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Item 2. Management’s Discussion and Analysis

2023-06-30 compared with 2022-12-21 · 242 added, 512 removed, 334 unchanged (69% of the section changed)

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited interim consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited for the three months ended May 31, 2023, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated financial statements and accompanying notes and MD&A for the fiscal year ended February 28, 2023 (the “Annual MD&A”).

The Consolidated Financial Statements are presented in U.S.

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

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

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

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

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

• the Company’s expectations with respect to enhancing shareholder value through the strategic review of its businesses;

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

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

• the Company’s expectations with respect to its revenue, non-GAAP gross margin and Cybersecurity gross margin in fiscal 2026 and IoT gross margin in the long term;

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

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

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

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

The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “could”, “intend”, “believe”, “target”, “plan” and similar expressions are intended to identify forward-looking statements in this MD&A, including in the sections entitled “Business Overview - Strategy”, “Business Overview - Products and Services”, “Business Overview - Strategic Review of Businesses”, “Business Overview - Macroeconomic Factors”, “Non-GAAP Financial Measures - Key Metrics”, “Results of Operations - Three months ended May 31, 2023 compared to the three months ended May 31, 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, competition, the Company’s expectations regarding its financial performance, and the Company’s expectations regarding the strategic review of its businesses.

Many factors could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in Part I, Item 1A “Risk Factors” in the Annual Report, and (i) risk related to the Company’s review of its businesses, including the Company’s ability to identify, pursue and realize the benefits of strategic alternatives being explored by the Company, and which may not be consummated in the manner contemplated by the Company or at all, and (ii) risk that uncertainty relating to the announcement of the Company’s strategic review may adversely impact the Company’s business, its existing and future relationships with business partners and customers, and its ability to attract and retain key employees.

All of these factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements.

Any statements that are forward-looking statements are intended to enable the Company’s shareholders to view the anticipated performance and prospects of the Company from management’s perspective at the time such statements are made, and they are subject to the risks that are inherent in all forward-looking statements, as described above, as well as difficulties in forecasting the Company’s financial results and performance for future periods, particularly over longer periods, given changes in technology and the Company’s business strategy, evolving industry standards, intense competition and short product life cycles that characterize the industries in which the Company operates.

given changes in technology and the Company’s business strategy, evolving industry standards, intense competition and short product life cycles that characterize the industries in which the Company operates.

See the “Strategy” subsection in Part I, Item 1 “Business” of the Annual Report.

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Based in Waterloo, Ontario, the Company leverages artificial intelligence (“AI”) and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy, and is a leader in the areas of endpoint security, endpoint management, encryption, and embedded systems.

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

The Company leverages its extensive technology portfolio to offer best-in-class cybersecurity, safety and reliability to enterprise customers primarily in government and regulated industries, as well as to original equipment manufacturers in automotive, medical, industrial and other core verticals.

The Company leverages its extensive technology portfolio to offer best-in-class cybersecurity, safety and reliability to enterprise customers primarily in government and regulated industries, to small and medium-sized businesses, and to original equipment manufacturers (“OEMs”) in automotive, medical, industrial and other core verticals.

The Company’s goal is to offer smarter security solutions that are more effective, require fewer resources to support and produce a better return on investment for customers than competing offerings.

To achieve this vision, the Company continues to extend the functionality of its AI-focused BlackBerry Spark® software platform and safety-certified QNX® Neutrino® real time operating system and is commercializing its new BlackBerry IVY™ intelligent vehicle data platform.

The Company’s go-to-market strategy focuses principally on generating revenue from enterprise software and services as well as from embedded software designs with leading original equipment manufacturers (“OEMs”) and Tier 1 suppliers.

The Company’s go-to-market strategy focuses principally on generating revenue from enterprise software and services as well as from embedded software designs with leading OEMs and Tier 1 suppliers.

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

Products and Services

The Company has multiple products and services from which it derives revenue, which are structured in three segments:

The Company has multiple products and services from which it derives revenue, which are structured in three groups:

Cybersecurity, IoT (collectively with Cybersecurity, “Software & Services”) and Licensing and Other.

Cybersecurity

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

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

BlackBerry UES is a set of complementary cybersecurity products offering endpoint protection platform (“EPP”), endpoint detection and response (“EDR”), mobile threat defense (“MTD”), zero-trust network access (“ZTNA”) and user and entity behavior analytics (“UEBA”) capabilities.

The BlackBerry Spark platform is informed by the Company’s AI and machine learning capabilities, continuous innovations, professional cybersecurity services and threat research, industry partnerships and academic collaborations.

The Company is currently executing on a robust schedule of product launches for BlackBerry Spark to deliver on the Company’s extended detection and response (“XDR”) strategy, which aims to use security telemetry data from the platform’s full range of natively-integrated products and partner solutions to provide deep contextual insights for more powerful and integrated threat detection and response.

This comprehensive security strategy for BlackBerry Spark is designed to operate on a single agent across all endpoints, to be administered from a single console, to leverage a single crowd-sourced threat data lake and to be managed in one cloud environment.

BlackBerry Spark solutions are available through the BlackBerry® Cyber Suite and the BlackBerry Spark® Unified Endpoint Management Suite, which are also marketed together as the BlackBerry Spark® Suite, offering the Company’s most comprehensive range of tailored cybersecurity and endpoint management options.

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

CylancePROTECT®, an EPP and available MTD solution that uses an automated, prevention-first approach to protect against the execution of malicious code on an endpoint;

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

CylanceGUARD®, a managed detection and response solution that provides 24/7 threat hunting and monitoring;

CylanceGATEWAY™, an AI-empowered ZTNA solution, and CylancePERSONA™, a UEBA solution that provides continuous authentication by validating user identity in real time.

The combined platform features industry-leading threat prevention modules to help organizations cope with the significant growth of cyberattacks.

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

The Company’s core secure software and services offerings are its Cylance® cybersecurity and BlackBerry unified endpoint management (“UEM”) solutions, collectively known as BlackBerry Spark.

BlackBerry’s Cylance cybersecurity solutions include:

CylanceENDPOINT™, an integrated endpoint security solution that leverages the Cylance AI model and OneAlert EDR console, to prevent, detect and remediate cyber threats at the endpoint, including on mobile;

CylanceGUARD®, a managed detection and response solution that provides 24/7 threat hunting and monitoring, as well as integrated critical event management communications during a cyber incident;

CylanceEDGE™, an AI-powered continuous authentication ZTNA solution that provides secure access to applications and data loss prevention;

and CylanceINTELLIGENCE™, a contextual cyber threat intelligence service.

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

The BlackBerry UES Suite natively integrates with BlackBerry® UEM and also works with UEM solutions from other vendors.

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

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

endpoints across all leading operating systems.

These solutions are designed to provide a continuous state of resilience for the Company’s customers and support the outcomes they require by:

(i) complementing, extending, or fully managing security capabilities with the Company’s experts and extended technology ecosystem, (ii) enabling the workforce in a way that is fast, easy and satisfying, while providing security visibility, controls and peace of mind;

and (iii) reducing complexity and overhead costs associated with security operations.

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

BlackBerry UEM employs a containerized approach to manage and secure devices, third party and custom applications, identity, content and endpoints across all leading operating systems, as well as providing regulatory compliance tools.

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

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

BlackBerry Workspaces is a secure Enterprise File Sync and Share (EFSS) solution.

BBM Enterprise, is an enterprise-grade secure instant messaging solution for messaging, voice and video.

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

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

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BlackBerry AtHoc serves the requirements of the public sector market while BlackBerry Alert targets the commercial sector.

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

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

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A recognized leader in automotive software, BlackBerry QNX offers a growing portfolio of safety-certified, secure and reliable platform solutions and is focused on achieving design wins with automotive OEMs, Tier 1 vendors and automotive semiconductor suppliers.

These solutions include the Neutrino® operating system and the BlackBerry QNX® CAR platform, the most advanced embedded software platform for the autonomous vehicle market, as well as other products designed to alleviate the challenges of compliance with ISO 26262, the automotive industry’s functional safety standard.

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

These solutions include the BlackBerry QNX real-time operating system, QNX® Hypervisor and QNX® Software Development Platform (SDP), as well as other products designed to alleviate the challenges of compliance with ISO 26262, the automotive industry’s functional safety standard.

The QNX® Acoustics Management Platform provides software-defined audio solutions.

BlackBerry QNX is also a preferred supplier of embedded systems for companies building medical devices, train-control systems, industrial robots, hardware security modules, building automation systems, green energy solutions, and other mission-critical applications.

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

BlackBerry IVY will allow automakers to safely access a vehicle’s sensor data, normalize it, and apply machine learning at the edge to generate and share predictive insights and inferences.

BlackBerry IVY allows automakers to safely access a vehicle’s sensor data, normalize it, and apply machine learning at the edge to generate and share predictive insights and inferences.

Automakers and developers will be able to use this information to create responsive in-vehicle services that enhance driver and passenger experiences.

BlackBerry IVY will support multiple vehicle operating systems and hardware, as well as multi-cloud deployments in order to ensure compatibility across vehicle models and brands.

In February 2022, the Company released a version of BlackBerry IVY for proof-of-concept testing and the Company expects installations of BlackBerry IVY in vehicles to begin during the 2024 or 2025 model year.

BlackBerry IVY supports multiple vehicle operating systems and hardware, as well as multi-cloud deployments in order to ensure compatibility across vehicle models and brands.

The Company announced the first design win for BlackBerry IVY in January 2023 and recently released the platform for general availability in May 2023.

The Company expects in-vehicle installations to begin during the 2025 model year.

The Company is targeting additional BlackBerry IVY design wins in fiscal 2024.

The BlackBerry Cybersecurity and IoT groups are complemented by the enterprise and cybersecurity consulting services offered by the Company’s BlackBerry® Professional Services business.

BlackBerry Professional Services provides platform-agnostic strategies to address mobility-based challenges, providing expert deployment support, end-to-end delivery (from system design to user training), application consulting, and experienced project management.

The Company’s cybersecurity consulting services and tools, combined with its other security solutions, help customers identify the latest cybersecurity threats,

test for vulnerabilities, develop risk-appropriate mitigations, maintain IT security standards and techniques, and defend against the risk of future attacks.

The Company’s cybersecurity consulting services and tools, combined with its other security solutions, help customers identify the latest cybersecurity threats, test for vulnerabilities, develop risk-appropriate mitigations, maintain IT security standards and techniques, and defend against the risk of future attacks.

Licensing and Other

Licensing and Other consists primarily of the Company’s patent licensing business and legacy service access fees (“SAF”).

Licensing and Other consists primarily of the Company’s patent licensing business.

The Company’s Licensing business is responsible for the management and monetization of the Company’s global patent portfolio.

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The Company owns rights to an array of patented and patent pending technologies which include, but are not limited to, operating systems, networking infrastructure, acoustics, messaging, enterprise software, automotive subsystems, cybersecurity, cryptography and wireless communications.

In the fourth quarter of fiscal 2022, the Company announced its entry into a patent sale agreement with Catapult IP Innovations (“Catapult”) for the sale of substantially all of the Company’s non-core patent assets for total consideration of $600 million (the “Patent Sale Transaction”).

Patents that are essential to the Company’s current core business operations are excluded from the Patent Sale Transaction.

Pursuant to the terms of the Patent Sale Transaction, at closing, the Company will receive a license back to the patents being sold, which relate primarily to mobile devices, messaging and wireless networking.

The Patent Sale Transaction will not impact customers’ use of any of the Company’s products, solutions or services.

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

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

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

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

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

Recent Developments

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

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

Products and Innovation:

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

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

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

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

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

• Launched the early access release of QNX® Software Development Platform 8.0, powered by the new, ultra-scalable QNX® operating system for high-performance, multi-core computing;

• Launched an enhanced AI-based Cylance cybersecurity solutions portfolio, reducing alert fatigue, offering faster incident response and expanding cloud defense coverage;

• Announced an integration of CylanceGUARD and BlackBerry AtHoc technologies for secure bi-directional response communications during cyber incidents;

• Announced a partnership with leading automotive cybersecurity platform Upstream Security to enable automakers to strengthen the overall security posture of their vehicles, by leveraging BlackBerry IVY capabilities.

Customers and Partners:

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

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

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

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

Pearlstein Settlement

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.

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.

COVID-19 and Macroeconomic Factors

In response to the COVID-19 pandemic, the Company continues to focus on protecting the health and safety of its employees, customers and partners, while also providing technology to help them do their best wherever they operate.

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

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

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

• Announced an extended partnership with leading managed security services provider (MSSP) Solutions Granted, enabling better scale to address small and medium-sized businesses (SMBs);

• Announced a strategic partnership with McLeod Software, a leading Transportation Management System (TMS) provider, delivering enterprise software solutions to the transportation and logistics industry.

Environmental, Sustainability and Corporate Governance:

• McKinsey named BlackBerry a cybersecurity and IoT convergence leader, well positioned in an addressable market of up to $750 billion by 2030.

Strategic Review of Businesses

On May 1, 2023, the Company announced that the Board would initiate a review of the Company’s portfolio of businesses, with the assistance of its financial advisors, as the Board considers strategic alternatives to drive enhanced shareholder value, including but not limited to the possible separation of one or more of the Company’s businesses.

During the review process, the Company remains focused on achieving its business plan and remains committed to its customers, partners and employees.

The Board has not set a timetable for the process and there can be no assurance that the review will result in any transaction.

On May 11, 2023, the Company completed its previously announced patent sale with Malikie Innovations Limited and sold certain non-core patent assets for $170 million in cash on closing, an additional $30 million in cash by no later than the third anniversary of closing and potential future royalties in the aggregate amount of up to $700 million (the “Malikie Transaction”).

Pursuant to the terms of the Malikie Transaction, the Company received a license back to the sold patents, which relate primarily to mobile devices, messaging and wireless networking.

The Malikie Transaction will not impact our customers’ right to use any of the Company’s products, solutions or services.

In the first quarter of fiscal 2024, the Company recognized revenue of $218 million and cost of sales of $147 million related to non-core intellectual property sold.

The revenue recognized reflects the application of the Company’s accounting policies and critical accounting estimates, as described in Note 1 to the Consolidated Financial Statements, which resulted in a substantial majority of the potential future royalties from the Malikie Transaction being constrained until future periods.

In evaluating the Malikie Transaction, the Company considered estimates of value, among other factors, which are not fully reflected when applying the principles of revenue recognition, such as the variable consideration constraint that is recognized at the inception of the Malikie Transaction.

Accordingly, amounts initially recognized in the first quarter of fiscal 2024 do not reflect the full fair value of the overall transaction as determined by the Company.

Additional variable consideration is expected to be recognized in future quarters, as determined quarterly based on the revenue recognition accounting framework.

See Note 10 to the Consolidated Financial Statements.

Macroeconomic Factors

The ongoing impact of the global semiconductor shortage resulting from the COVID-19 pandemic has had and continues to have a material adverse impact on production-based royalties for the Company’s QNX automotive software business.

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

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

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

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

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

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

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

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

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

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

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

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

Third Quarter Fiscal 2023 Summary Results of Operations

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

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 first three months of fiscal 2024.

First Quarter Fiscal 2024 Summary Results of Operations

The following table sets forth certain consolidated statements of operations data for the quarter ended May 31, 2023 compared to the quarter ended May 31, 2022 under U.S.

For the Three Months Ended

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

November 30, 2022 November 30, 2021 Change

May 31, 2023 May 31, 2022 Change

Revenue $ 373 $ 168 $ 205

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Operating expenses 190 281 (91)

Investment income, net 2 25 (23)

Income before income taxes — 76 (76)

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

Loss before income taxes (8) (178) 170

Provision for income taxes 3 3 —

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

Earnings (loss) per share - reported

Net loss $ (11) $ (181) $ 170

Loss per share - reported

Basic $ (0.02) $ (0.31)

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Weighted-average number of shares outstanding (000’s)

578,948 571,138

Basic 582,812 576,877

582,812 637,710

______________________________

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

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

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

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

GAAP basis for the first quarter of fiscal 2024 does not include the dilutive effect of the Debentures (defined below), as to do so would be anti-dilutive.

Diluted loss per share on a U.S.

GAAP basis for the first quarter of fiscal 2024 and first quarter of 2023 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.

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

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

The following table shows information by operating segment for the three months ended May 31, 2023 and May 31, 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.

The management approach designates the internal reporting used by the Chief Operating Decision Maker for making decisions and assessing performance of the Company’s reportable operating segments.

See Note 10 to the Consolidated Financial Statements for a description of the Company’s operating segments.

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Cybersecurity IoT Licensing and Other Segment Totals

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

2022 2021 2022 2021 2022 2021 2022 2021

Segment revenue $ 106 $ 128 $ (22) $ 51 $ 43 $ 8 $ 12 $ 13 $ (1) $ 169 $ 184 $ (15)

Segment cost of sales 46 52 (6) 10 8 2 4 6 (2) 60 66 (6)

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

For the Nine Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

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

May 31, Change May 31, Change May 31, Change May 31, Change

2023 2022 2023 2022 2023 2022 2023 2022

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Segment gross margin $ 56 $ 60 $ (4) $ 36 $ 43 $ (7) $ 88 $ 2 $ 86 $ 180 $ 105 $ 75

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

The following table reconciles the Company’s segment results for the three months ended May 31, 2023 to consolidated U.S.

GAAP results:

For the Three Months Ended November 30, 2022

For the Three Months Ended May 31, 2023

(in millions)

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Investment income, net (3) (3)

Income before income taxes $ —

For the Nine Months Ended November 30, 2022

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S.

Revenue $ 330 $ 153 $ 22 $ 505 $ — $ 505

Cost of sales 149 27 8 184 2 186

Gross margin (1)

$ 181 $ 126 $ 14 $ 321 $ (2) $ 319

Operating expenses 545 545

Investment loss, net 1 1

Loss before income taxes $ (8)

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

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

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

GAAP-based measures to adjusted measures for the three months ended May 31, 2023.

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

GAAP results:

For the Three Months Ended November 30, 2021

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals Reconciling Items Consolidated U.S.

Revenue $ 128 $ 43 $ 13 $ 184 $ — $ 184

Cost of sales 52 8 6 66 1 67

Gross margin (1)

$ 76 $ 35 $ 7 $ 118 $ (1) $ 117

Operating expenses 66 66

Investment income, net (25) (25)

Income before income taxes $ 76

For the Nine Months Ended November 30, 2021

For the Three Months Ended May 31, 2022

(in millions)

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Operating expenses 281 281

Investment income, net (22) (22)

Investment loss, net 1 1

Loss before income taxes $ (178)

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

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

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

Financial Highlights

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

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

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

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

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

In the first quarter of fiscal 2024, the Company recognized revenue of $373 million and incurred a net loss of $11 million, or $0.02 basic and diluted loss per share on a U.S.

GAAP basis (first quarter of fiscal 2023 - revenue of $168 million and net loss of $181 million, or $0.31 basic loss per share and $0.35 diluted loss per share).

The Company recognized adjusted net income of $35 million, and an adjusted earnings of $0.06 per share, on a non-GAAP basis in the first quarter of fiscal 2024 (first quarter of fiscal 2023 - adjusted net loss of $31 million, and adjusted loss of $0.05 per share).

See “Non-GAAP Financial Measures” below.

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

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

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

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

As at May 31, 2023, the fair value of the Debentures was approximately $389 million, an increase of approximately $22 million during the first quarter of fiscal 2024.

For the three months ended May 31, 2023, the Company recorded a non-cash charge relating to changes in fair value from non-credit components of $22 million (pre-tax and after tax) (the “Q1 Fiscal 2024 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations and a non-cash income relating to

changes in fair value from instrument specific credit risk of nil in Other Comprehensive Loss (“OCL”) relating to the Debentures.

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

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

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

On June 28, 2023, the Company announced financial results for the three months ended May 31, 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.

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

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.

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

The amount can vary each period depending on changes to the Company’s share price, share price volatility and credit indices.

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• Restructuring charges .

The Company believes that restructuring costs relating to employee termination benefits, facilities and other 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.

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 .

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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.

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

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

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

GAAP based measures for the three months ended May 31, 2023 and May 31, 2022

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.

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A reconciliation of the most directly comparable U.S.

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

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

Gross margin $ 109 $ 117

Stock compensation expense — 1

Adjusted gross margin $ 109 $ 118

Gross margin % 64.5 % 63.6 %

Stock compensation expense — % 0.5 %

Adjusted gross margin % 64.5 % 64.1 %

Reconciliation of U.S.

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

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

Operating expense $ 111 $ 153 $ 66

Restructuring charges — 3 —

Stock compensation expense 8 5 5

Debentures fair value adjustment (1)

(56) (10) (110)

Acquired intangibles amortization 22 22 29

LLA impairment charge — 4 —

Adjusted operating expense $ 137 $ 129 $ 142

______________________________

(1) See “Third Quarter 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 three months ended November 30, 2022 and November 30, 2021 to adjusted net loss and adjusted basic loss per share is reflected in the table below:

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

per share Basic earnings (loss)

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

Stock compensation expense 8 6

Debentures fair value adjustment (56) (110)

Acquired intangibles amortization 22 29

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

Reconciliation of U.S.

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

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

Research and development $ 52 $ 57

Stock compensation expense 2 2

Adjusted research and development $ 50 $ 55

Selling, marketing and administration $ 89 $ 77

Stock compensation expense 6 3

Adjusted selling, marketing and administration $ 83 $ 74

Amortization $ 26 $ 42

Acquired intangibles amortization 22 29

Adjusted amortization $ 4 $ 13

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

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

Operating income (loss) $ (2) $ 51

Non-GAAP adjustments to operating income (loss)

Stock compensation expense 8 6

Debentures fair value adjustment (56) (110)

Acquired intangibles amortization 22 29

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

Adjusted operating loss (28) (24)

Amortization 28 45

Acquired intangibles amortization (22) (29)

Adjusted EBITDA $ (22) $ (8)

Revenue $ 169 $ 184

Adjusted operating loss margin % (1)

Adjusted EBITDA margin % (2)

______________________________

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

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

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

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

A reconciliation of the most directly comparable U.S.

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

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

GAAP financial measures for the three months ended May 31, 2023 and May 31, 2022 to adjusted financial measures is reflected in the table below:

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

Gross margin $ 179 $ 104

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Reconciliation of U.S.

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

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

GAAP operating expense for the three months ended May 31, 2023, February 28, 2023 and May 31, 2022 to adjusted operating expense is reflected in the table below:

For the Three Months Ended (in millions) May 31, 2023 February 28, 2023 May 31, 2022

Operating expense $ 190 $ 599 $ 281

3 unchanged sentences

Acquired intangibles amortization 10 15 23

Goodwill impairment charge — 245 —

LLA impairment charge — 231 —

2 unchanged sentences

______________________________

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

(1) See “First Quarter Fiscal 2024 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”

Reconciliation of U.S.

GAAP net loss and U.S.

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

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

Basic loss per share Basic loss per share

GAAP basic loss per share for the three months ended May 31, 2023 and May 31, 2022 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) May 31, 2023 May 31, 2022

Basic earnings (loss)

per share Basic loss

Net loss $ (11) $(0.02) $ (181) $(0.31)

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Acquired intangibles amortization 10 23

LLA impairment charge 4 —

Litigation settlement — 165

Adjusted net loss $ (90) $(0.16) $ (61) $(0.11)

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

Reconciliation of U.S.

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

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

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended May 31, 2023 and May 31, 2022 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:

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

Research and development $ 54 $ 53

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Adjusted amortization $ 5 $ 4

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

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

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

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

Operating loss $ (11) $ (177)

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Acquired intangibles amortization 10 23

LLA impairment charge 4 —

Litigation settlement — 165

Total non-GAAP adjustments to operating loss 46 150

Adjusted operating loss (77) (77)

Adjusted operating income (loss) 35 (27)

Amortization 16 29

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Revenue $ 373 $ 168

Adjusted operating loss margin % (1)

(15 %) (14 %)

Adjusted operating income (loss) margin % (1)

Adjusted EBITDA margin % (2)

______________________________

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

(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 usage when assessing its sources of liquidity, capital resources, and quality of earnings.

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

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

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

Reconciliation of U.S.

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

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

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

GAAP net cash provided by (used in) operating activities for the three months ended May 31, 2023 and May 31, 2022 to free cash flow (usage) is reflected in the table below:

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

Net cash provided by (used in) operating activities $ 99 $ (42)

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

Free cash usage $ (186) $ (21)

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

Free cash flow (usage) $ 97 $ (43)

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

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

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

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

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

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

Cybersecurity Annual Recurring Revenue $ 289 $ 334 $ (45)

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

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

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

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

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

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

The Company uses ARR as an indicator of business momentum for the Cybersecurity business.

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

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

Dollar-Based Net Retention Rate

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

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

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

Total Contract Value Billings

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

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

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

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

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

Cybersecurity TCV billings was $122 million in the first quarter of fiscal 2024 and increased compared to $107 million in the fourth quarter of fiscal 2023 and increased compared to $89 million in the first quarter of fiscal 2023.

Recurring Software Product Revenue

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

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

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

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

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

Revenue by Segment

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(in millions)

November 30, 2022 November 30, 2021 Change

May 31, 2023 May 31, 2022 Change

Revenue by Segment

Cybersecurity $ 93 $ 113 $ (20)

IoT 45 51 (6)

Licensing and Other 235 4 231

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Cybersecurity

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

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

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

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

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

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

The Company previously stated that it expected Cybersecurity revenue in the first quarter of fiscal 2024 to increase sequentially.

Cybersecurity revenue was $93 million and increased sequentially compared to the fourth quarter of fiscal 2023.

The Company previously stated that it expected Cybersecurity revenue in the first quarter of fiscal 2024 to be in the range of $100 million to $110 million.

Cybersecurity revenue was lower than expected primarily due to delays from elongated sales cycles, with additional layers of required customer approvals compared to previous quarters.

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

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

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

The Company previously stated that it expected IoT revenue to be in the range of $50 million to $53 million in the first quarter of fiscal 2024.

IoT revenue was $45 million and was lower than expected due to customer delays in the deployment of development seat licenses relating to confirmed design wins and to the negative impact of macroeconomic factors on automotive production volumes.

The Company expects IoT revenue to be at the lower end of a range from $240 million to $250 million for fiscal 2024 as a whole.

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

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

The Company is targeting total Software & Services revenue, excluding potential revenue from BlackBerry IVY, to be in the range of $880 million and $960 million for fiscal 2026 as a whole.

Licensing and Other

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

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

The Company previously stated that it expected revenue from intellectual property licensing to be approximately $5 million per quarter in fiscal 2024, excluding the Malikie Transaction.

Revenue from intellectual property licensing was approximately $17 million excluding the Malikie Transaction.

Revenue by Geography

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(in millions)

November 30, 2022 November 30, 2021 Change

May 31, 2023 May 31, 2022 Change

Revenue by Geography

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North America Revenue

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

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

Europe, Middle East and Africa Revenue

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

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

Other Regions Revenue

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

Other regions revenue in the first quarter of fiscal 2024 was consistent with the first quarter of fiscal 2023.

Consolidated Gross Margin

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

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

Consolidated gross margin increased by $75 million to approximately $179 million in the first quarter of fiscal 2024 (first quarter of fiscal 2023 - $104 million).

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

Consolidated Gross Margin Percentage

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

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

Consolidated gross margin percentage decreased by 13.9% to approximately 48.0% of consolidated revenue in the first quarter of fiscal 2024 (first quarter of fiscal 2023 - 61.9%).

The decrease was primarily due to a change in mix, specifically higher contribution from Licensing and Other, which had a lower gross margin percentage due to the completed Malikie Transaction,

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

Gross Margin by Segment

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

See “First Quarter Fiscal 2024 Summary Results of Operations” for information about the Company’s operating segments and the basis of operating segment results.

For the Three Months Ended

1 unchanged sentence

Cybersecurity IoT Licensing and Other Segment Totals

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

May 31, Change May 31, Change May 31, Change May 31, Change

2023 2022 2023 2022 2023 2022 2023 2022

4 unchanged sentences

Cybersecurity

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

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

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

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

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

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

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

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

The decrease in IoT gross margin percentage of 4% was primarily due to the reasons discussed above in “Revenue by Segment”, as the cost of sales does not significantly fluctuate based on business volume.

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

Licensing and Other

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

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

The increase in Licensing and Other gross margin of $86 million was primarily due to the completed Malikie Transaction.

The decrease in Licensing and Other gross margin percentage of 13% was primarily due to the completed Malikie Transaction, which had a lower relative gross margin percentage due to the cost basis of the sold assets which was de-recognized.

Operating Expenses

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

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

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended May 31, 2023, compared to the quarter ended February 28, 2023 and the quarter ended May 31, 2022.

The Company believes it is meaningful to provide a sequential comparison between the first quarter of fiscal 2024 and the fourth quarter of fiscal 2023.

For the Three Months Ended

(in millions)

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

May 31, 2023 February 28, 2023 May 31, 2022

Revenue $ 373 $ 151 $ 168

4 unchanged sentences

Impairment of long-lived assets — 231 —

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

Impairment of goodwill — 245 —

Debentures fair value adjustment 22 (26) (46)

Litigation settlement — — 165

Total $ 190 $ 599 $ 281

4 unchanged sentences

Impairment of long-lived assets — % 153.0 % — %

Gain on sale of property, plant and equipment, net

— % (3.6 %) — %

Impairment of goodwill — % 162.3 % — %

Debentures fair value adjustment 5.9 % (17.2 %) (27.4 %)

Litigation settlement — % — % 98.2 %

Total 50.9 % 396.7 % 167.3 %

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

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

GAAP-based measures to adjusted measures for the three months ended May 31, 2023, February 28, 2023 and May 31, 2022.

GAAP Operating Expenses

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

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

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

Operating expenses decreased by $91 million, or 32.4%, in the first quarter of fiscal 2024, compared to the first quarter of fiscal 2023 primarily due to a $165 million litigation settlement in the first quarter of fiscal 2023 which did not recur and a decrease of $12 million in amortization costs, partially offset by the difference between the Q1 Fiscal 2024 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the first quarter of fiscal 2023 of $68 million, an increase of $4 million in allowance for credit losses, a decrease of $4 million in government subsidies resulting from claims filed for the Canada Emergency Wage Subsidy and Hardest-Hit Business Recovery Program programs (“COVID-19 subsidies”) to support the business through the COVID-19 pandemic, an increase of $4 million in the Company’s deferred share unit costs and an increase of $4 million in restructuring costs.

Adjusted Operating Expenses

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

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

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

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

Adjusted operating expenses increased by $27 million, or 22.9%, to $145 million in the first quarter of fiscal 2024 compared to $118 million in the fourth quarter of fiscal 2023.

The increase was primarily attributable to an increase of $15 million in variable incentive plan costs, an increase of $4 million in the Company’s deferred share unit costs and an increase of $3 million in allowance for credit losses.

Adjusted operating expenses increased by $13 million, or 9.8%, to $145 million in the first quarter of fiscal 2024, compared to $132 million in the first quarter of fiscal 2023.

The increase was primarily attributable to an increase of $4 million in allowance for credit losses, a decrease in benefits of $4 million in COVID-19 subsidies and an increase of $4 million deferred share unit costs.

Research and Development Expenses

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

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

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

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

Research and development expenses increased by $1 million, or 1.9%, in the first quarter of fiscal 2024 compared to $53 million in the first quarter of fiscal 2023 primarily due to an increase of $1 million in variable incentive plan costs.

Adjusted research and development expenses increased by $1 million, or 2.0%, to $52 million in the first quarter of fiscal 2024, compared to $51 million in the first quarter of fiscal 2023.

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

Selling, Marketing and Administration Expenses

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

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

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

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

Selling, marketing and administration expenses increased by $17 million, or 20.7%, in the first quarter of fiscal 2024 compared to $82 million in the first quarter of fiscal 2023 primarily due to an increase of $4 million in allowance for credit losses, a decrease in benefits of $4 million in COVID-19 subsidies, an increase of $4 million in the Company’s deferred share unit costs and an increase of $4 million in restructuring costs.

Adjusted selling, marketing and administration expenses increased by $11 million, or 14.3%, to $88 million in the first quarter of fiscal 2024, compared to $77 million in the first quarter of fiscal 2023.

The increase was primarily due to an increase of $4 million in allowance for credit losses, a decrease in benefits of $4 million in COVID-19 subsidies and an increase of $4 million in the Company’s deferred share unit costs, partially offset by a decrease of $2 million in legal expenses.

Amortization Expense

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

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the quarter ended May 31, 2023 compared to the quarter ended May 31, 2022.

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

2 unchanged sentences

Included in Operating Expense

November 30, 2022 November 30, 2021 Change

May 31, 2023 May 31, 2022 Change

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

2 unchanged sentences

Included in Cost of Sales

November 30, 2022 November 30, 2021 Change

Property, plant and equipment $ — $ — $ —

May 31, 2023 May 31, 2022 Change

Intangible assets 1 2 (1)

Total $ 2 $ 3 $ (1)

Amortization included in Operating Expense

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

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

The decrease in amortization expense included in operating expense of $12 million was primarily due to the lower cost base of acquired technology assets.

Adjusted amortization expense increased by $1 million to $5 million in the first quarter of fiscal 2024 compared to $4 million in the first quarter of fiscal 2023 due to the higher cost base of BlackBerry operations and other information technology assets.

Amortization included in Cost of Sales

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

Investment Income, Net

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

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

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

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

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

Net Income (Loss)

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

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

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

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

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

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

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

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

For the Nine Months Ended

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

November 30, 2022 November 30, 2021 Change

Revenue $ 505 $ 533 $ (28)

Gross margin 319 343 (24)

Operating expenses 545 491 54

Investment Income (Loss), Net

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

Provision for income taxes 12 6 6

Net loss $ (239) $ (132) $ (107)

Loss per share - reported

Basic $ (0.41) $ (0.23) $ (0.18)

Diluted $ (0.54) $ (0.28) $ (0.26)

Weighted-average number of shares outstanding (000’s)

577,718 568,877

638,551 629,710

______________________________

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

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

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

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

Revenue by Segment

Comparative breakdowns of revenue by segment are set forth below.

For the Nine Months Ended

(in millions)

November 30, 2022 November 30, 2021 Change

Revenue by Segment

Cybersecurity $ 330 $ 355 $ (25)

IoT 153 126 27

Licensing and Other 22 52 (30)

$ 505 $ 533 $ (28)

% Revenue by Segment

Cybersecurity 65.3 % 66.6 %

IoT 30.3 % 23.6 %

Licensing and Other 4.4 % 9.8 %

100.0 % 100.0 %

Cybersecurity

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

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

Licensing and Other

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

GAAP Revenue by Geography

Comparative breakdowns of the geographic regions on a U.S.

GAAP basis are set forth in the following table:

For the Nine Months Ended

(in millions)

November 30, 2022 November 30, 2021 Change

Revenue by Geography

North America $ 266 $ 313 $ (47)

Europe, Middle East and Africa 176 168 8

Other regions 63 52 11

$ 505 $ 533 $ (28)

% Revenue by Geography

North America 52.7 % 58.7 %

Europe, Middle East and Africa 34.9 % 31.5 %

Other regions 12.4 % 9.8 %

100.0 % 100.0 %

North America Revenue

The decrease in North American revenue of $47 million was primarily due to a decrease of $23 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment”, a decrease of $21 million in product revenue in BlackBerry Spark and a decrease of $8 million relating to professional services, partially offset by an increase of $6 million in BlackBerry QNX royalty revenue.

Europe, Middle East and Africa Revenue

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

Other Regions Revenue

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

Consolidated Gross Margin

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

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

Consolidated Gross Margin Percentage

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

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

Gross Margin by Segment

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

For the Nine Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

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

2022 2021 2022 2021 2022 2021 2022 2021

Segment revenue $ 330 $ 355 $ (25) $ 153 $ 126 $ 27 $ 22 $ 52 $ (30) $ 505 $ 533 $ (28)

Segment cost of sales 149 147 2 27 22 5 8 18 (10) 184 187 (3)

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

Segment gross margin % 55 % 59 % (4 %) 82 % 83 % (1 %) 64 % 65 % (1 %) 64 % 65 % (1 %)

Cybersecurity

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

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

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

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

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.

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

Operating Expenses

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

For the Nine Months Ended

(in millions)

November 30, 2022 November 30, 2021 Change

Revenue $ 505 $ 533 $ (28)

Operating expenses

Research and development 159 172 (13)

Selling, marketing and administration 257 233 24

Amortization 78 133 (55)

Impairment of long-lived assets 4 — 4

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

Debentures fair value adjustment (112) (47) (65)

Litigation settlement 165 — 165

Total $ 545 $ 491 $ 54

Operating Expense as % of Revenue

Research and development 31.5 % 32.3 %

Selling, marketing and administration 50.9 % 43.7 %

Amortization 15.4 % 25.0 %

Impairment of long-lived assets 0.8 % — %

Gain on sale of property, plant and equipment, net (1.2) % — %

Debentures fair value adjustment (22.2) % (8.8) %

Litigation settlement 32.7 % — %

Total 107.9 % 92.1 %

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

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

GAAP Operating Expenses

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

Adjusted Operating Expenses

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

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

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

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

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

Selling, Marketing and Administration Expenses

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

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

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

Amortization Expense

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

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

For the Nine Months Ended

(in millions)

Included in Operating Expense

November 30, 2022 November 30, 2021 Change

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

Intangible assets 71 123 (52)

Total $ 78 $ 133 $ (55)

Included in Cost of Sales

November 30, 2022 November 30, 2021 Change

Property, plant and equipment $ 2 $ 2 $ —

Intangible assets 5 7 (2)

Total $ 7 $ 9 $ (2)

Amortization included in Operating Expense

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

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

Amortization included in Cost of Sales

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

Investment Income (Loss), Net

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

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

Investment income (loss), net, which includes the interest expense from the Debentures, increased by $4 million to investment income, net of $3 million in the first quarter of fiscal 2024, compared to investment loss, net of $1 million in the first quarter of fiscal 2023.

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

For the first quarter of fiscal 2024, the Company’s net effective income tax expense rate was approximately 38% (first quarter of fiscal 2023 - net effective income tax expense rate of approximately 2%).

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

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

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

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

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

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

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

The weighted average number of shares outstanding was 578 million for basic loss per share and 639 million for diluted loss per share for the first nine months of November 30, 2022.

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

Common Shares Outstanding

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

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

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

Net Income (Loss)

The Company’s net loss for the first quarter of fiscal 2024 was $11 million, or $0.02 basic and diluted loss per share on a U.S.

GAAP basis (first quarter of fiscal 2023 - net loss of $181 million, or $0.31 basic loss per share and $0.35 diluted loss per share).

The decrease in net loss of $170 million was primarily due to a decrease in operating expenses, as described above in “Operating Expenses” and an increase in revenue, as described above in “Revenue by Segment”, partially offset by a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net income was $35 million in the first quarter of fiscal 2024 (first quarter of fiscal 2023 - adjusted net loss of $31 million).

The increase in adjusted net income of $66 million was primarily due to an increase in revenue as described above in “Revenue by Segment”, partially offset by a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage” and an increase in operating expenses as described above in “Operating Expenses”.

The Company expects to deliver significant year-over-year improvements in non-GAAP EPS loss and cash flow usage in fiscal 2024, and to achieve non-GAAP profitability in the fourth quarter of fiscal 2024.

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

The weighted average number of shares outstanding was 583 million common shares for basic and diluted loss per share for the first quarter of fiscal 2024 (first quarter of fiscal 2023 - 577 million common shares for basic loss per share and 638 million common shares for diluted loss per share).

Financial Condition

Liquidity and Capital Resources

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

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

Cash, cash equivalents, and investments increased by $91 million to $578 million as at May 31, 2023 from $487 million as at February 28, 2023, primarily as a result of the completed Malikie Transaction and changes in working capital, excluding the amounts payable in respect of the Debentures.

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

dollars as at November 30, 2022.

dollars as at May 31, 2023.

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

(in millions)

November 30, 2022 February 28, 2022 Change

May 31, 2023 February 28, 2023 Change

Cash and cash equivalents $ 358 $ 295 $ 63

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(in millions)

November 30, 2022 February 28, 2022 Change

May 31, 2023 February 28, 2023 Change

Current assets $ 696 $ 743 $ (47)

2 unchanged sentences

Current Assets

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

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

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

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

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

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

The decrease was primarily due to tax refunds received.

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

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

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

At May 31, 2023, other current assets was $52 million, a decrease of $130 million from February 28, 2023.

The decrease was primarily due to a decrease in intellectual property of $141 million as a result of the completed Malikie Transaction, partially offset by an increase of $5 million in prepaid software and an increase of $2 million in prepaid insurance.

At May 31, 2023, accounts receivable, net of allowance was $117 million, a decrease of $3 million from February 28, 2023.

The decrease was primarily due to lower software and services revenue recognized over the three months ended May 31, 2023 compared to the three months ended February 28, 2023, and a decrease in days sales outstanding to 33 days at the end of the first quarter of fiscal 2024 due to the completed Malikie Transaction from 75 days at the end of the fourth quarter of fiscal 2023.

At May 31, 2023, other receivables was $8 million, a decrease of $4 million from February 28, 2023.

The decrease was primarily due to a decrease of $4 million relating to GST/VAT receivables.

At May 31, 2023, income taxes receivable was $3 million, consistent with February 28, 2023.

Current Liabilities

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

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

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

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

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

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

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

For the Nine Months Ended

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

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

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

Accrued liabilities were $128 million at the end of the first quarter of 2024, reflecting a decrease of $15 million compared to February 28, 2023, which was primarily due to a decrease in variable incentive plan accrual of $8 million, a decrease in payroll accruals of $6 million and a decrease in marketing accruals of $2 million, partially offset by an increase in directors fee accruals of $4 million.

Accounts payable were $21 million, reflecting a decrease of $3 million from February 28, 2023, which was primarily due to timing of payments of accounts payable.

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

For the Three Months Ended

(in millions)

November 30, 2022 November 30, 2021 Change

May 31, 2023 May 31, 2022 Change

Net cash flows provided by (used in):

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Operating Activities

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

securities class actions settlement.

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

Investing Activities

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

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

During the three months ended May 31, 2023, cash flows used in investing activities were $38 million and included cash used in transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $28 million, acquisition of intangible assets of $8 million, and the acquisition of property, plant and equipment of $2 million.

For the same period in the prior fiscal year, cash flows provided by investing activities were $53 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $62 million, offset by cash used in the acquisition intangible assets of $8 million, and the acquisitions of property, plant and equipment of $1 million.

Financing Activities

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

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

Debenture Financing and Other Funding Sources

2 unchanged sentences

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

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

Cash, cash equivalents, and investments were approximately $578 million as at May 31, 2023.

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

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

The Company has experienced recent operating losses and the Debentures will mature on November 13, 2023, as described in Note 5, but the Company has the ability and intent to access other potential financing arrangements on commercially reasonable terms.

Taking these factors into account and based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities, 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 November 30, 2022:

The following table sets out aggregate information about the Company’s contractual and other obligations and the periods in which payments are due as at May 31, 2023:

(in millions)

Total Short-term (next 12 months) Long-term (>12 months)

Total Short-term

(next 12 months) Long-term

Operating lease obligations $ 81 $ 25 $ 56

2 unchanged sentences

Total $ 542 $ 486 $ 56

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

Total contractual and other obligations as at May 31, 2023 decreased by approximately $14 million as compared to the February 28, 2023 balance of approximately $556 million, which was attributable to decreases in purchase obligations and commitments.

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

Accounting Policies and Critical Accounting Estimates

There have been no changes to the Company’s accounting policies or critical accounting estimates from those described under “Accounting Policies and Critical Accounting Estimates” in the Annual MD&A.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis