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Item 2. Management’s Discussion and Analysis

2023-12-21 compared with 2023-09-29 · 270 added, 230 removed, 594 unchanged (46% of the section changed)

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited interim consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited for the three and six months ended August 31, 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 nine months ended November 30, 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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dollars, unless otherwise indicated.

Additional information about the Company, which is included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023 (the “Annual Report”), can be found on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov.

Additional information about the Company, which is included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023 (the “Annual Report”), can be found on SEDAR+ at www.sedarplus.ca and on the SEC’s website at www.sec.gov.

Cautionary Note Regarding Forward-Looking Statements

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

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

• the Company’s expectations with respect to enhancing shareholder value through the full separation of its principal business units;

• 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 expectations with respect to its billings, revenue, operating expense composition, 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.

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.

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 November 30, 2023 compared to the three months ended November 30, 2022 - Revenue - Revenue by Segment”, “Results of Operations - Three months ended November 30, 2023 compared to the three months ended November 30, 2022 - Gross Margin by Segment“, “Results of Operations - Three months ended November 30, 2023 compared to the three months ended November 30, 2022 - Operating Expenses”, “Results of Operations - Three months ended November 30, 2023 compared to the three months ended November 30, 2022 - Net Income (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 Extension Debentures (defined below), 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;

(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.

(i) risk that the proposed business unit separation may disrupt the Company’s operations or adversely impact its relationships with business partners and customers and its ability to attract and retain key employees;

and (ii) risk that the Company may not be able to complete a successful business unit separation in a timely manner, or at all.

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

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

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

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

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

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

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Recent Developments

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

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

Products and Innovation:

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

• Launched a generative AI-powered cybersecurity assistant to increase efficiency and reduce fatigue for CISO teams;

• Announced enhancements to BlackBerry SecuSUITE® for Government, including encrypted video and group audio calls.

Customers and Partners:

• 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.

• Announced a significant, multi-year deal to provide full suite of cybersecurity solutions to the Government of Malaysia;

• Announced that the United States Department of Homeland Security awarded a new PENS (personal emergency notification system) contract to BlackBerry, utilizing BlackBerry® AtHoc® critical event management (CEM) solution.

Environmental, Sustainability and Corporate Governance:

• 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.

• Appointed John Giamatteo, President of BlackBerry’s Cybersecurity division, as Chief Executive Officer.

Strategic Review of Businesses

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

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

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

On May 1, 2023, the Company announced that the Board would initiate a review of the Company’s portfolio of businesses, with the assistance of its financial advisors, as the Board considered strategic alternatives to drive enhanced shareholder value.

On October 4, 2023, the Company announced its intention to separate the IoT and Cybersecurity business units with a view to pursuing a subsidiary initial public offering (“Sub-IPO”) for the IoT business.

On December 11, 2023, the Company announced that it had reassessed its strategy and will no longer pursue a Sub-IPO but intends to pursue a full separation of the IoT and Cybersecurity businesses, including the separation and streamlining of the Company’s centralized corporate functions into business-unit specific teams, with a view to establishing each business as an independently-operated, profitable and cashflow-positive division.

Chief Executive Officer (“CEO”) Succession

On November 3, 2023, John Chen retired from his roles as Executive Chair and CEO of the Company, aligning with the terms of his employment contract.

Existing Board member Richard (Dick) Lynch succeeded Mr.

Chen as Board Chair and served as interim CEO of the Company from November 4, 2023 until the appointment of John J.

Giamatteo as CEO and as a member of the Board, effective December 11, 2023.

Giamatteo has served as the President of BlackBerry’s Cybersecurity business unit since October 2021 and has over 30 years of experience with global technology companies.

Prior to BlackBerry he was President and Chief Revenue Officer at McAfee.

Before that, Mr.

Giamatteo served as Chief Operating Officer at AVG Technologies.

He also held leadership positions with Solera, RealNetworks and Nortel Networks.

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”).

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

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

In evaluating the Malikie Transaction, the Company considered estimates of value, among other factors, which are not fully reflected when

applying the principles of revenue recognition, such as the variable consideration constraint that is recognized at the inception of the Malikie Transaction.

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

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See Note 11 to the Consolidated Financial Statements.

Debt Repayment and New Issuance

On November 13, 2023, the Company repaid all amounts due upon the maturity of its outstanding 1.75% unsecured convertible debentures (the “2020 Debentures”) for an aggregate amount of $365 million.

On November 17, 2023, the Company issued an aggregate of $150 million principal amount of new 1.75% extendable unsecured convertible debentures maturing on February 15, 2024 (the “Extension Debentures” and collectively with the 2020 Debentures, the “Debentures”), with an option for the parties to extend the maturity date to May 15, 2024 by mutual agreement, to certain controlled affiliates of Fairfax Financial Holdings Limited (“Fairfax”) on a private placement basis.

The Extension Debentures have terms that are substantially similar to those of the 2020 Debentures.

Interest expense on the Extension Debentures will be approximately $1 million for the period from issuance to February 15, 2024.

See Note 6 to the Consolidated Financial Statements for a description of the terms of the Extension Debentures.

Macroeconomic Factors

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.

Economic uncertainty, customer budgetary constraints, auto industry labor disruptions and inflation, as well as higher interest rates implemented in response to inflation and resulting fears of recession, may negatively impact supply and 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.

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

Third Quarter Fiscal 2024 Summary Results of Operations

The following table sets forth certain consolidated statements of operations data for the quarter ended November 30, 2023 compared to the quarter ended November 30, 2022 under U.S.

For the Three Months Ended

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

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Revenue $ 175 $ 169 $ 6

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Operating expenses 138 111 27

Investment income (loss), net 7 (2) 9

Investment income, net 5 2 3

Loss before income taxes (6) — (6)

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

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 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.

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

See Note 8 to the Consolidated Financial Statements for the Company’s calculation of the diluted weighted average number of shares outstanding.

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

The following tables show information by operating segment for the three and nine months ended November 30, 2023 and November 30, 2022.

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

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Cybersecurity IoT Licensing and Other Segment Totals

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

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

2023 2022 2023 2022 2023 2022 2023 2022

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Segment gross margin $ 77 $ 60 $ 17 $ 46 $ 41 $ 5 $ 5 $ 8 $ (3) $ 128 $ 109 $ 19

For the Six Months Ended

For the Nine Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

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

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

2023 2022 2023 2022 2023 2022 2023 2022

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Segment gross margin $ 176 $ 181 $ (5) $ 123 $ 126 $ (3) $ 95 $ 14 $ 81 $ 394 $ 321 $ 73

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

The following tables reconcile the Company’s segment results for the three and nine months ended November 30, 2023 to consolidated U.S.

GAAP results:

For the Three Months Ended August 31, 2023

For the Three Months Ended November 30, 2023

(in millions)

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Loss before income taxes $ (6)

For the Six Months Ended August 31, 2023

For the Nine Months Ended November 30, 2023

(in millions)

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

GAAP-based measures to adjusted measures for the three and six months ended August 31, 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-based measures to adjusted measures for the three and nine months ended November 30, 2023.

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

GAAP results:

For the Three Months Ended August 31, 2022

For the Three Months Ended November 30, 2022

(in millions)

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Operating expenses 111 111

Investment loss, net 2 2

Investment income, net (2) (2)

Loss before income taxes $ —

For the Six Months Ended August 31, 2022

For the Nine Months Ended November 30, 2022

(in millions)

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

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

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

Financial Highlights

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).

The Company had $271 million in cash, cash equivalents and investments as of November 30, 2023 (February 28, 2023 - $487 million).

In the third quarter of fiscal 2024, the Company recognized revenue of $175 million and incurred a net loss of $21 million, or $0.04 basic loss per share and $0.05 diluted loss per share on a U.S.

GAAP basis (third quarter of fiscal 2023 - revenue of $169 million and net loss of $4 million, or $0.01 basic loss per share and $0.09 diluted loss per share).

The Company recognized adjusted net income of $3 million, and adjusted earnings of $0.01 per share, on a non-GAAP basis in the third quarter of fiscal 2024 (third quarter of fiscal 2023 - adjusted net loss of $30 million, and adjusted loss of $0.05 per share).

See “Non-GAAP Financial Measures” below.

Debentures Fair Value Adjustment

As previously disclosed, the Company elected the fair value option to account for its outstanding 1.75% unsecured convertible debentures (the “Debentures”);

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

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

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

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.

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

As at November 30, 2023, the fair value of the Debentures was approximately $150 million, which approximates the principal amount of the Extension Debentures.

For the three months ended November 30, 2023, the Company recorded non-cash income relating to changes in fair value of the 2020 Debentures of $18 million (pre-tax and after tax) and realized a non-cash charge relating to changes in fair value from credit components released from AOCL on maturity of the 2020 Debentures of $6 million (pre-tax and after tax) (the “Q3 Fiscal 2024 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

For the nine months ended November 30, 2023 the Company recorded non-cash income relating to changes in fair value of the 2020 Debentures of $2 million (pre-tax and after tax) and realized a non-cash charge relating to changes in fair value from credit components released from AOCL on maturity of the 2020 Debentures of $6 million (the “Fiscal 2024 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.

See Note 6 to the Consolidated Financial Statements for further details on the Debentures.

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

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).

On December 20, 2023, the Company announced financial results for the three and nine months ended November 30, 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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• Long-lived asset impairment charge.

The Company believes that long-lived asset impairment charges do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

The Company believes that long-lived asset impairment charges do not reflect expected future cash operating expenses, are not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

• Goodwill impairment charge.

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

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

GAAP based measures for the three months ended November 30, 2023 and November 30, 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 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

GAAP financial measures for the three months ended November 30, 2023 and November 30, 2022 to adjusted financial measures is reflected in the table below:

For the Three Months Ended (in millions) November 30, 2023 November 30, 2022

Gross margin $ 127 $ 109

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Reconciliation of U.S.

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

GAAP operating expense for the three months ended November 30, 2023, August 31, 2023 and November 30, 2022 to adjusted operating expense is reflected in the table below:

For the Three Months Ended (in millions) November 30, 2023 August 31, 2023 November 30, 2022

Operating expense $ 138 $ 132 $ 111

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Debentures fair value adjustment (1)

(13) (6) (56)

Acquired intangibles amortization 9 10 22

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______________________________

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

(1) See “Third 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 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

GAAP basic loss per share for the three months ended November 30, 2023 and November 30, 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) November 30, 2023 November 30, 2022

Basic earnings (loss)

per share Basic loss

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LLA impairment charge 11 —

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

Adjusted income (loss) $ 3 $0.01 $ (30) $(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

GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended November 30, 2023 and November 30, 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) November 30, 2023 November 30, 2022

Research and development $ 42 $ 52

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Adjusted amortization $ 4 $ 4

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

Adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage and adjusted EBITDA margin percentage for the three months ended November 30, 2023 and November 30, 2022 are reflected in the table below.

For the Three Months Ended (in millions) November 30, 2023 November 30, 2022

Operating loss $ (11) $ (2)

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Total non-GAAP adjustments to operating loss 24 (26)

Adjusted operating loss (28) (22)

Adjusted operating income (loss) 13 (28)

Amortization 14 28

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Revenue $ 175 $ 169

Adjusted operating loss margin % (1)

Adjusted operating income (loss) margin % (1)

Adjusted EBITDA margin % (2)

______________________________

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

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

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

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.

GAAP based measures for the nine months ended November 30, 2023 and November 30, 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

GAAP financial measures for the nine months ended November 30, 2023 and November 30, 2022 to adjusted financial measures is reflected in the table below:

For the Nine Months Ended (in millions) November 30, 2023 November 30, 2022

Gross margin $ 391 $ 319

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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

GAAP operating expense for the nine months ended November 30, 2023 and November 30, 2022 to adjusted operating expense is reflected in the table below:

For the Nine Months Ended (in millions) November 30, 2023 November 30, 2022

Operating expense $ 460 $ 545

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______________________________

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

(1) See “Third 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

GAAP basic loss per share for the nine months ended November 30, 2023 and November 30, 2022 to adjusted net income (loss) and adjusted basic earnings (loss) per share is reflected in the table below:

For the Nine Months Ended (in millions, except per share amounts) November 30, 2023 November 30, 2022

Basic earnings (loss) per share Basic loss per share

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Reconciliation of U.S.

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

GAAP research and development, selling, marketing and administration, and amortization expense for the nine months ended November 30, 2023 and November 30, 2022 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below:

For the Nine Months Ended (in millions) November 30, 2023 November 30, 2022

Research and development $ 146 $ 159

8 unchanged sentences

Adjusted amortization $ 13 $ 11

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

Adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage and adjusted EBITDA margin percentage for the nine months ended November 30, 2023 and November 30, 2022 are reflected in the table below.

For the Nine Months Ended (in millions) November 30, 2023 November 30, 2022

Operating loss $ (69) $ (226)

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Reconciliation of U.S.

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

GAAP net cash used in operating activities for the three months ended November 30, 2023 and November 30, 2022 to free cash flow (usage) is reflected in the table below:

For the Three Months Ended (in millions) November 30, 2023 November 30, 2022

Net cash used in operating activities $ (31) $ (185)

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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 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

Comparative breakdowns of certain key metrics for the three months ended or as at November 30, 2023 and November 30, 2022 are set forth below.

For the Three Months Ended (in millions) November 30, 2023 November 30, 2022 Change

Cybersecurity Annual Recurring Revenue $ 273 $ 313 $ (40)

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

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.

Cybersecurity ARR was approximately $273 million as at November 30, 2023 and decreased compared to $279 million as at August 31, 2023 and decreased compared to $313 million as at November 30, 2022.

The Company previously stated that it expected Cybersecurity ARR to return to sequential growth in the second half of fiscal 2024.

The Company no longer expects to meet this due to a reassessment of the likelihood of closing certain large government deals at the values previously expected, if at all.

The Company now expects ARR in the fourth quarter of fiscal 2024 to be broadly consistent with the third quarter of fiscal 2024 and to return to growth in fiscal 2025.

Dollar-Based Net Retention Rate

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

Cybersecurity DBNRR was 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.

Cybersecurity DBNRR was 82% as at November 30, 2023 and increased compared to 81% as at August 31, 2023 and decreased compared to 84% as at November 30, 2022.

Total Contract Value Billings

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

Cybersecurity TCV billings was $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.

Cybersecurity TCV billings was $109 million for the three months ended November 30, 2023 and increased compared to $74 million for the three months ended August 31, 2023 and $103 million for the three months ended November 30, 2022.

The Company previously stated that it expected Cybersecurity TCV billings for fiscal 2024 to be in the range of $430 million to $480 million.

The Company no longer expects to meet this guidance due to a reassessment of the likelihood of closing certain large government deals at the values previously expected, if at all.

The Company expects Cybersecurity TCV billings to continue to exceed Cybersecurity revenue in fiscal 2024.

Recurring Software Product Revenue

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

Total Software and Services product revenue, excluding professional services, was approximately 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

Total Software and Services product revenue, excluding professional services, was approximately 70% recurring for the three months ended November 30, 2023 and decreased compared to approximately 90% recurring for the three months ended August 31, 2023 due to product mix and decreased compared to approximately 80% for the three months ended November 30, 2022, also due to product mix.

Results of Operations - Three months ended November 30, 2023 compared to the three months ended November 30, 2022

Revenue by Segment

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(in millions)

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Revenue by Segment

Cybersecurity $ 114 $ 106 $ 8

IoT 49 51 (2)

Licensing and Other 6 12 (6)

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Cybersecurity

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.

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.

The increase in Cybersecurity revenue of $8 million was primarily due to an increase of $20 million relating to product revenue in Secusmart, partially offset by a decrease of $11 million relating to product revenue in BlackBerry Spark and a decrease of $2 million in professional services.

The Company previously stated that it expected Cybersecurity revenue for fiscal 2024 as a whole to be in the range of $425 million to $450 million.

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

The Company now expects Cybersecurity revenue for fiscal 2024 as a whole to be in the range of $369 million to $374 million due to a reassessment of the likelihood of closing certain large government deals at the values previously expected, if at all.

The Company expects Cybersecurity revenue in the fourth quarter of fiscal 2024 to be in the range of $83 million to $88 million.

The Company previously stated that it was targeting Cybersecurity revenue for fiscal 2026 as a whole to be in the range of $540 million to $590 million.

The Company no longer expects to meet this target due to the actual and expected performance of Cybersecurity for fiscal 2024.

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

The Company previously stated that it expected IoT revenue to grow sequentially in the third quarter of fiscal 2024.

IoT revenue increased in the third quarter of fiscal 2024 compared to the second quarter of fiscal 2024.

The Company previously stated that it expected 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 now expects IoT revenue to be in the range of $211 million to $215 million for fiscal 2024 as a whole primarily due to a number of industry-level factors including the impact of labor disputes on automotive production volumes and further rescheduling of software development programs at certain large automakers.

The Company expects IoT revenue in the fourth quarter of fiscal 2024 to be in the range of $62 million to $66 million and to 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 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.

The Company now expects total Software & Services revenue, excluding potential revenue from BlackBerry IVY, to be in the range of $580 million and $589 million for fiscal 2024 as a whole due to changes in expectations in Cybersecurity and IoT revenue for fiscal 2024 as a whole.

The Company previously stated that it was 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 no longer expects to meet this target due to the actual and expected performance of IoT for fiscal 2024.

The Company previously stated that it was 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.

The Company no longer expects to meet this target due to the actual and expected performance of Cybersecurity and IoT for fiscal 2024.

Licensing and Other

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Revenue from intellectual property licensing was approximately $6 million excluding the Malikie Transaction.

The Company expects total BlackBerry revenue in the fourth quarter of fiscal 2024 to be in the range of $150 million to $159 million.

Revenue by Geography

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(in millions)

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Revenue by Geography

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North America Revenue

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.

The decrease in North America revenue of $15 million was primarily due to a decrease of $9 million relating to product revenue in BlackBerry Spark and a decrease of $6 million in Licensing and Other revenue due to the reasons discussed above in “Revenue by Segment”.

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.

The decrease in Europe, Middle East and Africa revenue of $5 million was primarily due to a decrease of $6 million relating to product revenue in Secusmart, a decrease of $2 million in product revenue in BlackBerry Spark and a decrease of $2 million in professional services, partially offset by an increase of $5 million in BlackBerry QNX royalty revenue.

Other Regions Revenue

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

The increase in Other regions revenue of $26 million was primarily due to an increase of $26 million relating to product revenue in Secusmart and an increase of $2 million in professional services, partially offset by a decrease of $2 million 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 increased by $18 million to approximately $127 million in the third quarter of fiscal 2024 (third quarter of fiscal 2023 - $109 million).

The increase was primarily due to an increase in revenue from Secusmart and BlackBerry QNX, partially offset by a decrease in revenue from BlackBerry Spark due to the reasons discussed above in “Revenue by Segment”, as much of the Company’s product 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.

Consolidated gross margin percentage increased by 8.1% to approximately 72.6% of consolidated revenue in the third quarter of fiscal 2024 (third quarter of fiscal 2023 - 64.5%).

The increase was primarily due to a change in mix, specifically a higher gross margin contribution from Secusmart software licenses, which have a higher relative gross margin percentage in the third

quarter of fiscal 2024 as it included a higher portion of software revenue relative to hardware revenue, and a lower gross margin contribution from BlackBerry Spark, which has a lower 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.

See “Third 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

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Cybersecurity IoT Licensing and Other Segment Totals

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

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

2023 2022 2023 2022 2023 2022 2023 2022

4 unchanged sentences

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 Cybersecurity gross margin of $17 million was primarily due to the reasons discussed above in “Revenue by Segment”, a decrease of $6 million in infrastructure costs and a change in mix, specifically a higher gross margin contribution from Secusmart software licenses, which had a higher relative gross margin percentage.

The increase in Cybersecurity gross margin percentage of 11% was primarily due to the same reasons discussed above.

The Company previously stated that it expected the gross margin percentage for Cybersecurity to increase by between 4% and 6% by fiscal 2026.

The Company no longer expects to meet this guidance due to the actual and expected performance of Cybersecurity for fiscal 2024.

The increase in IoT gross margin of $5 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 4% 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.

The Company previously stated that it expected the gross margin for IoT to increase in the long term due to a change in revenue mix.

The Company no longer expects to meet this guidance due to the actual and expected performance of IoT for fiscal 2024.

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.

The decrease in Licensing and Other gross margin of $3 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease of $3 million in patent costs included in cost of sales in the third quarter of fiscal 2023, which did not recur.

The increase in Licensing and Other gross margin percentage of 16% was primarily due to a decrease of $3 million in patent costs included in cost of sales in the third quarter of fiscal 2023, which did not recur.

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.

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended November 30, 2023, compared to the quarter ended August 31, 2023 and the quarter ended November 30, 2022.

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

For the Three Months Ended

(in millions)

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

November 30, 2023 August 31, 2023 November 30, 2022

Revenue $ 175 $ 132 $ 169

4 unchanged sentences

Impairment of long-lived assets 11 1 —

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

Debentures fair value adjustment (13) (6) (56)

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Impairment of long-lived assets 6.3 % 0.8 % — %

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

Debentures fair value adjustment (7.4 %) (4.5 %) (33.1 %)

1 unchanged sentence

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-based measures to adjusted measures for the three months ended November 30, 2023, August 31, 2023 and November 30, 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.

Operating expenses increased by $6 million, or 4.5%, in the third quarter of fiscal 2024, compared to the second quarter of fiscal 2024 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 in the second quarter of fiscal 2024 which did not recur, an increase of $10 million in impairment of long-lived assets and an increase of $6 million in restructuring costs, partially offset by the difference between the Q3 Fiscal 2024 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the second quarter of fiscal 2024 of $7 million, a decrease of $6 million in variable incentive plan costs, a decrease of $5 million in salaries and benefits expenses and a decrease of $4 million in the Company’s deferred share unit costs.

Operating expenses increased by $27 million, or 24.3%, in the third quarter of fiscal 2024, compared to the third quarter of fiscal 2023 primarily due to the difference between the Q3 Fiscal 2024 Debentures Fair Value Adjustment and the fair value adjustment related to the Debentures incurred in the third quarter of fiscal 2023 of $43 million, an increase of $10 million in impairment of long-lived assets and an increase of $9 million in restructuring costs, partially offset by a decrease of $13 million in amortization costs, a decrease of $11 million in variable incentive plan costs, a decrease of $7 million in salaries and benefits expenses and a benefit of $3 million related to a litigation settlement.

The Company expects sales and marketing expense to be approximately 26% to 28% of revenue, research and development 29% to 31% of revenue, and general and administration, excluding amortization, to be approximately 19% to 21% of revenue in the fourth quarter of fiscal 2024.

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.

Adjusted operating expenses increased by $1 million, or 0.9%, to $115 million in the third quarter of fiscal 2024 compared to $114 million in the second quarter of fiscal 2024.

The increase 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 in the second quarter of fiscal 2024 which did not recur, partially offset by a decrease of $6 million in variable incentive plan costs, a decrease of $5 million in salaries and benefits expenses and a decrease of $4 million in the Company’s deferred share unit costs.

Adjusted operating expenses decreased by $22 million, or 16.1%, to $115 million in the third quarter of fiscal 2024, compared to $137 million in the third quarter of fiscal 2023.

The decrease was primarily due to a decrease of $11 million in variable incentive plan costs, a decrease of $7 million in salaries and benefits expenses and a benefit of $3 million related to a litigation settlement.

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.

Research and development expenses decreased by $10 million, or 19.2%, in the third quarter of fiscal 2024 compared to $52 million in the third quarter of fiscal 2023 primarily due to a decrease of $4 million in salaries and benefits expenses, a decrease of $4 million in variable incentive plan costs and a decrease of $1 million in consulting costs.

Adjusted research and development expenses decreased by $10 million, or 20.0%, to $40 million in the third quarter of fiscal 2024, compared to $50 million in the third quarter of fiscal 2023.

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

1 unchanged sentence

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.

Selling, marketing and administration expenses decreased by $4 million, or 4.5%, in the third quarter of fiscal 2024 compared to $89 million in the third quarter of fiscal 2023 primarily due to a decrease of $7 million in variable incentive plan costs, a decrease of $3 million in salaries and benefits expenses, a benefit of $3 million related to a litigation settlement and a decrease of $2 million in the Company’s deferred share unit costs, partially offset by an increase of $8 million in restructuring costs and an increase of $5 million in legal expenses.

Adjusted selling, marketing and administration expenses decreased by $12 million, or 14.5%, to $71 million in the third quarter of fiscal 2024, compared to $83 million in the third quarter of fiscal 2023.

The decrease was primarily due to a decrease of $7 million in variable incentive plan costs, a decrease of $3 million in salaries and benefits expenses, a benefit of $3 million related to a litigation settlement and a decrease of $2 million in the Company’s deferred share unit costs, partially offset by an increase of $5 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.

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the quarter ended November 30, 2023 compared to the quarter ended November 30, 2022.

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

2 unchanged sentences

Included in Operating Expense

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Property, plant and equipment $ 2 $ 2 $ —

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Included in Cost of Sales

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Property, plant and equipment $ — $ — $ —

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The decrease in amortization expense included in operating expense of $13 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.

Adjusted amortization expense was $4 million in the third quarter of fiscal 2024, consistent with $4 million in the third quarter of fiscal 2023.

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%).

Investment Income, Net

Investment income, net, which includes the interest expense from the Debentures, was $5 million in the third quarter of fiscal 2024 and increased by $3 million from investment income, net of $2 million in the third quarter of fiscal 2023 due to interest income on significant financing components within certain revenue contracts with customers and a higher yield on cash and investments, partially offset by lower average cash and investment balances.

For the third quarter of fiscal 2024, the Company’s net effective income tax expense rate was approximately 250% (third quarter of fiscal 2023 - net effective income tax expense rate was undefined due to net income before taxes of nil).

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

Net Income (Loss)

The Company’s net loss for the third quarter of fiscal 2024 was $21 million, or $0.04 basic loss per share and $0.05 diluted loss per share on a U.S.

GAAP basis (third quarter of fiscal 2023 - net loss of $4 million, or $0.01 basic loss per share and $0.09 diluted loss per share).

The increase in net loss of $17 million was primarily due to an increase in operating expenses, as described above in “Operating Expenses” and an increase in income taxes, partially offset by an increase in revenue, as described above in “Revenue by Segment”, an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage” and an increase in investment income, net.

Adjusted net income was $3 million in the third quarter of fiscal 2024 (third quarter of fiscal 2023 - adjusted net loss of $30 million).

The increase in adjusted net income of $33 million was primarily due to a decrease in operating expenses as described above in “Operating Expenses”, an increase in revenue as described above in “Revenue by Segment”, an increase in gross margin percentage, as described above in “Consolidated Gross Margin Percentage” and an increase in investment income, net.

The Company previously stated that it expected 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 were dependent, in part, on the Company closing a certain set of large government Cybersecurity deals in the fourth quarter of fiscal 2024.

The Company no longer expects to meet this expectation due to the actual and expected performance of Cybersecurity and IoT for fiscal 2024.

The Company expects to further improve operating cash flow in the fourth quarter of fiscal 2024.

The weighted average number of shares outstanding was 584 million common shares for basic loss per share and 638 million common shares for diluted loss per share for the third quarter of fiscal 2024 (third quarter of fiscal 2023 - 579 million common shares for basic loss per share and 640 million common shares for diluted loss per share).

Results of Operations - Nine months ended November 30, 2023 compared to the nine months ended November 30, 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 nine months ended November 30, 2023 and November 30, 2022:

For the Nine Months Ended

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

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Revenue $ 680 $ 505 $ 175

13 unchanged sentences

(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.

GAAP basis for the first nine 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.

GAAP basis for the first nine 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

For the Nine Months Ended

(in millions)

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Revenue by Segment

9 unchanged sentences

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.

The decrease in Cybersecurity revenue of $44 million was primarily due to a decrease of $26 million relating to product revenue in BlackBerry Spark, a decrease of $9 million relating to product revenue in Secusmart and a decrease of $5 million in professional services.

The decrease in IoT revenue of $4 million was primarily due to a decrease of $8 million in professional services and a decrease of $7 million in BlackBerry QNX development seat revenue, partially offset by an increase of $10 million in BlackBerry QNX royalty revenue.

Licensing and Other

3 unchanged sentences

GAAP basis are set forth in the following table:

For the Six Months Ended

For the Nine Months Ended

(in millions)

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Revenue by Geography

13 unchanged sentences

Other Regions Revenue

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.

The increase in other regions of $25 million was primarily due to an increase of $26 million relating to product revenue in Secusmart and an increase of $3 million in professional services, partially offset by a decrease in $3 million in BlackBerry QNX development seat revenue and a decrease of $1 million relating to product revenue in BlackBerry Spark.

Consolidated Gross Margin

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 increased by $72 million to approximately $391 million in the first nine months of fiscal 2024 (first nine months of fiscal 2023 - $319 million).

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

Consolidated Gross Margin Percentage

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”.

Consolidated gross margin percentage decreased by 5.7%, to approximately 57.5% of consolidated revenue in the first nine months of fiscal 2024 (first nine months of fiscal 2023 - 63.2%).

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 higher gross margin contribution from Secusmart software licenses, which had a higher relative gross margin percentage.

Gross Margin by Segment

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

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

For the Nine Months Ended

(in millions)

Cybersecurity IoT Licensing and Other Segment Totals

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

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

2023 2022 2023 2022 2023 2022 2023 2022

4 unchanged sentences

Cybersecurity

The decrease in Cybersecurity gross margin of $22 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by 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 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 decrease in Cybersecurity gross margin of $5 million was primarily due to the reasons discussed above in “Revenue by Segment”, partially offset by a decrease of $13 million in infrastructure costs and a change in mix, specifically a higher gross margin contribution from Secusmart software licenses, which had a higher relative gross margin percentage.

The increase in Cybersecurity gross margin percentage of 7% was primarily due to a decrease of $13 million in infrastructure costs and a change in mix, specifically a higher gross margin contribution from Secusmart software licenses, which had a higher relative gross margin percentage.

The decrease of IoT gross margin of $3 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.

The increase 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 expense for the six months ended August 31, 2023, compared to the six months ended August 31, 2022.

For the Six Months Ended

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the nine months ended November 30, 2023, compared to the nine months ended November 30, 2022.

For the Nine Months Ended

(in millions)

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Revenue $ 680 $ 505 $ 175

18 unchanged sentences

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

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

GAAP-based measures to adjusted measures for the nine months ended November 30, 2023 and November 30, 2022.

GAAP Operating Expenses

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.

Operating expenses decreased by $85 million, or 15.6%, in the first nine months of fiscal 2024, compared to the first nine months of fiscal 2023.

The decrease was primarily due to a $165 million litigation settlement in the first nine months of fiscal 2023 which did not recur, a decrease of $36 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 $14 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 nine months of fiscal 2023 of $115 million, an increase of $13 million in restructuring costs, an increase of $7 million in impairment of long-lived assets, a $6 million gain on sale of property, plant and equipment, net, in the first nine months fiscal 2023 which did not recur and an increase of $6 million in stock based compensation expense.

Adjusted Operating Expenses

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.

Adjusted operating expenses decreased by $23 million, or 5.8%, to $375 million in the first nine months of fiscal 2024, compared to $398 million the first nine 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 $14 million in salaries and benefits expenses and a decrease of $9 million in variable incentive plan costs, partially offset by a $6 million gain on sale of property, plant and equipment, net, in the first nine months of fiscal 2023 which did not recur, an increase of $4 million in legal expenses, a decrease in benefits of $4 million in government subsidies resulting from claims filed for the Canada Emergency Wage Subsidy and Hardest-Hit Business Recovery Program programs (“COVID-19 subsidies”) and an increase of $2 million in amortization costs.

Research and Development Expenses

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

Research and development expenses decreased by $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.

Research and development expenses decreased by $13 million, or 8.2%, in the first nine months of fiscal 2024, compared to the first nine months of fiscal 2023.

The decrease was primarily due to a decrease of $7 million in salaries and benefits expenses, a decrease of $3 million in variable incentive plan costs and a decrease of $1 million in consulting costs.

Adjusted research and development expenses decreased by $13 million, or 8.5%, to $140 million in the first nine months of fiscal 2024, compared to $153 million in the first nine months of fiscal 2023.

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

1 unchanged sentence

Selling, marketing and administration expenses increased by $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.

Selling, marketing and administration expenses increased by $1 million, or 0.4%, in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023 primarily due to an increase in $12 million in restructuring costs, an increase of $6 million in stock compensation expense, an increase of $4 million in legal expenses and a decrease in benefits of $4 million in COVID-19 subsidies, 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 and a decrease of $6 million in variable incentive plan costs.

Adjusted selling, marketing and administration expenses decreased by $18 million, or 7.5%, to $222 million in the first nine months of fiscal 2024, compared to $240 million the first nine 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, a decrease of $6 million in variable incentive costs and a decrease of $5 million in salaries and benefits, partially offset by an increase of $4 million in legal expenses, a decrease in benefits of $4 million in COVID-19 subsidies and an increase of $2 million in the Company’s deferred share unit costs.

Amortization Expense

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the six months ended August 31, 2023 compared to the six months ended August 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 nine months ended November 30, 2023 compared to the nine months ended November 30, 2022.

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

For the Six Months Ended

For the Nine Months Ended

(in millions)

Included in Operating Expense

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Property, plant and equipment $ 6 $ 7 $ (1)

2 unchanged sentences

Included in Cost of Sales

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Property, plant and equipment $ 2 $ 2 $ —

3 unchanged sentences

The decrease in amortization expense included in operating expense of $36 million was primarily due to the lower cost base of acquired 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.

Adjusted amortization expense increased by $2 million to $13 million in the first nine months of fiscal 2024 compared to $11 million in the first nine months of fiscal 2023 due to an increase in patent amortization expense included in operating expenses as a result of the decrease in revenue from the Company’s intellectual property licensing arrangements.

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, 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%).

Investment income, net, which includes the interest expense from the Debentures, was $15 million in the first nine months of fiscal 2024 and increased by $16 million from investment loss, net of $1 million in the first nine 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, partially offset by lower average cash and investment balances.

For the first nine months of fiscal 2024, the Company’s net effective income tax expense rate was approximately 37% (first nine months of fiscal 2023 - net effective income tax expense rate of approximately 5%).

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

The Company’s net loss for the first six months of fiscal 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).

Net Income (Loss)

The Company’s net loss for the first nine months of fiscal 2024 was $74 million, or $0.13 basic and diluted loss per share on a U.S.

GAAP basis (first nine months of fiscal 2023 - net loss of $239 million, or $0.41 basic loss per share and $0.54 diluted loss per share).

The decrease in net loss of $165 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.

Adjusted net income was $14 million in the first nine months of fiscal 2024 (first nine months of fiscal 2023 - adjusted net loss of $90 million).

The increase in adjusted net income of $104 million was primarily due to the same reasons described above on a U.S.

The weighted average number of shares outstanding was 584 million for basic and diluted loss per share for the first nine months of November 30, 2023.

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

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.

On December 18, 2023, there were 585 million voting common shares, options to purchase 0.3 million voting common shares, 13 million restricted share units and 2 million deferred share units outstanding.

In addition, 25 million common shares are issuable upon conversion in full of the Extension Debentures as described in Note 6 to the Consolidated Financial Statements.

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

1 unchanged sentence

Liquidity and Capital Resources

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.

Cash, cash equivalents, and investments decreased by $216 million to $271 million as at November 30, 2023 from $487 million as at February 28, 2023, primarily due to the repayment of the 2020 Debentures at maturity, partially offset by the issuance of the Extension Debentures, the completed Malikie Transaction and changes in working capital.

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

dollars as at August 31, 2023.

dollars as at November 30, 2023.

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

(in millions)

August 31, 2023 February 28, 2023 Change

November 30, 2023 February 28, 2023 Change

Cash and cash equivalents $ 210 $ 295 $ (85)

5 unchanged sentences

(in millions)

August 31, 2023 February 28, 2023 Change

November 30, 2023 February 28, 2023 Change

Current assets $ 450 $ 743 $ (293)

2 unchanged sentences

Current Assets

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 in current assets of $293 million at the end of the third quarter of fiscal 2024 from the end of the fourth quarter of fiscal 2023 was primarily due to a decrease of $138 million in other current assets, a decrease in short term investments of $131 million, a decrease in cash and cash equivalents of $85 million and a decrease in other receivables of $4 million, partially offset by an increase in accounts receivable, net of allowance of $63 million and an increase in taxes receivables of $2 million.

At November 30, 2023, other current assets were $44 million, a decrease of $138 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 $1 million in prepaid insurance.

At November 30, 2023, other receivables were $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 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

At November 30, 2023, accounts receivable, net of allowance was $183 million, an increase of $63 million from February 28, 2023.

The increase was primarily due to an increase in software and services revenue recognized over the three months ended November 30, 2023 compared to the three months ended February 28, 2023 and an increase in days sales outstanding to 81 days at the end of the third quarter of fiscal 2024 from 75 days at the end of the fourth quarter of fiscal 2023.

At November 30, 2023, income taxes receivable was $5 million, an increase of $2 million from February 28, 2023, which was primarily due to tax installments and prepayments required in certain taxing jurisdictions.

Current Liabilities

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.

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.

The decrease in current liabilities of $221 million at the end of the third quarter of 2024 from the end of the fourth quarter of fiscal 2023 was primarily due to a decrease in the Debentures of $217 million due to the repayment of the 2020 Debentures at maturity, which was partially offset by the issuance of the Extension Debentures, a decrease in accrued liabilities of $18 million

and a decrease in accounts payable of $7 million, partially offset by an increase in income taxes payable of $13 million and an increase in deferred revenue, current of $8 million.

Accrued liabilities were $125 million at the end of the third quarter of 2024, reflecting a decrease of $18 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 and a decrease of $5 million in variable incentive plan accruals, partially offset by an increase of $2 million in legal accruals.

Accounts payable were $17 million, reflecting a decrease of $7 million from February 28, 2023, which was primarily due to timing of payments.

Income taxes payable were $33 million, reflecting an increase of $13 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

Deferred revenue, current was $183 million, which reflects an increase of $8 million compared to February 28, 2023 that was attributable to an increase of $15 million in deferred revenue, current related to BlackBerry Spark and an increase in $5 million in deferred revenue, current related to BlackBerry AtHoc, partially offset by a decrease of $11 million in deferred revenue, current related to BlackBerry QNX.

Cash flows for the nine months ended November 30, 2023 compared to the nine months ended November 30, 2022 were as follows:

For the Nine Months Ended

(in millions)

August 31, 2023 August 31, 2022 Change

November 30, 2023 November 30, 2022 Change

Net cash flows provided by (used in):

3 unchanged sentences

Effect of foreign exchange loss on cash and cash equivalents — (3) 3

Net increase in cash and cash equivalents $ 121 $ 52 $ 69

Net decrease in cash and cash equivalents $ (87) $ (124) $ 37

Operating Activities

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Investing Activities

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.

During the nine months ended November 30, 2023, cash flows provided by investing activities were $112 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 $129 million, offset by cash used in the acquisition of intangible assets of $12 million, and the acquisition of property, plant and equipment of $5 million.

For the same period in the prior fiscal year, cash flows provided by investing activities were $126 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $138 million and proceeds on sale of property, plant and equipment of $17 million, offset by cash used in the acquisition of intangible assets of $24 million and the acquisition of property, plant and equipment of $5 million.

Financing Activities

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.

The decrease in cash flows used in financing activities was $217 million for the first nine months of fiscal 2024 due to the repayment of the 2020 Debentures at maturity on November 13, 2023, partially offset by the issuance of the Extension Debentures as described above in “Business Overview - Debt Repayment and New Issuance” and 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

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See Note 3 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.

Cash, cash equivalents, and investments were approximately $519 million as at August 31, 2023.

Cash, cash equivalents, and investments were approximately $271 million as at November 30, 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 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”.

The Company has experienced recent operating losses and the Extension Debentures will mature on February 15, 2024, with an option for the parties to extend the maturity date to May 15, 2024, by mutual agreement, as described in Note 6 to the Consolidated Financial Statements.

The Company believes it has the ability 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, 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 August 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 November 30, 2023:

(in millions)

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Total $ 287 $ 237 $ 50

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.

Total contractual and other obligations as at November 30, 2023 decreased by approximately $269 million as compared to the February 28, 2023 balance of approximately $556 million, which was attributable to a decreases in debt interest and principal payments as a result of the repayment of the 2020 Debentures at maturity on November 13, 2023, partially offset by the issuance of the Extension Debentures as described above in “Business Overview - Debt Repayment and New Issuance” and a decrease in purchase obligations and commitments.

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

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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