended February 28, 2023, February 28, 2022 and February 28, 2021 Readers are cautioned that adjusted gross margin, adjusted gross margin percentage, adjusted operating expense, adjusted net income (loss), adjusted income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense, adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage, adjusted EBITDA margin percentage and free cash flow (usage) and similar measures do not have any standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similarly titled measures reported by other companies. These non-GAAP financial measures should be considered in the context of the U.S. GAAP results, which are described in this MD&A and presented in the Consolidated Financial Statements. A reconciliation of the most directly comparable U.S. GAAP financial measures for the three months ended February 28, 2023, February 28, 2022 and February 28, 2021 to adjusted financial measures is reflected in the table below: For the Three Months Ended (in millions) February 28, 2023 February 28, 2022 February 28, 2021 Gross margin $ 100 $ 124 $ 152 Stock compensation expense 1 1 1 Adjusted gross margin $ 101 $ 125 $ 153 Gross margin % 66.2 % 67.0 % 72.4 % Stock compensation expense 0.7 % 0.6 % 0.5 % Adjusted gross margin % 66.9 % 67.6 % 72.9 % Reconciliation of U.S. GAAP operating expense (income) for the three months ended February 28, 2023, November 30, 2022, February 28, 2022 and February 28, 2021 to adjusted operating expense is reflected in the table below: For the Three Months Ended (in millions) February 28, 2023 November 30, 2022 February 28, 2022 February 28, 2021 Operating expense (income) $ 599 $ 111 $ (22) $ 465 Restructuring charges 7 — — — Stock compensation expense 9 8 4 16 Debentures fair value adjustment (1) (26) (56) (165) 258 Acquired intangibles amortization 15 22 22 32 Goodwill impairment charge 245 — — — LLA impairment charge 231 — — 22 Adjusted operating expense $ 118 $ 137 $ 117 $ 137 ______________________________ (1) See “Fiscal 2023 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”. 35 Reconciliation of U.S. GAAP net income (loss) and U.S. GAAP basic earnings (loss) per share for the three months ended February 28, 2023, February 28, 2022 and February 28, 2021 to adjusted net income (loss) and adjusted basic earnings (loss) per share is reflected in the table below: For the Three Months Ended (in millions, except per share amounts) February 28, 2023 February 28, 2022 February 28, 2021 Basic loss per share Basic earnings per share Basic earnings (loss) per share Net income (loss) $ (495) $(0.85) $ 144 $0.25 $ (315) $(0.56) Restructuring charges 7 — — Stock compensation expense 10 5 17 Debentures fair value adjustment (26) (165) 258 Acquired intangibles amortization 15 22 32 Goodwill impairment charge 245 — — LLA impairment charge 231 — 22 Adjusted net income (loss) $ (13) $(0.02) $ 6 $0.01 $ 14 $0.02 Reconciliation of U.S. GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended February 28, 2023, February 28, 2022 and February 28, 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) February 28, 2023 February 28, 2022 February 28, 2021 Research and development $ 48 $ 47 $ 48 Stock compensation expense 3 2 3 Adjusted research and development $ 45 $ 45 $ 45 Selling, marketing and administration $ 83 $ 64 $ 92 Restructuring charges 7 — — Stock compensation expense 6 2 13 Adjusted selling, marketing and administration $ 70 $ 62 $ 79 Amortization $ 18 $ 32 $ 45 Acquired intangibles amortization 15 22 32 Adjusted amortization $ 3 $ 10 $ 13 36 Reconciliation of selected non-GAAP based measures with most directly comparable U.S. GAAP measures for the years ended February 28, 2023, February 28, 2022 and February 28, 2021 A reconciliation of the most directly comparable U.S. GAAP financial measures for the years ended February 28, 2023, February 28, 2022 and February 28, 2021 to adjusted financial measures is reflected in the table below: For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 February 28, 2021 Gross margin $ 419 $ 467 $ 643 Stock compensation expense 3 4 5 Adjusted gross margin $ 422 $ 471 $ 648 Gross margin % 63.9 % 65.0 % 72.0 % Stock compensation expense 0.4 % 0.6 % 0.6 % Adjusted gross margin % 64.3 % 65.6 % 72.6 % Operating expense $ 1,144 $ 469 $ 1,750 Restructuring charges 11 — 2 Stock compensation expense 28 26 47 Debentures fair value adjustment (1) (138) (212) 372 Acquired intangibles amortization 82 115 129 Goodwill impairment charge 245 — 594 LLA impairment charge 235 — 43 Litigation settlement 165 — — Adjusted operating expense $ 516 $ 540 $ 563 ______________________________ (1) See “Fiscal 2023 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”. Reconciliation of U.S. GAAP net income (loss) and U.S. GAAP basic earnings (loss) per share for the years ended February 28, 2023, February 28, 2022 and February 28, 2021 to the adjusted net income (loss) and adjusted basic earnings (loss) per share is reflected in the table below: For the Fiscal Years Ended (in millions, except per share amounts) February 28, 2023 February 28, 2022 February 28, 2021 Basic loss per share Basic earnings (loss) per share Basic earnings (loss) per share Net income (loss) $ (734) $ (1.27) $ 12 $ 0.02 $ (1,104) $ (1.97) Restructuring charges 11 — 2 Stock compensation expense 31 30 52 Debentures fair value adjustment (138) (212) 372 Acquired intangibles amortization 82 115 129 Goodwill impairment charge 245 — 594 LLA impairment charge 235 — 43 Litigation settlement 165 — — Adjusted net income (loss) $ (103) $(0.18) $ (55) $(0.10) $ 88 $0.16 37 Reconciliation of U.S GAAP research and development, selling, marketing and administration, and amortization expense for the years ended February 28, 2023, February 28, 2022 and February 28, 2021 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below: For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 February 28, 2021 Research and development $ 207 $ 219 $ 215 Stock compensation expense 9 8 11 Adjusted research and development $ 198 $ 211 $ 204 Selling, marketing and administration $ 340 $ 297 $ 344 Restructuring charges 11 — 2 Stock compensation expense 19 18 36 Adjusted selling, marketing and administration $ 310 $ 279 $ 306 Amortization $ 96 $ 165 $ 182 Acquired intangibles amortization 82 115 129 Adjusted amortization $ 14 $ 50 $ 53 Adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage and adjusted EBITDA margin percentage for the three months ended February 28, 2023, February 28, 2022 and February 28, 2021 are reflected in the table below. These are non-GAAP financial measures and non-GAAP ratios that do not have any standardized meaning as prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. For the Three Months Ended (in millions) February 28, 2023 February 28, 2022 February 28, 2021 Operating income (loss) $ (499) $ 146 $ (313) Non-GAAP adjustments to operating income (loss) Restructuring charges 7 — — Stock compensation expense 10 5 17 Debentures fair value adjustment (26) (165) 258 Acquired intangibles amortization 15 22 32 Goodwill impairment charge 245 — — LLA impairment charge 231 — 22 Total non-GAAP adjustments to operating income (loss) 482 (138) 329 Adjusted operating income (loss) (17) 8 16 Amortization 20 34 49 Acquired intangibles amortization (15) (22) (32) Adjusted EBITDA $ (12) $ 20 $ 33 Revenue $ 151 $ 185 $ 210 Adjusted operating income (loss) margin % (1) (11%) 4% 8% Adjusted EBITDA margin % (2) (8%) 11% 16% ______________________________ (1) Adjusted operating income (loss) margin % is calculated by dividing adjusted operating income (loss) by revenue. (2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by revenue. 38 Adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage and adjusted EBITDA margin percentage for the fiscal years ended February 28, 2023, February 28, 2022 and February 28, 2021 are reflected in the table below. For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 February 28, 2021 Operating loss $ (725) $ (2) $ (1,107) Non-GAAP adjustments to operating loss Restructuring charges 11 — 2 Stock compensation expense 31 30 52 Debentures fair value adjustment (138) (212) 372 Acquired intangibles amortization 82 115 129 Goodwill impairment charge 245 — 594 LLA impairment charge 235 — 43 Litigation settlement 165 — — Total non-GAAP adjustments to operating loss 631 (67) 1,192 Adjusted operating income (loss) (94) (69) 85 Amortization 105 176 198 Acquired intangibles amortization (82) (115) (129) Adjusted EBITDA $ (71) $ (8) $ 154 Revenue $ 656 $ 718 $ 893 Adjusted operating income (loss) margin % (1) (14 %) (10 %) 10 % Adjusted EBITDA margin % (2) (11 %) (1 %) 17 % ______________________________ (1) Adjusted operating income (loss) margin % is calculated by dividing adjusted operating income (loss) by revenue. (2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by revenue. The Company uses free cash flow (usage) when assessing its sources of liquidity, capital resources, and quality of earnings. The Company believes that free cash flow (usage) is helpful in understanding the Company’s capital requirements and provides an additional means to reflect the cash flow trends in the Company’s business. Reconciliation of U.S. GAAP net cash provided by (used in) operating activities for the three months ended February 28, 2023, February 28, 2022 and February 28, 2021 to free cash flow (usage) is reflected in the table below: For the Three Months Ended (in millions) February 28, 2023 February 28, 2022 February 28, 2021 Net cash provided by (used in) operating activities $ (7) $ 10 $ 51 Acquisition of property, plant and equipment (2) (2) $ (3) Free cash flow (usage) $ (9) $ 8 $ 48 Reconciliation of U.S. GAAP net cash provided by (used in) operating activities for the years ended February 28, 2023, February 28, 2022 and February 28, 2021 to free cash flow (usage) is reflected in the table below: For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 February 28, 2021 Net cash provided by (used in) operating activities $ (263) $ (28) $ 82 Acquisition of property, plant and equipment (7) (8) (8) Free cash flow (usage) $ (270) $ (36) $ 74 For the year ended February 28, 2023, free cash usage includes $165 million paid in relation to the Pearlstein settlement discussed above in “Business Overview - Pearlstein Settlement”. 39 Key Metrics The Company regularly monitors a number of financial and operating metrics, including the following key metrics, in order to measure the Company’s current performance and estimated future performance. Readers are cautioned that annual recurring revenue (“ARR”), dollar-based net retention rate (“DBNRR”), Cybersecurity total contract value (“TCV”) billings, recurring revenue percentage and QNX royalty backlog 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 February 28, 2023 and February 28, 2022 are set forth below. For the Three Months Ended (in millions) February 28, 2023 February 28, 2022 Change Cybersecurity Annual Recurring Revenue $ 298 $ 347 $ (49) Cybersecurity Dollar-Based Net Retention Rate 81 % 91 % (10 %) Cybersecurity Total Contract Value Billings $ 107 $ 125 $ (18) Recurring Software Product Revenue ~ 90% ~ 80 % 10 % Annual Recurring Revenue The Company defines ARR as the annualized value of all subscription, term, maintenance, services, and royalty contracts that generate recurring revenue as of the end of the reporting period. The Company uses ARR as an indicator of business momentum for the Cybersecurity business. Cybersecurity ARR was approximately $298 million in the fourth quarter of fiscal 2023 and decreased compared to $313 million in the third quarter of fiscal 2023 and decreased compared to $347 million in the fourth quarter of fiscal 2022 primarily due to customer churn in the BlackBerry Spark business. The Company expects Cybersecurity ARR to return to sequential growth in the second half of fiscal 2024. Dollar-Based Net Retention Rate The Company calculates the DBNRR as of period end by first calculating the ARR from the customer base as at 12 months prior to the current period end (“Prior Period ARR”). The Company then calculates the ARR for the same cohort of customers as at the current period end (“Current Period ARR”). The Company then divides the Current Period ARR by the Prior Period ARR to calculate the DBNRR. Cybersecurity DBNRR was 81% in the fourth quarter of fiscal 2023 and decreased compared to 84% in the third quarter of fiscal 2023 and compared to 91% in the fourth quarter of fiscal 2022 primarily due to customer churn in the BlackBerry Spark business. TCV Billings The Company defines TCV billings as amounts invoiced less credits issued. The Company considers TCV billings to be a useful metric because billings drive deferred revenue, which is an important indicator of the health and visibility of the business, and represents a significant percentage of future revenue. Cybersecurity TCV billings was $107 million in the fourth quarter of fiscal 2023 and increased compared to $103 million in the third quarter of fiscal 2023 and decreased compared to $125 million in the fourth quarter of fiscal 2022 primarily due to elongated sales cycles in government causing some large deals to slip into later quarters. The Company previously stated that it expected quarterly year-over-year Cybersecurity TCV billings growth throughout fiscal 2023 when compared to the same quarter in the prior year, with growth of between 8% to 12% in fiscal 2023 as a whole compared to fiscal 2022. In the fourth quarter of fiscal 2023, Cybersecurity TCV billings decreased compared to the fourth quarter of fiscal 2022 and Cybersecurity TCV billings decreased in fiscal 2023 as a whole compared to fiscal 2022, in each case primarily due to the reasons discussed in the paragraph immediately above. The Company expects Cybersecurity TCV billings for fiscal 2024 to be in the range of $430 million to $480 million. The Company also expects Cybersecurity TCV billings to continue to exceed Cybersecurity revenue in fiscal 2024. 40 Recurring Software Product Revenue The Company defines recurring software product revenue percentage as recurring software product revenue divided by total software and services revenue. Recurring software product revenue is comprised of subscription and term licenses, maintenance arrangements, royalty arrangements and perpetual licenses recognized ratably under ASC 606. Total software and services revenue is comprised of recurring product revenue, non-recurring product revenue and professional services. The Company uses recurring software product revenue percentage to provide visibility into the revenue expected to be recognized in the current and future periods. Total Software and Services product revenue, excluding professional services, was approximately 90% recurring in the fourth quarter of fiscal 2023 and increased compared to approximately 80% recurring in the third quarter of fiscal 2023 and fourth quarter of fiscal 2022. QNX Royalty Backlog The Company defines the royalty backlog of its QNX business as estimated future revenue from variable forecasted royalties related to the QNX business. The estimation of forecasted royalties is based on QNX’s royalty rates and on projections of anticipated volumes that are based on historical shipping experience and current customer projections that management believes are reasonable over the lifetime of a design. The QNX royalty backlog is calculated annually based on current projections of volumes and may not be indicative of actual future revenue. The revenue that the Company will recognize is subject to several factors, including actual volumes and potential terminations or modifications to customer contracts. The Company’s QNX royalty backlog was approximately $640 million at the end of the fourth quarter of fiscal 2023 and increased compared to approximately $560 million at the end of the first quarter of fiscal 2023. Results of Operations - Fiscal year ended February 28, 2023 compared to fiscal year ended February 28, 2022 Revenue Revenue by Segment Comparative breakdowns of revenue by segment are set forth below. For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Revenue by Segment Cybersecurity $ 418 $ 477 $ (59) $ 491 $ (14) IoT 206 178 28 130 48 Licensing and Other 32 63 (31) 272 (209) $ 656 $ 718 $ (62) $ 893 $ (175) % Revenue by Segment Cybersecurity 63.7 % 66.4 % 55.0 % IoT 31.4 % 24.8 % 14.5 % Licensing and Other 4.9 % 8.8 % 30.5 % 100.0 % 100.0 % 100.0 % Cybersecurity The decrease in Cybersecurity revenue of $59 million was primarily due to a decrease of $47 million relating to product revenue in BlackBerry Spark, a decrease of $12 million relating to professional services and a decrease of $3 million relating to non-automotive OEM business, partially offset by an increase of $6 million relating to product revenue in Secusmart. The Company previously stated that it expected Cybersecurity revenue in fiscal 2023 to be broadly consistent with fiscal 2022. Cybersecurity revenue in fiscal 2023 decreased compared to fiscal 2022 due to both elongated sales cycles in government causing some large deals to slip into later quarters and customer churn in the BlackBerry Spark business. The Company expects Cybersecurity revenue for the first quarter of fiscal 2024 to increase sequentially and be in the range of $100 million to $110 million. The Company expects Cybersecurity revenue for fiscal 2024 as a whole to be in the range of $425 million to $450 million. 41 The Company previously disclosed long-term Cybersecurity revenue targets in the first quarter of fiscal 2023. The Company expects to disclose updated long-term Cybersecurity revenue targets in the first quarter of fiscal 2024. IoT The increase in IoT revenue of $28 million was primarily due to an increase of $18 million in QNX development seat revenue and an increase of $15 million in BlackBerry QNX royalty revenue, partially offset by a decrease of $5 million relating to professional services. The Company previously stated that it expected IoT revenue to be between $205 million and $210 million for fiscal 2023. IoT revenue was $206 million in fiscal 2023. The Company expects IoT revenue to be in the range of $50 million to $53 million in the first quarter of fiscal 2024 and expects IoT revenue to be in the range of $240 million and $250 million for fiscal 2024 as a whole. Licensing and Other The decrease in Licensing and Other revenue of $31 million was primarily due to a decrease of $23 million in revenue from the Company’s intellectual property licensing arrangements due to a proposed patent portfolio sale transaction with Catapult IP Innovations, Inc. (the “Catapult Sale Transaction”) that was pending in the fourth quarter of fiscal 2023 and associated restrictions on monetization activity and a decrease of $7 million in SAF revenue. The Company expects revenue from intellectual property licensing to be approximately $5 million per quarter in fiscal 2024, excluding the Malikie Transaction. Revenue by Geography Comparative breakdowns of the geographic regions are set forth in the following table: For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Revenue by Geography North America $ 350 $ 413 $ (63) $ 633 $ (220) Europe, Middle East and Africa 222 234 (12) 197 37 Other regions 84 71 13 63 8 $ 656 $ 718 $ (62) $ 893 $ (175) % Revenue by Geography North America 53.4 % 57.5 % 70.9 % Europe, Middle East and Africa 33.8 % 32.6 % 22.1 % Other regions 12.8 % 9.9 % 7.0 % 100.0 % 100.0 % 100.0 % North America Revenue The decrease in North America revenue of $63 million was primarily due to a decrease of $28 million in product revenue in BlackBerry Spark, a decrease of $23 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment” and a decrease of $17 million relating to professional services, partially offset by an increase of $7 million in BlackBerry QNX royalty revenue. Europe, Middle East and Africa Revenue The decrease in Europe, Middle East and Africa revenue of $12 million was primarily due to a decrease of $19 million in product revenue in BlackBerry Spark and a decrease of $3 million in SAF revenue, partially offset by an increase of $6 million relating to product revenue in Secusmart and an increase of $5 million in BlackBerry QNX development seat revenue. Other Regions Revenue The increase in Other regions revenue of $13 million was primarily due to an increase of $8 million in BlackBerry QNX development seat revenue and an increase of $6 million in BlackBerry QNX royalty revenue, partially offset by a decrease of $2 million in SAF revenue. 42 Gross Margin Consolidated Gross Margin Consolidated gross margin decreased by $48 million to approximately $419 million in fiscal 2023 (fiscal 2022 - $467 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 much of the Company’s cost of sales does not significantly fluctuate based on business volume. Consolidated Gross Margin Percentage Consolidated gross margin percentage decreased by 1.1%, to approximately 63.9% of consolidated revenue in fiscal 2023 (fiscal 2022 - 65.0%). The decrease was primarily due to lower gross margin percentage in Spark and Licensing and Other due to the reasons discussed above in “Revenue by Segment” as the cost of sales for these units is relatively fixed, partially offset by a change in mix, specifically higher contribution from BlackBerry QNX and Secusmart due to the reasons discussed above in “Revenue by Segment”. Gross Margin by Segment See “Business Overview” and “Fiscal 2023 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results. For the Years Ended (in millions) Cybersecurity IoT Licensing and Other Segment Totals February 28, Change February 28, Change February 28, Change February 28, Change 2023 2022 2023 2022 2023 2022 2023 2022 Segment revenue $ 418 $ 477 $ (59) $ 206 $ 178 $ 28 $ 32 $ 63 $ (31) $ 656 $ 718 $ (62) Segment cost of sales 185 194 (9) 37 30 7 12 23 (11) 234 247 (13) Segment gross margin $ 233 $ 283 $ (50) $ 169 $ 148 $ 21 $ 20 $ 40 $ (20) $ 422 $ 471 $ (49) Segment gross margin % 56 % 59 % (3 %) 82 % 83 % (1 %) 63 % 63 % — % 64 % 66 % (2 %) Cybersecurity The decrease in Cybersecurity gross margin of $50 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 that previously were included under Licensing and Other for SAF. The decrease in Cybersecurity gross margin percentage of 3% was primarily due to an increase in infrastructure costs allocated, partially offset by a higher gross margin percentage on professional services revenue in Secusmart. IoT The increase in IoT gross margin of $21 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 salaries expense within cost of goods sold. Licensing and Other The decrease in Licensing and Other gross margin of $20 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. Licensing and Other gross margin percentage was consistent with fiscal 2023. 43 Operating Expenses The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for fiscal 2023 compared to fiscal 2022 and fiscal 2022 compared to fiscal 2021. The Company believes it is meaningful to provide a sequential comparison between fiscal 2023 and fiscal 2022. For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Revenue $ 656 $ 718 $ (62) $ 893 $ (175) Operating expenses Research and development 207 219 (12) 215 4 Selling, marketing and administration 340 297 43 344 (47) Amortization 96 165 (69) 182 (17) Impairment of goodwill 245 — 245 594 (594) Impairment of long-lived assets 235 — 235 43 (43) Gain on sale of property, plant and equipment, net (6) — (6) — — Debentures fair value adjustment (138) (212) 74 372 (584) Litigation settlement 165 — 165 — — Total $ 1,144 $ 469 $ 675 $ 1,750 $ (1,281) Operating Expense as % of Revenue Research and development 31.6 % 30.5 % 24.1 % Selling, marketing and administration 51.8 % 41.4 % 38.5 % Amortization 14.6 % 23.0 % 20.4 % Impairment of goodwill 37.3 % — % 66.5 % Impairment of long-lived assets 35.8 % — % 4.8 % Gain on sale of property, plant and equipment, net (0.9 %) — % — % Debentures fair value adjustment (21.0 %) (29.5 %) 41.7 % Litigation settlement 25.2 % — % — % Total 174.4 % 65.3 % 196.0 % See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the years ended February 28, 2023, February 28, 2022 and February 28, 2021. 44 U.S. GAAP Operating Expenses Operating expenses increased by $675 million, or 143.9% in fiscal 2023 compared to fiscal 2022. The increase was primarily due to the Fiscal 2023 Goodwill Impairment Charge of $245 million, the Fiscal 2023 LLA Impairment Charge of $235 million, a $165 million litigation settlement, the difference between the Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in fiscal 2022 of $74 million, a decrease in benefits of $43 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 $11 million in restructuring costs, partially offset by a decrease of $69 million in amortization expense, a decrease of $21 million in salaries and benefits expenses and a decrease of $7 million in sales incentive plan costs. Adjusted Operating Expenses Adjusted operating expenses decreased by $24 million, or 4.4%, to $516 million in fiscal 2023, compared to $540 million in fiscal 2022. The decrease was primarily attributable to a decrease of $36 million in amortization expense, a decrease of $21 million in salaries and benefits expenses, a decrease of $7 million in sales incentive plan costs and a $6 million gain on sale of property, partially offset by a decrease in benefits of $43 million in COVID-19 subsidies and an increase of $5 million in bad debt expense. Research and Development Expenses Research and development expenses consist primarily of salaries and benefits for technical personnel, new product development costs, travel, office and building costs, infrastructure costs and other employee costs. Research and development expenses decreased by $12 million, or 5.5% in fiscal 2023 compared to fiscal 2022. The decrease was primarily attributable to a decrease of $8 million in salaries and benefits expenses and a decrease of $5 million in consulting costs, partially offset by a decrease in benefits of $2 million in claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX (“SIF”). Adjusted research and development expenses decreased by $13 million, or 6.2% to $198 million in fiscal 2023 (fiscal 2022 - $211 million). The decrease was primarily due to the same reasons described above on a U.S. GAAP basis. Selling, Marketing and Administration Expenses Selling, marketing and administration expenses 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 $43 million, or 14.5% in fiscal 2023 compared to fiscal 2022. The increase was primarily due to a decrease in benefits of $43 million in COVID-19 subsidies, an increase of $11 million in restructuring costs, an increase of $5 million in bad debt expense and an increase of $3 million in travel expenses, partially offset by a decrease of $13 million in salaries and benefits expenses and a decrease of $8 million in sales incentive plan costs. Adjusted selling, marketing and administration expenses increased by $31 million, or 11.1%, to $310 million in fiscal 2023 compared to $279 million in fiscal 2022. The increase was primarily due to the same reasons above, excluding the increase in restructuring costs. 45 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 fiscal 2023 compared to fiscal 2022 and fiscal 2022 compared to fiscal 2021. Intangible assets are comprised of patents, licenses and acquired technology. For the Fiscal Years Ended (in millions) Included in Operating Expense February 28, 2023 February 28, 2022 Change February 28, 2021 Change Property, plant and equipment $ 9 $ 12 $ (3) $ 17 $ (5) Intangible assets 87 153 (66) 165 (12) Total $ 96 $ 165 $ (69) $ 182 $ (17) Included in Cost of Sales February 28, 2023 February 28, 2022 Change February 28, 2021 Change Property, plant and equipment $ 3 $ 3 $ — $ 4 $ (1) Intangible assets 6 8 (2) 12 (4) Total $ 9 $ 11 $ (2) $ 16 $ (5) Amortization included in Operating Expense The decrease in amortization expense included in operating expense of $69 million was due to a decrease in intellectual property held and used related to the previously pending Catapult Sale Transaction and due to the lower cost base of assets. Adjusted amortization expense decreased by $36 million to $14 million in fiscal 2023 compared to $50 million in fiscal 2022 due to the reasons described above on a U.S. GAAP basis. Amortization included in Cost of Sales The decrease in amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the Company’s service operations of $2 million was due to the lower cost base of assets. Investment Income, Net Investment income, net, which includes the interest expense from the Debentures, decreased by $16 million to investment income, net of $5 million in fiscal 2023 compared to investment income, net of $21 million in fiscal 2022. The decrease in investment income, net was primarily due to gains recognized from a return of capital from a non-marketable equity investment in fiscal 2022 and lower average cash and investment balances, partially offset by a higher yield on cash and investments in fiscal 2023. Income Taxes For fiscal 2023, the Company’s net effective income tax expense rate was approximately 2% (fiscal 2022 - net effective income tax expense of approximately 37%). The Company’s net effective income tax rate reflects the change in unrecognized income tax benefits, if any, and the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the 1.75% Debentures, amongst other items, was offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates. Net Income (Loss) The Company’s net loss for fiscal 2023 was $734 million, or $1.27 basic loss per share and $1.35 diluted loss per share on a U.S. GAAP basis (fiscal 2022 - net income of $12 million, or $0.02 basic earnings per share and $0.31 diluted loss per share). The increase in net loss of $746 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” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”. Adjusted net loss for fiscal 2023 was $103 million (fiscal 2022 - adjusted net loss of $55 million). The increase in adjusted net loss of $48 million was primarily due to a decrease in revenue as described above in “Revenue by Segment” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by a decrease in operating expenses as described above in “Operating Expenses”. 46 The weighted average number of shares outstanding was 579 million common shares for basic loss per share and 639 million common shares for diluted loss per share for the fiscal year ended February 28, 2023. The weighted average number of shares outstanding was 571 million common shares for basic earnings per share and 631 million common shares for diluted loss per share for the fiscal year ended February 28, 2022. Common Shares Outstanding On March 28, 2023, there were 582 million voting common shares, options to purchase 0.5 million voting common shares, 20 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 6 to the Consolidated Financial Statements. The Company has not paid any cash dividends during the last three fiscal years. Results of Operations - Three months ended February 28, 2023 compared to the three months ended February 28, 2022 The following section sets forth certain unaudited 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 three months ended February 28, 2023, February 28, 2022 and February 28, 2021: For the Three Months Ended (in millions, except for share and per share amounts) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Revenue $ 151 $ 185 $ (34) $ 210 $ (25) Gross margin 100 124 (24) 152 (28) Operating expenses 599 (22) 621 465 (487) Investment income (loss), net 6 (1) 7 — (1) Income (loss) before income taxes (493) 145 (638) (313) 458 Provision for income taxes 2 1 1 2 (1) Net income (loss) $ (495) $ 144 $ (639) $ (315) $ 459 Earnings (loss) per share - reported Basic $ (0.85) $ 0.25 $ (1.10) $ (0.56) $ 0.81 Diluted (1) $ (0.85) $ (0.03) $ (0.82) $ (0.56) $ 0.53 Weighted-average number of shares outstanding (000’s) Basic 581,493 575,883 566,089 Diluted (1) 581,493 636,716 566,089 ______________________________ (1) Diluted loss per share on a U.S. GAAP basis in the fourth quarter of 2023 and 2021 do not include the dilutive effect of the Debentures as to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis in the fourth quarter of 2023, 2022 and 2021 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive. 47 Revenue Revenue by Segment Comparative breakdowns of revenue by product and service on a U.S. GAAP basis are set forth below. For the Three Months Ended (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Revenue by Segment Cybersecurity $ 88 $ 122 $ (34) $ 122 $ — IoT 53 52 1 38 14 Licensing and Other 10 11 (1) 50 (39) $ 151 $ 185 $ (34) $ 210 $ (25) % Revenue by Segment Cybersecurity 58.3 % 65.9 % 58.1 % IoT 35.1 % 28.1 % 18.1 % Licensing and Other 6.6 % 6.0 % 23.8 % 100.0 % 100.0 % 100.0 % Cybersecurity The decrease in Cybersecurity of $34 million was primarily due to a decrease of $19 million relating to product revenue in Secusmart, a decrease of $13 million relating to product revenue in BlackBerry Spark and a decrease of $4 million relating to professional services. IoT The increase in IoT revenue of $1 million was primarily due to an increase of $6 million in BlackBerry QNX royalty revenue and an increase of $2 million in Blackberry QNX development seat revenue, partially offset by a decrease of $6 million relating to professional services. Licensing and Other The decrease in Licensing and Other revenue of $1 million was primarily due to a decrease of $1 million in SAF revenue. U.S. GAAP Revenue by Geography Comparative breakdowns of the geographic regions on a U.S. GAAP basis are set forth in the following table: For the Three Months Ended (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Revenue by Geography North America $ 84 $ 100 $ (16) $ 141 $ (41) Europe, Middle East and Africa 46 66 (20) 53 13 Other regions 21 19 2 16 3 $ 151 $ 185 $ (34) $ 210 $ (25) % Revenue by Geography North America 55.6 % 54.0 % 67.1 % Europe, Middle East and Africa 30.5 % 35.7 % 25.2 % Other regions 13.9 % 10.3 % 7.7 % 100.0 % 100.0 % 100.0 % 48 North America Revenue The decrease in North America revenue of $16 million was primarily due to a decrease of $8 million relating to professional services and a decrease of $8 million in product revenue in BlackBerry Spark, partially offset by an increase of $2 million in BlackBerry QNX development seats revenue. Europe, Middle East and Africa Revenue The decrease in Europe, Middle East and Africa revenue of $20 million was primarily due to a decrease of $17 million relating to product revenue in Secusmart, a decrease of $4 million in product revenue in BlackBerry Spark and a decrease of $2 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 $2 million was primarily due to an increase of $4 million in BlackBerry QNX development seat revenue, partially offset by a decrease of $1 million in product revenue in BlackBerry Spark. Gross Margin Consolidated Gross Margin Consolidated gross margin decreased by $24 million to approximately $100 million in the fourth quarter of fiscal 2023 (fourth quarter of fiscal 2022 - $124 million). The decrease was primarily due to a decrease in revenue from BlackBerry Spark and Secusmart due to the reasons discussed above in “Revenue by Segment” as much of the Company’s cost of sales does not significantly fluctuate based on business volume. Consolidated Gross Margin Percentage Consolidated gross margin percentage decreased by 0.8%, to approximately 66.2% of consolidated revenue in the fourth quarter of fiscal 2023 (fourth quarter of fiscal 2022 - 67.0%). The decrease was primarily due to a lower gross margin percentage in IoT and BlackBerry Spark due to the reasons discussed below in “Gross Margin by Segment”, partially offset by a change in mix, specifically higher contribution from BlackBerry QNX. Gross Margin by Segment See “Business Overview - Segment Reporting” and “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 (in millions) Cybersecurity IoT Licensing and Other Segment Totals February 28, Change February 28, Change February 28, Change February 28, Change 2023 2022 2023 2022 2023 2022 2023 2022 Segment revenue $ 88 $ 122 $ (34) $ 53 $ 52 $ 1 $ 10 $ 11 $ (1) $ 151 $ 185 $ (34) Segment cost of sales 36 47 (11) 10 8 2 4 5 (1) 50 60 (10) Segment gross margin $ 52 $ 75 $ (23) $ 43 $ 44 $ (1) $ 6 $ 6 $ — $ 101 $ 125 $ (24) Segment gross margin % 59 % 61 % (2 %) 81 % 85 % (4 %) 60 % 55 % 5 % 67 % 68 % (1 %) Cybersecurity The decrease in Cybersecurity gross margin of $23 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 an increase in infrastructure costs allocated due to the Company no longer supporting or maintaining legacy device operating systems. The decrease in Cybersecurity gross margin percentage of 2% was primarily due to an increase in infrastructure costs allocated. IoT The decrease in IoT gross margin of $1 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by an increase in variable incentive plan costs. The decrease in IoT gross margin percentage of 4% was primarily due to an increase in variable incentive plan costs. 49 Licensing and Other Licensing and Other gross margin of $6 million was consistent with the fourth quarter of fiscal 2022. The decrease in revenue discussed above in “Revenue by Segment” was 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 percentage of 5% 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 February 28, 2023, compared to the quarter ended November 30, 2022 and the quarter ended February 28, 2022. For the Three Months Ended (in millions) February 28, 2023 November 30, 2022 February 28, 2022 February 28, 2021 Revenue $ 151 $ 169 $ 185 $ 210 Operating expenses Research and development 48 52 47 48 Selling, marketing and administration 83 89 64 92 Amortization 18 26 32 45 Impairment of long-lived assets 231 — — 22 Impairment of goodwill 245 — — — Debentures fair value adjustment (26) (56) (165) 258 Total $ 599 $ 111 $ (22) $ 465 Operating Expense as % of Revenue Research and development 31.8 % 30.8 % 25.4 % 22.9 % Selling, marketing and administration 55.0 % 52.7 % 34.6 % 43.8 % Amortization 11.9 % 15.4 % 17.3 % 21.4 % Impairment of long-lived assets 153.0 % — % — % 10.5 % Impairment of goodwill 162.3 % — % — % — % Debentures fair value adjustment (17.2 %) (33.1 %) (89.2 %) 122.9 % Total 396.7 % 65.7 % (11.9 %) 221.4 % See “Non-GAAP Financial Measures” for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the three months ended February 28, 2023, November 30, 2022, February 28, 2022 and February 28, 2021. U.S. GAAP Operating Expenses Operating expenses increased by $488 million, or 439.6% in the fourth quarter of fiscal 2023, compared to $111 million in the third quarter of fiscal 2023 primarily due to the Fiscal 2023 Goodwill Impairment Charge of $245 million, impairment of long-lived assets of $231 million, the difference between the Q4 Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the third quarter of fiscal 2023 of $30 million, an increase of $7 million in restructuring costs and an increase of $3 million in marketing and advertising costs, partially offset by a decrease of $17 million in variable incentive plan costs, a decrease of $8 million in amortization expense and a decrease of $2 million in patent abandonment costs. Operating expenses increased by $621 million, or 2,822.73% in the fourth quarter of fiscal 2023, compared to $(22) million in the fourth quarter of fiscal 2022. The increase was primarily attributable to the Fiscal 2023 Goodwill Impairment Charge of $245 million, impairment of long-lived assets of $231 million, the difference between the Q4 Fiscal 2023 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the fourth quarter of fiscal 2022 of $139 million, a decrease in benefits of $14 million in COVID-19 subsidies, an increase of $7 million in restructuring costs and an increase of $5 million in stock compensation expense, partially offset by a decrease of $14 million in amortization expense and a decrease of $4 million in variable incentive plan costs. 50 Adjusted Operating Expenses Adjusted operating expenses decreased by $19 million, or 13.9%, to $118 million in the fourth quarter of fiscal 2023 compared to $137 million in the third quarter of fiscal 2023. The decrease was primarily to a decrease of $17 million in variable incentive plan costs and a decrease of $1 million in foreign exchange losses, partially offset by an increase of $3 million in marketing and advertising costs. Adjusted operating expenses increased by $1 million, or 0.9%, to $118 million in the fourth quarter of fiscal 2023, compared to $117 million in the fourth quarter of fiscal 2022. The increase was primarily attributable to a decrease in benefits of $14 million in COVID-19 subsidies and an increase of $3 million in marketing and advertising costs, partially offset by a decrease of $7 million in amortization expense, a decrease of $4 million in variable incentive plan costs and a decrease of $3 million in salaries and benefits expenses. 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 increased by $1 million, or 2.1%, to $48 million in the fourth quarter of fiscal 2023 compared to $47 million in the fourth quarter of fiscal 2022, primarily due to an increase of $1 million in variable incentive plan costs. Adjusted research and development expenses were $45 million in the fourth quarter of fiscal 2023, consistent with $45 million in the fourth quarter of fiscal 2022. Selling, Marketing and Administration Expenses Selling, marketing and administration expenses consist primarily of marketing, advertising and promotion, salaries and benefits, external advisory fees, information technology costs, office and related staffing infrastructure costs and travel expenses. Selling, marketing and administration expenses increased by $19 million, or 29.7%, to $83 million in the fourth quarter of fiscal 2023 compared to $64 million in the fourth quarter of fiscal 2022, primarily due to a decrease in benefits of $14 million in COVID-19 subsidies, an increase of $7 million in restructuring costs and an increase of $4 million stock compensation costs, partially offset by a decrease of $5 million in variable incentive plan costs. Adjusted selling, marketing and administration expenses increased by $8 million, or 12.9%, to $70 million in the fourth quarter of fiscal 2023 compared to $62 million in the fourth quarter of fiscal 2022. The increase was primarily due to a decrease in benefits of $14 million in COVID-19 subsidies, an increase of $3 million in marketing and advertising costs, partially offset by a decrease of $5 million in variable incentive plan costs and a decrease of $2 million in sales incentive plan costs. 51 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 February 28, 2023 compared to the quarter ended February 28, 2022 and for the quarter ended February 28, 2022 compared to the quarter ended February 28, 2021. Intangible assets are comprised of patents, licenses and acquired technology. For the Three Months Ended (in millions) Included in Operating Expense February 28, 2023 February 28, 2022 Change February 28, 2021 Change Property, plant and equipment $ 2 $ 2 $ — $ 4 $ (2) Intangible assets 16 30 (14) 41 (11) Total $ 18 $ 32 $ (14) $ 45 $ (13) Included in Cost of Sales February 28, 2023 February 28, 2022 Change February 28, 2021 Change Property, plant and equipment $ 1 $ 1 $ — $ 1 $ — Intangible assets 1 1 — 3 (2) Total $ 2 $ 2 $ — $ 4 $ (2) Amortization included in Operating Expense The decrease in amortization expense included in operating expense of $14 million was due to a decrease in intellectual property held and used related to the previously pending Catapult Sale Transaction and due to the lower cost base of assets. Adjusted amortization expense decreased by $7 million to $3 million in the fourth quarter of fiscal 2023 compared to $10 million in the fourth quarter of fiscal 2022 due to the reasons described above on a U.S. GAAP basis. Amortization included in Cost of Sales Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s service operations of $2 million was consistent with the fourth quarter of fiscal 2023. Investment Income (Loss), Net Investment income, net, which includes the interest expense from the 1.75% Debentures, increased by $7 million to investment income, net of $6 million in the fourth quarter of fiscal 2023 compared to investment loss, net of $1 million in the fourth quarter of fiscal 2022. The increase in investment income, net is primarily due to observable price changes on non-marketable equity investments without readily determinable fair value and a higher yield on cash and investments, partially offset by lower cash and investment balances. Income Taxes For the fourth quarter of fiscal 2023, the Company’s net effective income tax expense rate was approximately 0% (fourth quarter of fiscal 2022 - net effective income tax expense rate of approximately 1%). The Company’s net effective income tax rate reflects the change in unrecognized income tax benefits, if any, and the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the Debentures, amongst other items, was offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates. Net Income (Loss) The Company’s net loss for the fourth quarter of fiscal 2023 was $495 million, or $0.85 basic and diluted loss per share on a U.S. GAAP basis (fourth quarter of fiscal 2022 - net income of $144 million, or $0.25 basic earnings per share and $0.03 diluted loss per share). The decrease in net income of $639 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” and a decrease in gross margin percentage as described above in “Consolidated Gross Margin Percentage”. Adjusted net loss was $13 million in the fourth quarter of fiscal 2023 (fourth quarter of fiscal 2022 - adjusted net income of $6 million). The decrease in adjusted net income of $19 million was primarily due to a decrease in revenue as described above in “Revenue by Segment”, a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage” and an increase in operating expenses, as described above in “Operating Expenses”. 52 The weighted average number of shares outstanding was 581 million common shares for basic and diluted loss per share for the fourth quarter of fiscal 2023. The weighted average number of shares outstanding was 576 million common shares for basic earnings per share and 637 million common shares for diluted loss per share for the fourth quarter of fiscal 2022. Financial Condition Liquidity and Capital Resources Cash, cash equivalents, and investments decreased by $283 million to $487 million as at February 28, 2023 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 are denominated in U.S. dollars as at February 28, 2023. A comparative summary of cash, cash equivalents, and investments is set out below: As at (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Cash and cash equivalents $ 295 $ 378 $ (83) $ 214 $ 164 Restricted cash equivalents and restricted short-term investments 27 28 (1) 28 — Short-term investments 131 334 (203) 525 (191) Long-term investments 34 30 4 37 (7) Cash, cash equivalents, and investments $ 487 $ 770 $ (283) $ 804 $ (34) The table below summarizes the current assets, current liabilities, and working capital of the Company: As at (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Current assets $ 743 $ 1,043 $ (300) $ 1,006 $ 37 Current liabilities 729 397 332 429 (32) Working capital $ 14 $ 646 $ (632) $ 577 $ 69 Current Assets The decrease in current assets of $300 million at the end of fiscal 2023 from the end of fiscal 2022 was primarily due to decreases in short term investments of $203 million, a decrease in cash and cash equivalents of $83 million, a decrease in accounts receivable, net of allowance of $18 million, a decrease of $13 million in other receivables and a decrease income taxes receivable of $6 million, partially offset by an increase in other current assets of $23 million. At February 28, 2023, accounts receivable, net of allowance was $120 million, a decrease of $18 million from February 28, 2022. The decrease was primarily due to lower revenue recognized over the three months ended February 28, 2023 compared to the three months ended February 28, 2022, offset by an increase in days sales outstanding to 75 days at the end of the fourth quarter of fiscal 2023 from 67 days at the end of the fourth quarter of fiscal 2022. At February 28, 2023, other receivables was $12 million, a decrease of $13 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 in intellectual property licensing receivable. At February 28, 2023, income taxes receivable was $3 million, a decrease of $6 million from February 28, 2022. The decrease was primarily due to tax refunds received. At February 28, 2023, other current assets was $182 million, an increase of $23 million from February 28, 2022. The increase is primarily due to maintenance payments on intellectual property relating to the previously pending Catapult Sale Transaction of $23 million. Current Liabilities The increase in current liabilities of $332 million at the end of fiscal 2023 from the end of fiscal 2022 was primarily due to an increase in the amounts payable in respect of the 1.75% Debentures of $367 million, an increase in income taxes payable of $9 53 million and an increase in accounts payable of $2 million, partially offset by a decrease in deferred revenue, current of $32 million and a decrease in accrued liabilities of $14 million. Accrued liabilities was $143 million, reflecting a decrease of $14 million compared to February 28, 2022, which was primarily attributable to a decrease of $4 million in operating lease liability, current, a decrease of $3 million in audit fee accrual, a decrease of $3 million in the Company’s deferred share unit liability and a decrease of $2 million in the liability associated with the CEO contingent cash award. Deferred revenue, current was $175 million, which reflects a decrease of $32 million compared to February 28, 2022 that was attributable to a $34 million decrease in deferred revenue, current related to BlackBerry Spark, partially offset by a $5 million increase in deferred revenue, current related to BlackBerry QNX. Income taxes payable was $20 million, reflecting an increase of $9 million compared to February 28, 2022, which was primarily due to income earned in taxable jurisdictions. As at February 28, 2023, accounts payable were $24 million, reflecting an increase of $2 million from February 28, 2022, which was primarily due to timing of payments of accounts payable. Cash flows for the fiscal year ended February 28, 2023 compared to the fiscal year ended February 28, 2022 were as follows: For the Fiscal Years Ended (in millions) February 28, 2023 February 28, 2022 Change February 28, 2021 Change Net cash flows provided by (used in): Operating activities $ (263) $ (28) $ (235) $ 82 $ (110) Investing activities 176 207 (31) (65) 272 Financing activities 6 10 (4) (227) 237 Effect of foreign exchange gain (loss) on cash and cash equivalents (3) (1) (2) 2 (3) Net increase (decrease) in cash and cash equivalents $ (84) $ 188 $ (272) $ (208) $ 396 Operating Activities The increase in net cash flows used in operating activities of $235 million primarily reflects the net changes in working capital and includes the payment of the $165 million U.S. securities class actions settlement. Investing Activities During the fiscal year ended February 28, 2023, cash flows provided by investing activities were $176 million and included cash provided by transactions involving the acquisitions of restricted short-term, short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $200 million and proceeds on sale of property, plant and equipment of $17 million, partially offset by intangible asset additions of $34 million, and acquisitions of property, plant and equipment of $7 million. During fiscal 2022, cash flows provided by investing activities were $207 million and included cash flows used in transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $211 million and a distribution from a non-marketable equity investment without readily determinable fair value in the amount of $35 million, partially offset by intangible asset additions of $31 million, and acquisitions of property, plant and equipment of $8 million. Financing Activities The decrease in cash flows provided by financing activities was $4 million for fiscal 2023 due to a decrease in common shares issued upon the exercise of stock options. Debenture Financing and Other Funding Sources See Note 6 to the Consolidated Financial Statements for a description of the Debentures. The Company has $25 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business. See Note 3 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash and restricted short-term investments. 54 Cash, cash equivalents, and investments were approximately $487 million as at February 28, 2023. The Company’s management remains focused on maintaining appropriate cash balances, efficiently managing working capital balances and managing the liquidity needs of the business. The Company has experienced recent operating losses and the 1.75% Debentures will mature on November 13, 2023 as described in Note 6, but the Company maintains positive working capital, has the ability and intent to access other potential financing arrangements on commercially reasonable terms, and has entered into the patent sale transaction. Taking these factors into account and based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities, should be sufficient to meet funding requirements for current financial commitments and future operating expenditures not yet committed, and should provide the necessary financial capacity for the foreseeable future. Contractual and Other Obligations The following table sets out aggregate information about the Company’s contractual and other obligations and the periods in which payments are due as at February 28, 2023: (in millions) Total Short-term (next 12 months) Long-term (>12 months) Operating lease obligations $ 82 $ 26 $ 56 Purchase obligations and commitments 103 103 — Debt interest and principal payments 371 371 — Total $ 556 $ 500 $ 56 Contractual and other obligations amounted to approximately $556 million as at February 28, 2023, including future principal and interest payments of $371 million on the 1.75% Debentures and operating lease obligations of $82 million. The remaining balance consists of purchase orders for goods and services utilized in the operations of the Company. Total aggregate contractual obligations as at February 28, 2023 decreased by approximately $47 million as compared to the February 28, 2022 balance of approximately $603 million, which was attributable to decreases in purchase obligations and commitments and in operating lease obligations. The Company does not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or under applicable Canadian securities laws. Accounting Policies and Critical Accounting Estimates Accounting Policies See Note 1 to the Consolidated Financial Statements for a description of the Company’s significant accounting policies. See Note 2 to the Consolidated Financial Statements for a description of accounting policies adopted by the Company in fiscal 2023. Critical Accounting Estimates The preparation of the consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to revenue-related estimates including variable consideration, standalone selling price (“SSP”), estimated customer life, if control of licenses to intellectual property has transferred, right of return and customer incentive commitments, fair value of reporting units in relation to actual or potential goodwill impairment, fair value of the Debentures, fair value of share-based liability awards, fair value of long-lived assets in relation to actual or potential impairment, the Company’s long-lived asset groupings, estimated useful lives of property, plant and equipment and intangible assets, provision (or recovery) of income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for credit losses, incremental borrowing rates in determining the present value of lease liabilities and the determination of reserves for various litigation claims. Actual results could differ from these estimates, which were based upon circumstances that existed as of the date of the consolidated financial statements, February 28, 2023. The Company’s critical accounting estimates have been reviewed and discussed with the Company’s Audit & Risk Management Committee and are set out below. Except as noted, there have not been any changes to the critical accounting estimates made by the Company, during the past three fiscal years. 55 Valuation of Long-Lived Assets The LLA impairment test prescribed by U.S. GAAP requires the Company to identify its asset groups and test impairment of each asset group separately. To conduct the LLA impairment test, the asset group is tested for recoverability using undiscounted cash flows over the remaining useful life of the primary asset. If forecasted net cash flows are less than the carrying value of the asset group, an impairment charge is measured by comparing the fair value of the asset group to its carrying value. Determining the Company’s asset groups and related primary assets requires significant judgment by management. Different judgments could yield different results. The Company’s determination of its asset groups, its primary asset and its remaining useful life, and estimated cash flows are significant factors in assessing the recoverability of the Company’s assets for the purposes of LLA impairment testing. The Company’s share price can be affected by, among other things, changes in industry or market conditions, including the effect of competition, changes in the Company’s results of operations, changes in the Company’s forecasts or market expectations relating to future results, and the Company’s strategic initiatives and the market’s assessment of any such factors. See Part 1, Item 1A “Risk Factors - The market price of the Company’s common shares is volatile”. The current macroeconomic environment and competitive dynamics continue to be challenging to the Company’s business and the Company cannot be certain of the duration of these conditions and their potential impact on the Company’s future financial results and cash flows. A decline in the Company’s performance, the Company’s market capitalization and future changes to the Company’s assumptions and estimates used in the LLA impairment test, particularly the expected future cash flows, remaining useful life of the primary asset and terminal value of the asset group, may result in further impairment charges in future periods of some or all of the assets on the Company’s balance sheet. Although it does not affect the Company’s cash flow, an impairment charge to earnings has the effect of decreasing the Company’s earnings or increasing the Company’s losses, as the case may be. The Company’s share price could also be adversely affected by the Company’s recorded LLA impairment charges. The Company used the discounted cash flow analysis and market approach to determine the fair values of its assets to measure and allocate impairment. Valuation of Goodwill Reporting Units Goodwill represents the excess of the acquisition price in a business combination over the fair value of identifiable net assets acquired. Goodwill is allocated at the date of the business combination. Goodwill is not amortized but is tested for impairment annually on December 31 or more frequently if events or changes in circumstances indicate the asset may be impaired. These events and circumstances may include a significant change in legal factors or in the business climate, a significant decline in the Company’s share price, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant disposal activity and the testing of recoverability for a significant asset group. In the annual impairment test, the carrying value of the reporting unit, including goodwill, was compared with its fair value. The estimated fair value was determined utilizing multiple approaches based on the nature of the reporting units being valued. In its analysis, the Company utilized multiple valuation techniques, including the income approach using a discounted future cash flow model, market-based approaches, and the asset value approach. The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rates of revenue growth for the Company’s reporting units, estimation of the useful life over which cash flows will occur, terminal growth rates, profitability measures, and determination of the discount rates for the reporting units. The carrying value of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type. When the carrying value of a reporting unit exceeds its fair value, goodwill of the reporting unit is considered to be impaired and written down to its fair value. Different judgments could yield different results. Valuation Allowance Against Deferred Tax Assets The Company regularly assesses the need for a valuation allowance against its deferred tax assets. A valuation allowance is required for deferred tax assets if it is more likely than not that all or some portion of the asset will not be realized. All available evidence, both positive and negative, that may affect the realization of deferred tax assets must be identified and considered in determining the appropriate amount of the valuation allowance. Additionally, for interim periods, the estimated annual effective tax rate should include the valuation allowance for current year changes in temporary differences and losses or income arising during the year. For interim periods, the Company needs to consider the valuation allowance that it expects to recognize at the end of the fiscal year as part of the estimated annual effective tax rate. During interim quarters, the Company uses estimates including pre-tax results and ending position of temporary differences as at the end of the fiscal year to estimate the valuation allowance that it expects to recognize at the end of the fiscal year. This accounting treatment has no effect on the Company’s actual ability to utilize deferred tax assets to reduce future cash tax payments. Different judgments could yield different results. See “Results of Operations - Fiscal year ended February 28, 2023 compared to fiscal year ended February 28, 2022 - Income Taxes” and “Results of Operations - Three months ended February 28, 2023 compared to three months ended February 28, 2022 - Income Taxes”. 56 Revenue Recognition The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. Any estimates, including any constraints on variable consideration, are evaluated at each reporting period. Judgment is required to determine the SSP for each distinct performance obligation. The Company’s products and services often have observable SSP when the Company sells a promised product or service separately to similar customers. A contractually stated price or list price for a good or service may be the SSP of that good or service. However, in instances where SSP is not directly observable, the Company determines the SSP by maximizing observable inputs and using an adjusted market assessment approach using information that may include market conditions and other observable inputs from the Company’s pricing team, including historical SSP. Judgment is required to determine in certain agreements if the Company is the principal or agent in the arrangement. The Company considers factors such as, but not limited to, which party can direct the usage of the product or service, which party obtains substantially all the remaining benefits and which party has the ability to establish the selling price. Significant judgment is required to determine the estimated customer life used in perpetual license contracts that require access to the Company’s proprietary secure network infrastructure to function. The Company uses historical experience regarding the length of the technology upgrade cycle and the expected life of the product to draw this conclusion.