What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-09-29 compared with 2023-06-30 · 422 added, 174 removed, 402 unchanged (60% 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 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 following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited interim consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited for the three and six months ended August 31, 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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• 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 expectations with respect to the impact of macroeconomic and other external factors on its results of operations and financial condition;

• the Company’s expectations with respect to its revenue, non-GAAP EPS and cash flow usage in fiscal 2024;

• 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 - 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.

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”, “Results of Operations - Three months ended August 31, 2023 compared to the three months ended August 31, 2022 - Revenue - Revenue by Segment”, “Results of Operations - Three months ended August 31, 2023 compared to the three months ended August 31, 2022 - Net Loss” 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, the Company’s expectations regarding its ability to repay at maturity or possibly refinance the Debentures (defined below), and the Company’s expectations regarding the strategic review of its businesses.

(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;

(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;

(iii) risk relating to BlackBerry’s ability to manage its potential CEO succession and staffing effectively, and (iv) risk that a prolonged labour disruption involving North American auto workers may adversely impact BlackBerry QNX royalty revenues.

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

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.

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

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

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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.

The platforms securely connect with a diverse set of endpoints to distribute emergency mass notifications, improve personnel accountability and facilitate the bidirectional collection and sharing of data within and between organizations.

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

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

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

The platform securely connects with a diverse set of endpoints to distribute emergency mass notifications, improve personnel accountability and facilitate the bidirectional collection and sharing of data within and between organizations.

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

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

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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.

In addition to BlackBerry QNX, BTS includes BlackBerry Certicom® cryptography and key management products, and the BlackBerry Radar® asset monitoring solution.

In addition to BlackBerry QNX, BTS includes BlackBerry Certicom® cryptography and key management products.

BlackBerry Certicom leverages patented elliptic curve cryptography to provide device security, anti-counterfeiting and product authentication solutions.

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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 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.

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

BlackBerry IVY supports multiple 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 released the platform for general availability in May 2023.

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

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Products and Innovation:

• 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.

• Launched major update to its patented Cylance AI engine, further improving protection from zero-day threats.

Customers and Partners:

• 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.

• Announced that Mitsubishi’s enhanced automotive in-cabin system, FlexConnect.X, will be powered by BlackBerry IVY to deliver AI data-driven experiences;

• Announced that Foxconn-initiated group, Mobility in Harmony (MIH) consortium, selected safety-certified BlackBerry QNX and BlackBerry IVY for its next-generation electric vehicle platform.

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.

• Announced that CylanceENDPOINT™ received Gartner® Peer Insights™ 2023, Customers’ Choice designation for Endpoint Protection Platforms, based on customer feedback, placing in the upper-right quadrant;

• Released the Company’s latest Quarterly Global Threat Intelligence Report, highlighting that the Company’s AI-driven cybersecurity solutions stopped 55,000 individual cyber-attacks between March and May 2023.

Strategic Review of Businesses

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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.

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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 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.

Economic uncertainty, customer budgetary constraints and inflation, as well as higher interest rates implemented in response to inflation and resulting fears of recession, may negatively impact consumer demand for automobiles and have contributed to longer sales cycles for cybersecurity solutions.

These conditions have adversely affected, and may continue to adversely affect, the Company’s business and results of operations.

The Company does not believe that inflation had a material effect on its operations during first six months of fiscal 2024.

Second Quarter Fiscal 2024 Summary Results of Operations

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

For the Three Months Ended

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

May 31, 2023 May 31, 2022 Change

August 31, 2023 August 31, 2022 Change

Revenue $ 132 $ 168 $ (36)

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

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.

GAAP for the second quarter of fiscal 2024 does not include the dilutive effect of the Debentures, as to do so would be anti-dilutive.

Diluted loss per share on a U.S.

GAAP basis for the first 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.

GAAP basis for the second quarter of fiscal 2024 and second 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 months ended May 31, 2023 and May 31, 2022.

The following tables show information by operating segment for the three and six months ended August 31, 2023 and August 31, 2022.

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

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Cybersecurity IoT Licensing and Other Segment Totals

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

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

2023 2022 2023 2022 2023 2022 2023 2022

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Segment gross margin $ 43 $ 61 $ (18) $ 41 $ 42 $ (1) $ 2 $ 4 $ (2) $ 86 $ 107 $ (21)

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

For the Six Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

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

2023 2022 2023 2022 2023 2022 2023 2022

Segment revenue $ 172 $ 224 $ (52) $ 94 $ 102 $ (8) $ 239 $ 10 $ 229 $ 505 $ 336 $ 169

Segment cost of sales 73 103 (30) 17 17 — 149 4 145 239 124 115

Segment gross margin $ 99 $ 121 $ (22) $ 77 $ 85 $ (8) $ 90 $ 6 $ 84 $ 266 $ 212 $ 54

The following tables reconcile the Company’s segment results for the three and six months ended August 31, 2023 to consolidated U.S.

GAAP results:

For the Three Months Ended May 31, 2023

For the Three Months Ended August 31, 2023

(in millions)

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Loss before income taxes $ (40)

For the Six Months Ended August 31, 2023

(in millions)

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

Revenue $ 172 $ 94 $ 239 $ 505 $ — $ 505

Cost of sales 73 17 149 239 2 241

Gross margin (1)

$ 99 $ 77 $ 90 $ 266 $ (2) $ 264

Operating expenses 322 322

Investment income, net (10) (10)

Loss before income taxes $ (48)

______________________________

(1) See “Non-GAAP Financial Measures” for a reconciliation of selected 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-based measures to adjusted measures for the three and six months ended August 31, 2023.

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

GAAP results:

For the Three Months Ended May 31, 2022

For the Three Months Ended August 31, 2022

(in millions)

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Loss before income taxes $ (49)

For the Six Months Ended August 31, 2022

(in millions)

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

Revenue $ 224 $ 102 $ 10 $ 336 $ — $ 336

Cost of sales 103 17 4 124 2 126

Gross margin (1)

$ 121 $ 85 $ 6 $ 212 $ (2) $ 210

Operating expenses 434 434

Investment loss, net 3 3

Loss before income taxes $ (227)

______________________________

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

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

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

Financial Highlights

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).

The Company had $519 million in cash, cash equivalents and investments as of August 31, 2023 (February 28, 2023 - $487 million).

In the second quarter of fiscal 2024, the Company recognized revenue of $132 million and incurred a net loss of $42 million, or $0.07 basic and diluted loss per share on a U.S.

GAAP basis (second quarter of fiscal 2023 - revenue of $168 million and net loss of $54 million, or $0.09 basic loss per share and $0.10 diluted loss per share).

The Company recognized adjusted net loss of $23 million, and adjusted earnings of $0.04 per share, on a non-GAAP basis in the second quarter of fiscal 2024 (second quarter of fiscal 2023 - adjusted net loss of $29 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 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.

As at August 31, 2023, the fair value of the Debentures was approximately $383 million, a decrease of approximately $6 million during the second quarter of fiscal 2024.

For the three months ended August 31, 2023, the Company recorded non-cash income relating to changes in fair value from non-credit components of $6 million (pre-tax and after tax) (the “Q2 Fiscal 2024 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations relating to the Debentures.

For the six months ended August 31, 2023 the Company recorded a non-cash charge relating to changes in fair value from non-credit components of $16 million (pre-tax and after tax) (the “Fiscal 2024 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations 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 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).

On September 28, 2023, the Company announced financial results for the three and six months ended August 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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Reconciliation of non-GAAP based measures with most directly comparable U.S.

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

GAAP based measures for the three months ended August 31, 2023 and August 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.

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A reconciliation of the most directly comparable U.S.

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

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

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

Gross margin $ 85 $ 106

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Reconciliation of U.S.

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

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

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

Operating expense $ 132 $ 190 $ 153

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Acquired intangibles amortization 10 10 22

Goodwill impairment charge — 245 —

LLA impairment charge 1 — 4

Litigation settlement — — 165

Adjusted operating expense $ 114 $ 145 $ 129

______________________________

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

(1) See “Second 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 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)

GAAP basic loss per share for the three months ended August 31, 2023 and August 31, 2022 to adjusted net loss and adjusted basic loss per share is reflected in the table below:

For the Three Months Ended (in millions, except per share amounts) August 31, 2023 August 31, 2022

per share Basic loss

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Acquired intangibles amortization 10 22

LLA impairment charge 1 4

Adjusted loss $ (23) $(0.04) $ (29) $(0.05)

Reconciliation of U.S.

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended August 31, 2023 and August 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) August 31, 2023 August 31, 2022

Research and development $ 50 $ 54

Stock compensation expense 2 2

Adjusted research and development $ 48 $ 52

Selling, marketing and administration $ 73 $ 86

Restructuring charges 3 3

Stock compensation expense 8 3

Adjusted selling, marketing and administration $ 62 $ 80

Amortization $ 14 $ 25

Acquired intangibles amortization 10 22

Adjusted amortization $ 4 $ 3

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

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

Operating loss $ (47) $ (47)

Non-GAAP adjustments to operating loss

Restructuring charges 3 3

Stock compensation expense 11 6

Debentures fair value adjustment (6) (10)

Acquired intangibles amortization 10 22

LLA impairment charge 1 4

Total non-GAAP adjustments to operating loss $ 19 $ 25

Adjusted operating loss (28) (22)

Amortization 16 28

Acquired intangibles amortization (10) (22)

Adjusted EBITDA $ (22) $ (16)

Revenue $ 132 $ 168

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 six months ended August 31, 2023 and August 31, 2022.

A reconciliation of the most directly comparable U.S.

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

For the Six Months Ended (in millions) August 31, 2023 August 31, 2022

Gross margin $ 264 $ 210

Stock compensation expense 2 2

Adjusted gross margin $ 266 $ 212

Gross margin % 52.3 % 62.5 %

Stock compensation expense 0.4 % 0.6 %

Adjusted gross margin % 52.7 % 63.1 %

Reconciliation of U.S.

GAAP operating expense for the six months ended August 31, 2023 and August 31, 2022 to adjusted operating expense is reflected in the table below:

For the Six Months Ended (in millions) August 31, 2023 August 31, 2022

Operating expense $ 322 $ 434

Restructuring charges 8 4

Stock compensation expense 18 11

Debentures fair value adjustment 16 (56)

Acquired intangibles amortization 20 45

LLA impairment charge 1 4

Litigation settlement — 165

Adjusted operating expense $ 259 $ 261

______________________________

(1) See “Second 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 six months ended August 31, 2023 and August 31, 2022 to adjusted net income (loss) and adjusted basic earnings (loss) per share is reflected in the table below:

For the Six Months Ended (in millions, except per share amounts) August 31, 2023 August 31, 2022

Basic earnings (loss) per share Basic loss per share

Net loss $ (53) $(0.09) $ (235) $(0.41)

Restructuring charges 8 4

Stock compensation expense 20 13

Debentures fair value adjustment 16 (56)

Acquired intangibles amortization 20 45

LLA impairment charge 1 4

Litigation settlement — 165

Adjusted net income (loss) $ 12 $0.02 $ (60) $(0.10)

Reconciliation of U.S.

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

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

For the Six Months Ended (in millions) August 31, 2023 August 31, 2022

Research and development $ 104 $ 107

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Adjusted amortization $ 9 $ 7

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

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

For the Six Months Ended (in millions) August 31, 2023 August 31, 2022

Operating loss $ (58) $ (224)

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Acquired intangibles amortization 20 45

LLA impairment charge 1 4

Litigation settlement — 165

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Reconciliation of U.S.

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)

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

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

Net cash used in operating activities $ (56) $ (23)

Acquisition of property, plant and equipment (1) (3)

2 unchanged sentences

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 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

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

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

Cybersecurity Annual Recurring Revenue $ 279 $ 321 $ (42)

5 unchanged sentences

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.

Cybersecurity ARR was approximately $279 million as at August 31, 2023 and decreased compared to $289 million as at May 31, 2023 and decreased compared to $321 million as at August 31, 2022.

Dollar-Based Net Retention Rate

2 unchanged sentences

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

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.

Cybersecurity DBNRR was 81% as at August 31, 2023 and was consistent with 81% as at May 31, 2023 and decreased compared to 85% as at August 31, 2022.

Total Contract Value Billings

1 unchanged sentence

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 $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.

Cybersecurity TCV billings was $74 million for the three months ended August 31, 2023 and decreased compared to $122 million for the three months ended May 31, 2023 and decreased compared to $102 million for the three months ended August 31, 2022.

Recurring Software Product Revenue

3 unchanged sentences

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

Total Software and Services product revenue, excluding professional services, was approximately 90% recurring in the 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

Total Software and Services product revenue, excluding professional services, was approximately 90% recurring for the three months ended August 31, 2023 and was consistent with approximately 90% recurring for the three months ended May 31, 2023 and increased compared to approximately 80% for the three months ended August 31, 2022 due to product mix.

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

Revenue by Segment

2 unchanged sentences

(in millions)

May 31, 2023 May 31, 2022 Change

August 31, 2023 August 31, 2022 Change

Revenue by Segment

9 unchanged sentences

Cybersecurity

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 decrease in Cybersecurity revenue of $32 million was primarily due to a decrease of $16 million relating to product revenue in Secusmart, a decrease of $12 million relating to product revenue in BlackBerry Spark and a decrease of $3 million in professional services.

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.

This expectation is dependent, in part, on the Company closing a certain set of large government deals in the second half of fiscal 2024.

The decrease in IoT revenue of $2 million was primarily due to a decrease of $5 million in professional services and a decrease of $1 million in BlackBerry QNX development seat revenue, partially offset by an increase of $3 million in BlackBerry QNX royalty revenue.

The Company previously stated that it expected 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 now expects IoT revenue to be in the range of $225 million to $240 million for fiscal 2024 as a whole primarily due to the rescheduling of software development programs and production timelines at certain large OEM customers and uncertainty in the macroeconomic environment.

The Company expects IoT revenue to grow sequentially in the third quarter of fiscal 2024 and that, in the fourth quarter of fiscal 2024, IoT revenue will be higher than in any previous quarter.

The Company previously stated that it expected 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.

Total Software & Services revenue, excluding revenue from BlackBerry IVY, was $128 million and decreased compared to $138 million in the first quarter of fiscal 2024 due to certain large expected government deals not closing in the quarter.

The Company previously stated that it expected total Software & Services revenue, excluding potential revenue from BlackBerry IVY, to be in the range of $665 million and $700 million for fiscal 2024 as a whole.

The Company now expects total Software & Services revenue, excluding potential revenue from BlackBerry IVY, to be in the range of $650 million and $690 million for fiscal 2024 as a whole due to changes in expectations in IoT revenue for fiscal 2024 as a whole.

Licensing and Other

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 decrease in Licensing and Other revenue of $2 million was primarily due to a decrease of $1 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.

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(in millions)

May 31, 2023 May 31, 2022 Change

August 31, 2023 August 31, 2022 Change

Revenue by Geography

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North America 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.

The decrease in North America revenue of $13 million was primarily due to a decrease of $8 million relating to product revenue in BlackBerry Spark and a decrease of $5 million in professional services, partially offset by an increase of $2 million in BlackBerry QNX royalty revenue.

Europe, Middle East and Africa Revenue

The decrease in Europe, Middle East and Africa revenue of $22 million was primarily due to a decrease of $16 million relating to product revenue in Secusmart, a decrease of $5 million in product revenue in BlackBerry Spark and a decrease of $3 million in professional services.

Other Regions Revenue

The decrease in Other regions revenue of $1 million was primarily due to a decrease in QNX development seat revenue.

Consolidated Gross Margin

Consolidated gross margin decreased by $21 million to approximately $85 million in the second quarter of fiscal 2024 (second quarter of fiscal 2023 - $106 million).

The decrease was primarily due to a decrease in revenue from Secusmart and BlackBerry Spark 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 1.3% to approximately 64.4% of consolidated revenue in the second quarter of fiscal 2024 (second quarter of fiscal 2023 - 63.1%).

The increase was primarily due to a change in mix, specifically a lower gross margin contribution from Secusmart, which has a lower relative gross margin percentage and a higher gross margin contribution from BlackBerry QNX, which has a higher relative gross margin percentage.

Gross Margin by Segment

See “Second 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

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

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

2023 2022 2023 2022 2023 2022 2023 2022

Segment revenue $ 79 $ 111 $ (32) $ 49 $ 51 $ (2) $ 4 $ 6 $ (2) $ 132 $ 168 $ (36)

Segment cost of sales 36 50 (14) 8 9 (1) 2 2 — 46 61 (15)

Segment gross margin $ 43 $ 61 $ (18) $ 41 $ 42 $ (1) $ 2 $ 4 $ (2) $ 86 $ 107 $ (21)

Segment gross margin % 54 % 55 % (1 %) 84 % 82 % 2 % 50 % 67 % (17 %) 65 % 64 % 1 %

Cybersecurity

The decrease in Cybersecurity gross margin of $18 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease of $4 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 decrease in Cybersecurity gross margin percentage of 1% was primarily due to the same reasons discussed above.

The decrease in IoT gross margin of $1 million was primarily due to the reasons discussed above in “Revenue by Segment” and a change in mix, specifically a higher gross margin contribution from BlackBerry QNX royalty revenue, which had a higher relative gross margin percentage.

The increase in IoT gross margin percentage of 2% was primarily due a change in mix, specifically a higher gross margin contribution from BlackBerry QNX royalty revenue, which had a higher relative gross margin percentage.

Licensing and Other

The decrease in Licensing and Other gross margin of $2 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 Licensing and Other gross margin percentage of 17% was primarily due to the same reasons discussed above.

Operating Expenses

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

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

For the Three Months Ended

(in millions)

August 31, 2023 May 31, 2023 August 31, 2022

Revenue $ 132 $ 373 $ 168

Operating expenses

Research and development 50 54 54

Selling, marketing and administration 73 99 86

Amortization 14 15 25

Impairment of long-lived assets 1 — 4

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

Debentures fair value adjustment (6) 22 (10)

Total $ 132 $ 190 $ 153

Operating Expenses as % of Revenue

Research and development 37.9 % 14.5 % 32.1 %

Selling, marketing and administration 55.3 % 26.5 % 51.2 %

Amortization 10.6 % 4.0 % 14.9 %

Impairment of long-lived assets 0.8 % — % 2.4 %

Gain on sale of property, plant and equipment, net — % — % (3.6 %)

Debentures fair value adjustment (4.5 %) 5.9 % (6.0 %)

Total 100.0 % 50.9 % 91.1 %

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

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

GAAP Operating Expenses

Operating expenses decreased by $58 million, or 30.5%, in the second quarter of fiscal 2024, compared to the first quarter of fiscal 2024 primarily due the difference between the Q2 Fiscal 2024 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the first quarter of fiscal 2024 of $28 million, a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business, $4 million in bad debt expense in the first quarter of fiscal 2024 which did not recur, a decrease of $3 million in variable incentive plan costs and a decrease of $3 million in salaries and benefits expenses.

Operating expenses decreased by $21 million, or 13.7%, in the second quarter of fiscal 2024, compared to the second quarter of fiscal 2023 primarily due to a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business, a decrease of $11 million in amortization costs, a decrease of $3 million in salaries and benefit expenses and a decrease of $3 million in impairment of long-lived assets, 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 the difference between the Q2 Fiscal 2024 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the second quarter of fiscal 2023 of $4 million.

Adjusted Operating Expenses

Adjusted operating expenses decreased by $31 million, or 21.4%, to $114 million in the second quarter of fiscal 2024 compared to $145 million in the first quarter of fiscal 2024.

The decrease was primarily due to a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business, $4 million in bad debt expense in the first quarter of fiscal 2024 which did not recur, a decrease of $3 million in variable incentive plan costs, decrease of $3 million in salaries and benefits expenses and a decrease of $3 million in marketing and advertising expenses.

Adjusted operating expenses decreased by $15 million, or 11.6%, to $114 million in the second quarter of fiscal 2024, compared to $129 million in the second quarter of fiscal 2023.

The decrease was primarily due to a benefit of $17 million due to the release of an accrued liability relating to the Company’s legacy mobile device business and a decrease of $3 million in salaries and benefit expenses, 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.

Research and Development Expenses

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

Research and development expenses decreased by $4 million, or 7.4%, in the second quarter of fiscal 2024 compared to $54 million in the second quarter of fiscal 2023 primarily due to a decrease of $2 million in salaries and benefits expenses and a decrease of $1 million in variable incentive plan costs.

Adjusted research and development expenses decreased by $4 million, or 7.7%, to $48 million in the second quarter of fiscal 2024, compared to $52 million in the second quarter of fiscal 2023.

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

Selling, Marketing and Administration Expenses

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

Selling, marketing and administration expenses decreased by $13 million, or 15.1%, in the second quarter of fiscal 2024 compared to $86 million in the second quarter of fiscal 2023 primarily due to a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business and a decrease of $2 million in bad debt expense, partially offset by an increase of $4 million in stock compensation expense and an increase of $2 million in legal expenses.

Adjusted selling, marketing and administration expenses decreased by $18 million, or 22.5%, to $62 million in the second quarter of fiscal 2024, compared to $80 million in the second quarter of fiscal 2023.

The decrease was primarily due to a benefit of $17 million due to the release of an accrued liability relating to the Company’s legacy mobile device business and a decrease of $2 million in bad debt expense, partially offset by an increase 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 August 31, 2023 compared to the quarter ended August 31, 2022.

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

For the Three Months Ended

(in millions)

Included in Operating Expense

August 31, 2023 August 31, 2022 Change

Property, plant and equipment $ 1 $ 1 $ —

Intangible assets 13 24 (11)

Total $ 14 $ 25 $ (11)

Included in Cost of Sales

August 31, 2023 August 31, 2022 Change

Property, plant and equipment $ 2 $ 2 $ —

Intangible assets — 1 (1)

Total $ 2 $ 3 $ (1)

Amortization included in Operating Expense

The decrease in amortization expense included in operating expense of $11 million was primarily due to the lower cost base of acquired technology assets.

Adjusted amortization expense increased by $1 million to $4 million in the second quarter of fiscal 2024 compared to $3 million in the second 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 (Loss), Net

Investment income (loss), net, which includes the interest expense from the Debentures, was $7 million in the second quarter of fiscal 2024 and increased by $9 million from investment loss, net of $2 million in the second quarter of fiscal 2023 due to a higher yield on cash and investments and interest income on significant financing components within certain revenue contracts with customers.

For the second quarter of fiscal 2024, the Company’s net effective income tax expense rate was approximately 5% (second quarter of fiscal 2023 - net effective income tax expense rate of approximately 10%).

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 second quarter of fiscal 2024 was $42 million, or $0.07 basic and diluted loss per share on a U.S.

GAAP basis (second quarter of fiscal 2023 - net loss of $54 million, or $0.09 basic loss per share and $0.10 diluted loss per share).

The decrease in net loss of $12 million was primarily due to a decrease in operating expenses, as described above in “Operating Expenses”, an increase in investment income (loss), net, and an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by a decrease in revenue, as described above in “Revenue by Segment”.

Adjusted net loss was $23 million in the second quarter of fiscal 2024 (second quarter of fiscal 2023 - adjusted net loss of $29 million).

The increase in adjusted net income of $6 million was primarily due to 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”, partially offset by a decrease in revenue as described above in “Revenue by Segment”.

The Company expects to achieve non-GAAP profitability and to generate positive operating cash flow in the fourth quarter of fiscal 2024 and for fiscal 2024 as a whole in each case.

These expectations are dependent, in part, on the Company closing a certain set of large government Cybersecurity deals in the second half of fiscal 2024.

The weighted average number of shares outstanding was 584 million common shares for basic and diluted loss per share for the second quarter of fiscal 2024 (second quarter of fiscal 2023 - 577 million common shares for basic loss per share and 638 million common shares for diluted loss per share).

Results of Operations - Six months ended August 31, 2023 compared to the six months ended August 31, 2022

The following section sets forth certain consolidated statements of operations data, which is expressed in millions of dollars, except for share and per share amounts and as a percentage of revenue, for the six months ended August 31, 2023 and August 31, 2022:

For the Six Months Ended

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

August 31, 2023 August 31, 2022 Change

Revenue $ 505 $ 336 $ 169

Gross margin 264 210 54

Operating expenses 322 434 (112)

Investment income (loss), net 10 (3) 13

Loss before income taxes (48) (227) 179

Provision for (recovery of) income taxes 5 8 (3)

Net loss $ (53) $ (235) $ 182

Loss per share - reported

Basic $ (0.09) $ (0.41) $ 0.32

Diluted $ (0.09) $ (0.45) $ 0.36

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

Basic 583,171 577,097

583,171 637,930

______________________________

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

GAAP basis for the first six months of fiscal 2024 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive.

Diluted loss per share on a U.S.

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

Revenue by Segment

Comparative breakdowns of revenue by segment are set forth below.

For the Six Months Ended

(in millions)

August 31, 2023 August 31, 2022 Change

Revenue by Segment

Cybersecurity $ 172 $ 224 $ (52)

IoT 94 102 (8)

Licensing and Other 239 10 229

$ 505 $ 336 $ 169

% Revenue by Segment

Cybersecurity 34.1 % 66.7 %

IoT 18.6 % 30.4 %

Licensing and Other 47.3 % 2.9 %

100.0 % 100.0 %

Cybersecurity

The decrease in Cybersecurity revenue of $52 million was primarily due to a decrease of $29 million relating to product revenue in Secusmart, a decrease of $15 million relating to product revenue in BlackBerry Spark and a decrease of $6 million in professional services.

The decrease in IoT revenue of $8 million was primarily due to an decrease of $9 million in professional services and a decrease of $4 million in BlackBerry QNX development seat revenue, partially offset by an increase of $4 million in BlackBerry QNX royalty revenue.

Licensing and Other

The increase in Licensing and Other revenue of $229 million was primarily due to an increase of $218 million related to the completed Malikie Transaction and an increase of $11 million in revenue from the Company’s intellectual property licensing arrangements.

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 Six Months Ended

(in millions)

August 31, 2023 August 31, 2022 Change

Revenue by Geography

North America $ 389 $ 174 $ 215

Europe, Middle East and Africa 76 121 (45)

Other regions 40 41 (1)

$ 505 $ 336 $ 169

% Revenue by Geography

North America 77.0 % 51.8 %

Europe, Middle East and Africa 15.1 % 36.0 %

Other regions 7.9 % 12.2 %

100.0 % 100.0 %

North America Revenue

The increase in North America revenue of $215 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 $15 million in professional services and a decrease of $5 million in product revenue in BlackBerry Spark.

Europe, Middle East and Africa Revenue

The decrease in Europe, Middle East and Africa revenue of $45 million was primarily due to a decrease of $32 million relating to product revenue in Secusmart, a decrease of $9 million in product revenue in BlackBerry Spark and a decrease of $4 million in BlackBerry QNX development seat revenue, partially offset by an increase of $2 million in BlackBerry QNX royalty revenue.

Other Regions Revenue

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

The decrease in other regions of $1 million was primarily due to a decrease in $1 million in BlackBerry QNX development seat revenue and a decrease of $1 million relating to product revenue in BlackBerry Spark, partially offset by an increase of $2 million in professional services.

Consolidated Gross Margin

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).

Consolidated gross margin increased by $54 million to approximately $264 million in the first six months of fiscal 2024 (first six months of fiscal 2023 - $210 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 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”.

Consolidated gross margin percentage decreased by 10.2%, to approximately 52.3% of consolidated revenue in the first six months of fiscal 2024 (first six months of fiscal 2023 - 62.5%).

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 “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

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

For the Six Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

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

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

2023 2022 2023 2022 2023 2022 2023 2022

6 unchanged sentences

The increase in Cybersecurity gross margin percentage of 4% was primarily due to a decrease of $7 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.

The decrease of IoT gross margin of $8 million was primarily 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.

The decrease in IoT gross margin percentage of 1% was primarily 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.

Licensing and Other

2 unchanged sentences

Operating Expenses

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

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the six months ended August 31, 2023, compared to the six months ended August 31, 2022.

For the Six Months Ended

(in millions)

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

August 31, 2023 August 31, 2022 Change

Revenue $ 505 $ 336 $ 169

4 unchanged sentences

Impairment of long-lived assets 1 4 (3)

Impairment of goodwill — 245 —

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

Debentures fair value adjustment 16 (56) 72

1 unchanged sentence

Total $ 322 $ 434 $ (112)

Operating Expenses as % of Revenue

Operating Expense as % of Revenue

Research and development 20.6 % 31.8 %

2 unchanged sentences

Impairment of long-lived assets 0.2 % 1.2 %

Impairment of goodwill — % 162.3 % — %

Gain on sale of property, plant and equipment, net — % (1.8) %

Debentures fair value adjustment 3.2 % (16.7) %

2 unchanged sentences

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

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

GAAP-based measures to adjusted measures for the six months ended August 31, 2023 and August 31, 2022.

GAAP Operating 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.

Operating expenses decreased by $112 million, or 25.8%, in the first six months of fiscal 2024, compared to the first six months of fiscal 2023.

The decrease was primarily due to a $165 million litigation settlement in the first six months of fiscal 2023 which did not recur, a decrease of $23 million in amortization costs, a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business and a decrease of $8 million in salaries and benefits expenses, partially offset by the difference between the Fiscal 2024 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the first six months fiscal 2023 of $72 million, a $6 million gain on sale of property, plant and equipment, net, in the first six months fiscal 2023 which did not recur, an increase of $6 million in stock based compensation expense, an increase of $4 million in restructuring costs, 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 and an increase of $4 million in the Company’s deferred share unit costs.

Adjusted Operating Expenses

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.

Adjusted operating expenses decreased by $2 million, or 0.8%, to $259 million in the first six months of fiscal 2024, compared to $261 million the first six months of 2023.

The decrease was primarily due to a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business, a decrease of $8 million in salaries and benefits expenses, partially offset by a $6 million gain on sale of property, plant and equipment, net, in the first six months of fiscal 2023 which did not recur, a decrease in benefits of $4 million in COVID-19 subsidies, an increase of $4 million in the Company’s deferred share unit costs, an increase of $3 million in bad debt expense, an increase of $2 million in amortization costs and an increase of $2 million in variable incentive plan costs.

Research and Development Expenses

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.

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 $3 million, or 2.8%, in the first six months of fiscal 2024, compared to the first six months of fiscal 2023.

The decrease was primarily due to a decrease of $4 million in salaries and benefits expenses, partially offset by an increase of $1 million in variable incentive plan costs.

Adjusted research and development expenses decreased by $3 million, or 2.9%, to $100 million in the first six months of fiscal 2024, compared to $103 million in the first six months of fiscal 2023.

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 $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.

Selling, marketing and administration expenses increased by $4 million, or 2.4%, in the first six months of fiscal 2024 compared to the first six months of fiscal 2023 primarily due to an increase of $6 million in stock compensation expense, an increase in $4 million in restructuring costs, 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 $3 million in bad debt expense, partially offset by a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business.

Adjusted selling, marketing and administration expenses decreased by $7 million, or 4.5%, to $150 million in the first six months of fiscal 2024, compared to $157 million the first six months of fiscal 2023.

The decrease was primarily due to a benefit of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business and a decrease of $2 million in salaries and benefits, partially offset by a decrease in benefits of $4 million in COVID-19 subsidies, an increase in an increase of $4 million in the Company’s deferred share unit costs and an increase of $3 million in bad debt expense.

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 May 31, 2023 compared to the quarter ended May 31, 2022.

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

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

For the Three Months Ended

For the Six Months Ended

(in millions)

Included in Operating Expense

May 31, 2023 May 31, 2022 Change

August 31, 2023 August 31, 2022 Change

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

2 unchanged sentences

Included in Cost of Sales

May 31, 2023 May 31, 2022 Change

August 31, 2023 August 31, 2022 Change

Property, plant and equipment $ 2 $ 2 $ —

Intangible assets 1 3 (2)

Total $ 3 $ 5 $ (2)

Amortization included in Operating Expense

The decrease in amortization expense included in operating expense of $23 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.

Adjusted amortization expense increased by $2 million to $9 million in the first six months of fiscal 2024 compared to $7 million in the first six months of fiscal 2023 due to the higher cost base of BlackBerry operations and other information technology assets.

Amortization included in Cost of Sales

1 unchanged sentence

Investment Income (Loss), Net

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%).

Investment income (loss), net, which includes the interest expense from the Debentures, was $10 million in the first six months of fiscal 2024 and increased by $13 million from investment loss, net of $3 million in the first six months of fiscal 2023 due to a higher yield on cash and investments and interest income on significant financing components within certain revenue contracts with customers.

For the first six months of fiscal 2024, the Company’s net effective income tax expense rate was approximately 10% (first six months of fiscal 2023 - net effective income tax expense rate of approximately 4%).

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 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).

The Company’s net loss for the first six months of fiscal 2024 was $53 million, or $0.09 basic and diluted loss per share on a U.S.

GAAP basis (first six months of fiscal 2023 - net loss of $235 million, or $0.41 basic loss per share and $0.45 diluted loss per share).

The decrease in net loss of $182 million was primarily due to an increase revenue as described above in “Revenue by Segment”, a decrease in operating expenses, as described above in “Operating Expenses” and an increase in investment income (loss), net, partially offset by a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”.

Adjusted net income was $12 million in the first six months of fiscal 2024 (first six months of fiscal 2023 - adjusted net loss of $60 million).

The decrease in adjusted net loss of $72 million was primarily due to the same reasons described above on a U.S.

The weighted average number of shares outstanding was 583 million for basic and diluted loss per share for the first six months of August 31, 2023.

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

Common Shares Outstanding

On September 26, 2023, there were 584 million voting common shares, options to purchase 0.4 million voting common shares, 17 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 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.

Financial Condition

Liquidity and Capital Resources

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.

Cash, cash equivalents, and investments increased by $32 million to $519 million as at August 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 May 31, 2023.

dollars as at August 31, 2023.

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

(in millions)

May 31, 2023 February 28, 2023 Change

August 31, 2023 February 28, 2023 Change

Cash and cash equivalents $ 415 $ 295 $ 120

5 unchanged sentences

(in millions)

May 31, 2023 February 28, 2023 Change

August 31, 2023 February 28, 2023 Change

Current assets $ 645 $ 743 $ (98)

2 unchanged sentences

Current Assets

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 in current assets of $98 million at the end of the second quarter of fiscal 2024 from the end of the fourth quarter of fiscal 2023 was primarily due to a decrease of $133 million in other current assets, a decrease in short term investments of $90 million and a decrease in other receivables of $4 million, partially offset by an increase in cash and cash equivalents of $120 million, an increase in accounts receivable, net of allowance of $7 million and an increase in taxes receivables of $2 million.

At August 31, 2023, other current assets was $49 million, a decrease of $133 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 $3 million in prepaid software maintenance, an increase in $1 million in inventory, an increase of $1 million in derivative instruments and an increase of $1 million in prepaid hardware maintenance.

At August 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 $3 million relating to GST/VAT receivables.

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

At August 31, 2023, accounts receivable, net of allowance was $127 million, an increase of $7 million from February 28, 2023.

The increase was primarily due an increase in days sales outstanding to 86 days at the end of the second quarter of fiscal 2024 from 75 days at the end of the fourth quarter of fiscal 2023, partially offset by a decrease in software and services revenue recognized over the three months ended August 31, 2023 compared to the three months ended February 28, 2023.

At August 31, 2023, income taxes receivable was $5 million, an increase of $2 million compared to February 28, 2023, which was primarily due to tax installments and prepayments required in certain taxing jurisdictions

Current Liabilities

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.

The decrease in current liabilities of $16 million at the end of the second quarter of 2024 from the end of the fourth quarter of fiscal 2023 was primarily due to a decrease in accrued liabilities of $26 million, a decrease in accounts payable of $6 million, and a decrease in deferred revenue, current of $1 million, partially offset by an increase in the fair value of the Debentures of $16 million and an increase in income taxes payable of $1 million.

Accrued liabilities were $117 million at the end of the second quarter of 2024, reflecting a decrease of $26 million compared to February 28, 2023, which was primarily due to a decrease of $17 million related to the release of an accrued liability relating to the Company’s legacy mobile device business, a decrease of $10 million in payroll accruals, a decrease of $2 million in marketing accruals and a decrease of $2 million in variable incentive plan accrual, partially offset by an increase of $4 million in deferred share cost accrual.

Accounts payable were $18 million, reflecting a decrease of $6 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

Deferred revenue, current was $174 million, which reflects a decrease of $1 million compared to February 28, 2023 that was attributable to a $7 million increase in deferred revenue, current related to BlackBerry QNX, partially offset by an increase of $6 million in deferred revenue, current related to BlackBerry Spark.

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.

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

For the Six Months Ended

(in millions)

May 31, 2023 May 31, 2022 Change

August 31, 2023 August 31, 2022 Change

Net cash flows provided by (used in):

7 unchanged sentences

Investing Activities

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.

During the six months ended August 31, 2023, cash flows provided by investing activities were $76 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 $89 million, offset by cash used in the acquisition of intangible assets of $10 million, and the acquisition of property, plant and equipment of $3 million.

For the same period in the prior fiscal year, cash flows provided by investing activities were $117 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 $120 million and proceeds on sale of property, plant and equipment of $17 million, offset by cash used in the acquisition intangible assets of $16 million, and the acquisitions of property, plant and equipment of $4 million.

Financing Activities

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.

The decrease in cash flows provided by financing activities was $1 million for the first six 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 $578 million as at May 31, 2023.

Cash, cash equivalents, and investments were approximately $519 million as at August 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.

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.

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 to access other potential financing arrangements on commercially reasonable terms.

The timing and nature of any such financing arrangements will depend on the outcome of the Company’s strategic review process as noted above in “Business Overview - Strategic Review of Businesses”.

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, are expected to 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 May 31, 2023:

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

(in millions)

5 unchanged sentences

Total $ 529 $ 476 $ 53

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.

Total contractual and other obligations as at August 31, 2023 decreased by approximately $27 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.

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis