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, 2021, 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, 2021 (the "Annual MD&A"). The Consolidated Financial Statements are
presented in U.S. dollars and have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP"). All financial
information in this MD&A is presented in U.S. 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, 2021 (the
"Annual Report"), can be found on SEDAR at www.sedar.com and on the SEC's
website at www.sec.gov.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of certain
securities laws, including under the U.S. Private Securities Litigation Reform
Act of 1995 and applicable Canadian securities laws, including statements
relating to:
•the Company's plans, strategies and objectives, including its intentions to
increase and enhance its product and service offerings;
•the Company's expectations with respect to the potential sale of a portion of
its patent portfolio;
•the Company's expectations with respect to the impact of the ongoing COVID-19
pandemic and related cost reduction measures and governmental assistance on the
Company's business, results of operations and financial condition on a
consolidated basis, including its liquidity position;
•the Company's expectations with respect to its revenue and billings in fiscal
2022 and with respect to installations of the BlackBerry IVY™ platform in fiscal
2023;
•the Company's estimates of purchase obligations and other contractual
commitments; and
•the Company's expectations with respect to the sufficiency of its financial
resources.
The words "expect", "anticipate", "estimate", "may", "will", "should", "could",
"intend", "believe", "target", "plan" and similar expressions are intended to
identify forward-looking statements in this MD&A, including in the sections
entitled "Business Overview - Strategy", "Business Overview - Products and
Services", "Business Overview - COVID-19", "Non-GAAP Financial Measures - Key
Metrics", "Results of Operations - Three months ended November 30, 2021 compared
to the three months ended November 30, 2020 - Revenue - Revenue by Segment" and
"Financial Condition - Debenture Financing and Other Funding Sources".
Forward-looking statements are based on estimates and assumptions made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors
that the Company believes are appropriate in the circumstances, including but
not limited to, the Company's expectations regarding its business, strategy,
opportunities and prospects, the launch of new products and services, general
economic conditions, the ongoing COVID-19 pandemic, competition, and the
Company's expectations regarding its financial performance. Many factors could
cause the Company's actual results, performance or achievements to differ
materially from those expressed or implied by the forward-looking statements,
including, without limitation, the risk factors discussed in Part I, Item 1A
"Risk Factors" in the Annual Report.
All of these factors should be considered carefully, and readers should not
place undue reliance on the Company's forward-looking statements. Any statements
that are forward-looking statements are intended to enable the Company's
shareholders to view the anticipated performance and prospects of the Company
from management's perspective at the time such statements are made, and they are
subject to the risks that are inherent in all forward-looking statements, as
described above, as well as difficulties in forecasting the Company's financial
results and performance for future periods, particularly over longer periods,
given changes in technology and the Company's business strategy, evolving
industry standards, intense competition and short product life cycles that
characterize the industries in which the Company operates. See the "Strategy"
subsection in Part I, Item 1 "Business" of the Annual Report.
The Company has no intention and undertakes no obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by applicable law.
                                       30
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Business Overview
The Company provides intelligent security software and services to enterprises
and governments around the world. The Company secures more than 500 million
endpoints including more than 195 million vehicles. Based in Waterloo, Ontario,
the Company leverages artificial intelligence ("AI") and machine learning to
deliver innovative solutions in the areas of cybersecurity, safety and data
privacy, and is a leader in the areas of endpoint security, endpoint management,
encryption, and embedded systems.
Strategy
The Company's strategy is to connect, secure and manage every endpoint in the
Internet of Things. The Company leverages its extensive technology portfolio to
offer best-in-class cybersecurity, safety and reliability to enterprise
customers in government, regulated and other core industries, as well as to
original equipment manufacturers in automotive, medical, industrial and other
verticals.
The Company's goal is to offer smarter security solutions that are more
effective, require fewer resources to support and produce a better return on
investment for customers than competing offerings. To achieve this vision, the
Company continues to extend the functionality of its AI-focused BlackBerry
Spark® software platform and safety-certified QNX® Neutrino® real time operating
system and is commercializing its new BlackBerry IVY intelligent vehicle data
platform.
The Company's go-to-market strategy is focused on generating revenue from
enterprise software, services and licensing as well as from embedded software
designs with leading OEMs and Tier 1 suppliers. The Company intends to drive
revenue growth and to achieve margins that are consistent with those of other
enterprise software companies.
Products and Services
The Company has multiple products and services from which it derives revenue,
which are structured in three groups: Cybersecurity, IoT (collectively with
Cybersecurity, "Software & Services") and Licensing and Other.
Cybersecurity
The Cybersecurity business consists of BlackBerry Spark, BlackBerry® AtHoc®,
BlackBerry Alert and SecuSUITE.
The Company's core secure software and services offering is its BlackBerry Spark
software platform, which integrates a unified endpoint security ("UES") layer
with BlackBerry unified endpoint management ("UEM") to enable secure endpoint
communications in a zero trust environment. BlackBerry UES is a set of
complementary cybersecurity products offering endpoint protection platform
("EPP"), endpoint detection and response ("EDR"), mobile threat defense ("MTD"),
zero-trust network access ("ZTNA") and user and entity behavior analytics
("UEBA") capabilities. The BlackBerry Spark platform is informed by the
Company's AI and machine learning capabilities, continuous innovations,
professional cybersecurity services and threat research, industry partnerships
and academic collaborations. The Company is currently executing on a robust
schedule of product launches for BlackBerry Spark to deliver on the Company's
extended detection and response ("XDR") strategy, which aims to use security
telemetry data from the platform's full range of natively-integrated products
and partner solutions to provide deep contextual insights for more powerful and
integrated threat detection and response. This comprehensive security strategy
for BlackBerry Spark is designed to operate on a single agent across all
endpoints, to be administered from a single console, to leverage a single
crowd-sourced threat data lake and to be managed in one cloud environment.
BlackBerry Spark solutions are available through the BlackBerry Spark® Unified
Endpoint Security Suite and the BlackBerry Spark® Unified Endpoint Management
Suite, which are also marketed together as the BlackBerry Spark® Suites,
offering the Company's most comprehensive range of tailored cybersecurity and
endpoint management options.
The BlackBerry Spark UES Suite offers leading Cylance® AI and machine
learning-based cybersecurity solutions, including: BlackBerry® Protect, an EPP
and available MTD solution that uses machine learning to prevent suspicious
behavior and the execution of malicious code on an endpoint; BlackBerry® Optics,
an EDR solution that provides both visibility into and prevention of malicious
activity on an endpoint; BlackBerry® Guard, a managed detection and response
solution that provides 24/7 threat hunting and monitoring; BlackBerry® Gateway,
a cloud-native ZTNA solution that monitors suspicious network activity; and
BlackBerry® Persona, a UEBA solution that provides continuous authentication by
validating user identity in real time. The combined platform features
industry-leading threat prevention modules to help organizations cope with the
significant growth of cyberattacks. The Company also offers incident response,
compromised assessment and containment services to assist clients with forensic
analysis, state of existing systems and remediation of attacks.
In addition, the Company offers the BlackBerry Cyber Suite, a UEM-agnostic
version of its BlackBerry Spark® UES Suite which organizations can integrate
with UEM software from other leading vendors.
The BlackBerry Spark UEM Suite includes the Company's BlackBerry® UEM,
BlackBerry® Dynamics™ and BlackBerry® Workspaces solutions. BlackBerry UEM is a
central software component of the Company's secure communications platform,
offering a "single pane of glass", or unified console view, for managing and
securing devices, applications, identity, content and
                                       31
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endpoints across all leading operating systems. BlackBerry Dynamics offers a
best-in-class development platform and secure container for mobile applications,
including the Company's own enterprise applications such as BlackBerry® Work and
BlackBerry® Connect for secure collaboration.
The Company also offers the BlackBerry® Spark SDK to promote the evolution of a
platform ecosystem by enabling enterprise and independent software vendor
("ISV") developers to integrate the security features of BlackBerry Spark into
their own mobile and web applications, as well as BlackBerry Messenger (BBM®)
Enterprise, an enterprise-grade secure instant messaging solution for messaging,
voice and video.
BlackBerry AtHoc and BlackBerry Alert are secure, networked critical event
management solutions that enable people, devices and organizations to exchange
critical information in real time during business continuity and life safety
operations. The platforms securely connect with a diverse set of endpoints to
distribute emergency mass notifications, improve personnel accountability and
facilitate the bidirectional collection and sharing of data within and between
organizations. BlackBerry AtHoc serves the requirements of the public sector
market while BlackBerry Alert targets the commercial sector.
SecuSUITE® for Government is a certified, multi-OS voice and text messaging
solution with advanced encryption, anti-eavesdropping and continuous
authentication capabilities, providing a maximum level of security on
conventional mobile devices for public authorities and businesses.
IoT
The IoT business consists of BlackBerry Technology Solutions ("BTS") and
BlackBerry IVY.
The principal component of BTS is BlackBerry QNX, a global provider of real-time
operating systems, hypervisors, middleware, development tools, and professional
services for connected embedded systems in the automotive, medical, industrial
automation and other markets. A recognized leader in automotive software,
BlackBerry QNX offers a growing portfolio of safety-certified, secure and
reliable platform solutions and is focused on achieving design wins with
automotive original equipment manufacturers ("OEMs"), Tier 1 vendors and
automotive semiconductor suppliers. These solutions include the Neutrino®
operating system and the BlackBerry QNX® CAR platform, the most advanced
embedded software platform for the autonomous vehicle market, as well as other
products designed to alleviate the challenges of compliance with ISO 26262, the
automotive industry's functional safety standard. Additionally, the Company's
secure automotive over-the-air software update management service allows OEMs to
manage the life cycle of the software and security in their vehicles.
The Company has partnered with Amazon Web Services, Inc. ("AWS") to develop and
market BlackBerry IVY, an intelligent vehicle data platform leveraging
BlackBerry QNX's automotive capabilities. BlackBerry IVY will allow automakers
to safely access a vehicle's sensor data, normalize it, and apply machine
learning at the edge to generate and share predictive insights and inferences.
Automakers and developers will be able to use this information to create
responsive in-vehicle services that enhance driver and passenger experiences.
BlackBerry IVY will support multiple vehicle operating systems and hardware, as
well as multi-cloud deployments in order to ensure compatibility across vehicle
models and brands. The Company released an early access version of BlackBerry
IVY to select ecosystem partners in October 2021, and plans to release a beta
version in February 2022 with installation of BlackBerry IVY in vehicles
expected to begin during fiscal year 2023.
BlackBerry QNX is also a preferred supplier of embedded systems for companies
building medical devices, train-control systems, industrial robots, hardware
security modules, building automation systems, green energy solutions, and other
mission-critical applications.
In addition to BlackBerry QNX, BTS includes BlackBerry Certicom® cryptography
and key management products, the BlackBerry Radar® asset monitoring solution,
and the BlackBerry Jarvis™ binary code scanning solution.
BlackBerry Certicom leverages patented elliptic curve cryptography to provide
device security, anti-counterfeiting and product authentication solutions.
BlackBerry Certicom's offerings include its managed public key infrastructure
("PKI") platform, key management and provisioning technology that helps
customers to protect the integrity of their silicon chips and devices from the
point of manufacturing through the device life cycle. BlackBerry Certicom's
secure key provisioning, code signing and security credential management system
services protect next-generation connected cars, critical infrastructure and IoT
deployments from product counterfeiting, re-manufacturing and unauthorized
network access.
BlackBerry Radar is a family of asset monitoring and telematics solutions for
the transportation and logistics industry. The BlackBerry Radar solution
includes devices and secure cloud-based dashboards for tracking containers,
trailers, chassis, flatbeds and heavy machinery, for reporting locations and
sensor data, and for enabling custom alerts and fleet management analytics.
BlackBerry Jarvis is a cloud-based binary static application security testing
platform that identifies vulnerabilities in deployed binary software used in
automobiles and other embedded applications.
                                       32
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The BlackBerry Spark and IoT groups are both complemented by the enterprise and
cybersecurity consulting services offered by the Company's BlackBerry®
Professional Services business. BlackBerry Professional Services provides
platform-agnostic strategies to address mobility-based challenges, providing
expert deployment support, end-to-end delivery (from system design to user
training), application consulting, and experienced project management. The
Company's cybersecurity consulting services and tools, combined with its other
security solutions, help customers identify the latest cybersecurity threats,
test for vulnerabilities, develop risk-appropriate mitigations, maintain IT
security standards and techniques, and defend against the risk of future
attacks.
Licensing and Other
Licensing and Other consists primarily of the Company's patent licensing
business and legacy service access fees ("SAF").
The Company's Licensing business is responsible for the management and
monetization of the Company's global patent portfolio. The patent portfolio
continues to provide a competitive advantage in the Company's core product areas
as well as providing leverage in the development of future technologies and
licensing programs in both core and adjacent vertical markets. The Company owns
rights to an array of patented and patent pending technologies which include,
but are not limited to, operating systems, networking infrastructure, acoustics,
messaging, enterprise software, automotive subsystems, cybersecurity,
cryptography and wireless communications.
In addition, in recent years, the Company has licensed its device security
software and service suite and related brand assets to outsourcing partners who
design, manufacture, market and provide customer support for BlackBerry-branded
handsets featuring the Company's secure Android™ software. The Company has also
entered into licensing arrangements with manufacturers of other devices with
embedded BlackBerry cybersecurity technology.
In the fourth quarter of fiscal 2021, the Company entered into exclusive
negotiations with a North American entity for the potential sale of a portion of
the patent portfolio relating primarily to non-core or legacy mobile devices,
messaging and wireless networking technologies. Negotiations are ongoing. The
Company previously stated its expectation of entering into a definitive
agreement in the third quarter of fiscal 2022 but now believes that it will do
so in the fourth quarter of fiscal 2022. While the parties have reached
preliminary agreement on many key terms of the potential transaction, there can
be no assurance that the Company will reach a definitive agreement or that a
transaction will be consummated. If a transaction is completed, the Company will
retain rights to use these patents.
The Company's Other business generates revenue from SAF charged to subscribers
using the Company's legacy BlackBerry 7 and prior BlackBerry operating systems,
which will no longer be supported or maintained as of January 4, 2022.
Recent Developments
The Company continued to execute on its strategy in fiscal 2022 and announced
the following achievements:
Products and Innovation:
•Launched BlackBerry Optics 3.0, the Company's next-generation cloud-based EDR
solution and BlackBerry Gateway, the Company's first AI-empowered ZTNA product;
•Released an early access version of BlackBerry IVY;
•Announced that the Company was awarded the highest AAA Rating in SE Labs'
Breach Response Test for BlackBerry Protect and BlackBerry Optics;
•Launched an update to the BlackBerry® Guard managed detection and response
service to provide a managed XDR service through a partnership with Exabeam;
•Announced an expansion of products covered by the BlackBerry Guard 2.0 managed
detection and response service to include zero trust network access (ZTNA),
mobile threat defense (MTD) and user behavior risk analytics (UEBA);
•Announced that BlackBerry was recognized by SE Labs as offering the best new
endpoint protection solution of 2021;
•Announced that Frost & Sullivan named BlackBerry an innovator in its US
Healthcare Cybersecurity Market report;
•Launched BlackBerry Jarvis 2.0, the Company's updated software composition
analysis tool;
•Announced that Frost & Sullivan named BlackBerry IVY an industry-leading cloud
software platform for automakers and smart cities;
•Launched an autonomous flood risk and clean water monitoring solution based on
BlackBerry AtHoc;
•Announced that BlackBerry AtHoc won the Frost & Sullivan 2021 Technology
Innovation Leadership Award for safe city solutions;
•Launched updated SecuSUITE capabilities to further secure group phone calls and
messages; and
•Announced that BlackBerry SecuSUITE® for Government offering now provides
certified end-to-end encryption of all group phone calls and instant messages.
                                       33
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Customers and Partners:
•Announced that the Company has design wins with 24 of the world's leading 25
Electric Vehicle (EV) automakers, increasing from 23 of the top 25 last quarter;
•Announced that BlackBerry QNX software is embedded in over 195 million
vehicles;
•Announced that BlackBerry IVY will provide secure vehicle-based payment
capability through a partnership with financial technology solution provider Car
IQ;
•Announced a collaboration with Ridecell Inc. to bring a next generation fleet
operations and ADAS data platform to automotive OEMs via BlackBerry IVY;
•Launched the BlackBerry IVY Advisory Council to help shape and advise the
BlackBerry IVY application development community and drive use case generation;
•Announced that BMW Group has entered into a multi-year agreement to use
BlackBerry QNX technology to develop SAE Level 2/2+ driving automation functions
in multiple makes and models across the BMW group;
•Announced that Volvo Group has selected BlackBerry QNX for its Dynamic Software
Platform;
•Announced the availability of a QNX cockpit reference design powered by Google
and Qualcomm technologies that reduces development time for digital cockpit
architectures;
•Announced that BlackBerry and Visteon will expand efforts to accelerate the
deployment of digital cockpit solutions for automakers and their suppliers;
•Announced that Mahindra & Mahindra Ltd. selected BlackBerry QNX technologies to
power the cockpit domain controller for their next-generation SUV;
•Announced that WM Motor has chosen BlackBerry QNX technologies to power its W6
all-electric SUV;
•Announced that the QNX Neutrino operating system has been adopted in a new
digital LCD cluster jointly developed with BiTech Automotive (Wuhu) Co., Ltd.
for Changan Automobile's new SUV, the UNI-K;
•Announced that Nobo Technologies selected QNX Neutrino as the foundation for
the advanced Digital Cockpit Controller in Great Wall Motors' Haval H6S, the
next generation of China's leading SUV;
•Announced that sTraffic has chosen the BlackBerry QNX® OS for Safety as the
foundation for its Communications-based Train Control System (CBTC);
•Announced that Deloitte will leverage BlackBerry Jarvis to help manufacturers
to secure their software supply chains;
•Announced the integration of BlackBerry UEM with Microsoft 365;
•Announced a technology integration between Okta and BlackBerry UEM to deliver
seamless identity and access capabilities;
•Announced Okta, Mimecast, Stellar Cyber and XM Cyber as new partners in
BlackBerry's XDR ecosystem;
•Announced that the Government of Canada has selected BlackBerry for their
secure productivity and secure communications needs;
•Announced that BlackBerry and IBM Canada have established a new partnership to
bring BlackBerry's industry leading BlackBerry Spark platform to organizations
across Canada;
•Announced BlackBerry QNX and Carleton University have joined forces in a $21
million partnership to train next generation of software engineers;
•Announced that BlackBerry and the University of Waterloo have expanded their
partnership to create a new joint innovation program; and
•Announced that BlackBerry and L-SPARK launched a third cohort of their
accelerator program to advance Canadian connected vehicle technology innovation.
Environmental, Sustainability and Corporate Governance:
•Announced that Michael Daniels has been appointed as Chair of the Compensation,
Nomination and Governance Committee of the Company's Board of Directors and that
Lisa Disbrow has been appointed as Chair of the Audit and Risk Management
Committee of the Board of Directors;
•Appointed John Giamatteo as President of Cybersecurity effective October 4,
2021;
•Announced the resignation of Tom Eacobacci as President and Chief Operating
Officer effective October 29, 2021;
•Appointed Mattias Eriksson as President and General Manager of IoT;
•Announced that the Company achieved carbon neutrality across Scope 1, Scope 2
and material Scope 3 emissions;
•Announced that the Company was named one of Canada's Greenest Employers for
sixth year in a row; and
•Announced that the Company was named to Newsweek's list of the Most Loved
Workplaces for 2021.

                                       34
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Segment Reporting
As disclosed in Note 11 to the Consolidated Financial Statements, the Company
reports segment information based on the "management" approach. The management
approach designates the internal reporting used by the chief operating decision
maker ("CODM") for making decisions and assessing performance as a source of the
Company's reportable operating segments. In the first quarter of fiscal 2022,
the Company internally reorganized and, as a result, the CODM, who is the
Executive Chair and CEO of the Company, began making decisions and assessing the
performance of the Company using three operating segments, whereas the Company
was previously a single operating segment.
COVID-19
The novel coronavirus ("COVID-19") pandemic has prompted extraordinary actions
by governmental authorities throughout the world and has resulted in significant
market volatility, uncertainty and economic disruption.
To protect the health and safety of the Company's employees, contractors,
customers and visitors, during the first nine months of fiscal 2022 and
throughout most of fiscal 2021, the Company mandated remote working, utilizing
virtual meetings and suspending most employee travel. The Company also shifted
customer, industry and other stakeholder events to virtual-only experiences, and
may similarly alter, postpone or cancel other events in the future. The
long-term impacts on the Company of substantially remote operations are
uncertain.
The Company also implemented a series of temporary cost reduction measures to
further preserve financial flexibility during the COVID-19 pandemic. In the
third quarter of fiscal 2022, these actions included taking advantage of the
broad-based employer relief provided by governments in Canada and the
postponement of certain discretionary spending. The Company expects that savings
from temporary cost reduction measures and governmental assistance related to
the pandemic will continue to be lower in fiscal 2022 than in fiscal 2021.
In fiscal 2022 and fiscal 2021, the economic challenges and uncertainty caused
by the COVID-19 pandemic and the measures undertaken to contain its spread have
negatively affected the Company's QNX automotive software business, caused
volatility in demand for many of the Company's other products and services,
adversely affected the ability of the Company's sales and professional services
teams to meet with customers and provide service, negatively impacted expected
spending from new customers and increased sales cycle times.
Although the Company experienced higher Software & Services revenue in the first
nine months of fiscal 2022 compared to the first nine months of fiscal 2021,
when the COVID-19 pandemic first materially negatively impacted the Company's
operations, and observed a recovery in both automotive design activities and
production volumes during the first nine months of fiscal 2022 on a year over
year basis, the COVID-19 pandemic and related global chip shortage have had and,
in fiscal 2022, may continue to have a material adverse impact on the Company's
QNX automotive software business in particular and on the Company's business,
results of operations and financial condition on a consolidated basis. The
Company does not expect the COVID-19 pandemic and its related economic impact to
materially adversely affect the Company's liquidity position.
The ultimate impact of the COVID-19 pandemic on the Company's operational and
financial performance will depend on, among other things, the pandemic's
duration and severity, including resurgences in some geographic areas as a
result of new strains and variants, such as Delta and Omicron, the governmental
restrictions that may be sustained or imposed in response to the pandemic, the
effectiveness of actions taken to contain or mitigate the pandemic (including
the distribution and efficacy of vaccines, particularly against emergent viral
variants), the impact of the global chip shortage and other supply chain
constraints. The long-term impact of the COVID-19 pandemic on the Company's
business may not be fully reflected until future periods.
The Company continues to evaluate the current and potential impact of the
pandemic on its business, results of operations and consolidated financial
statements, including potential asset impairment. The Company also continues to
actively monitor developments and business conditions that may cause it to take
further actions that alter business operations as may be required by applicable
authorities or that the Company determines are in the best interests of its
employees, customers, suppliers and stockholders.
                                       35

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Third Quarter Fiscal 2022 Summary Results of Operations The following table sets forth certain unaudited consolidated statements of operations data for the quarter ended November 30, 2021 compared to the quarter ended November 30, 2020 under U.S. GAAP:

For the Three Months Ended


                                                               (in 

millions, except for share and per share amounts)


                                                                November 30,         November 30,
                                                                    2021                 2020               Change
Revenue                                                        $       184          $       218          $     (34)
Gross margin                                                           117                  149                (32)
Operating expenses                                                      66                  276               (210)
Investment income (loss), net                                           25                   (1)                26
Income (loss) before income taxes                                       76                 (128)               204
Provision for income taxes                                               2                    2                  -
Net income (loss)                                              $        74          $      (130)         $     204
Earnings (loss) per share - reported
Basic                                                          $      0.13          $     (0.23)
Diluted                                                        $     (0.05)         $     (0.23)

Weighted-average number of shares outstanding (000's)
Basic (1)                                                          571,138              562,443
Diluted (2)                                                        631,971              562,443

______________________________


(1)Basic earnings (loss) per share on a U.S. GAAP basis for the third quarter of
fiscal 2022 and third quarter of fiscal 2021 includes 1,421,945 and 2,802,067
common shares, respectively, to be issued on the anniversary dates of the
Cylance acquisition completed on February 21, 2019, in consideration for the
acquisition. There are no service or other requirements associated with the
issuance of these shares.
(2)Diluted loss per share on a U.S. GAAP basis for the third quarter of fiscal
2021 does not include the dilutive effect of the Debentures (defined below), as
to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for
the third quarter of fiscal 2022 and 2021 does not include the dilutive effect
of stock-based compensation as to do so would be anti-dilutive. See Note 8 to
the Consolidated Financial Statements for the Company's calculation of the
diluted weighted average number of shares outstanding.
The following tables show information by operating segment for the three and
nine months ended November 30, 2021 and November 30, 2020. The Company reports
segment information in accordance with U.S. GAAP Accounting Standards
Codification Section 280 based on the "management" approach. The management
approach designates the internal reporting used by the CODM for making decisions
and assessing performance of the Company's reportable operating segments. See
"Business Overview" for a description of the Company's operating segments, as
well as Note 11 to the Consolidated Financial Statements.
                                                                                                        For the Three Months Ended
                                                                                                               (in millions)
                                   Cybersecurity                                          IoT                                         Licensing and Other                                 Segment Totals
                           November 30,                Change                November 30,                 Change                 November 30,                 Change               November 30,               Change
                        2021            2020                              2021             2020                               2021              2020                            2021            2020

Segment revenue $ 128 $ 130 $ (2) $ 43

$ 32          $    11          $    13               $ 56

$ (43) $ 184 $ 218 $ (34) Segment cost of sales

                     52             53               (1)               8                6                2                6                  9              (3)              66             68              (2)
Segment gross margin $    76          $  77          $    (1)         $    35             $ 26          $     9          $     7               $ 47          $  (40)         $   118          $ 150          $  (32)


                                       36

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                                                                                                                                          For the Nine Months Ended
                                                                                                                                                (in millions)
                                                  Cybersecurity                                                         IoT                                                      Licensing and Other                                             Segment Totals
                                        November 30,                        Change                        November 30,                       Change                       November 30,                       Change                       November 30,                    Change
                                  2021                  2020                                        2021                   2020                                     2021                 2020                                       2021                 2020
Segment revenue            $              355       $         369       $         (14)       $               126       $         92       $          34       $             52       $         222       $         (170)       $           533       $         683       $ (150)
Segment cost of sales                     147                 146                    1                        22                 18                   4                     18                  24                   (6)                   187                 188             (1)
Segment gross margin       $              208       $         223       $         (15)       $               104       $         74       $          30       $             34       $         198       $         (164)       $           346       $         495       $ (149)

The following tables reconcile the Company's segment results for the three and nine months ended November 30, 2021 to consolidated U.S. GAAP results:

For the Three Months Ended November 30, 2021


                                                                                           (in millions)
                                                                         Licensing and                                                             Consolidated U.S.
                                Cybersecurity             IoT                Other              Segment Totals           Reconciling Items                GAAP
Revenue                       $          128          $     43          $         13          $           184          $                -          $           184
Cost of sales (1)                         52                 8                     6                       66                           1                       67
Gross margin                  $           76          $     35          $          7          $           118          $               (1)         $           117
Operating expenses                                                                                                                     66                       66
Investment income, net                                                                                                                (25)                     (25)
Income before income taxes                                                                                                                         $            76


                                                                               For the Nine Months Ended November 30, 2021
                                                                                              (in millions)
                                                                             Licensing and                                                             Consolidated U.S.
                                    Cybersecurity             IoT                Other              Segment Totals           Reconciling Items               GAAP
Revenue                           $          355          $    126          $         52          $           533          $                -          $          533
Cost of sales (1)                            147                22                    18                      187                           3                     190
Gross margin                      $          208          $    104          $         34          $           346          $               (3)         $          343
Operating expenses                                                                                                                        491                     491
Investment income, net                                                                                                                    (22)                    (22)
Loss before income taxes                                                                                                                               $         (126)

______________________________


(1) See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the three and nine months ended
November 30, 2021.
The following tables reconcile the Company's segment results for the three and
nine months ended November 30, 2020 to consolidated U.S. GAAP results:
                                                                           

For the Three Months Ended November 30, 2020


                                                                                          (in millions)
                                                                         Licensing and                                                             Consolidated U.S.
                                Cybersecurity             IoT                Other              Segment Totals           Reconciling Items               GAAP
Revenue                       $          130          $     32          $         56          $           218          $                -          $          218
Cost of sales (1)                         53                 6                     9                       68                           1                      69
Gross margin                  $           77          $     26          $         47          $           150          $               (1)         $          149
Operating expenses                                                                                                                    276                     276
Investment loss, net                                                                                                                    1                       1
Loss before income taxes                                                                                                                           $         (128)


                                       37

--------------------------------------------------------------------------------
                                                                               For the Nine Months Ended November 30, 2020
                                                                                              (in millions)
                                                                             Licensing and                                                             Consolidated U.S.
                                    Cybersecurity             IoT                Other              Segment Totals           Reconciling Items               GAAP
Revenue                           $          369          $     92          $        222          $           683          $                -          $          683
Cost of sales (1)                            146                18                    24                      188                           4                     192
Gross margin                      $          223          $     74          $        198          $           495          $               (4)         $          491
Operating expenses                                                                                                                      1,285                   1,285
Investment loss, net                                                                                                                        6                       6
Loss before income taxes                                                                                                                               $         (800)

______________________________


(1) See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the three and nine months ended
November 30, 2020.
Financial Highlights
The Company had approximately $772 million in cash, cash equivalents and
investments as of November 30, 2021 and $804 million in cash, cash equivalents
and investments as of February 28, 2021.
In the third quarter of fiscal 2022, the Company recognized revenue of $184
million and net income of $74 million, or $0.13 basic earnings per share and
$0.05 diluted loss per share on a U.S. GAAP basis. In the third quarter of
fiscal 2021, the Company recognized revenue of $218 million and incurred a net
loss of $130 million, or $0.23 basic and diluted loss per share on a U.S. GAAP
basis.
The Company recognized an adjusted net loss of $1 million, and an adjusted loss
of $0.00 per share, in the third quarter of fiscal 2022. The Company recognized
adjusted net income of $9 million, and adjusted earnings of $0.02 per share, in
the third quarter of fiscal 2021. See "Non-GAAP Financial Measures" below.
Debentures Fair Value Adjustment
As previously disclosed, the Company elected the fair value option to account
for its outstanding 1.75% unsecured convertible debentures (the "1.75%
Debentures") and its previously outstanding 3.75% outstanding convertible
debentures (the "3.75% Debentures" and collectively, the "Debentures");
therefore, periodic revaluation has been and continues to be required under U.S.
GAAP. The fair value adjustment does not impact the terms of the Debentures such
as the face value, the redemption features or the conversion price.
As at November 30, 2021, the fair value of the 1.75% Debentures was
approximately $673 million, a decrease of approximately $109 million during the
third quarter of fiscal 2022. For the three months ended November 30, 2021, the
Company recorded non-cash income relating to changes in fair value from
non-credit components of $110 million (pre-tax and after tax) (the "Q3 Fiscal
2022 Debentures Fair Value Adjustment") in the Company's consolidated statements
of operations and a non-cash charge relating to changes in fair value from
instrument specific credit risk of $1 million in Other Comprehensive Loss
("OCL") relating to the 1.75% Debentures. For the nine months ended November 30,
2021, the Company recorded non-cash income relating to changes in fair value
from non-credit components of $47 million (pre-tax and after tax) (the "Fiscal
2022 Debentures Fair Value Adjustment") in the Company's consolidated statements
of operations and non-cash income relating to changes in fair value from
instrument specific credit risk of nil in OCL relating to the 1.75% Debentures.
See Note 6 to the Consolidated Financial Statements for further details on the
1.75% Debentures.
Non-GAAP Financial Measures
The Consolidated Financial Statements have been prepared in accordance with U.S.
GAAP, and information contained in this MD&A is presented on that basis. On
December 21, 2021, the Company announced financial results for the three and
nine months ended November 30, 2021, which included certain non-GAAP financial
measures, including adjusted gross margin, adjusted gross margin percentage,
adjusted operating expense, adjusted operating income (loss), adjusted EBITDA,
adjusted operating income (loss) margin percentage, adjusted EBITDA margin
percentage, adjusted net income (loss), adjusted income (loss) per share,
adjusted research and development expense, adjusted selling, marketing and
administrative expense and adjusted amortization expense.
In the Company's internal reports, management evaluates the performance of the
Company's business on a non-GAAP basis by excluding the impact of certain items
below from the Company's U.S. GAAP financial results. The Company believes that
these non-GAAP measures provide management, as well as readers of the Company's
financial statements, with a consistent basis for comparison across accounting
periods and is useful in helping management and readers understand the Company's
                                       38
--------------------------------------------------------------------------------
operating results and underlying operational trends. In the first quarter of
fiscal 2022, the Company discontinued its use of software deferred revenue
acquired and software deferred commission acquired adjustments in its non-GAAP
financial measures due to the quantitative decline in the adjustments over time.
For purposes of comparability, the Company's non-GAAP financial measures for the
three and nine months ended November 30, 2020 have been updated to conform to
the current year's presentation.
•Debentures fair value adjustment. The Company has elected to measure its
Debentures outstanding at fair value in accordance with the fair value option
under U.S. GAAP. Each period, the fair value of the Debentures is recalculated
and resulting non-cash income and charges from the change in fair value from
non-credit components of the Debentures are recognized in income. The amount can
vary each period depending on changes to the Company's share price, share price
volatility and credit indices. This is not indicative of the Company's core
operating performance, and may not be meaningful in comparison to the Company's
past operating performance.
•Restructuring charges. The Company believes that restructuring costs relating
to employee termination benefits and facilities pursuant to the Resource
Allocation Program ("RAP") entered into in order to transition the Company from
a legacy hardware manufacturer to a licensing driven software business do not
reflect expected future operating expenses, are not indicative of the Company's
core operating performance, and may not be meaningful in comparison to the
Company's past operating performance.
•Stock compensation expenses. Equity compensation is a non-cash expense and does
not impact the ongoing operating decisions taken by the Company's management.
•Amortization of acquired intangible assets. When the Company acquires
intangible assets through business combinations, the assets are recorded as part
of purchase accounting and contribute to revenue generation. Such acquired
intangible assets depreciate over time and the related amortization will recur
in future periods until the assets have been fully amortized. This is not
indicative of the Company's core operating performance, and may not be
meaningful in comparison to the Company's past operating performance.
•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 in comparison to the Company's past operating performance.
•Goodwill impairment charge. The Company believes that goodwill impairment
charge does not reflect expected future operating expenses, is not indicative of
the Company's core operating performance, and may not be meaningful in
comparison to the Company's past operating performance.
On a U.S. GAAP basis, the impacts of these items are reflected in the Company's
income statement. However, the Company believes that the provision of
supplemental non-GAAP measures allow investors to evaluate the financial
performance of the Company's business using the same evaluation measures that
management uses, and is therefore a useful indication of the Company's
performance or expected performance of future operations and facilitates
period-to-period comparison of operating performance. As a result, the Company
considers it appropriate and reasonable to provide, in addition to U.S. GAAP
measures, supplementary non-GAAP financial measures that exclude certain items
from the presentation of its financial results.

                                       39
--------------------------------------------------------------------------------
Reconciliation of non-GAAP based measures with most directly comparable U.S.
GAAP based measures for the three months ended November 30, 2021 and November
30, 2020
Readers are cautioned that adjusted gross margin, adjusted gross margin
percentage, adjusted operating expense, adjusted operating income (loss),
adjusted EBITDA, adjusted operating income (loss) margin percentage, adjusted
EBITDA margin percentage, adjusted net income (loss), adjusted income (loss) per
share, adjusted research and development expense, adjusted selling, marketing
and administrative expense and adjusted amortization expense and similar
measures do not have any standardized meaning prescribed by U.S. GAAP and are
therefore unlikely to be comparable to similarly titled measures reported by
other companies. These non-GAAP financial measures should be considered in the
context of the U.S. GAAP results, which are described in this MD&A and presented
in the Consolidated Financial Statements.
A reconciliation of the most directly comparable U.S. GAAP financial measures
for the three months ended November 30, 2021 and November 30, 2020 to adjusted
financial measures is reflected in the table below:
For the Three Months Ended (in millions)         November 30, 2021       November 30, 2020

Gross margin                                    $           117         $           149

Stock compensation expense                                    1                       1
Adjusted gross margin                           $           118         $           150

Gross margin %                                             63.6    %               68.3    %

Stock compensation expense                                  0.5    %                0.5    %
Adjusted gross margin %                                    64.1    %               68.8    %


Reconciliation of operating expense for the three months ended November 30,
2021, August 31, 2021 and November 30, 2020 to adjusted operating expense is
reflected in the table below:
For the Three Months Ended (in millions)                  November 30, 2021          August 31, 2021           November 30, 2020
Operating expense                                       $               66          $           253          $              276

Stock compensation expense                                               5                          11                       11
Debentures fair value adjustment (1)                                  (110)                      67                          95

Acquired intangibles amortization                                       29                       32                          32

Adjusted operating expense                              $              142          $           143          $              138

______________________________


(1) See "Third Quarter Fiscal 2022 Summary Results of Operations - Financial
Highlights - Debentures Fair Value Adjustment"
Reconciliation of U.S. GAAP net income (loss) and U.S. GAAP basic earnings
(loss) per share for the three months ended November 30, 2021 and November 30,
2020 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, 2021                                  November 30, 2020
                                                                                  Basic earnings (loss)                             Basic earnings (loss)
                                                                                        per share                                         per share
Net income (loss)                                           $        74                   $0.13                $     (130)                 $(0.23)

Stock compensation expense                                            6                                                12
Debentures fair value adjustment                                   (110)                                               95

Acquired intangibles amortization                                    29                                                32

Adjusted net income (loss)                                  $        (1)                  $0.00                $        9                   $0.02


                                       40

--------------------------------------------------------------------------------
Reconciliation of U.S. GAAP research and development, selling, marketing and
administration, and amortization expense for the three months ended November 30,
2021 and November 30, 2020 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, 2021           November 30, 2020
Research and development                                         $               57          $               53

Stock compensation expense                                                        2                           3
Adjusted research and development                                $               55          $               50

Selling, marketing and administration                            $               77          $               83

Stock compensation expense                                                        3                           8

Adjusted selling, marketing and administration                   $               74          $               75

Amortization                                                     $               42          $               45
Acquired intangibles amortization                                                29                          32
Adjusted amortization                                            $               13          $               13


Adjusted operating income (loss), adjusted EBITDA, adjusted operating income
(loss) margin percentage and adjusted EBITDA margin percentage for the three
months ended November 30, 2021 and November 30, 2020 are reflected in the table
below.
For the Three Months Ended (in millions)                          November 30, 2021           November 30, 2020
Operating income (loss)                                         $               51          $             (127)

Non-GAAP adjustments to operating income (loss)



Stock compensation expense                                                       6                          12
Debentures fair value adjustment                                              (110)                         95

Acquired intangibles amortization                                               29                          32

Total non-GAAP adjustments to operating income (loss)                          (75)                        139
Adjusted operating income (loss)                                               (24)                         12
Amortization                                                                    45                          49
Acquired intangibles amortization                                              (29)                        (32)
Adjusted EBITDA                                                 $               (8)         $               29

Revenue                                                         $              184          $              218
Adjusted operating income (loss) margin % (1)                                   (13%)                          6%
Adjusted EBITDA margin % (2)                                                     (4%)                         13%

______________________________


(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
                                       41
--------------------------------------------------------------------------------
Reconciliation of non-GAAP based measures with most directly comparable U.S.
GAAP based measures for the nine months ended November 30, 2021 and November 30,
2020.
A reconciliation of the most directly comparable U.S. GAAP financial measures
for the nine months ended November 30, 2021 and November 30, 2020 to adjusted
financial measures is reflected in the table below:
For the Nine Months Ended (in millions)       November 30, 2021       November 30, 2020

Gross margin                                 $           343         $            491

Stock compensation expense                                 3                        4
Adjusted gross margin                        $           346         $            495

Gross margin %                                          64.4    %                71.9  %

Stock compensation expense                               0.5    %                 0.6  %
Adjusted gross margin %                                 64.9    %                72.5  %

Operating expense                            $           491         $          1,285
Restructuring charges                                      -                        2
Stock compensation expense                                22                       31
Debentures fair value adjustment (1)                     (47)               

114



Acquired intangibles amortization                         93                       97

Goodwill impairment charge                                 -                      594
LLA impairment charge                                      -                       21

Adjusted operating expense                   $           423         $            426

______________________________

(1) See "Third Quarter Fiscal 2022 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment"



Reconciliation of U.S. GAAP net loss and U.S. GAAP basic loss per share for the
nine months ended November 30, 2021 and November 30, 2020 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, 2021                           November 30, 2020
                                                                                                                                     Basic
                                                                                                                                   earnings
                                                                                                                                  (loss) per
                                                                                 Basic loss per share                                share
Net loss                                                    $     (132)                 $(0.23)               $     (789)           $(1.41)

Restructuring charges                                                -                                                 2
Stock compensation expense                                          25                                                35
Debentures fair value adjustment                                   (47)                                              114

Acquired intangibles amortization                                   93                                                97

Goodwill impairment charge                                           -                                               594
LLA impairment charge                                                -                                                21

Adjusted net income (loss)                                  $      (61)                 $(0.11)               $       74             $0.13


                                       42

--------------------------------------------------------------------------------
Reconciliation of U.S. GAAP research and development, selling, marketing and
administration, and amortization expense for the nine months ended November 30,
2021 and November 30, 2020 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, 2021           November 30, 2020
Research and development                                         $              172          $              167

Stock compensation expense                                                        6                           8
Adjusted research and development                                $              166          $              159

Selling, marketing and administration                            $              233          $              252
Restructuring charges                                                             -                           2

Stock compensation expense                                                       16                          23

Adjusted selling, marketing and administration                   $              217          $              227

Amortization                                                     $              133          $              137
Acquired intangibles amortization                                                93                          97
Adjusted amortization                                            $               40          $               40


Adjusted operating income (loss), adjusted EBITDA, adjusted operating income
(loss) margin percentage and adjusted EBITDA margin percentage for the nine
months ended November 30, 2021 and November 30, 2020 are reflected in the table
below.
For the Nine Months Ended (in millions)                           November 30, 2021          November 30, 2020
Operating loss                                                  $         (148)             $           (794)

Non-GAAP adjustments to operating loss



Restructuring charges                                                        -                             2
Stock compensation expense                                                  25                            35
Debentures fair value adjustment                                           (47)                          114

Acquired intangibles amortization                                           93                            97

Goodwill impairment charge                                                   -                           594
LLA impairment charge                                                        -                            21

Total non-GAAP adjustments to operating loss                                71                           863
Adjusted operating income (loss)                                           (77)                           69
Amortization                                                               142                           149
Acquired intangibles amortization                                          (93)                          (97)
Adjusted EBITDA                                                 $          (28)             $            121

Revenue                                                         $          533              $            683
Adjusted operating income (loss) margin % (1)                              (14  %)                        10  %
Adjusted EBITDA margin % (2)                                                (5  %)                        18  %

______________________________


(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
                                       43
--------------------------------------------------------------------------------
Key Metrics
The Company regularly monitors a number of financial and operating metrics,
including the following key metrics, in order to measure the Company's current
performance and estimated future performance. Readers are cautioned that annual
recurring revenue ("ARR"), dollar-based net retention rate ("DBNRR"), billings,
recurring revenue percentage, and free cash flow do not have any standardized
meaning and are unlikely to be comparable to similarly titled measures reported
by other companies. In the first quarter of fiscal 2022, the Company
discontinued its use of software deferred revenue acquired in its key metrics as
the Company no longer reports non-GAAP revenue. For purposes of comparability,
the Company's key metrics for the three months ended November 30, 2020 have been
updated to conform to the current year's presentation.
Comparative breakdowns of certain key metrics for the three months ended
November 30, 2021 and November 30, 2020 are set forth below.
For the Three Months Ended (in millions)           November 30, 2021          November 30, 2020              Change

Annual Recurring Revenue
Cybersecurity                                     $           358            $           365            $          (7)
IoT                                               $            91            $            88            $           3
Dollar-Based Net Retention Rate
Cybersecurity                                                  95    %                    95    %                   -  %

Recurring Software Product Revenue                               ~ 80%                      ~ 80%                   -  %


Annual Recurring Revenue
The Company defines ARR as the annualized value of all subscription, term,
maintenance, services, and royalty contracts that generate recurring revenue as
of the end of the reporting period. The Company uses ARR as an indicator of
business momentum for software and services.
Cybersecurity ARR was approximately $358 million in the third quarter of fiscal
2022 and decreased compared to $364 million in the second quarter of fiscal 2022
and decreased compared to $365 million in the third quarter of fiscal 2021.
IoT ARR was approximately $91 million in the third quarter of fiscal 2022 and
increased compared to $89 million in the second quarter of fiscal 2022 and
increased compared to $88 million in the third quarter of fiscal 2021.
Dollar-Based Net Retention Rate
The Company calculates the DBNRR as of period end by first calculating the ARR
from the customer base as at 12 months prior to the current period end ("Prior
Period ARR"). The Company then calculates the ARR for the same cohort of
customers as at the current period end ("Current Period ARR"). The Company then
divides the Current Period ARR by the Prior Period ARR to calculate the DBNRR.
Cybersecurity DBNRR was 95% in the third quarter of fiscal 2022 and was
consistent with 95% in the second quarter of fiscal 2022 and the third quarter
of fiscal 2021.
Billings
The Company defines billings as amounts invoiced less credits issued. The
Company considers 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.
Total Company billings decreased in the third quarter of fiscal 2022 compared to
the second quarter of fiscal 2022 and decreased compared to the third quarter of
fiscal 2021 due to a decrease in billings from Licensing and Other.
The Company previously stated that it expected sequential billings growth for
Cybersecurity in the third quarter of fiscal 2022. In the third quarter of
fiscal 2022, Cybersecurity billings increased sequentially compared to the
second quarter of fiscal 2022.
The Company previously stated that it expected Cybersecurity billings to grow by
a double-digit percentage for fiscal 2022. The Company no longer expects to meet
this expectation due to delays in closing large government deals.
                                       44
--------------------------------------------------------------------------------
Recurring Software Product Revenue
The Company defines recurring software product revenue percentage as recurring
software product revenue divided by total software and services revenue.
Recurring software product revenue is comprised of subscription and term
licenses, maintenance arrangements, royalty arrangements and perpetual licenses
recognized ratably under ASC 606. Total software and services revenue is
comprised of recurring product revenue, non-recurring product revenue and
professional services. The Company uses recurring software product revenue
percentage to provide visibility into the revenue expected to be recognized in
the current and future periods.
Total adjusted Software and Services product revenue, excluding professional
services, was approximately 80% recurring in the third quarter of fiscal 2022
and was consistent with approximately 80% recurring in the second quarter of
fiscal 2022 and the third quarter of fiscal 2021.
Free Cash Flow
Free cash flow is a measure of liquidity calculated as net operating cash flow
minus capital expenditures. Free cash flow does not have any standardized
meaning as prescribed by U.S. GAAP and therefore may not be comparable to
similar measures presented by other companies. The Company uses free cash flow
when assessing its sources of liquidity, capital resources, and quality of
earnings. Free cash flow is helpful in understanding the Company's capital
requirements and provides an additional means to reflect the cash flow trends in
the Company's business. For the three months ended November 30, 2021, the
Company's net cash used in operating activities was $19 million and capital
expenditures were $2 million, resulting in the Company reporting free cash usage
of $21 million compared to net cash generated by operating activities of
$29 million, capital expenditures of $2 million, and free cash flow of
$27 million for the three months ended November 30, 2020.
Results of Operations - Three months ended November 30, 2021 compared to the
three months ended November 30, 2020
Revenue
Revenue by Segment
Comparative breakdowns of revenue by segment are set forth below.
                                          For the Three Months Ended
                                                (in millions)
                        November 30, 2021               November 30, 2020       Change
Revenue by Segment
Cybersecurity          $           128                 $           130         $   (2)
IoT                                 43                              32             11
Licensing and Other                 13                              56            (43)

                       $           184                 $           218         $  (34)

% Revenue by Segment
Cybersecurity                     69.6   %                        59.6    %
IoT                               23.4   %                        14.7    %
Licensing and Other                7.0   %                        25.7    %

                                 100.0   %                       100.0    %


Cybersecurity
Cybersecurity revenue was $128 million, or 69.6% of revenue, in the third
quarter of fiscal 2022, a decrease of $2 million compared to $130 million, or
59.6% of revenue, in the third quarter of fiscal 2021. The decrease in
Cybersecurity revenue of $2 million was primarily due to a decrease of $2
million relating to professional services, a decrease of $2 million relating to
product revenue in BlackBerry Spark, and a decrease of $1 million in BlackBerry
AtHoc revenue, partially offset by an increase of $3 million related to the sale
of Secusmart solutions.
The Company previously stated that it expected modest sequential Cybersecurity
revenue growth in the third and fourth quarters of fiscal 2022. In the third
quarter of fiscal 2022, Cybersecurity revenue grew sequentially compared to the
second quarter of fiscal 2022.
                                       45
--------------------------------------------------------------------------------
The Company expects Cybersecurity revenue to be between $125 million and $135
million in the fourth quarter of fiscal 2022. The Company may or may not achieve
sequential Cybersecurity revenue growth in the fourth quarter of fiscal 2022
depending on actual performance within such revenue range.
The Company previously stated that it expected Cybersecurity revenue to be
towards the lower end of $495 million and $515 million in fiscal 2022. The
Company no longer expects to meet this expectation due to delays in closing
large government deals.
The Company previously stated that it expected Software and Services revenue to
be between $675 million and $715 million in fiscal 2022. The Company no longer
expects to meet this expectation due to the reason noted above for Cybersecurity
revenue.
IoT
IoT revenue was $43 million, or 23.4% of revenue, in the third quarter of fiscal
2022, an increase of $11 million compared to $32 million, or 14.7% of revenue,
in the third quarter of fiscal 2021. The increase in IoT revenue of $11 million
was primarily due to an increase of $5 million in development seat revenue, an
increase of $4 million in BlackBerry QNX royalty revenue due to the partial
recovery of the automotive market from the slowdown related to the COVID-19
pandemic in the third quarter of fiscal 2021, and an increase of $2 million
relating to professional services.
The Company expects sequential IoT revenue growth in the fourth quarter of
fiscal 2022.
Licensing and Other
Licensing and Other revenue was $13 million, or 7.0% of revenue, in the third
quarter of fiscal 2022, a decrease of $43 million compared to $56 million, or
25.7% of revenue, in the third quarter of fiscal 2021. The decrease in Licensing
and Other revenue of $43 million was primarily due to a decrease of $41 million
in revenue from the Company's intellectual property licensing arrangements
including its patent licensing agreement with Teletry and a decrease of $1
million in SAF revenue.
The Company expects to enter into a definitive agreement with respect to a sale
of a portion of the Company's patent portfolio, as previously disclosed, in the
fourth quarter of fiscal 2022, in which event the Company expects that Licensing
and Other revenue in the quarter will be nominal. If the patent portfolio sale
process concludes in the fourth quarter of fiscal 2022 without the execution of
a definitive agreement, the Company expects that Licensing and Other revenue
will be approximately $10 million in the quarter.
Revenue by Geography
Comparative breakdowns of the geographic regions are set forth in the following
table:
                                                                           For the Three Months Ended
                                                                                 (in millions)
                                                        November 30, 2021         November 30, 2020            Change
Revenue by Geography
North America                                          $           101           $           147            $      (46)
Europe, Middle East and Africa                                      66                        55                    11
Other regions                                                       17                        16                     1
                                                       $           184           $           218            $      (34)

% Revenue by Geography
North America                                                     54.9   %                  67.5    %
Europe, Middle East and Africa                                    35.9   %                  25.2    %
Other regions                                                      9.2   %                   7.3    %
                                                                 100.0   %                 100.0    %


North America Revenue
Revenue in North America was $101 million, or 54.9% of revenue, in the third
quarter of fiscal 2022, reflecting a decrease of $46 million compared to $147
million, or 67.5% of revenue, in the third quarter of fiscal 2021. Revenue in
North America decreased compared to the third quarter of fiscal 2021 primarily
due to a decrease of $41 million in Licensing and Other revenue due to the
reasons discussed above in "Revenue by Segment", a decrease of $3 million in
product revenue in BlackBerry Spark, and a decrease of $3 million in
professional services, partially offset by an increase of $1 million in
development seat revenue.
                                       46
--------------------------------------------------------------------------------
Europe, Middle East and Africa Revenue
Revenue in Europe, Middle East and Africa was $66 million or 35.9% of revenue in
the third quarter of fiscal 2022, reflecting an increase of $11 million compared
to $55 million or 25.2% of revenue in the third quarter of fiscal 2021. The
increase in revenue is primarily due to an increase of $4 million in development
seat revenue, an increase of $3 million related to the sale of Secusmart
solutions, an increase of $2 million in product revenue in BlackBerry Spark, and
an increase of $2 million in professional services.
Other Regions Revenue
Revenue in other regions was $17 million or 9.2% of revenue in the third quarter
of fiscal 2022, reflecting an increase of $1 million compared to $16 million or
7.3% of revenue in the third quarter of fiscal 2021. The increase in revenue is
primarily due an increase of $3 million in BlackBerry QNX royalty revenue due to
the reasons discussed above in "Revenue by Segment", and an increase of $1
million in development seat revenue, partially offset by a decrease of $2
million in SAF revenue.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin decreased by $32 million to approximately $117 million
in the third quarter of fiscal 2022 from $149 million in the third quarter of
fiscal 2021. The decrease was primarily due to a decrease in revenue from
Licensing and Other and BlackBerry Spark, partially offset by an increase in
revenue from BlackBerry QNX and Secusmart due to the reasons discussed above in
"Revenue by Segment", as the Company's cost of sales does not significantly
fluctuate based on business volume.
Consolidated Gross Margin Percentage
Consolidated gross margin percentage decreased by 4.7% to approximately 63.6% of
consolidated revenue in the third quarter of fiscal 2022 from 68.3% of
consolidated revenue in the third quarter of fiscal 2021. The decrease was
primarily due to a lower gross margin contribution from Licensing and Other due
to the reasons discussed above in "Revenue by Segment", partially offset by a
higher gross margin contribution from BlackBerry QNX due to the reasons
discussed above in "Revenue by Segment".
Gross Margin by Segment
See "Business Overview" and "Third Quarter Fiscal 2022 Summary Results of
Operations" for information about the Company's operating segments and the basis
of operating segment results.
                                                                                                          For the Three Months Ended
                                                                                                                 (in millions)
                                      Cybersecurity                                            IoT                                       Licensing and Other                                Segment Totals
                              November 30,                 Change                 November 30,                  Change               November 30,              Change                November 30,                Change
                          2021              2020                               2021              2020                            2021            2020                             2021             2020
Segment revenue       $         128       $    130       $      (2)       $           43       $     32       $       11       $      13       $     56       $    (43)       $        184       $    218       $    (34)
Segment cost of sales            52             53              (1)                    8              6                2               6              9             (3)                 66             68             (2)
Segment gross margin  $          76       $     77       $      (1)       $           35       $     26       $        9       $       7       $     47       $    (40)       $        118       $    150       $    (32)
Segment gross margin
%                             59  %          59  %             -  %                81  %          81  %             -  %           54  %          84  %         (30  %)              64  %          69  %          (5  %)


Cybersecurity
Cybersecurity gross margin decreased by $1 million to approximately $76 million
in the third quarter of fiscal 2022 from $77 million in the third quarter of
fiscal 2021. The decrease 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.
Cybersecurity gross margin percentage was 59% of Cybersecurity revenue in the
third quarter of fiscal 2022, consistent with 59% of Cybersecurity revenue in
the third quarter of fiscal 2021.
IoT
IoT gross margin increased by $9 million to approximately $35 million in the
third quarter of fiscal 2022 from $26 million in the third quarter of fiscal
2021. The increase was primarily due to the reasons discussed above in "Revenue
by Segment", partially offset by an increase in salaries expense from increased
headcount.
IoT gross margin percentage was 81% of IoT revenue in the third quarter of
fiscal 2022, consistent with 81% of IoT revenue in the third quarter of fiscal
2021.
                                       47
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Licensing and Other
Licensing and Other gross margin decreased by $40 million to approximately $7
million in the third quarter of fiscal 2022 from $47 million in the third
quarter of fiscal 2021. The decrease 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 gross margin percentage decreased by 30% to approximately
54% of Licensing and Other revenue in the third quarter of fiscal 2022 from 84%
of Licensing and Other revenue in the third quarter of fiscal 2021. The decrease
was primarily due to the reasons discussed above in "Revenue by Segment".
Operating Expenses
The table below presents a comparison of research and development, selling,
marketing and administration, and amortization expenses for the quarter ended
November 30, 2021, compared to the quarter ended August 31, 2021 and the quarter
ended November 30, 2020. The Company believes it is meaningful to provide a
sequential comparison between the third quarter of fiscal 2022 and the second
quarter of fiscal 2022.
                                                                      For the Three Months Ended
                                                                            (in millions)
                                                           November 30, 2021               August 31, 2021                November 30, 2020
Revenue                                                   $         184                   $         175                  $           218
Operating expenses
Research and development                                             57                              58                               53
Selling, marketing and administration                                77                              83                               83
Amortization                                                         42                              45                               45

Debentures fair value adjustment                                   (110)                             67                               95

Total                                                     $          66                   $         253                  $           276

Operating Expenses as % of Revenue
Research and development                                           31.0  %                         33.1  %                          24.3  %
Selling, marketing and administration                              41.8  %                         47.4  %                          38.1  %
Amortization                                                       22.8  %                         25.7  %                          20.6  %

Debentures fair value adjustment                                  (59.8  %)                        38.3  %                          43.6  %

Total                                                              35.9     %                     144.6    %                       126.6    %


See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the three months ended November 30,
2021, August 31, 2021 and November 30, 2020.
U.S. GAAP Operating Expenses
Operating expenses decreased by $187 million, or 73.9%, to $66 million, or 35.9%
of revenue, in the third quarter of fiscal 2022, compared to $253 million, or
144.6% of revenue, in the second quarter of fiscal 2022. The decrease was
primarily attributable to the difference between the Q3 Fiscal 2022 Debentures
Fair Value Adjustment and the fair value adjustment related to the Debentures
incurred in the second quarter of fiscal 2022 of $177 million, a decrease of $8
million in stock compensation expenses, a decrease of $5 million in the
Company's deferred share unit costs, and a decrease of $3 million in
amortization expense, partially offset by a decrease in benefits of $8 million
in government subsidies resulting from claims filed for the Canada Emergency
Wage Subsidy ("CEWS") program to support the business through the COVID-19
pandemic.
Operating expenses decreased by $210 million, or 76.1%, to $66 million, or 35.9%
of revenue, in the third quarter of fiscal 2022, compared to $276 million, or
126.6% of revenue, in the third quarter of fiscal 2021. The decrease was
primarily attributable to the difference between the Q3 Fiscal 2022 Debentures
Fair Value Adjustment and the fair value adjustment related to the Debentures
incurred in the third quarter of fiscal 2021 of $205 million, a decrease of $6
million in stock compensation expenses, and a decrease of $6 million in legal
expenses, partially offset by a decrease in benefits of $7 million in CEWS
funding.
                                       48
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Adjusted Operating Expenses
Adjusted operating expenses decreased by $1 million, or 0.7%, to $142 million in
the third quarter of fiscal 2022 compared to $143 million in the second quarter
of fiscal 2022. The decrease was primarily attributable to a decrease of $5
million in the Company's deferred share unit costs and a decrease of $3 million
in salaries and benefits expenses, partially offset by a decrease in benefits of
$8 million in CEWS funding.
Adjusted operating expenses increased by $4 million, or 2.9%, to $142 million in
the third quarter of fiscal 2022, compared to $138 million in the third quarter
of fiscal 2021. The increase was primarily attributable to a decrease in
benefits of $7 million in CEWS funding, and a decrease in benefits of $2 million
in claims filed with the Ministry of Innovation, Science and Economic
Development Canada relating to its Strategic Innovation Fund ("SIF") program's
investment in BlackBerry QNX, partially offset by a decrease of $6 million in
legal expenses.
Research and Development Expenses
Research and development expenses consist primarily of salaries and benefits
costs for technical personnel, new product development costs, travel expenses,
office and building costs, infrastructure costs and other employee costs.
Research and development expenses increased by $4 million, or 7.5%, to $57
million in the third quarter of fiscal 2022 compared to $53 million in the third
quarter of fiscal 2021. This increase was primarily attributable to a decrease
in benefits of $2 million in SIF claims filed and an increase of $2 million in
salaries and benefits expenses.
Adjusted research and development expenses increased by $5 million, or 10.0%, to
$55 million in the third quarter of fiscal 2022 compared to $50 million in the
third quarter of fiscal 2021. The increase was primarily due to the same reasons
described above on a U.S. GAAP basis.
Selling, Marketing and Administration Expenses
Selling, marketing and administration expenses consist primarily of marketing,
advertising and promotion, salaries and benefits, external advisory fees,
information technology costs, office and related staffing infrastructure costs
and travel expenses.
Selling, marketing and administration expenses decreased by $6 million, or 7.2%,
to $77 million in the third quarter of fiscal 2022 compared to $83 million in
the third quarter of fiscal 2021. This decrease was primarily attributable to a
decrease of $6 million in stock compensation expenses, a decrease of $5 million
in legal expenses, and a decrease of $3 million in the Company's deferred share
unit costs, partially offset by a decrease in benefits of $7 million in CEWS
funding.
Adjusted selling, marketing and administration expenses decreased by $1 million,
or 1.3%, to $74 million in the third quarter of fiscal 2022 compared to $75
million in the third quarter of fiscal 2021. This decrease was primarily
attributable to a decrease of $5 million in legal expenses, and a decrease of $3
million in the Company's deferred share unit costs, partially offset by a
decrease in benefits of $7 million in CEWS funding.
Amortization Expense
The table below presents a comparison of amortization expense relating to
property, plant and equipment and intangible assets recorded as amortization or
cost of sales for the quarter ended November 30, 2021 compared to the quarter
ended November 30, 2020. Intangible assets are comprised of patents, licenses
and acquired technology.
                                                  For the Three Months Ended
                                                         (in millions)
                                                 Included in Operating Expense
                                    November 30, 2021          November 30, 2020       Change
Property, plant and equipment   $        4                    $                4      $     -
Intangible assets                       38                                    41           (3)
Total                           $       42                    $               45      $    (3)

                                                   Included in Cost of Sales
                                    November 30, 2021          November 30, 2020       Change
Property, plant and equipment   $        -                    $                1      $    (1)
Intangible assets                        3                                     3            -
Total                           $        3                    $                4      $    (1)


                                       49

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Amortization included in Operating Expense
Amortization expense relating to property, plant and equipment and certain
intangible assets decreased by $3 million to $42 million in the third quarter of
fiscal 2022 compared to $45 million in the third quarter of fiscal 2021. The
decrease in amortization expense was due to the lower cost base of assets.
Adjusted amortization was $13 million in the third quarter of fiscal 2022,
consistent with $13 million in the third quarter of fiscal 2021.
Amortization included in Cost of Sales
Amortization expense relating to certain property, plant and equipment and
certain intangible assets employed in the Company's service operations decreased
by $1 million to $3 million in the third quarter of fiscal 2022 compared to $4
million in the third quarter of fiscal 2021. The decrease in amortization
expense was due to the lower cost base of assets.
Investment Income (Loss), Net
Investment income (loss), net, which includes the interest expense from the
1.75% Debentures, increased by $26 million to investment income, net of $25
million in the third quarter of fiscal 2022, compared to investment loss, net of
$1 million in the third quarter of fiscal 2021. The increase in investment
income (loss), net is primarily due to gains recognized from a return of capital
from a non-marketable equity investment and observable price changes on
non-marketable equity investments without readily determinable fair value.
Income Taxes
For the third quarter of fiscal 2022, the Company's net effective income tax
expense rate was approximately 3%, compared to a net effective income tax
expense rate of approximately 2% for the same period in the prior fiscal year.
The Company's net effective income tax rate reflects the change in unrecognized
income tax benefits, if any, and the fact that the Company has a significant
valuation allowance against its deferred tax assets, and in particular, the
change in fair value of the Debentures, amongst other items, was offset by a
corresponding adjustment of the valuation allowance. The Company's net effective
income tax rate also reflects the geographic mix of earnings in jurisdictions
with different income tax rates.
Net Income (Loss)
The Company's net income for the third quarter of fiscal 2022 was $74 million,
or $0.13 basic earnings per share and $0.05 diluted loss per share on a U.S.
GAAP basis, reflecting an increase in net income of $204 million compared to a
net loss of $130 million, or $0.23 basic and diluted loss per share, in the
third quarter of fiscal 2021. The increase in net income of $204 million was
primarily due to a decrease in operating expenses that was primarily due to a
decrease in the fair value adjustment related to the Debentures, as described
above in "Operating Expenses", and an increase in investment income (loss), net,
partially offset by a decrease in revenue, as described above in "Revenue by
Segment" and a decrease in gross margin percentage, as described above in
"Consolidated Gross Margin Percentage".
Adjusted net loss was $1 million in the third quarter of fiscal 2022 compared to
adjusted net income of $9 million in the third quarter of fiscal 2021,
reflecting a decrease in adjusted net income of $10 million primarily due to a
decrease in revenue as described above in "Revenue by Segment", a decrease in
gross margin percentage, as described above in "Consolidated Gross Margin
Percentage" and an increase in operating expenses as described above in
"Operating Expenses", partially offset by an increase in investment income
(loss), net.
The weighted average number of shares outstanding was 571 million common shares
for basic earnings per share and 632 million common shares for diluted loss per
share for the third quarter of fiscal 2022. The weighted average number of
shares outstanding was 562 million common shares for basic loss and diluted loss
per share for the third quarter of fiscal 2021.
                                       50
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Results of Operations - Nine months ended November 30, 2021 compared to the nine
months ended November 30, 2020
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,
2021 and November 30, 2020:
                                                                          For the Nine Months Ended
                                                           (in millions,

except for share and per share amounts)


                                                          November 30,
                                                              2021          November 30, 2020            Change
Revenue                                                  $       533                                  $     683                $   (150)
Gross margin                                                     343                                        491                    (148)
Operating expenses                                               491                                      1,285                    (794)
Investment income (loss), net                                     22                                         (6)                     28
Loss before income taxes                                        (126)                                      (800)                    674
Provision for (recovery of) income taxes                           6                                        (11)                     17

Net loss                                                 $      (132)                                 $    (789)               $    657
Loss per share - reported
Basic                                                    $     (0.23)                                 $   (1.41)               $   1.18
Diluted                                                  $     (0.28)                                 $   (1.41)               $   1.13

Weighted-average number of shares outstanding (000's)
Basic (1)                                                    568,877                                    559,732
Diluted (2)                                                  629,710                                    559,732

______________________________


(1)Basic loss per share on a U.S. GAAP basis for the first nine months of fiscal
2022 and fiscal 2021 includes 1,421,945 and 2,802,067 common shares,
respectively, remaining to be issued on the anniversary dates of the Cylance
acquisition completed on February 21, 2019, in consideration for the
acquisition. There are no service or other requirements associated with the
issuance of these shares.
(2)Diluted loss per share on a U.S. GAAP basis for the first nine months of
fiscal 2021 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 nine months of fiscal 2022 and fiscal 2021 do not include the dilutive
effect of stock-based compensation as to do so would be anti-dilutive.
Revenue
Revenue by Segment
Comparative breakdowns of revenue by segment are set forth below.
                                         For the Nine Months Ended
                                               (in millions)
                        November 30, 2021             November 30, 2020       Change
Revenue by Segment
Cybersecurity          $           355               $           369         $  (14)
IoT                                126                            92             34
Licensing and Other                 52                           222           (170)

                       $           533               $           683         $ (150)

% Revenue by Segment
Cybersecurity                     66.6   %                      54.0    %
IoT                               23.6   %                      13.5    %
Licensing and Other                9.8   %                      32.5    %

                                 100.0   %                     100.0    %


                                       51

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Cybersecurity


Cybersecurity revenue was $355 million, or 66.6% of revenue in the first nine
months of fiscal 2022, a decrease of $14 million compared to $369 million, or
54.0% of revenue in the first nine months of fiscal 2021. The decrease in
Cybersecurity revenue of $14 million was primarily due to a decrease of $20
million relating to product revenue in BlackBerry Spark, and a decrease of $6
million relating to professional services, offset by an increase of $16 million
related to the sale of Secusmart solutions.
IoT
IoT revenue was $126 million, or 23.6% of revenue in the first nine months of
fiscal 2022, an increase of $34 million compared to $92 million, or 13.5% of
revenue in the first nine months of fiscal 2021. The increase in IoT revenue of
$34 million was primarily due to an increase of $17 million in BlackBerry QNX
royalty revenue due to the partial recovery of the automotive market from the
slowdown related to the COVID-19 pandemic in the first nine months of fiscal
2021, an increase of $13 million in development seat revenue, and an increase of
$3 million in professional service revenue.
Licensing and Other
Licensing and Other revenue was $52 million, or 9.8% of revenue in the first
nine months of fiscal 2022, a decrease of $170 million compared to $222 million,
or 32.5% of revenue in the first nine months of fiscal 2021. The decrease in
Licensing and Other revenue of $170 million was primarily due to a decrease of
$165 million in revenue from the Company's intellectual property licensing
arrangements including its patent licensing agreement with Teletry, and a
decrease of $4 million in SAF revenue.
U.S. GAAP Revenue by Geography
Comparative breakdowns of the geographic regions on a U.S. GAAP basis are set
forth in the following table:
                                                   For the Nine Months Ended
                                                         (in millions)
                                  November 30, 2021             November 30, 2020       Change
Revenue by Geography
North America                    $           313               $           492         $ (179)
Europe, Middle East and Africa               168                           144             24
Other regions                                 52                            47              5
                                 $           533               $           683         $ (150)

% Revenue by Geography
North America                               58.7   %                      72.0    %
Europe, Middle East and Africa              31.5   %                      21.1    %
Other regions                                9.8   %                       6.9    %
                                           100.0   %                     100.0    %


North America Revenue
Revenue in North America was $313 million, or 58.7% of revenue, in the first
nine months of fiscal 2022, reflecting a decrease of $179 million compared to
$492 million, or 72.0% of revenue in the first nine months of fiscal 2021. The
decrease in North American revenue was primarily due to a decrease of $165
million in Licensing and Other revenue due to the reasons discussed above in
"Revenue by Segment", a decrease of $17 million in product revenue in BlackBerry
Spark, and a decrease of $6 million in professional services, partially offset
by an increase of $10 million in BlackBerry QNX royalty revenue due to the
reasons discussed above in "Revenue by Segment" and an increase of $3 million in
development seat revenue.
Europe, Middle East and Africa Revenue
Revenue in Europe, Middle East and Africa was $168 million, or 31.5% of revenue,
in the first nine months of fiscal 2022, reflecting an increase of $24 million
compared to $144 million, or 21.1% of revenue, in the first nine months of
fiscal 2021. The increase in revenue was primarily due to an increase of $16
million related to the sale of Secusmart solutions, an increase of $6 million in
development seat revenue and an increase of $3 million in BlackBerry QNX royalty
revenue due to the reasons discussed above in "Revenue by Segment", partially
offset by a decrease of $3 million in product revenue in BlackBerry Spark.
                                       52
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Other Regions Revenue
Revenue in other regions was $52 million, or 9.8% of revenue, in the first nine
months of fiscal 2022, reflecting an increase of $5 million compared to $47
million, or 6.9% of revenue, in the first nine months of fiscal 2021. The
increase in revenue was primarily due to an increase of $4 million in
development seat revenue and an increase of $3 million in BlackBerry QNX royalty
revenue due to the reasons discussed above in "Revenue by Segment", partially
offset by a decrease of $2 million in SAF revenue.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin decreased by $148 million to approximately $343
million in the first nine months of fiscal 2022 from $491 million in the first
nine months of fiscal 2021. The decrease was primarily due to a decrease in
revenue from Licensing and Other and BlackBerry Spark, partially offset by an
increase in revenue from BlackBerry QNX and Secusmart due to the reasons
discussed above in "Revenue by Segment", as the Company's cost of sales does not
significantly fluctuate based on business volume.
Consolidated Gross Margin Percentage
Consolidated gross margin percentage decreased by 7.5%, to approximately 64.4%
of consolidated revenue in the first nine months of fiscal 2022 from 71.9% of
consolidated revenue in the first nine months of fiscal 2021. The decrease was
primarily due to a lower gross margin contribution from Licensing and Other due
to the reasons discussed above in "Revenue by Segment", partially offset by a
higher gross margin contribution from BlackBerry QNX due to the reasons
discussed above in "Revenue by Segment".
Gross Margin by Segment
See "Business Overview" and "Third Quarter Fiscal 2022 Summary Results of
Operations" for information about the Company's operating segments and the basis
of operating segment results.
                                                                                                         For the Nine Months Ended
                                                                                                               (in millions)
                                    Cybersecurity                                           IoT                                       Licensing and Other                                Segment Totals
                            November 30,                Change                 November 30,                  Change               November 30,              Change                November 30,                Change
                         2021             2020                              2021              2020                            2021            2020                             2021             2020
Segment revenue      $        355       $    369       $    (14)       $          126       $     92       $       34       $      52       $    222       $   (170)       $        533       $    683       $   (150)
Segment cost of
sales                         147            146               1                   22             18                4              18             24             (6)                187            188             (1)
Segment gross margin $        208       $    223       $    (15)       $          104       $     74       $       30       $      34       $    198       $   (164)       $        346       $    495       $   (149)
Segment gross margin
%                           59  %          60  %          (1  %)                83  %          80  %             3  %           65  %          89  %         (24  %)              65  %          72  %          (7  %)


Cybersecurity
Cybersecurity gross margin decreased by $15 million to approximately $208
million in the first nine months of fiscal 2022 from $223 million in the first
nine months of fiscal 2021. The decrease 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.
Cybersecurity gross margin percentage decreased by 1% to approximately 59% of
Cybersecurity revenue in the first nine months of fiscal 2022 from 60% of
Cybersecurity revenue in the first nine months of fiscal 2021. The decrease was
primarily due to the reasons discussed above in "Revenue by Segment".
IoT
IoT gross margin increased by $30 million to approximately $104 million in the
first nine months of fiscal 2022 from $74 million in the first nine months of
fiscal 2021. The increase 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.
IoT gross margin percentage increased by 3% to approximately 83% of IoT revenue
in the first nine months of fiscal 2022 from 80% of IoT revenue in the first
nine months of fiscal 2021. The increase was primarily due an increase in
BlackBerry QNX royalty revenue, which has a higher relative gross margin
percentage, due to the reasons discussed above in "Revenue by Segment".
                                       53
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Licensing and Other
Licensing and Other gross margin decreased by $164 million to approximately $34
million in the first nine months of fiscal 2022 from $198 million in the first
nine months of fiscal 2021. The decrease 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 gross margin percentage decreased by 24% to approximately
65% of Licensing and Other revenue in the first nine months of fiscal 2022 from
89% of Licensing and Other revenue in the first nine months of fiscal 2021. The
decrease was primarily due to the reasons discussed above in "Revenue by
Segment".
Operating Expenses
The table below presents a comparison of research and development, selling,
marketing and administration, and amortization expense for the nine months ended
November 30, 2021, compared to the nine months ended November 30, 2020.
                                                                    For the Nine Months Ended
                                                                          (in millions)
                                                        November 30, 2021               November 30, 2020                Change
Revenue                                                $           533                 $            683                $   (150)
Operating expenses
Research and development                                           172                              167                       5
Selling, marketing and administration                              233                              252                     (19)
Amortization                                                       133                              137                      (4)
Impairment of goodwill                                               -                              594                    (594)
Impairment of long-lived assets                                      -                               21                     (21)

Debentures fair value adjustment                                   (47)                             114                    (161)

Total                                                  $           491                 $          1,285                $   (794)

Operating Expense as % of Revenue
Research and development                                          32.3   %                         24.5  %
Selling, marketing and administration                             43.7   %                         36.9  %
Amortization                                                      25.0   %                         20.1  %
Impairment of goodwill                                               -   %                         87.0  %
Impairment of long-lived assets                                      -   %                          3.1  %

Debentures fair value adjustment                                  (8.8)  %                         16.7  %

Total                                                             92.1   %                        188.1  %



See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the nine months ended November 30,
2021 and November 30, 2020.
U.S. GAAP Operating Expenses
Operating expenses decreased by $794 million, or 61.8%, to $491 million, or
92.1% of revenue in the first nine months of fiscal 2022, compared to $1,285
million, or 188.1% of revenue, in the first nine months of fiscal 2021. The
decrease was primarily attributable to goodwill impairment of $594 million in
the first quarter of fiscal 2021 which did not recur, the difference between the
Fiscal 2022 Debentures Fair Value Adjustment and the fair value adjustment of
$161 million related to the Debentures incurred in the first nine months of
fiscal 2021, long-lived assets impairment of $21 million in the second quarter
of fiscal 2021 which did not recur, a decrease of $9 million in stock
compensation expense, and a decrease of $8 million in salaries and benefits
expenses, partially offset by a decrease in benefits of $7 million in CEWS
funding.
                                       54
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Adjusted Operating Expenses
Adjusted operating expenses decreased by $3 million, or 0.7%, to $423 million in
the first nine months of fiscal 2022, compared to $426 million in the first nine
months of 2021. The decrease was primarily attributable to a decrease of $7
million in salaries and benefits expenses, a decrease of $7 million in legal
expenses, and a decrease of $4 million in operating lease cost, partially offset
by a decrease in benefits of $7 million in CEWS funding, and an increase of $5
million in variable incentive plan 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 increased by $5 million, or 3.0%, to $172
million, or 32.3% of revenue, in the first nine months of fiscal 2022, compared
to $167 million, or 24.5% of revenue, in the first nine months of fiscal 2021.
The increase was primarily attributable to a decrease in benefits of $3 million
in SIF claims, an increase of $2 million in variable incentive plan costs, and
an increase of $1 million in salaries and benefits expenses, partially offset by
a decrease of $3 million in operating lease cost.
Adjusted research and development expenses increased by $7 million, or 4.4% to
$166 million in the first nine months of fiscal 2022 compared to $159 million in
the first nine months of fiscal 2021. The increase was primarily attributable to
a decrease in benefits of $3 million in SIF claims, an increase of $2 million in
salaries and benefits expenses, and an increase of $1 million in variable
incentive plan costs, partially offset by a decrease of $3 million in operating
lease cost.
Selling, Marketing and Administration Expenses
Selling, marketing and administration expenses consist primarily of marketing,
advertising and promotion, salaries and benefits, external advisory fees,
information technology costs, office and related staffing infrastructure costs
and travel expenses.
Selling, marketing and administration expenses decreased by $19 million, or
7.5%, to $233 million, or 43.7% of revenue, in the first nine months of fiscal
2022 compared to $252 million in the first nine months of fiscal 2021, or 36.9%
of revenue. The decrease was primarily attributable to a decrease of $9 million
in salaries and benefits expenses, a decrease of $8 million in stock
compensation expense, and a decrease of $7 million in legal expenses, partially
offset by a decrease in benefits of $7 million in CEWS funding, and an increase
of $4 million in variable incentive plan costs.
Adjusted selling, marketing and administration expenses decreased by $10
million, or 4.4%, to $217 million in the first nine months of fiscal 2022
compared to $227 million in the first nine months of fiscal 2021. The decrease
was primarily attributable to a decrease of $9 million in salaries and benefits
expenses, and a decrease of $7 million in legal expenses, partially offset by a
decrease in benefits of $7 million in CEWS funding.
Amortization Expense
The table below presents a comparison of amortization expense relating to
property, plant and equipment and intangible assets recorded as amortization or
cost of sales for the nine months ended November 30, 2021 compared to the nine
months ended November 30, 2020. Intangible assets are comprised of patents,
licenses and acquired technology.
                                                 For the Nine Months Ended
                                                       (in millions)
                                               Included in Operating Expense
                                   November 30, 2021        November 30, 2020       Change
Property, plant and equipment   $       10                 $               13      $    (3)
Intangible assets                      123                                124           (1)
Total                           $      133                 $              137      $    (4)

                                                 Included in Cost of Sales
                                   November 30, 2021        November 30, 2020       Change
Property, plant and equipment   $        2                 $                3      $    (1)
Intangible assets                        7                                  9           (2)
Total                           $        9                 $               12      $    (3)


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Amortization included in Operating Expense
Amortization expense relating to certain property, plant and equipment and
intangible assets decreased by $4 million to $133 million in the first nine
months of fiscal 2022, compared to $137 million in the first nine months of
fiscal 2021. The decrease in amortization expense was due to the lower cost base
of assets.
Adjusted amortization expense was $40 million in the first nine months of fiscal
2022, consistent with $40 million in the first nine months of fiscal 2021.
Amortization included in Cost of Sales
Amortization expense relating to certain property, plant and equipment and
intangible assets employed in the Company's service operations decreased by $3
million to $9 million in the first nine months of fiscal 2022, compared to $12
million in the first nine months of fiscal 2021. The decrease in amortization
expense 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, increased by $28 million to investment income, net of $22 million in
the first nine months of fiscal 2022, from investment loss, net of $6 million in
the first nine months of fiscal 2021. The increase in investment income (loss),
net was primarily due to gains recognized from a return of capital from a
non-marketable equity investment, observable price changes on non-marketable
equity investments without readily determinable fair value and a decrease in
interest expense from the Debentures as a result of the redemption of the 3.75%
Debentures and issuance of the 1.75% Debentures, partially offset by a lower
yield on cash and investments and lower average cash and investments balances in
the first nine months of fiscal 2022 compared to the first nine months of fiscal
2021.
Income Taxes
For the first nine months of fiscal 2022, the Company's net effective income tax
expense rate was approximately 5%, compared to a net effective income tax
recovery rate of approximately 1% for the same period in the prior fiscal year.
The Company's net effective income tax rate reflects the change in unrecognized
income tax benefits, if any, and the fact that the Company has a significant
valuation allowance against its deferred tax assets, and in particular, the
change in fair value of the Debentures, amongst other items, was offset by a
corresponding adjustment of the valuation allowance. The Company's net effective
income tax rate also reflects the geographic mix of earnings in jurisdictions
with different income tax rates.
Net Loss
The Company's net loss for the first nine months of fiscal 2022 was $132
million, or $0.23 basic loss per share and $0.28 diluted loss per share on a
U.S. GAAP basis, reflecting a decrease in net loss of $657 million compared to
net loss of $789 million, or $1.41 basic and diluted loss per share in the first
nine months of fiscal 2021. The decrease in net loss of $657 million was
primarily due to a decrease in operating expenses due to the goodwill impairment
in the first nine months of fiscal 2021 that did not recur and a decrease in the
fair value adjustment related to the Debentures, as described above in
"Operating Expenses" and an increase in investment income (loss), net, partially
offset by a decrease in revenue as described above in "Revenue by Segment" and a
decrease in gross margin percentage, as described above in "Consolidated Gross
Margin Percentage".
Adjusted net loss in the first nine months of fiscal 2022 was $61 million
compared to adjusted net income of $74 million in the first nine months of
fiscal 2021, reflecting a decrease in adjusted net income of $135 million,
primarily due to a decrease in revenue as described above in "Revenue by
Segment" and a decrease in gross margin percentage, as described above in
"Consolidated Gross Margin Percentage", partially offset by an increase in
investment income (loss), net and a decrease in operating expenditures as
described above in "Operating Expenses".
The weighted average number of shares outstanding was 569 million for basic loss
per share and 630 million for diluted loss per share for the first nine months
of November 30, 2021. The weighted average number of shares outstanding was 560
million for basic and diluted loss per share for the first nine months of
November 30, 2020.
Common Shares Outstanding
On December 17, 2021, there were 574 million voting common shares, options to
purchase 1 million voting common shares, 12 million restricted share units and 2
million deferred share units outstanding. In addition, 60.8 million common
shares are issuable upon conversion in full of the 1.75% Debentures as described
in Note 6 to the Consolidated Financial Statements.
The Company has not paid any cash dividends during the last three fiscal years.
                                       56
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Financial Condition
Liquidity and Capital Resources
Cash, cash equivalents, and investments decreased by $32 million to $772 million
as at November 30, 2021 from $804 million as at February 28, 2021, primarily as
a result of changes in working capital, partially offset by investment gains
from non-marketable securities. The majority of the Company's cash, cash
equivalents, and investments were denominated in U.S. dollars as at November 30,
2021.
A comparative summary of cash, cash equivalents, and investments is set out
below:
                                                                                    As at
                                                                                (in millions)
                                                           November 30,          February 28,
                                                               2021                  2021                Change
Cash and cash equivalents                                 $        271          $        214          $       57
Restricted cash equivalents and restricted short-term
investments                                                         29                    28                   1
Short-term investments                                             442                   525                 (83)
Long-term investments                                               30                    37                  (7)
Cash, cash equivalents, and investments                   $        772

$ 804 $ (32)

The table below summarizes the current assets, current liabilities, and working capital of the Company:


                                               As at
                                           (in millions)
                       November 30, 2021       February 28, 2021       Change
Current assets        $              929      $            1,006      $  (77)
Current liabilities                  409                     429         (20)
Working capital       $              520      $              577      $  (57)


Current Assets
The decrease in current assets of $77 million at the end of the third quarter of
fiscal 2022 from the end of the fourth quarter of fiscal 2021 was primarily due
to a decrease in short term investments of $83 million, a decrease in accounts
receivable, net of allowance of $44 million, a decrease in other receivables of
$8 million, and a decrease in income taxes receivable of $1 million, partially
offset by an increase in cash and cash equivalents of $57 million and an
increase of $2 million in other current assets.
At November 30, 2021, accounts receivable was $138 million, a decrease of $44
million from February 28, 2021. The decrease was primarily due to lower revenue
recognized over the three months ended November 30, 2021 compared to the three
months ended February 28, 2021, and a decrease in days sales outstanding to 64
days at the end of the third quarter of fiscal 2022 from 85 days at the end of
the fourth quarter of fiscal 2021.
At November 30, 2021, other receivables decreased by $8 million to $17 million
compared to $25 million as at February 28, 2021. The decrease was primarily due
to a decrease of $9 million relating to the CEWS program.
At November 30, 2021, income taxes receivable was $9 million, a decrease of $1
million from February 28, 2021. The decrease was primarily due to changes in the
quarterly tax provision.
At November 30, 2021, other current assets was $52 million, an increase of $2
million from February 28, 2021. The increase was primarily due to an increase of
$3 million in inventory, partially offset by a decrease of $2 million in
deferred commissions.
Current Liabilities
The decrease in current liabilities of $20 million at the end of the third
quarter of 2022 from the end of the fourth quarter of fiscal 2021 was primarily
due to a decrease in deferred revenue, current of $31 million, partially offset
by an increase in accounts payable of $6 million and an increase in income taxes
payable of $5 million.
Deferred revenue, current was $194 million, which reflects a decrease of $31
million compared to February 28, 2021 that was attributable to a $24 million
decrease in deferred revenue, current related to BlackBerry Spark and $8 million
related to BlackBerry AtHoc, partially offset by an increase of $3 million in
deferred revenue, current related to BlackBerry QNX.
Accrued liabilities were $178 million at the end of the third quarter of 2022,
consistent with February 28, 2021. An increase of $8 million in variable
incentive plan costs was partially offset by a decrease of $4 million in
operating lease liability, current and a decrease of $3 million in payroll
accruals.
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Accounts payable were $26 million, reflecting an increase of $6 million from
February 28, 2021, which was primarily due to timing of payments of accounts
payable.
Income taxes payable were $11 million, reflecting an increase of $5 million
compared to February 28, 2021, which was primarily due to changes in the
quarterly tax provision.
Cash flows for the nine months ended November 30, 2021 compared to the nine
months ended November 30, 2020 were as follows:

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