The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read together with the unaudited
interim consolidated financial statements and the accompanying notes (the
"Consolidated Financial Statements") of BlackBerry Limited for the three months
ended May 31, 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 its revenue in fiscal 2022 and with
respect to the impact of the COVID-19 pandemic on the Company's business,
results of operations and financial condition on a consolidated basis, including
its liquidity position;
•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 - COVID-19",
"Non-GAAP Financial Measures - Key Metrics", "Results of Operations - Three
months ended May 31, 2021 compared to the three months ended May 31, 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.
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.
                                       28

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Strategy


The Company is widely recognized for its intelligent security software and
services and believes that it delivers the broadest set of security capabilities
in the market to connect, protect and manage IoT endpoints. 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: Cyber Security, IoT (collectively with
Cyber Security, "Software & Services") and Licensing and Other.
Cyber Security
The Cyber Security 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, 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 to provide
deep contextual insights for more powerful 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 will be able to
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 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.
                                       29
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BlackBerry AtHoc and BlackBerry Alert are secure 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 entered into an agreement 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 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 multi-cloud
deployments in order to ensure compatibility across vehicle models and brands.
The Company expects to release an early access version of BlackBerry IVY in
October 2021, followed by a commercial release in February 2022 with
installations of BlackBerry IVY to begin in 2023 model year vehicles.
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 BlackBerry Jarvis™.
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, and BlackBerry Messenger (BBM®)
Enterprise is an enterprise-grade secure instant messaging solution for
messaging, voice and video.
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.
                                       30
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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 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. The Company expects to retain
rights to use these patents if a transaction is completed and does not intend to
sell patents associated with the Company's current Software and Services
business. Negotiations are ongoing and there can be no assurance that the
Company will reach a definitive agreement or that a transaction will be
consummated.
The Company's Other business generates revenue from SAF charged to subscribers
using the Company's legacy BlackBerry 7 and prior BlackBerry operating systems.
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;
•Announced that Frost & Sullivan named BlackBerry IVY an industry-leading cloud
software platform for automakers and smart cities;
•Announced that BlackBerry AtHoc won the Frost & Sullivan 2021 Technology
Innovation Leadership Award for safe city solutions; and
•Announced that Frost & Sullivan named BlackBerry an innovator in its US
Healthcare Cybersecurity Market report.
Customers and Partners:
•Announced that BlackBerry QNX software is embedded in over 195 million
vehicles;
•Announced that Volvo Group has selected BlackBerry QNX for its Dynamic Software
Platform;
•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;
•Launched the BlackBerry IVY Advisory Council to help shape and advise the
BlackBerry IVY application development community and drive use case generation;
•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; and
•Announced that BlackBerry and the University of Waterloo have expanded their
partnership to create a new joint innovation program.
Environmental, Sustainability and Corporate Governance:
•Promoted President Tom Eacobacci to BlackBerry President and Chief Operating
Officer;
•Appointed Mattias Eriksson as President and General Manager of IoT; and
•Announced that the Company was named one of Canada's Greenest Employers for
sixth year in a row.

                                       31
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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 international, federal, state, provincial and local governmental authorities
to contain and combat the spread of COVID-19 in regions throughout the world.
The COVID-19 pandemic and related public health measures, including orders to
shelter-in-place, travel restrictions and mandated business closures, adversely
affected workforces, organizations, consumers and economies, which led to an
economic downturn and which may cause market volatility and uncertainty in
future periods.
The pandemic has disrupted the normal operations of the Company and the
businesses of many of the Company's customers, suppliers and distribution
partners. To protect the health and safety of the Company's employees,
contractors, customers and visitors, during the first quarter of fiscal 2022 and
throughout most of fiscal 2021, the Company mandated remote working, utilizing
virtual meetings and suspending employee travel, to protect the health and
safety of its employees, contractors, customers and visitors. 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.
In response to certain anticipated and ongoing impacts from the COVID-19
pandemic, the Company also implemented a series of temporary cost reduction
measures to further preserve financial flexibility. In the first quarter of
fiscal 2022, these actions included taking advantage of the broad-based employer
relief provided by governments in Canada, the United States and other
jurisdictions and the postponement of certain discretionary spending. The
Company estimates that savings from temporary cost reduction measures and
governmental assistance related to the COVID-19 pandemic will be lower in fiscal
2022 than fiscal 2021 and will primarily depend on the speed and extent of the
easing of pandemic-related restrictions and the extent of ongoing government
programs.
In fiscal 2022 and fiscal 2021, the economic downturn and uncertainty caused by
the COVID-19 pandemic and the measures undertaken to contain its spread
negatively affected in particular the Company's QNX automotive software
business, caused volatility in demand for many of the Company's 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 quarterly Software & Services revenue in
the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021,
when the COVID-19 pandemic first materially negatively impacted the Company's
operations, and the Company observed a continued recovery in both automotive
design activities and production volumes during the first quarter of fiscal
2022, 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, 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 global economic conditions. 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.
                                       32

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First Quarter Fiscal 2022 Summary Results of Operations The following table sets forth certain unaudited consolidated statements of operations data for the quarter ended May 31, 2021 compared to the quarter ended May 31, 2020 under U.S. GAAP:

For the Three Months Ended


                                                                (in 

millions, except for share and per share amounts)


                                                                May 31, 2021          May 31, 2020            Change
Revenue                                                        $       174          $         206          $     (32)
Gross margin                                                           114                    143                (29)
Operating expenses                                                     172                    788               (616)
Investment loss, net                                                    (2)                     -                 (2)
Loss before income taxes                                               (60)                  (645)               585
Provision for (recovery of) income taxes                                 2                     (9)                11
Net loss                                                       $       (62)         $        (636)         $     574
Loss per share - reported
Basic                                                          $     (0.11)         $       (1.14)
Diluted                                                        $     (0.11)         $       (1.14)

Weighted-average number of shares outstanding (000's)
Basic (1)                                                          567,358                557,839
Diluted (2)                                                        567,358                557,839

______________________________


(1)Basic loss per share on a U.S. GAAP basis for the first quarter of fiscal
2022 and first 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 first quarter of fiscal
2022 and 2021 does not include the dilutive effect of the Debentures (defined
below) or 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 table shows information by operating segment for the three months
ended May 31, 2021 and May 31, 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)
                                 Cyber Security                                         IoT                                         Licensing and Other                                   Segment Totals
                    May 31,          May 31,                          May 31,         May 31,                                                May 31,                         May 31,          May 31,
                      2021             2020           Change           2021            2020            Change          May 31, 2021           2020           Change            2021             2020           Change
Segment revenue    $   107          $   119          $  (12)         $   43          $   29          $    14          $    24               $   58          $  (34)         $   174          $   206          $  (32)
Segment cost of
sales                   46               47              (1)              7               6                1                6                    8              (2)              59               61              (2)
Segment gross
margin             $    61          $    72          $  (11)         $   36          $   23          $    13          $    18               $   50          $  (32)         $   115          $   145          $  (30)


                                       33

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The following table reconciles the Company's segment results for the three months ended May 31, 2021 to consolidated U.S. GAAP results:

For the Three Months Ended May 31, 2021


                                                                                        (in millions)
                                 Cyber                                                                                                        Consolidated U.S.
                                Security                IoT         Licensing and Other    Segment Totals           Reconciling Items                GAAP
Revenue                       $     107          $     43          $         24          $           174          $                -          $           174
Cost of sales (1)                    46                 7                     6                       59                           1                       60
Gross margin                  $      61          $     36          $         18          $           115          $               (1)         $           114
Operating expenses                                                                                                               172                      172
Investment loss, net                                                                                                               2                        2
Loss before income taxes                                                                                                                      $           (60)


______________________________

(1) See "Non-GAAP Financial Measures" for a reconciliation of selected U.S. GAAP-based measures to adjusted measures for the three months ended May 31, 2021. The following table reconciles the Company's segment results for the three months ended May 31, 2020 to consolidated U.S. GAAP results:

For the Three Months Ended May 31, 2020


                                                                                       (in millions)
                                Cyber                                                                                                        Consolidated U.S.
                               Security                IoT         Licensing and Other    Segment Totals           Reconciling Items               GAAP
Revenue                      $     119          $     29          $         58          $           206          $                -          $          206
Cost of sales (1)                   47                 6                     8                       61                           2                      63
Gross margin                 $      72          $     23          $         50          $           145          $               (2)         $          143
Operating expenses                                                                                                              788                     788

Loss before income taxes                                                                                                                     $         (645)


______________________________


(1) See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the three months ended May 31,
2020.
Financial Highlights
The Company had approximately $769 million in cash, cash equivalents and
investments as of May 31, 2021 and $804 million in cash, cash equivalents and
investments as of February 28, 2021.
In the first quarter of fiscal 2022, the Company recognized revenue of $174
million and incurred a net loss of $62 million, or $0.11 basic and diluted loss
per share on a U.S. GAAP basis. In the first quarter of fiscal 2021, the Company
recognized revenue of $206 million and incurred a net loss of $636 million, or
$1.14 basic and diluted loss per share on a U.S. GAAP basis.
The Company recognized an adjusted net loss of $27 million, and an adjusted loss
of $0.05 per share, in the first quarter of fiscal 2022. The Company recognized
adjusted net income of $7 million, and adjusted earnings of $0.01 per share, in
the first 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 May 31, 2021, the fair value of the 1.75% Debentures was approximately
$715 million, a decrease of approximately $5 million during the first quarter of
fiscal 2022. For the three months ended May 31, 2021, the Company recorded
non-cash income relating to changes in fair value from instrument specific
credit risk of $1 million in Other Comprehensive Income ("OCI") and non-cash
income relating to changes in fair value from non-credit components of
$4 million (pre-tax and after tax)
                                       34
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(the "Q1 Fiscal 2022 Debentures Fair Value Adjustment") in the Company's
consolidated statements of operations 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
June 24, 2021, the Company announced financial results for the three months
ended May 31, 2021, which included certain non-GAAP financial measures,
including adjusted gross margin, adjusted gross margin percentage, adjusted
operating expense, adjusted operating loss, adjusted EBITDA, adjusted operating
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
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 months ended May 31, 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. 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 impact of these items is 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.

                                       35
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Reconciliation of non-GAAP based measures with most directly comparable U.S.
GAAP based measures for the three months ended May 31, 2021 and May 31, 2020
Readers are cautioned that adjusted gross margin, adjusted gross margin
percentage, adjusted operating expense, adjusted operating loss, adjusted
EBITDA, adjusted operating 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 May 31, 2021 and May 31, 2020 to adjusted financial
measures is reflected in the tables below:
For the Three Months Ended (in millions)         May 31, 2021      May 31, 2020

Gross margin                                    $      114        $      143

Stock compensation expense                               1                 2
Adjusted gross margin                           $      115        $      145

Gross margin %                                        65.5   %          69.4   %

Stock compensation expense                             0.6   %           1.0   %
Adjusted gross margin %                               66.1   %          70.4   %


Reconciliation of operating expense for the three months ended May 31, 2021,
February 28, 2021 and May 31, 2020 to adjusted operating expense is reflected in
the tables below:
For the Three Months Ended (in millions)                  May 31, 2021           February 28, 2021           May 31, 2020
Operating expense                                       $         172          $              465          $         788
Restructuring charges                                               -                           -                      1
Stock compensation expense                                          6                             16                  12
Debenture fair value adjustment (1)                                (4)                        258                      1

Acquired intangibles amortization                                  32                          32                     33

Goodwill impairment charge                                          -                           -                    594
LLA impairment charge                                               -                          22                      -

Adjusted operating expense                              $         138          $              137          $         147

______________________________


(1) See "First 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
three months ended May 31, 2021 and May 31, 2020 to adjusted net income (loss)
and adjusted basic earnings (loss) per share is reflected in the tables below:
For the Three Months Ended (in millions, except per
share amounts)                                                         May 31, 2021                              May 31, 2020
                                                                                      Basic                                    Basic
                                                                                     earnings                                 earnings
                                                                                    (loss) per                               (loss) per
                                                                                      share                                    share
Net loss                                                    $         (62)           $(0.11)          $       (636)           $(1.14)

Restructuring charges                                                   -                                        1
Stock compensation expense                                              7                                       14
Debenture fair value adjustment                                        (4)                                       1

Acquired intangibles amortization                                      32                                       33

Goodwill impairment charge                                              -                                      594

Adjusted net income (loss)                                  $         (27)           $(0.05)          $          7             $0.01


                                       36

--------------------------------------------------------------------------------
Reconciliation of U.S. GAAP research and development, selling, marketing and
administration, and amortization expense for the three months ended May 31, 2021
and May 31, 2020 to adjusted research and development, selling, marketing and
administration, and amortization expense is reflected in the tables below:
For the Three Months Ended (in millions)             May 31, 2021      May 31, 2020
Research and development                            $         57      $         57

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

54



Selling, marketing and administration               $         73      $         90
Restructuring charges                                          -                 1

Stock compensation expense                                     4                 9

Adjusted selling, marketing and administration $ 69 $

80



Amortization                                        $         46      $     

46


Acquired intangibles amortization                             32                33
Adjusted amortization                               $         14      $         13

Adjusted operating loss, adjusted EBITDA, adjusted operating loss margin percentage and adjusted EBITDA margin percentage for the three months ended May 31, 2021 and May 31, 2020 are reflected in the table below. For the Three Months Ended (in millions)

           May 31, 2021       May 31, 2020
Operating loss                                    $         (58)     $      

(645)

Non-GAAP adjustments to operating loss



Restructuring charges                                         -             

1


Stock compensation expense                                    7             

14


Debenture fair value adjustment                              (4)            

1



Acquired intangibles amortization                            32                33

Goodwill impairment charge                                    -               594

Total non-GAAP adjustments to operating loss                 35               643
Adjusted operating loss                                     (23)               (2)
Amortization                                                 49                50
Acquired intangibles amortization                           (32)              (33)
Adjusted EBITDA                                   $          (6)     $         15

Revenue                                           $         174      $        206
Adjusted operating loss margin % (1)                        (13%)              (1%)
Adjusted EBITDA margin % (2)                                 (3%)                7%

______________________________


(1) Adjusted operating loss margin % is calculated by dividing adjusted
operating loss by revenue
(2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by
revenue
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 estimate future performance. Readers are cautioned that annual
recurring revenue ("ARR"), dollar-based net retention rate ("DBNRR"), QNX
Royalty Revenue Backlog, 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
                                       37
--------------------------------------------------------------------------------
Company's key metrics for the three months ended February 28, 2021 and May 31,
2020 have been updated to conform to the current year's presentation.
Comparative breakdowns of the key metrics for the three months ended May 31,
2021 and May 31, 2020 are set forth below.
For the Three Months Ended (in millions)         May 31, 2021      May 31, 2020      Change

Annual Recurring Revenue
Cyber Security                                  $      364        $      370        $  (6)
IoT                                             $       86        $      103        $ (17)
Dollar-Based Net Retention Rate
Cyber Security                                          94   %           101   %       (7  %)
QNX Royalty Revenue Backlog                     $      490        $      450        $  40
Recurring Software Product Revenue                       ~ 90%             

> 90%




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.
Cyber Security ARR was approximately $364 million in the first quarter of fiscal
2022 and decreased compared to $370 million in the first quarter of fiscal 2021
and decreased compared to $369 million in the fourth quarter of fiscal 2021.
IoT ARR was approximately $86 million in the first quarter of fiscal 2022 and
decreased compared to $103 million the first quarter of fiscal 2021 and
increased compared to $84 million in the fourth quarter of fiscal 2021.
The Company previously stated that it expected to see the negative impact of
COVID-19 on IoT ARR until early in fiscal 2022, as the Company returns to its
normal revenue run rate. The Company now expects that IoT revenue will return to
a normal run-rate by the end of fiscal 2022 due to the reasons discussed below
in "Revenue by Segment" and expects to see a negative impact from the global
chip shortage on IoT ARR until the end of fiscal 2022.
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.
Cyber Security DBNRR was 94% in the first quarter of fiscal 2022 and decreased
compared to 101% in first quarter of fiscal 2021 and decreased compared to 95%
in the fourth quarter of fiscal 2021.
QNX Royalty Revenue Backlog
The Company defines the royalty revenue backlog of its QNX business as estimated
future revenue from variable forecasted royalties related to the QNX business.
The estimation of forecasted royalties is based on QNX's royalty rates and on
customer projections of anticipated volumes over the lifetime of a design, in
each case as of when the design win was awarded. The QNX royalty revenue backlog
is calculated annually, is not based on current projections of volumes and may
not be indicative of actual future revenue. The revenue that the Company will
recognize is subject to several factors, including actual volumes and potential
terminations or modifications to customer contracts.
The Company's QNX royalty revenue backlog was approximately $490 million at the
end of the first quarter of fiscal 2022 and increased compared $450 million at
the end of the first 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 first quarter of fiscal 2022 compared to
the first quarter of fiscal 2021 and compared to the fourth quarter of fiscal
2021.
                                       38
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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 90% recurring in the first quarter of fiscal 2022
and decreased from greater than 90% recurring in the first quarter of fiscal
2021 due to product mix.
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 May 31, 2021, the Company's
net cash used in operating activities was $33 million and capital expenditures
were $2 million, resulting in the Company reporting free cash usage of
$35 million compared to net cash used in operating activities of $31 million,
capital expenditures of $1 million, and free cash usage of $32 million for the
three months ended May 31, 2020.
                                       39
--------------------------------------------------------------------------------
Results of Operations - Three months ended May 31, 2021 compared to the three
months ended May 31, 2020
Revenue
Revenue by Segment
Comparative breakdowns of revenue by segment are set forth below.
                                    For the Three Months Ended
                                           (in millions)
                        May 31, 2021               May 31, 2020      Change
Revenue by Segment
Cyber Security         $      107                 $      119        $  (12)
IoT                            43                         29            14
Licensing and Other            24                         58           (34)

                       $      174                 $      206        $  (32)

% Revenue by Segment
Cyber Security               61.5   %                   57.8   %
IoT                          24.7   %                   14.0   %
Licensing and Other          13.8   %                   28.2   %

                            100.0   %                  100.0   %


Cyber Security
Cyber Security revenue was $107 million, or 61.5% of revenue, in the first
quarter of fiscal 2022, a decrease of $12 million compared to $119 million, or
57.8% of revenue, in the first quarter of fiscal 2021. The decrease in Cyber
Security revenue of $12 million was primarily due to a decrease of $9 million
relating to product revenue in BlackBerry Spark and a decrease of $3 million
relating to professional services, partially offset by an increase of $3 million
related to the sale of Secusmart solutions.
The Company previously stated that it expected Cyber Security revenue to be
between $495 million and $515 million in fiscal 2022. The Company now expects
Cyber Security revenue to be towards the lower end of $495 million and $515
million in fiscal 2022 due to billings growth being more heavily weighted to the
second half of the year.
IoT
IoT revenue was $43 million, or 24.7% of revenue, in the first quarter of fiscal
2022, an increase of $14 million compared to $29 million, or 14.0% of revenue,
in the first quarter of fiscal 2021. The increase in IoT revenue of $14 million
was primarily due to an increase of $7 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 first quarter of fiscal 2021, an increase of $5
million in development seat revenue and an increase of $1 million in BlackBerry
Radar revenue.
The Company previously stated that, assuming that the global chip shortage has
been alleviated by the middle of fiscal 2022, it expects that BTS revenue will
return to a pre-pandemic run-rate of approximately $50 million per quarter by
that time and will be between $180 million and $200 million for fiscal 2022 as a
whole. The Company now expects that IoT revenue will return to a run-rate of
approximately $50 million per quarter by the end of fiscal 2022, primarily due
to the negative impact of the global chip shortage on BlackBerry QNX royalty
revenue in the first half of fiscal 2022.
Licensing and Other
Licensing and Other revenue was $24 million, or 13.8% of revenue, in the first
quarter of fiscal 2022, a decrease of $34 million compared to $58 million, or
28.2% of revenue, in the first quarter of fiscal 2021. The decrease in Licensing
and Other revenue of $34 million was primarily due to a decrease in revenue from
the Company's intellectual property licensing arrangements including its patent
licensing agreement with Teletry.
                                       40
--------------------------------------------------------------------------------
Revenue by Geography
Comparative breakdowns of the geographic regions are set forth in the following
table:
                                              For the Three Months Ended
                                                     (in millions)
                                  May 31, 2021               May 31, 2020      Change
Revenue by Geography
North America                    $      111                 $      150        $  (39)
Europe, Middle East and Africa           45                         41             4
Other regions                            18                         15             3
                                 $      174                 $      206        $  (32)

% Revenue by Geography
North America                          63.8   %                   72.8   %
Europe, Middle East and Africa         25.9   %                   19.9   %
Other regions                          10.3   %                    7.3   %
                                      100.0   %                  100.0   %


North America Revenue
Revenue in North America was $111 million, or 63.8% of revenue, in the first
quarter of fiscal 2022, reflecting a decrease of $39 million compared to $150
million, or 72.8% of revenue, in the first quarter of fiscal 2021. Revenue in
North America decreased compared to the first quarter of fiscal 2021 primarily
due to a decrease of $34 million in Licensing and Other revenue due to the
reasons discussed above in "Revenue by Segment", a decrease of $9 million in
product revenue in BlackBerry Spark and a decrease of $2 million relating to
professional services, partially offset by an increase of $5 million in
BlackBerry QNX royalty revenue due to the reasons discussed above in "Revenue by
Segment".
Europe, Middle East and Africa Revenue
Revenue in Europe, Middle East and Africa was $45 million or 25.9% of revenue in
the first quarter of fiscal 2022, reflecting an increase of $4 million compared
to $41 million or 19.9% of revenue in the first quarter of fiscal 2021. The
increase in revenue is primarily due to an increase of $2 million related to the
sale of Secusmart solutions, an increase of $2 million in development seat
revenue and an increase of $1 million in BlackBerry QNX royalty revenue due to
the reasons discussed above in "Revenue by Segment".
Other Regions Revenue
Revenue in other regions was $18 million or 10.3% of revenue in the first
quarter of fiscal 2022, reflecting an increase of $3 million compared to $15
million or 7.3% of revenue in the first quarter of fiscal 2021. The increase in
revenue is primarily due to an increase of $2 million in development seat
revenue and an increase of $1 million in product revenue in BlackBerry Spark.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin decreased by $29 million to approximately $114 million
in the first quarter of fiscal 2022 from $143 million in the first 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 3.9% to approximately 65.5% of
consolidated revenue in the first quarter of fiscal 2022 from 69.4% of
consolidated revenue in the first 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".
                                       41
--------------------------------------------------------------------------------
Gross Margin by Segment
See "Business Overview" and "First 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)
                                     Cyber Security                                                 IoT                                               Licensing and Other                                         Segment Totals
May 31, 2021         May 31, 2020         Change          May 31, 2021         May 31, 2020         Change         May 31, 2021         May 31, 2020         Change          May 31, 2021         May 31, 2020         Change
Segment revenue    $      107           $      119           $ (12)          $        43          $        29          $  14          $        24          $        58          $ (34)          $      174           $      206           $ (32)
Segment cost of
sales                      46                   47              (1)                    7                    6              1                    6                    8             (2)                  59                   61              (2)
Segment gross
margin             $       61           $       72           $ (11)          $        36          $        23          $  13          $        18          $        50          $ (32)          $      115           $      145           $ (30)
Segment gross
margin %                   57   %               61   %          (4  %)                84  %                79  %           5  %                75  %                86  %         (11  %)               66   %               70   %          (4  %)


Cyber Security
Cyber Security gross margin decreased by $11 million to approximately $61
million in the first quarter of fiscal 2022 from $72 million in the first
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.
Cyber Security gross margin percentage decreased by 4% to approximately 57% of
Cyber Security revenue in the first quarter of fiscal 2022 from 61% of Cyber
Security revenue in the first quarter of fiscal 2021. The decrease was primarily
due to the reasons discussed above in "Revenue by Segment".
IoT
IoT gross margin increased by $13 million to approximately $36 million in the
first quarter of fiscal 2022 from $23 million in the first quarter 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 5% to approximately 84% of IoT revenue
in the first quarter of fiscal 2022 from 79% of IoT revenue in the first quarter
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".
Licensing and Other
Licensing and Other gross margin decreased by $32 million to approximately $18
million in the first quarter of fiscal 2022 from $50 million in the first
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 11% to approximately
75% of Licensing and Other revenue in the first quarter of fiscal 2022 from 86%
of Licensing and Other revenue in the first quarter of fiscal 2021. The decrease
was primarily due to the reasons discussed above in "Revenue by Segment".
                                       42
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Operating Expenses
The table below presents a comparison of research and development, selling,
marketing and administration, and amortization expenses for the quarter ended
May 31, 2021, compared to the quarter ended February 28, 2021 and the quarter
ended May 31, 2020. The Company believes it is meaningful to provide a
sequential comparison between the first quarter of fiscal 2022 and the fourth
quarter of fiscal 2021.
                                                                     For the Three Months Ended
                                                                            (in millions)
                                                            May 31, 2021                February 28, 2021                May 31, 2020
Revenue                                                   $      174                   $           210                  $       206
Operating expenses
Research and development                                          57                                48                           57
Selling, marketing and administration                             73                                92                           90
Amortization                                                      46                                45                           46
Impairment of long-lived assets                                    -                                22                            -
Impairment of goodwill                                             -                                 -                          594

Debentures fair value adjustment                                  (4)                              258                            1

Total                                                     $      172                   $           465                  $       788

Operating Expenses as % of Revenue
Research and development                                        32.8  %                           22.9  %                      27.7  %
Selling, marketing and administration                           42.0  %                           43.8  %                      43.7  %
Amortization                                                    26.4  %                           21.4  %                      22.3  %
Impairment of long-lived assets                                    -  %                           10.5  %                         -  %
Impairment of goodwill                                             -  %                              -  %                     288.3  %

Debentures fair value adjustment                                (2.3  %)                         122.9  %                       0.5  %

Total                                                           98.9     %                       221.4    %                   382.5   %


See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the three months ended May 31,
2021, February 28, 2021 and May 31, 2020.
U.S. GAAP Operating Expenses
Operating expenses decreased by $293 million, or 63.0%, to $172 million, or
98.9% of revenue, in the first quarter of fiscal 2022, compared to $465 million,
or 221.4% of revenue, in the fourth quarter of fiscal 2021. The decrease was
primarily attributable to the difference between the Q1 Fiscal 2022 Debentures
Fair Value Adjustment and the fair value adjustment related to the Debentures
incurred in the fourth quarter of fiscal 2021 of $262 million, a decrease of $22
million in impairment of long-lived assets in the fourth quarter of fiscal 2021
which did not recur, a decrease of $10 million in stock compensation expenses
and a decrease of $6 million in the Company's deferred share unit costs,
partially offset by an increase of $11 million in variable incentive plan costs.
Operating expenses decreased by $616 million, or 78.2%, to $172 million, or
98.9% of revenue, in the first quarter of fiscal 2022, compared to $788 million,
or 382.5% of revenue, in the first quarter 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, a decrease of $7 million in stock
compensation expenses, an increase in benefits of $6 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, and the
difference between the Q1 Fiscal 2022 Debentures Fair Value Adjustment and the
fair value adjustment related to the Debentures incurred in the first quarter of
fiscal 2021 of $5 million, partially offset by an increase of $5 million in
legal expenses.
Adjusted Operating Expenses
Adjusted operating expenses increased by $1 million, or 0.7%, to $138 million in
the first quarter of fiscal 2022 compared to $137 million in the fourth quarter
of fiscal 2021. The increase was primarily attributable to an increase of $11
million in variable incentive plan costs and an increase of $4 million in
salaries and benefits expenses, partially offset by a decrease of $6
                                       43
--------------------------------------------------------------------------------
million in the Company's deferred share unit costs, a decrease of $5 million in
professional service expenses, and a decrease of $2 million in legal expenses.
Adjusted operating expenses decreased by $9 million, or 6.1%, to $138 million in
the first quarter of fiscal 2022, compared to $147 million in the first quarter
of fiscal 2021. The decrease was primarily attributable to the increase in
benefits of $6 million in CEWS funding, a decrease of $3 million in salaries and
benefits expenses, favorable foreign currency translation of $2 million and a
decrease of $2 million in operating lease costs, partially offset by an increase
of $5 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 were $57 million in the first quarter of
fiscal 2022, consistent with $57 million in the first quarter of fiscal 2021. A
decrease of $1 million in stock compensation expense was offset by a decrease of
$1 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.
Adjusted research and development expenses increased by $1 million, or 1.9%, to
$55 million in the first quarter of fiscal 2022 compared to $54 million in the
first quarter of fiscal 2021. The increase was primarily due to a decrease of $1
million in SIF claims.
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 $17 million, or
18.9%, to $73 million in the first quarter of fiscal 2022 compared to $90
million in the first quarter of fiscal 2021. This decrease was primarily
attributable to the increase in benefits of $6 million in CEWS funding, a
decrease of $6 million in stock compensation expenses, a decrease of $3 million
in salaries and benefits expenses, favorable foreign currency translation of $2
million and a decrease of $2 million in operating lease costs, partially offset
by an increase of $5 million in legal expenses.
Adjusted selling, marketing and administration expenses decreased by $11
million, or 13.8%, to $69 million in the first quarter of fiscal 2022 compared
to $80 million in the first quarter of fiscal 2021. This decrease was primarily
attributable to the benefit of $6 million in CEWS funding, a decrease of $3
million in salaries and benefits expenses, a favorable foreign currency
translation of $2 million and a decrease of $2 million in operating lease costs,
partially offset by an increase of $5 million in legal expenses.
Amortization Expense
The table below presents a comparison of amortization expense relating to
property, plant and equipment and intangible assets recorded as amortization or
cost of sales for the quarter ended May 31, 2021 compared to the quarter ended
May 31, 2020. Intangible assets are comprised of patents, licenses and acquired
technology.
                                               For the Three Months Ended
                                                      (in millions)
                                              Included in Operating Expense
                                       May 31, 2021            May 31, 2020      Change
Property, plant and equipment   $        3                    $          4      $    (1)
Intangible assets                       43                              42            1
Total                           $       46                    $         46      $     -

                                                Included in Cost of Sales
                                       May 31, 2021            May 31, 2020      Change
Property, plant and equipment   $        1                    $          1      $     -
Intangible assets                        2                               3           (1)
Total                           $        3                    $          4      $    (1)


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Amortization included in Operating Expense
Amortization expense relating to property, plant and equipment and certain
intangible assets was $46 million in the first quarter of fiscal 2022,
consistent with $46 million in the first quarter of fiscal 2021.
Adjusted amortization increased by $1 million to $14 million in the first
quarter of fiscal 2022 compared to $13 million in the first quarter of fiscal
2021 due to a decrease in the non-GAAP adjustment of acquired intangibles
amortization to $32 million in the first quarter of fiscal 2022 from $33 million
in the first 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 first quarter of fiscal 2022 compared to $4
million in the first quarter of fiscal 2021. The decrease in amortization
expense was due to the lower cost base of assets.
Investment Loss, Net
Investment loss, net, which includes the interest expense from the 1.75%
Debentures, increased by $2 million to an investment loss, net of $2 million in
the first quarter of fiscal 2022, compared to investment loss, net of nil in the
first quarter of fiscal 2021. The increase in investment loss, net is primarily
due to a lower yield on cash and investments and a lower cash and investments
balance compared to the first quarter of fiscal 2021 as a result of the
redemption of the 3.75% Debentures and issuance of the 1.75% Debentures,
partially offset by a decrease in interest expense from the Debentures.
Income Taxes
For the first quarter of fiscal 2022, the Company's net effective income tax
expense rate was approximately 3%, compared to an 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 quarter of fiscal 2022 was $62 million, or
$0.11 basic and diluted loss per share on a U.S. GAAP basis, reflecting a
decrease in net loss of $574 million compared to a net loss of $636 million, or
$1.14 basic and diluted loss per share, in the first quarter of fiscal 2021. The
decrease in net loss of $574 million was primarily due to a decrease in
operating expenses due to the goodwill impairment in the first quarter of fiscal
2021 that did not recur, as described above in "Operating Expenses", 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 $27 million in the first quarter of fiscal 2022 compared
to adjusted net income of $7 million in the first quarter of fiscal 2021,
reflecting a decrease in adjusted net income of $34 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 a decrease in operating expenses as described
above in "Operating Expenses".
The weighted average number of shares outstanding was 567 million common shares
for basic and diluted loss per share for the first quarter of fiscal 2022. The
weighted average number of shares outstanding was 558 million common shares for
basic loss and diluted loss per share for the first quarter of fiscal 2021.
Financial Condition
Liquidity and Capital Resources
Cash, cash equivalents, and investments decreased by $35 million to $769 million
as at May 31, 2021 from $804 million as at February 28, 2021, primarily as a
result of changes in working capital. The majority of the Company's cash, cash
equivalents, and investments were denominated in U.S. dollars as at May 31,
2021.
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A comparative summary of cash, cash equivalents, and investments is set out
below:
                                                                                    As at
                                                                                (in millions)
                                                                                  February 28,
                                                            May 31, 2021              2021                Change
Cash and cash equivalents                                 $         339          $        214          $      125
Restricted cash equivalents and restricted short-term
investments                                                          29                    28                   1
Short-term investments                                              364                   525                (161)
Long-term investments                                                37                    37                   -
Cash, cash equivalents, and investments                   $         769     

$ 804 $ (35)

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


                                             As at
                                         (in millions)
                       May 31, 2021       February 28, 2021       Change
Current assets        $         953      $            1,006      $  (53)
Current liabilities             402                     429         (27)
Working capital       $         551      $              577      $  (26)


Current Assets
The decrease in current assets of $53 million at the end of the first quarter of
fiscal 2022 from the end of fourth quarter of fiscal 2021 was primarily due to a
decrease in short term investments of $161 million, and accounts receivable, net
of allowance of $29 million, partially offset by an increase in cash and cash
equivalents of $125 million, an increase in other current assets of $11 million,
and an increase in other receivables of $1 million.
At May 31, 2021, accounts receivable was $153 million, a decrease of $29 million
from February 28, 2021. The decrease was primarily due to lower revenue
recognized over the three months ended May 31, 2021 compared to the three months
ended February 28, 2021, partially offset by an increase in days sales
outstanding to 89 days at the end of the first quarter of fiscal 2022 from 85
days at the end of the fourth quarter of fiscal 2021.
At May 31, 2021, other current assets was $61 million, an increase of $11
million from February 28, 2021. The increase was primarily due to an increase in
inventory of $3 million, an increase of $3 million in prepaid insurance, an
increase of $2 million in prepaid maintenance, and an increase of $2 million in
derivative assets.
At May 31, 2021, other receivables increased by $1 million to $26 million
compared to $25 million as at February 28, 2021. The increase was primarily due
to an increase of $1 million relating to the SIF claims, and an increase of $1
million in GST and VAT receivables, partially offset by a decrease of $1 million
relating to the CEWS program.
Current Liabilities
The decrease in current liabilities of $27 million at the end of the first
quarter of 2022 from the end of the fourth quarter of fiscal 2021 was primarily
due to a decrease in deferred revenue of $17 million, and a decrease in accrued
liabilities of $14 million, partially offset by an increase in income taxes
payable of $2 million and an increase in accounts payable of $2 million.
Deferred revenue, current was $208 million, which reflects a decrease of $17
million compared to February 28, 2021 that was attributable to a $12 million
decrease in deferred revenue, current related to BlackBerry Spark and $4 million
related to BlackBerry AtHoc, partially offset by an increase of $1 million in
deferred revenue, current related to BlackBerry QNX.
Accrued liabilities were $164 million, reflecting a decrease of $14 million
compared to February 28, 2021, which was primarily attributable to a $8 million
decrease in variable incentive plan costs and a decrease of $5 million in
payroll accrual.
Income taxes payable were $8 million, reflecting a decrease of $2 million
compared to February 28, 2021, which was primarily attributable to the reversal
of uncertain tax positions.
Accounts payable were $22 million, reflecting an increase of $2 million from
February 28, 2021, which was primarily due to timing of payments of accounts
payable.
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Cash flows for the three months ended May 31, 2021 compared to the three months ended May 31, 2020 were as follows:

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