BLACKBERRY Ltd 10-Q

ITEM 1. FINANCIAL STATEMENTS 4 BlackBerry Limited Incorporated under the Laws of Ontario (United States dollars, in millions) (unaudited) Consolidated Balance Sheets As at May 31, 2024 February 29, 2024 Assets Current Cash and cash equivalents (note 2) $ 143 $ 175 Short-term investments (note 2) 86 62 Accounts receivable, net of allowance of $ 5 and $ 6 , respectively (note 3) 148 199 Other receivables (note 3) 21 21 Income taxes receivable 3 4 Other current assets (note 3) 57 47 458 508 Restricted cash and cash equivalents (note 2) 17 25 Long-term investments (note 2) 37 36 Other long-term assets (note 3) 59 57 Operating lease right-of-use assets, net 27 32 Property, plant and equipment, net (note 3) 19 21 Intangible assets, net (note 3) 145 154 Goodwill (note 3) 561 562 $ 1,323 $ 1,395 Liabilities Current Accounts payable $ 6 $ 17 Accrued liabilities (note 3) 112 117 Income taxes payable (note 4) 29 28 Deferred revenue, current (note 10) 174 194 321 356 Deferred revenue, non-current (note 10) 32 28 Operating lease liabilities 33 38 Other long-term liabilities 1 3 Long-term notes (note 5) 194 194 581 619 Commitments and contingencies (note 9) Shareholders’ equity Capital stock and additional paid-in capital Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable — — Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares Issued and outstanding - 590,171,424 voting common shares (February 29, 2024 - 589,232,539 ) 2,957 2,948 Deficit ( 2,200 ) ( 2,158 ) Accumulated other comprehensive loss (note 8) ( 15 ) ( 14 ) 742 776 $ 1,323 $ 1,395 See notes to consolidated financial statements. On behalf of the Board: John Giamatteo Lisa Disbrow Director Director 5 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Shareholders’ Equity Three Months Ended May 31, 2024 Capital Stock and Additional Paid-in Capital Deficit Accumulated Other Comprehensive Loss Total Balance as at February 29, 2024 $ 2,948 $ ( 2,158 ) $ ( 14 ) $ 776 Net loss — ( 42 ) — ( 42 ) Other comprehensive loss — — ( 1 ) ( 1 ) Stock-based compensation (note 6) 8 — — 8 Shares issued: Employee share purchase plan (note 6) 1 — — 1 Balance as at May 31, 2024 $ 2,957 $ ( 2,200 ) $ ( 15 ) $ 742 Three Months Ended May 31, 2023 Capital Stock and Additional Paid-in Capital Deficit Accumulated Other Comprehensive Loss Total Balance as at February 28, 2023 $ 2,909 $ ( 2,028 ) $ ( 24 ) $ 857 Net loss — ( 11 ) — ( 11 ) Other comprehensive income — — 2 2 Stock-based compensation 9 — — 9 Shares issued: Employee share purchase plan 2 — — 2 Balance as at May 31, 2023 $ 2,920 $ ( 2,039 ) $ ( 22 ) $ 859 See notes to consolidated financial statements. 6 BlackBerry Limited (United States dollars, in millions, except per share data) (unaudited) Consolidated Statements of Operations Three Months Ended May 31, 2024 May 31, 2023 Revenue (note 10) $ 144 $ 373 Cost of sales 48 194 Gross margin 96 179 Operating expenses Research and development 42 54 Sales and marketing 38 45 General and administrative 40 54 Amortization 12 15 Impairment of long-lived assets (note 2) 3 — Debentures fair value adjustment (note 5) — 22 135 190 Operating loss ( 39 ) ( 11 ) Investment income, net (note 2 and note 5) 5 3 Loss before income taxes ( 34 ) ( 8 ) Provision for income taxes (note 4) 8 3 Net loss $ ( 42 ) $ ( 11 ) Loss per share (note 7) Basic $ ( 0.07 ) $ ( 0.02 ) Diluted $ ( 0.07 ) $ ( 0.02 ) See notes to consolidated financial statements. 7 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Comprehensive Loss Three Months Ended May 31, 2024 May 31, 2023 Net loss $ ( 42 ) $ ( 11 ) Other comprehensive income (loss) Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the three months ended, net of income taxes of nil (May 31, 2023 - income taxes of nil) (note 8) — 1 Foreign currency translation adjustment ( 1 ) 1 Other comprehensive income (loss) ( 1 ) 2 Comprehensive loss $ ( 43 ) $ ( 9 ) See notes to consolidated financial statements. 8 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Cash Flows Three Months Ended May 31, 2024 May 31, 2023 Cash flows from operating activities Net loss $ ( 42 ) $ ( 11 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization 13 16 Stock-based compensation 8 9 Impairment of long-lived assets (note 2) 3 — Intellectual property disposed of by sale — 147 Debentures fair value adjustment (note 5) — 22 Operating leases ( 2 ) ( 1 ) Other ( 3 ) — Net changes in working capital items Accounts receivable, net of allowance 51 3 Other receivables — 4 Income taxes receivable 1 — Other assets ( 13 ) ( 62 ) Accounts payable ( 11 ) ( 3 ) Accrued liabilities ( 5 ) ( 14 ) Income taxes payable 1 1 Deferred revenue ( 16 ) ( 12 ) Net cash provided by (used in) operating activities ( 15 ) 99 Cash flows from investing activities Acquisition of long-term investments — ( 1 ) Acquisition of property, plant and equipment ( 1 ) ( 2 ) Acquisition of intangible assets ( 1 ) ( 8 ) Acquisition of short-term investments ( 49 ) ( 66 ) Proceeds on sale or maturity of short-term investments 25 39 Net cash used in investing activities ( 26 ) ( 38 ) Cash flows from financing activities Issuance of common shares 1 2 Net cash provided by financing activities 1 2 Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period ( 40 ) 63 Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 200 322 Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $ 160 $ 385 See notes to consolidated financial statements. 9 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES Basis of Presentation and Preparation These interim consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“U.S. GAAP”). They do not include all of the disclosures required by U.S. GAAP for annual financial statements and should be read in conjunction with the audited consolidated financial statements of BlackBerry Limited (the “Company”) for the year ended February 29, 2024 (the “Annual Financial Statements”), which have been prepared in accordance with U.S. GAAP. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included in these interim consolidated financial statements. Operating results for the three months ended May 31, 2024 are not necessarily indicative of the results that may be expected for the full year ending February 28, 2025. The consolidated balance sheet at February 29, 2024 was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements. The preparation of the consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates and any such differences may be material to the Company’s consolidated financial statements. Certain of the comparative figures have been reclassified to conform to the current year’s presentation. The Company is organized and managed as three reportable operating segments: Cybersecurity, IoT (collectively, “Software & Services”), and Licensing and Other, as further discussed in Note 10. Significant Accounting Policies and Critical Accounting Estimates There have been no material changes to the Company’s accounting policies or critical accounting estimates from those described in the Annual Financial Statements. Accounting Standards Adopted During Fiscal 2025 In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-07 on the topic of segment reporting. The standard requires additional disclosures for segment reporting. These requirements include: (i) disclosure of significant expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”); (ii) disclosure of an amount for other segment items (equal to the difference between segment revenue less segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment and a description of their composition; (iii) annual disclosure of a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods; (iv) clarification that, if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report those additional measures of segment profit or loss; (v) disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources; (vi) requiring a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU, and all existing segment disclosures in Topic 280. The guidance is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company early adopted this guidance in the first quarter of fiscal 2025 and it did not have a material impact on its disclosures. 10 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” on the topic of income taxes. The standard requires additional disclosure for income taxes. These requirements include: (i) requiring a public entity to disclose specific categories in the rate reconciliation; (ii) disclosure of additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate); (iii) annual disclosure of the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; (iv) annual disclosure of the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received); (v) annual disclosure of income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign; and (vi) annual disclosure of income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. For public entities, the guidance is effective for annual periods beginning after December 15, 2024. The Company will adopt this guidance in fiscal 2026 and is in the process of evaluating the new requirements. As a result, the Company has not yet determined the impact this new ASU will have on its disclosures. 2. FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS Fair Value The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value into three levels: • Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets. • Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3 - Significant unobservable inputs that are supported by little or no market activity. The fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities are carried at amounts that approximate their fair values (Level 2 measurement) due to their short maturities. Recurring Fair Value Measurements In determining the fair value of investments held, the Company primarily relies on an independent third-party valuator for the fair valuation of securities. The Company also reviews the inputs used in the valuation process and assesses the pricing of the securities for reasonableness after conducting its own internal collection of quoted prices from brokers. Fair values for all investment categories provided by the independent third-party valuator that are in excess of 0.5 % from the fair values determined by the Company are communicated to the independent third-party valuator for consideration of reasonableness. The independent third-party valuator considers the information provided by the Company before determining whether a change in their original pricing is warranted. When the Company concludes that there is a significant financing component included within a contract with a customer due to timing differences between the fulfillment of certain performance obligations and the receipt of payment for those performance obligations, the Company determines the present value of the future consideration utilizing the discount rate that would be reflected in a separate financing transaction between the customer and the Company at contract inception based upon the credit characteristics of the customer receiving financing in the contract. For a description of how the fair value of the 2020 Debentures (as defined in Note 5) was determined, see the “Convertible debentures” accounting policies in Note 1 to the Annual Financial Statements. 11 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Non-Recurring Fair Value Measurements Upon the occurrence of certain events, the Company re-measures the fair value of non-marketable equity investments for which it utilizes the measurement alternative, and long-lived assets, including property, plant and equipment, operating lease ROU assets, intangible assets and goodwill if an impairment or observable price adjustment is recognized in the current period. Non-Marketable Equity Investments Measured Using the Measurement Alternative Non-marketable equity investments measured using the measurement alternative include investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence. The estimation of fair value used in the fair value measurements required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3. Impairment of Long-Lived Assets During the three months ended May 31, 2024, the Company exited certain leased facilities and recorded a pre-tax and after-tax impairment charge of $ 3 million related to the operating lease right-of-use (“ROU”) assets and property, plant and equipment associated with those facilities (three months ended May 31, 2023 - nil ). The impairment was determined by comparing the fair value of the impacted ROU asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment, using Level 3 inputs. The fair value of the ROU asset was based on the estimated sublease income for certain facilities taking into consideration the estimated time period it will take to obtain a sublessor, the applicable discount rate and the sublease rate, which are considered unobservable inputs. The Company conducts an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate as new or updated information becomes available. The fair value measurement of ROU impaired assets is classified as Level 3. Cash, Cash Equivalents and Investments The components of cash, cash equivalents and investments by fair value level as at May 31, 2024 were as follows: Cost Basis (1) Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Long-term Investments Restricted Cash and Cash Equivalents Bank balances $ 92 $ — $ — $ 92 $ 92 $ — $ — $ — Other investments 28 6 — 34 — — 34 — 120 6 — 126 92 — 34 — Level 1: Equity securities 10 — ( 10 ) — — — — — Level 2: Term deposits, and certificates of deposits 13 — — 13 — — — 13 Bankers' acceptances/bearer deposit notes 12 — — 12 12 — — — Commercial paper 89 — — 89 28 61 — — Non-U.S. promissory notes 26 — — 26 11 15 — — Non-U.S. treasury bills 4 — — 4 — — — 4 U.S. treasury bills 10 — — 10 — 10 — — 154 — — 154 51 86 — 17 Level 3: Other investments 2 1 — 3 — — 3 — $ 286 $ 7 $ ( 10 ) $ 283 $ 143 $ 86 $ 37 $ 17 ______________________________ (1) Cost basis for other investments includes the effect of returns of capital and impairment. 12 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The components of cash, cash equivalents and investments by fair value level as at February 29, 2024 were as follows: Cost Basis (1) Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Long-term Investments Restricted Cash and Cash Equivalents Bank balances $ 96 $ — $ — $ 96 $ 96 $ — $ — $ — Other investments 30 6 — 36 — — 36 — 126 6 — 132 96 — 36 — Level 1: Equity securities 10 — ( 10 ) — — — — — Level 2: Term deposits, and certificates of deposits 21 — — 21 — — — 21 Bearer deposit notes 53 — — 53 28 25 — — Commercial paper 47 — — 47 15 32 — — Non-U.S. promissory notes 35 — — 35 30 5 — — U.S. treasury bills 10 — — 10 6 — — 4 166 — — 166 79 62 — 25 $ 302 $ 6 $ ( 10 ) $ 298 $ 175 $ 62 $ 36 $ 25 ______________________________ (1) Cost basis for other investments includes the effect of returns of capital and impairment. As at May 31, 2024, the Company had non-marketable equity investments without readily determinable fair value of $ 37 million (February 29, 2024 - $ 36 million). During the three months ended May 31, 2024, the Company recorded an upward adjustment of $ 1 million to the carrying value of a certain non-marketable equity investment without readily determinable fair value resulting from observable price changes in orderly transactions for identical or similar securities which have been included in investment income, net on the Company’s consolidated statements of operations. As of May 31, 2024, the Company has recorded a cumulative impairment of $ 3 million to the carrying value of certain other non-marketable equity investments without readily determinable fair value (February 29, 2024 - $ 3 million). There were no realized gains or losses on available-for-sale securities for the three months ended May 31, 2024 and May 31, 2023. The Company has restricted cash and cash equivalents, consisting of cash and securities pledged as collateral to major banking partners in support of the Company’s requirements for letters of credit. These letters of credit support certain leasing arrangements entered into in the ordinary course of business. The letters of credit are for terms ranging from one month to one year. The Company is legally restricted from accessing these funds during the term of the leases for which the letters of credit have been issued; however, the Company can continue to invest the funds and receive investment income thereon. The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at May 31, 2024 and February 29, 2024 from the consolidated balance sheets to the consolidated statements of cash flows: As at May 31, 2024 February 29, 2024 Cash and cash equivalents $ 143 $ 175 Restricted cash and cash equivalents 17 25 Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows $ 160 $ 200 13 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The contractual maturities of available-for-sale investments as at May 31, 2024 and February 29, 2024 were as follows: As at May 31, 2024 February 29, 2024 Cost Basis Fair Value Cost Basis Fair Value Due in one year or less $ 154 $ 154 $ 166 $ 166 No fixed maturity 10 — 10 — $ 164 $ 154 $ 176 $ 166 As at May 31, 2024 and February 29, 2024, the Company had no available-for-sale debt securities with continuous unrealized losses . 3. CONSOLIDATED BALANCE SHEET DETAILS Accounts Receivable, Net of Allowance The current estimated credit losses (“CECL”) for accounts receivable as at May 31, 2024 was $ 5 million (February 29, 2024 - $ 6 million). The Company also has long-term accounts receivable included in Other Long-term Assets. The CECL for long-term accounts receivable is estimated using the probability of default method and the default exposure due to limited historical information. The exposure of default is represented by the assets’ amortized carrying amount at the reporting date. The following table sets forth the activity in the Company’s allowance for credit losses: Carrying Amount Beginning balance as of February 28, 2023 $ 1 Prior period provision for expected credit losses 5 Ending balance of the allowance for credit loss as at February 29, 2024 6 Current period recovery for expected credit losses ( 1 ) Ending balance of the allowance for credit loss as at May 31, 2024 $ 5 The allowance for credit losses as at May 31, 2024 consists of $ 1 million (February 29, 2024 - $ 1 million) relating to CECL estimated based on days past due and region and $ 4 million (February 29, 2024 - $ 5 million) relating to specific customers that were evaluated separately. There was one customer that comprised more than 10% of accounts receivable as at May 31, 2024 (February 29, 2024 - two customers comprised more than 10%). Other Receivables As at May 31, 2024 and February 29, 2024, other receivables included items such as claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX, among other items, none of which were greater than 5% of the current assets balance. 14 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Other Current Assets As at May 31, 2024 and February 29, 2024, other current assets included the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5% of the current assets balance as at the balance sheet dates. Property, Plant and Equipment, Net Property, plant and equipment comprised the following: As at May 31, 2024 February 29, 2024 Cost BlackBerry operations and other information technology $ 86 $ 85 Leasehold improvements and other 14 15 Furniture and fixtures 6 6 Manufacturing, repair and research and development equipment 2 3 108 109 Accumulated amortization 89 88 Net book value $ 19 $ 21 Intangible Assets, Net Intangible assets comprised the following: As at May 31, 2024 Cost Accumulated Amortization Net Book Value Acquired technology $ 900 $ 851 $ 49 Other acquired intangibles 386 337 49 Intellectual property 110 63 47 $ 1,396 $ 1,251 $ 145 As at February 29, 2024 Cost Accumulated Amortization Net Book Value Acquired technology $ 900 $ 846 $ 54 Other acquired intangibles 386 334 52 Intellectual property 111 63 48 $ 1,397 $ 1,243 $ 154 For the three months ended May 31, 2024, amortization expense related to intangible assets amounted to $ 11 million (three months ended May 31, 2023 - $ 13 million). Total additions to intangible assets for the three months ended May 31, 2024 amounted to $ 1 million (three months ended May 31, 2023 - $ 2 million). During the three months ended May 31, 2024, additions to intangible assets primarily consisted of payments for intellectual property relating to patent maintenance, registration and license fees. Based on the carrying value of the identified intangible assets as at May 31, 2024, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for the remainder of fiscal 2025 and each of the five succeeding years is expected to be as follows: fiscal 2025 - $ 32 million; fiscal 2026 - $ 36 million; fiscal 2027 - $ 32 million; fiscal 2028 - $ 18 million; fiscal 2029 - $ 6 million and fiscal 2030 - $ 3 million 15 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Goodwill Changes to the carrying amount of goodwill during the three months ended May 31, 2024 were as follows: Carrying Amount Carrying amount as at February 28, 2023 $ 595 Goodwill impairment charge ( 35 ) Effect of foreign exchange on non-U.S. dollar denominated goodwill 2 Carrying amount as at February 29, 2024 562 Effect of foreign exchange on non-U.S. dollar denominated goodwill ( 1 ) Carrying amount as at May 31, 2024 $ 561 Other Long-term Assets As at May 31, 2024 and February 29, 2024, other long-term assets included long-term receivables related to intellectual property sold in fiscal 2024, see Note 10 under the heading “Patent Sale”, other long-term receivables, and the long-term portion of deferred commission, among other items, none of which were greater than 5% of the total assets balance. Accrued Liabilities Accrued liabilities is comprised of the following: As at May 31, 2024 February 29, 2024 Operating lease liabilities, current 20 20 Restructuring program liabilities, current portion 11 20 Other 81 77 $ 112 $ 117 Other accrued liabilities included current and accrued director fees, accrued vendor liabilities, variable incentive accrual, payroll withholding taxes and accrued royalties, among other items, none of which were greater than 5% of the current liabilities balance in any of the periods presented. Restructuring During fiscal 2023 and fiscal 2024, the Company commenced restructuring programs with the objectives of reducing its annual costs and expenses relating to the Cybersecurity business, and later separating and streamlining the Company’s centralized corporate functions into Cybersecurity and IoT specific teams such that the businesses may operate independently and on a profitable and cash flow positive basis. The reduction of overall Company costs will include rationalizing and streamlining existing central administrative functions, right-sizing cost structures within both business units including R&D and outsourced contracting, changes to overall product portfolio offerings and geographies the Company operates in and optimizing related support functions and organizational structure. Other charges and cash costs may occur as programs are implemented or changes are completed. 16 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The following table sets forth the activity in the Company’s restructuring program liabilities: Employee Termination Benefits Facilities Costs Total Balance as at February 28, 2023 2 1 3 Charges incurred 31 6 37 Cash payments made ( 16 ) ( 3 ) ( 19 ) Balance as at February 29, 2024 17 4 21 Charges incurred 5 3 8 Cash payments made ( 15 ) ( 2 ) ( 17 ) Balance as at May 31, 2024 $ 7 $ 5 $ 12 Current portion $ 7 $ 4 $ 11 Long-term portion — 1 1 $ 7 $ 5 $ 12 The long-term portion of the restructuring liabilities is recorded at present value, determined by measuring the remaining payments at present value using an effective interest rate of 5.7 %, and the Company recorded interest expense over time to arrive at the total face value of the remaining payments. The restructuring charges included employee termination benefits and facilities costs to better align the Company’s general and administrative and R&D cost profiles to its market competitors, create a more focused sales force and improve profitability and cash flow. Total charges incurred for the three months ended May 31, 2024 and May 31, 2023 were $ 8 million and $ 5 million, respectively, recorded within General and administrative on the Consolidated Statements of Operations. 4. INCOME TAXES For the three months ended May 31, 2024, the Company’s net effective income tax expense rate was approximately 24 % compared to a net effective income tax expense rate of 38 % for the three months ended May 31, 2023. The Company’s income tax rate reflects the change in unrecognized income tax benefit, if any, and the fact that the Company has a significant valuation allowance against its deferred income tax assets; in particular, any change in loss carry forwards or research and development credits, amongst other items, is 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 total unrecognized income tax benefits as at May 31, 2024 were $ 20 million (February 29, 2024 - $ 20 million). As at May 31, 2024, $ 20 million of the unrecognized income tax benefits have been netted against deferred income tax assets and nil has been recorded within income taxes payable on the Company’s consolidated balance sheets. The Company is subject to ongoing examination by tax authorities in certain jurisdictions in which it operates. The Company regularly assesses the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income taxes as well as the provisions for indirect and other taxes and related penalties and interest. While the final resolution of audits is uncertain, the Company believes the ultimate resolution of these audits will not have a material adverse effect on its consolidated financial position, liquidity or results of operations. 5. DEBENTURES 3.00% Convertible Senior Notes On January 29, 2024, the Company issued $ 200 million aggregate principal amount of 3.00% senior convertible unsecured notes (the “Notes” and, collectively with the “2020 Debentures” (as defined below), the “Debentures”) in an offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The Notes are due on February 15, 2029 unless earlier converted, redeemed, or repurchased. Each $ 1,000 principal amount of the Notes is convertible into 257.5826 common shares of the Company based on the initial conversion rate, for a total of 52 million common shares at a price of $ 3.88 per share, subject to adjustments. Prior to the close of business on the business day immediately preceding November 15, 2028, the Notes will be convertible only upon satisfaction of 17 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding February 15, 2029. The Company may satisfy any conversions of the Notes by paying or delivering, as the case may be, cash, its common shares or a combination of cash and its common shares, at the Company’s election (or, in the case of any Notes called for redemption that are converted during the related redemption period, solely its common shares). Covenants associated with the Notes include general corporate maintenance, existence and reporting requirements. The Notes will bear interest at a rate of 3.00 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2024 . The Company had recorded the Notes, including the debt itself and all embedded derivatives, at cost less debt issuance costs of $ 6 million and presents the Notes as a single hybrid financial instrument. No portion of the embedded derivatives required bifurcation from the host debt contract. The following table summarizes the change in the Notes for the three months ended May 31, 2024: Carrying Amount Balance as at February 29, 2024 194 Amortization of debt issuance costs — Balance as at May 31, 2024 $ 194 2020 Debentures On September 1, 2020, Hamblin Watsa Investment Counsel Ltd., in its capacity as investment manager of Fairfax Financial Holdings Limited (“Fairfax”), and another institutional investor invested in the Company through a $ 365 million private placement of debentures (the “2020 Debentures”). The 2020 Debentures matured on November 13, 2023 . Due to the conversion option and other embedded derivatives within the 2020 Debentures, the Company elected to record the 2020 Debentures, including the debt itself and all embedded derivatives, at fair value and presented the 2020 Debentures as a single hybrid financial instrument. No portion of the fair value of the 2020 Debentures was recorded as equity. Each period, the fair value of the 2020 Debentures was recalculated and resulting gains and losses from the change in fair value of the 2020 Debentures associated with non-credit components were recognized in income, while the change in fair value associated with credit components was recognized in accumulated other comprehensive loss (“AOCL”). The fair value of the 2020 Debentures was determined using the significant Level 2 inputs interest rate curves, the market price and volatility of the Company’s listed common shares, and the significant Level 3 inputs related to credit spread and the implied discount of the 2020 Debentures at issuance. The following table shows the impact of the changes in fair value of the Debentures for the three months ended May 31, 2024 and May 31, 2023: Three Months Ended May 31, 2024 May 31, 2023 Charge associated with the change in fair value from non-credit components recorded in the consolidated statements of operations $ — $ ( 22 ) Total increase in the fair value of the 2020 Debentures $ — $ ( 22 ) For the three months ended May 31, 2024, the Company recorded interest expense related to the Debentures of $ 2 million, which has been included in investment income, net on the Company’s consolidated statements of operations (three months ended May 31, 2023 - $ 2 million). Fairfax, a related party under U.S. GAAP due to its beneficial ownership of common shares in the Company after taking into account potential conversion of the 2020 Debentures, owned $ 330 million principal amount of the 2020 Debentures. As such, the payment of interest on the 2020 Debentures to Fairfax represented a related party transaction. 18 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 6. CAPITAL STOCK The following details the changes in issued and outstanding common shares for the three months ended May 31, 2024: Capital Stock and Additional Paid-in Capital Stock Outstanding (000s) Amount Common shares outstanding as at February 29, 2024 589,233 $ 2,948 Common shares issued for restricted share unit settlements 383 — Stock-based compensation — 8 Common shares issued for employee share purchase plan 555 1 Common shares outstanding as at May 31, 2024 590,171 $ 2,957 The Company had 590 million voting common shares outstanding, 0.2 million options to purchase voting common shares, 18 million RSUs and 1 million DSUs outstanding as at June 24, 2024. In addition, 51.5 million common shares are issuable upon conversion in full of the Notes as described in Note 5. 7. LOSS PER SHARE The following table sets forth the computation of basic and diluted loss per share: Three Months Ended May 31, 2024 May 31, 2023 Net loss for basic and diluted loss per share available to common shareholders $ ( 42 ) $ ( 11 ) Weighted average number of shares outstanding (000’s) - basic and diluted (1)(2) 589,821 582,812 Loss per share - reported Basic $ ( 0.07 ) $ ( 0.02 ) Diluted $ ( 0.07 ) $ ( 0.02 ) ______________________________ (1) The Company has not presented the dilutive effect of the Notes or 2020 Debentures using the if-converted method in the calculation of diluted loss per share for the three months ended May 31, 2024 and May 31, 2023, as to do so would be antidilutive. See Note 5 for details on the Notes and 2020 Debentures. (2) The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted loss per share for the three months ended May 31, 2024 and May 31, 2023, as to do so would be antidilutive. 19 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 8. ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in AOCL by component net of tax, for the three months ended May 31, 2024 and May 31, 2023 were as follows: Three Months Ended May 31, 2024 May 31, 2023 Cash Flow Hedges Balance, beginning of period $ — $ ( 1 ) Amounts reclassified from AOCL into net loss — 1 Accumulated net unrealized gains on derivative instruments designated as cash flow hedges $ — $ — Foreign Currency Cumulative Translation Adjustment Balance, beginning of period $ ( 14 ) $ ( 16 ) Other comprehensive income (loss) ( 1 ) 1 Foreign currency cumulative translation adjustment $ ( 15 ) $ ( 15 ) Change in Fair Value From Instrument-Specific Credit Risk On Debentures Change in fair value from instruments-specific credit risk on Debentures $ — $ ( 6 ) Other Post-Employment Benefit Obligations Actuarial losses associated with other post-employment benefit obligations $ — $ ( 1 ) Accumulated Other Comprehensive Loss, End of Period $ ( 15 ) $ ( 22 ) 9. COMMITMENTS AND CONTINGENCIES (a) Letters of Credit The Company had $ 17 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of May 31, 2024. See the discussion of restricted cash in Note 2. (b) Contingencies Litigation The Company is involved in litigation in the normal course of its business, both as a defendant and as a plaintiff. The Company is subject to a variety of claims (including claims related to patent infringement, purported class actions and other claims in the normal course of business) and may be subject to additional claims either directly or through indemnities against claims that it provides to certain of its partners and customers. In particular, the industry in which the Company competes has many participants that own, or claim to own, intellectual property, including participants that have been issued patents and may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those used by the Company in its products. The Company has received, and may receive in the future, assertions and claims from third parties that the Company’s products infringe on their patents or other intellectual property rights. Litigation has been, and will likely continue to be, necessary to determine the scope, enforceability and validity of third-party proprietary rights or to establish the Company’s proprietary rights. Regardless of whether claims against the Company have merit, those claims could be time-consuming to evaluate and defend, result in costly litigation, divert management’s attention and resources and subject the Company to significant liabilities. Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount of any potential loss. Where a potential loss is considered probable and the amount is reasonably estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum amount in the range. The Company does not provide for claims for which the outcome is not probable or claims for which the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable. 20 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) As of May 31, 2024, there are no material claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable; therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed the potential loss as reasonably possible to result; however, an estimate of the amount of loss cannot reasonably be made. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding does not require the claimant to specifically identify the patent claims that have allegedly been infringed or the products that are alleged to infringe; damages sought are unspecified, unsupportable, unexplained or uncertain; discovery has not been started or is incomplete; the facts that are in dispute are highly complex; the difficulty of assessing novel claims; the parties have not engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and the often slow pace of litigation. The Company has included the following summaries of certain of its legal proceedings though they do not meet the test for accrual described above. Between October and December 2013, several purported class action lawsuits and one individual lawsuit were filed against the Company and certain of its former officers in various jurisdictions in the U.S. and Canada alleging that the Company and certain of its officers made materially false and misleading statements regarding the Company’s financial condition and business prospects and that certain of the Company’s financial statements contain material misstatements. The individual lawsuit was voluntarily dismissed and the consolidated U.S. class actions Stipulation of Settlement was executed effective June 7, 2022. On July 23, 2014, the plaintiff in the putative Ontario class action ( Swisscanto Fondsleitung AG v. BlackBerry Limited, et al. ) filed a motion for class certification and for leave to pursue statutory misrepresentation claims. On November 17, 2015, the Ontario Superior Court of Justice issued an order granting the plaintiffs’ motion for leave to file a statutory claim for misrepresentation. On December 2, 2015, the Company filed a notice of motion seeking leave to appeal this ruling. On November 15, 2018, the Court denied the Company’s motion for leave to appeal the order granting the plaintiffs leave to file a statutory claim for misrepresentation. On February 5, 2019, the Court entered an order certifying a class comprised persons (a) who purchased BlackBerry common shares between March 28, 2013, and September 20, 2013, and still held at least some of those shares as of September 20, 2013, and (b) who acquired those shares on a Canadian stock exchange or acquired those shares on any other stock exchange and were a resident of Canada when the shares were acquired. Notice of class certification was published on March 6, 2019. The Company filed its Statement of Defence on April 1, 2019. Discovery is proceeding and the Court has not set a trial date. On March 17, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice ( Parker v. BlackBerry Limited ). The Statement of Claim alleges that actions the Company took when certain of its employees decided to accept offers of employment from Ford Motor Company of Canada amounted to a wrongful termination of the employees’ employment with the Company. The claim seeks (i) an unspecified quantum of statutory, contractual, or common law termination entitlements; (ii) punitive or breach of duty of good faith damages of CAD$20 million, or such other amount as the Court finds appropriate, (iii) pre- and post- judgment interest, (iv) attorneys’ fees and costs, and (v) such other relief as the Court deems just. The Court granted the plaintiffs’ motion to certify the class action on May 27, 2019. The Company commenced a motion for leave to appeal the certification order on June 11, 2019. The Court denied the motion for leave to appeal on September 17, 2019. The Company filed its Statement of Defence on December 19, 2019. The parties participated in a mediation on November 9, 2022, which did not result in an agreement. The Court has set a trial date of June 2, 2025, and scheduled a pre-trial conference on December 4, 2024. Discovery is proceeding. Other contingencies As at May 31, 2024, the Company has recognized $ 17 million (February 29, 2024 - $ 17 million) in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX. A portion of this amount may be repayable in the future under certain circumstances if certain terms and conditions are not met by the Company, which is not probable at this time. (c) Indemnifications The Company enters into certain agreements that contain indemnification provisions under which the Company could be subject to costs and damages, including in the event of an infringement claim against the Company or an indemnified third party. Such intellectual property infringement indemnification clauses are generally not subject to any dollar limits and remain in effect for the term of the Company’s agreements. To date, the Company has not encountered material costs as a result of such indemnifications. 21 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The Company has entered into indemnification agreements with its current and former directors and executive officers. Under these agreements, the Company agreed, subject to applicable law, to indemnify its current and former directors and executive officers against all costs, charges and expenses reasonably incurred by such individuals in respect of any civil, criminal or administrative action that could arise by reason of their status as directors or officers. The Company maintains liability insurance coverage for the benefit of the Company, and its current and former directors and executive officers. The Company has not encountered material costs as a result of such indemnifications in the current period. 10. REVENUE AND SEGMENT DISCLOSURES The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the CODM for making decisions and assessing performance as a source of the Company’s reportable operating segments. The CODM, who is the CEO of the Company, makes decisions and assesses the performance of the Company using three operating segments. The CODM does not evaluate operating segments using discrete asset information. The Company does not specifically allocate assets to operating segments for internal reporting purposes. Segment Disclosures The Company is organized and managed as three operating segments: Cybersecurity, IoT, and Licensing and Other. The following table shows information by operating segment for the three months ended May 31, 2024 and May 31, 2023: For the Three Months Ended Cybersecurity IoT Licensing and Other Segment Totals May 31, May 31, May 31, May 31, 2024 2023 2024 2023 2024 2023 2024 2023 Segment revenue $ 85 $ 93 $ 53 $ 45 $ 6 $ 235 $ 144 $ 373 Segment cost of sales 35 37 10 9 2 147 47 193 Segment gross margin (1) $ 50 $ 56 $ 43 $ 36 $ 4 $ 88 $ 97 $ 180 ______________________________ (1) A reconciliation of total segment gross margin to consolidated totals is set forth below. Cybersecurity consists of BlackBerry® UEM and Cylance® cybersecurity solutions (collectively, BlackBerry Spark®), BlackBerry® AtHoc® and BlackBerry® SecuSUITE®. The Company’s Cylance AI and machine learning-based platform consists of CylanceENDPOINT™, CylanceMDR™, CylanceEDGE™, CylanceINTELLIGENCE™ and other cybersecurity applications. The Company’s endpoint management platform includes BlackBerry® UEM, BlackBerry® Dynamics™, and BlackBerry® Workspaces solutions. Cybersecurity revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services. IoT consists of BlackBerry® QNX®, BlackBerry® Certicom®, BlackBerry Radar®, BlackBerry IVY® and other IoT applications. IoT revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services. Licensing and Other consists of the Company’s intellectual property arrangements and settlement awards. 22 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The following table reconciles total segment gross margin for the three months ended May 31, 2024 and May 31, 2023 to the Company’s consolidated totals: Three Months Ended May 31, 2024 May 31, 2023 Total segment gross margin $ 97 $ 180 Adjustments (1) : Less: Stock compensation 1 1 Less: Research & development 42 54 Sales and marketing 38 45 General and administrative 40 54 Amortization 12 15 Impairment of long-lived assets 3 — Debentures fair value adjustment — 22 Investment income, net ( 5 ) ( 3 ) Loss before income taxes $ ( 34 ) $ ( 8 ) ______________________________ (1) The CODM reviews segment information on an adjusted basis, which excludes certain amounts as described below: Stock compensation expenses - Equity compensation is a non-cash expense and does not impact the ongoing operating decisions taken by the Company’s management. Patent Sale On May 11, 2023, the Company completed its previously announced patent sale with Malikie and sold certain non-core patent assets for $ 170 million in cash on closing, an additional $ 30 million in fixed consideration due by no later than the third anniversary of closing and variable consideration in the form of future royalties in the aggregate amount of up to $ 700 million (the “Malikie Transaction”). Pursuant to the terms of the Malikie Transaction, the Company received a license back to the patents sold, which relate primarily to mobile devices, messaging and wireless networking. In the first quarter of fiscal 2024, the Company recognized revenue of $ 218 million and cost of sales of $ 147 million related to intellectual property sold. As at May 31, 2024, the remaining financing component on the patent sale was $ 9 million and will be recognized as interest income over the payment terms. The Company estimated variable consideration from future royalty revenues using an expected value method including inputs from both internal and external sources related to patent monetization activities and cash flows, and constrained the recognition of that variable consideration based on the Company’s accounting policies and critical accounting estimates as described in Note 1. The present value of variable consideration recognized as revenue was $ 23 million and the amount of variable consideration constrained was $ 210 million. The Company evaluates its conclusions as to whether the constraints are still applicable on an ongoing basis, and will make updates when it observes a sufficient amount of evidence that amounts of variable consideration are no longer subject to constraint or the estimated amount of variable consideration has changed. 23 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Revenue The Company disaggregates revenue from contracts with customers based on geographical regions, timing of revenue recognition, and the major product and service types, as discussed above in “Segment Disclosures”. The Company’s revenue, classified by major geographic region in which the Company’s customers are located, was as follows: Three Months Ended May 31, 2024 May 31, 2023 North America (1) $ 68 $ 317 Europe, Middle East and Africa 47 37 Other regions 29 19 Total $ 144 $ 373 North America (1) 47.2 % 85.0 % Europe, Middle East and Africa 32.7 % 9.9 % Other regions 20.1 % 5.1 % Total 100.0 % 100.0 % ______________________________ (1) North America includes all revenue from the Company’s intellectual property arrangements, due to the global applicability of the patent portfolio and licensing arrangements thereof . Revenue, classified by timing of recognition, was as follows: Three Months Ended May 31, 2024 May 31, 2023 Products and services transferred over time $ 78 $ 85 Products and services transferred at a point in time 66 288 Total $ 144 $ 373 Revenue contract balances The following table sets forth the activity in the Company’s revenue contract balances for the three months ended May 31, 2024: Accounts and Other Receivable Deferred Revenue Deferred Commissions Opening balance as at February 29, 2024 $ 255 $ 222 $ 21 Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other 134 123 5 Decrease due to payment, fulfillment of performance obligations, or other ( 182 ) ( 139 ) ( 7 ) Decrease, net ( 48 ) ( 16 ) ( 2 ) Closing balance as at May 31, 2024 $ 207 $ 206 $ 19 24 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Transaction price allocated to the remaining performance obligations The table below discloses the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as at May 31, 2024 and the time frame in which the Company expects to recognize this revenue. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property. The disclosure excludes estimates of variable consideration relating to potential future royalty revenues from the patent sale to Malikie, which have been constrained based on the Company’s accounting policies and critical accounting estimates and as described under “Patent Sale” in this Note 10. As at May 31, 2024 Less than 12 Months 12 to 24 Months Thereafter Total Remaining performance obligations $ 174 $ 16 $ 16 $ 206 Revenue recognized for performance obligations satisfied in prior periods For the three months ended May 31, 2024, revenue of nil was recognized relating to performance obligations satisfied in a prior period (three months ended May 31, 2023 - $ 9 million as a result of certain variable consideration no longer being subject to constraint). Property, plant and equipment, intangible assets, operating lease ROU assets and goodwill, classified by geographic region in which the Company’s assets are located, were as follows: As at May 31, 2024 February 29, 2024 Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill Total Assets Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill Total Assets Canada $ 73 $ 338 $ 78 $ 342 United States 649 883 662 923 Other 30 102 29 130 $ 752 $ 1,323 $ 769 $ 1,395 Information About Major Customers There was one customer that comprised 13 % of the Company’s revenue in the three months ended May 31, 2024 (three months ended May 31, 2023 - one customer that comprised 58 % of the Company’s revenue, due to the completed Malikie Transaction ). 25 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 11. CASH FLOW AND ADDITIONAL INFORMATION (a) Certain consolidated statements of cash flow information related to interest and income taxes paid is summarized as follows: Three Months Ended May 31, 2024 May 31, 2023 Interest paid during the period $ 2 $ 2 Income taxes paid during the period 7 2 Income tax refunds received during the period — — (b) Additional Information Foreign exchange The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency, the U.S. dollar. The majority of the Company’s revenue in the first quarter of fiscal 2025 was transacted in U.S. dollars. Portions of the revenue were denominated in Canadian dollars, euros and British pounds. Other expenses, consisting mainly of salaries and certain other operating costs, were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros and British pounds. At May 31, 2024, approximately 21 % of cash and cash equivalents, 22 % of accounts receivable and 76 % of accounts payable were denominated in foreign currencies (February 29, 2024 – 19 %, 25 % and 59 %, respectively). These foreign currencies primarily include the Canadian dollar, euro and British pound. As part of its risk management strategy, the Company maintains net monetary asset and/or liability balances in foreign currencies and engages in foreign currency hedging activities using derivative financial instruments, including currency forward contracts and currency options. The Company does not use derivative instruments for speculative purposes. Interest rate risk Cash and cash equivalents and investments are invested in certain instruments with fixed interest rates of varying maturities. Consequently, the Company is exposed to interest rate risk as a result of holding investments of varying maturities and the significant financing components within certain revenue contracts with customers. The fair value of investments, as well as the investment income derived from the investment portfolio, will fluctuate with changes in prevailing interest rates. The Company also has significant financing components within certain revenue contracts with customers and is exposed to interest rate risk as a result of discounting the future payments from customers with a fixed interest rate. The Company has also issued Notes with a fixed interest rate, as described in Note 5. The Company is exposed to interest rate risk as a result of the Notes. The Company does not currently utilize interest rate derivative instruments. Credit risk The Company is exposed to market and credit risk on its investment portfolio. The Company is also exposed to credit risk with customers, as described in Note 3. The Company reduces this risk from its investment portfolio by investing in liquid, investment-grade securities and by limiting exposure to any one entity or group of related entities. As at May 31, 2024, no single issuer represented more than 30 % of the total cash, cash equivalents and investments (February 29, 2024 - no single issuer represented more than 30 % of the total cash, cash equivalents and investments), with the largest such issuer representing bankers’ acceptances, bearer deposits, term deposits and cash balances with one of the Company’s banking counterparties. Liquidity risk Cash, cash equivalents, and investments were approximately $ 283 million as at May 31, 2024. The Company’s management remains focused on efficiently managing working capital balances and managing the liquidity needs of the business. Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities, should be sufficient to meet funding requirements for current financial commitments and future operating expenditures not yet committed, and should provide the necessary financial capacity for the foreseeable future. 26