BLACKBERRY LIMITED
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read together with the unaudited
interim consolidated financial statements and the accompanying notes (the
"Consolidated Financial Statements") of BlackBerry Limited for the three and six
months ended August 31, 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,
•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 August 31, 2021 compared
to the three months ended August 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
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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: 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 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 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 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.
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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 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 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
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 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.
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
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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.
Although the parties have reached preliminary agreement on many key terms of the
potential transaction and the Company expects to enter into a definitive
agreement in the third quarter of fiscal 2022, 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 expects to retain rights
to use these patents and does not intend to sell patents associated with the
Company's current Software and Services business.
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 the Company was awarded the highest AAA Rating in SE Labs'
Breach Response Test for BlackBerry Protect and BlackBerry Optics;
•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; and
•Launched updated SecuSUITE capabilities to further secure group phone calls and
messages.
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;
•Launched the BlackBerry IVY Advisory Council to help shape and advise the
BlackBerry IVY application development community and drive use case generation;
•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;
•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;
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•Announced that sTraffic has chosen the BlackBerry QNX® OS for Safety as the
foundation for its Communications-based Train Control System (CBTC);
•Announced the integration of BlackBerry UEM with Microsoft 365;
•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:
•Appointed John Giamatteo as President of Cyber Security 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; and
•Announced that the Company was named one of Canada's Greenest Employers for
sixth year in a row.
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 half 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
second 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 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 downturn 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
six months of fiscal 2022 compared to the first six 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 six 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, 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,
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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.
Second Quarter Fiscal 2022 Summary Results of Operations
The following table sets forth certain unaudited consolidated statements of
operations data for the quarter ended August 31, 2021 compared to the quarter
ended August 31, 2020 under U.S. GAAP:
For the Three Months Ended
(in millions, except for share and per share amounts)
August 31,
2021 August 31, 2020 Change
Revenue $ 175 $ 259 $ (84)
Gross margin 112 199 (87)
Operating expenses 253 221 32
Investment loss, net (1) (5) 4
Loss before income taxes (142) (27) (115)
Provision for (recovery of) income taxes 2 (4) 6
Net loss $ (144) $ (23) $ (121)
Loss per share - reported
Basic $ (0.25) $ (0.04)
Diluted $ (0.25) $ (0.04)
Weighted-average number of shares outstanding (000's)
Basic (1) 568,082 558,882
Diluted (2) 568,082 558,882
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(1)Basic loss per share on aU.S. GAAP basis for the second quarter of fiscal 2022 and second quarter of fiscal 2021 includes 1,421,945 and 2,802,067 common shares, respectively, to be issued on the anniversary dates of theCylance acquisition completed onFebruary 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 aU.S. GAAP basis for the second 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 tables show information by operating segment for the three and six months endedAugust 31, 2021 andAugust 31, 2020 . The Company reports segment information in accordance withU.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 TotalsAugust 31 ,August 31 ,August 31 ,August 31 ,August 31 ,August 31 ,August 31, 2021 2020 Change 2021 2020 ChangeAugust 31, 2021 2020 Change 2021 2020 Change Segment revenue$ 120 $ 120 $ -$ 40 $ 31 $ 9 $ 15 $ 108 $ (93) $ 175 $ 259 $ (84) Segment cost of sales 49 46 3 7 6 1 6 7 (1) 62 59 3 Segment gross margin$ 71 $ 74 $ (3) $ 33 $ 25 $ 8 $ 9 $ 101 $ (92) $ 113 $ 200 $ (87) 34
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For the Six Months Ended
(in millions)
Cyber Security IoT Licensing and Other
Segment Totals
August 31, August 31, August 31,
2021 August 31, 2020 Change 2021 2020 Change August 31, 2021 August 31, 2020 Change August 31, 2021 August 31, 2020 Change
Segment revenue $ 227 $ 239 $ (12) $ 83 $ 60 $ 23 $ 39 $ 166 $ (127) $ 349 $ 465 $ (116)
Segment cost of sales 95 93 2 14 12 2 12 15 (3) 121 120 1
Segment gross margin $ 132 $ 146 $ (14) $ 69 $ 48 $ 21 $ 27 $ 151 $ (124) $ 228 $ 345 $ (117) The following tables reconcile the Company's segment results for the three and
six months ended
For the Three Months Ended
(in millions)
Cyber Licensing and Consolidated U.S.
Security IoT Other Segment Totals Reconciling Items GAAP
Revenue $ 120 $ 40 $ 15 $ 175 $ - $ 175
Cost of sales (1) 49 7 6 62 1 63
Gross margin $ 71 $ 33 $ 9 $ 113 $ (1) $ 112
Operating expenses 253 253
Investment loss, net 1 1
Loss before income taxes $ (142)
For the Six Months Ended
(in millions)
Cyber Licensing and Consolidated U.S.
Security IoT Other Segment Totals Reconciling Items GAAP
Revenue $ 227 $ 83 $ 39 $ 349 $ - $ 349
Cost of sales (1) 95 14 12 121 2 123
Gross margin $ 132 $ 69 $ 27 $ 228 $ (2) $ 226
Operating expenses 425 425
Investment loss, net 3 3
Loss before income taxes $ (202)
______________________________
(1) See "Non-GAAP Financial Measures" for a reconciliation of selected
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The following tables reconcile the Company's segment results for the three and
six months ended
For the Three Months Ended
(in millions)
Cyber Licensing and Consolidated U.S.
Security IoT Other Segment Totals Reconciling Items GAAP
Revenue $ 120 $ 31 $ 108 $ 259 $ - $ 259
Cost of sales (1) 46 6 7 59 1 60
Gross margin $ 74 $ 25 $ 101 $ 200 $ (1) $ 199
Operating expenses 221 221
Investment loss, net 5 5
Loss before income taxes $ (27)
For the Six Months Ended
(in millions)
Cyber Licensing and Consolidated U.S.
Security IoT Other Segment Totals Reconciling Items GAAP
Revenue $ 239 $ 60 $ 166 $ 465 $ - $ 465
Cost of sales (1) 93 12 15 120 3 123
Gross margin $ 146 $ 48 $ 151 $ 345 $ (3) $ 342
Operating expenses 1,009 1,009
Investment loss, net 5 5
Loss before income taxes $ (672)
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(1) See "Non-GAAP Financial Measures" for a reconciliation of selectedU.S. GAAP-based measures to adjusted measures for the three and six months endedAugust 31, 2020 . Financial Highlights The Company had approximately$772 million in cash, cash equivalents and investments as ofAugust 31, 2021 and$804 million in cash, cash equivalents and investments as ofFebruary 28, 2021 . In the second quarter of fiscal 2022, the Company recognized revenue of$175 million and incurred a net loss of$144 million , or$0.25 basic and diluted loss per share on aU.S. GAAP basis. In the second quarter of fiscal 2021, the Company recognized revenue of$259 million and incurred a net loss of$23 million , or$0.04 basic and diluted loss per share on aU.S. GAAP basis. The Company recognized an adjusted net loss of$33 million , and an adjusted loss of$0.06 per share, in the second quarter of fiscal 2022. The Company recognized adjusted net income of$58 million , and adjusted earnings of$0.10 per share, in the second 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 underU.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 atAugust 31, 2021 , the fair value of the 1.75% Debentures was approximately$782 million , an increase of approximately$67 million during the second quarter of fiscal 2022. For the three months endedAugust 31, 2021 , the Company recorded a non-cash charge relating to changes in fair value from non-credit components of$67 million (pre-tax and after tax) (the "Q2 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 Other Comprehensive Loss ("OCL") relating to the 1.75% Debentures. For the six months endedAugust 31, 2021 , the Company recorded a non-cash charge relating to changes in fair value from non-credit components of$63 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$1 million in OCL relating to the 1.75% Debentures. See Note 6 to the Consolidated Financial Statements for further details on the 1.75% Debentures. 36 -------------------------------------------------------------------------------- Non-GAAP Financial Measures The Consolidated Financial Statements have been prepared in accordance withU.S. GAAP, and information contained in this MD&A is presented on that basis. OnSeptember 22, 2021 , the Company announced financial results for the three and six months endedAugust 31, 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'sU.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 and six months endedAugust 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 underU.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 aU.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 toU.S. GAAP measures, supplementary non-GAAP financial measures that exclude certain items from the presentation of its financial results. 37 -------------------------------------------------------------------------------- Reconciliation of non-GAAP based measures with most directly comparableU.S. GAAP based measures for the three months endedAugust 31, 2021 andAugust 31, 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 byU.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 theU.S. GAAP results, which are described in this MD&A and presented in the Consolidated Financial Statements. A reconciliation of the most directly comparableU.S. GAAP financial measures for the three months endedAugust 31, 2021 andAugust 31, 2020 to adjusted financial measures is reflected in the table below: For the Three Months Ended (in millions) August 31, 2021 August 31, 2020 Gross margin $ 112 $ 199 Stock compensation expense 1 1 Adjusted gross margin $ 113 $ 200 Gross margin % 64.0 % 76.8 % Stock compensation expense 0.6 % 0.4 % Adjusted gross margin % 64.6 % 77.2 % Reconciliation of operating expense for the three months endedAugust 31, 2021 ,May 31, 2021 andAugust 31, 2020 to adjusted operating expense is reflected in the table below: For the Three Months Ended (in millions) August 31, 2021 May 31, 2021 August 31, 2020 Operating expense $ 253 $ 172 $ 221 Restructuring charges - - 1 Stock compensation expense 11 6 8 Debentures fair value adjustment (1) 67 (4) 18 Acquired intangibles amortization 32 32 32 LLA impairment charge - - 21 Adjusted operating expense $ 143 $ 138 $ 141
______________________________
(1) See "Second Quarter Fiscal 2022 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment" Reconciliation ofU.S. GAAP net loss andU.S. GAAP basic loss per share for the three months endedAugust 31, 2021 andAugust 31, 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) August 31, 2021 August 31, 2020 Basic earnings (loss) Basic loss per share per share Net loss$ (144) $(0.25) $ (23) $(0.04) Restructuring charges - 1 Stock compensation expense 12 9 Debentures fair value adjustment 67 18 Acquired intangibles amortization 32 32 LLA impairment charge - 21 Adjusted net income (loss)$ (33) $(0.06) $ 58 $0.10 38
-------------------------------------------------------------------------------- Reconciliation ofU.S. GAAP research and development, selling, marketing and administration, and amortization expense for the three months endedAugust 31, 2021 andAugust 31, 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) August 31, 2021 August 31, 2020 Research and development $ 58 $ 57 Stock compensation expense 2 2 Adjusted research and development $ 56 $ 55 Selling, marketing and administration $ 83 $ 79 Restructuring charges - 1 Stock compensation expense 9 6 Adjusted selling, marketing and administration $ 74 $ 72 Amortization $ 45 $ 46 Acquired intangibles amortization 32 32 Adjusted amortization $ 13 $ 14 Adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage and adjusted EBITDA margin percentage for the three months endedAugust 31, 2021 andAugust 31, 2020 are reflected in the table below. For the Three Months Ended (in millions) August 31, 2021 August 31, 2020 Operating loss $ (141) $
(22)
Non-GAAP adjustments to operating loss
Restructuring charges - 1 Stock compensation expense 12 9 Debentures fair value adjustment 67
18
Acquired intangibles amortization 32 32 LLA impairment charge - 21 Total non-GAAP adjustments to operating loss 111
81
Adjusted operating income (loss) (30)
59
Amortization 48
50
Acquired intangibles amortization (32) (32) Adjusted EBITDA $ (14) $ 77 Revenue $ 175 $ 259 Adjusted operating income (loss) margin % (1) (17%) 23% Adjusted EBITDA margin % (2) (8%) 30%
______________________________
(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
39
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Reconciliation of non-GAAP based measures with most directly comparable U.S.
GAAP based measures for the six months ended August 31, 2021 and August 31,
2020 .
A reconciliation of the most directly comparable U.S. GAAP financial measures
for the six months ended August 31, 2021 and August 31, 2020 to adjusted
financial measures is reflected in the table below:
For the Six Months Ended (in millions) August 31, 2021 August 31, 2020
Gross margin $ 226 $ 342
Stock compensation expense 2 3
Adjusted gross margin $ 228 $ 345
Gross margin % 64.8 % 73.5 %
Stock compensation expense 0.5 % 0.7 %
Adjusted gross margin % 65.3 % 74.2 %
Operating expense $ 425 $ 1,009
Restructuring charges - 2
Stock compensation expense 17 20
Debentures fair value adjustment (1) 63 19
Acquired intangibles amortization 64 65 Goodwill impairment charge - 594 LLA impairment charge - 21 Adjusted operating expense $ 281 $ 288
______________________________
(1) See "Second Quarter Fiscal 2022 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment"
Reconciliation ofU.S. GAAP net loss andU.S. GAAP basic loss per share for the six months endedAugust 31, 2021 andAugust 31, 2020 to adjusted net income (loss) and adjusted basic earnings (loss) per share is reflected in the table below: For the Six Months Ended (in millions, except per share amounts) August 31, 2021 August 31, 2020 Basic earnings (loss) per Basic loss per share share Net loss$ (206) $(0.36) $ (659) $(1.18) Restructuring charges - 2 Stock compensation expense 19 23 Debentures fair value adjustment 63 19 Acquired intangibles amortization 64 65 Goodwill impairment charge - 594 LLA impairment charge - 21 Adjusted net income (loss)$ (60) $(0.11) $ 65 $0.12 40
-------------------------------------------------------------------------------- Reconciliation ofU.S. GAAP research and development, selling, marketing and administration, and amortization expense for the six months endedAugust 31, 2021 andAugust 31, 2020 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the table below: For the Six Months Ended (in millions) August 31, 2021 August 31, 2020 Research and development $ 115 $ 114 Stock compensation expense 4 5 Adjusted research and development $ 111 $ 109 Selling, marketing and administration $ 156 $ 169 Restructuring charges - 2 Stock compensation expense 13 15 Adjusted selling, marketing and administration $ 143 $ 152 Amortization $ 91 $ 92 Acquired intangibles amortization 64 65 Adjusted amortization $ 27 $ 27 Adjusted operating income (loss), adjusted EBITDA, adjusted operating income (loss) margin percentage and adjusted EBITDA margin percentage for the six months endedAugust 31, 2021 andAugust 31, 2020 are reflected in the table below. For the Six Months Ended (in millions) August 31, 2021 August 31, 2020 Operating loss$ (199) $
(667)
Non-GAAP adjustments to operating loss
Restructuring charges -
2
Stock compensation expense 19
23
Debentures fair value adjustment 63
19
Acquired intangibles amortization 64 65 Goodwill impairment charge - 594 LLA impairment charge - 21 Total non-GAAP adjustments to operating loss 146
724
Adjusted operating income (loss) (53)
57
Amortization 97
100
Acquired intangibles amortization (64) (65) Adjusted EBITDA$ (20) $ 92 Revenue$ 349 $ 465 Adjusted operating income (loss) margin % (1) (15 %) 12 % Adjusted EBITDA margin % (2) (6 %) 20 %
______________________________
(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
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"), 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
41
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Company no longer reports non-GAAP revenue. For purposes of comparability, the
Company's key metrics for the three months ended August 31, 2020 have been
updated to conform to the current year's presentation.
Comparative breakdowns of certain key metrics for the three months ended August
31, 2021 and August 31, 2020 are set forth below.
For the Three Months Ended (in millions) August 31, 2021 August 31, 2020 Change
Annual Recurring Revenue
Cyber Security $ 364 $ 367 $ (3)
IoT $ 89 $ 92 $ (3)
Dollar -Based Net Retention Rate
Cyber Security 95 % 100 % (5 %)
Recurring Software Product Revenue ~ 80% ~ 90% ~ 10%
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 second quarter of
fiscal 2022, consistent with the first quarter of fiscal 2022 and decreased
compared to $367 million in the second quarter of fiscal 2021.
IoT ARR was approximately $89 million in the second quarter of fiscal 2022 and
increased compared to $86 million in the first quarter of fiscal 2022 and
decreased compared to $92 million the second 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.
Cyber Security DBNRR was 95% in the second quarter of fiscal 2022 and increased
compared to 94% in the first quarter of fiscal 2022 and decreased compared to
100% in second 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 increased in the second quarter of fiscal 2022 compared
to the first quarter of fiscal 2022 and decreased compared to the second quarter
of fiscal 2021.
The Company expects sequential billings growth for Cyber Security for the
remainder of fiscal 2022.
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 second quarter of fiscal 2022
and decreased compared to approximately 90% recurring in the first quarter of
fiscal 2022 and the second 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
42
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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 August 31, 2021 ,
the Company's net cash generated by operating activities was $12 million and
capital expenditures were $2 million , resulting in the Company reporting free
cash flow of $10 million compared to net cash generated by operating activities
of $31 million , capital expenditures of $2 million , and free cash flow of
$29 million for the three months ended August 31, 2020 .
Results of Operations - Three months ended August 31, 2021 compared to the three
months ended August 31, 2020
Revenue
Revenue by Segment
Comparative breakdowns of revenue by segment are set forth below.
For the Three Months Ended
(in millions)
August 31, 2021 August 31, 2020 Change
Revenue by Segment
Cyber Security $ 120 $ 120 $ -
IoT 40 31 9
Licensing and Other 15 108 (93)
$ 175 $ 259 $ (84)
% Revenue by Segment
Cyber Security 68.6 % 46.3 %
IoT 22.9 % 12.0 %
Licensing and Other 8.5 % 41.7 %
100.0 % 100.0 %
Cyber Security
Cyber Security revenue was $120 million , or 68.6% of revenue, in the second
quarter of fiscal 2022, compared to $120 million , or 46.3% of revenue, in the
second quarter of fiscal 2021. An increase of $11 million related to the sale of
Secusmart solutions was offset by a decrease of $9 million relating to product
revenue in BlackBerry Spark, and a decrease of $3 million relating to
professional services.
The Company expects modest sequential Cyber Security revenue growth for the
remainder of fiscal 2022.
IoT
IoT revenue was $40 million , or 22.9% of revenue, in the second quarter of
fiscal 2022, an increase of $9 million compared to $31 million , or 12.0% of
revenue, in the second quarter of fiscal 2021. The increase in IoT revenue of $9
million was primarily due to an increase of $6 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 second quarter of fiscal 2021, an
increase of $3 million in development seat revenue and an increase of $1 million
relating to professional services revenue.
Licensing and Other
Licensing and Other revenue was $15 million , or 8.5% of revenue, in the second
quarter of fiscal 2022, a decrease of $93 million compared to $108 million , or
41.7% of revenue, in the second quarter of fiscal 2021. The decrease in
Licensing and Other revenue of $93 million was primarily due to a decrease in
revenue from the Company's intellectual property licensing arrangements
including its patent licensing agreement with Teletry .
The Company previously stated that, assuming the potential sale of a portion of
the Company's patent portfolio process concludes in the middle of fiscal 2022
without the completion of a transaction, the Company would resume its prior
monetization activities and expected that Licensing and Other revenue would be
approximately $100 million in fiscal 2022. The Company now expects that the
ongoing patent sale process, and associated restrictions on monetization
activity, will continue for the remainder of the fiscal year and that,
therefore, Licensing and Other revenue will be approximately $10 million in each
of the third and fourth quarters of fiscal 2022 and approximately $60 million in
fiscal 2022.
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Revenue by Geography
Comparative breakdowns of the geographic regions are set forth in the following
table:
For the Three Months Ended
(in millions)
August 31, 2021 August 31, 2020 Change
Revenue by Geography
North America $ 101 $ 195 $ (94)
Europe, Middle East and Africa 57 48 9
Other regions 17 16 1
$ 175 $ 259 $ (84)
% Revenue by Geography
North America 57.7 % 75.3 %
Europe, Middle East and Africa 32.6 % 18.5 %
Other regions 9.7 % 6.2 %
100.0 % 100.0 %
North America Revenue
Revenue in North America was $101 million , or 57.7% of revenue, in the second
quarter of fiscal 2022, reflecting a decrease of $94 million compared to $195
million , or 75.3% of revenue, in the second quarter of fiscal 2021. Revenue in
North America decreased compared to the second quarter of fiscal 2021 primarily
due to a decrease of $92 million in Licensing and Other revenue due to the
reasons discussed above in "Revenue by Segment", a decrease of $6 million in
product revenue in BlackBerry Spark, 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 $57 million or 32.6% of revenue in
the second quarter of fiscal 2022, reflecting an increase of $9 million compared
to $48 million or 18.5% of revenue in the second quarter of fiscal 2021. The
increase in revenue is primarily due to an increase of $11 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", partially offset by a
decrease of $4 million in product revenue in BlackBerry Spark.
Other Regions Revenue
Revenue in other regions was $17 million or 9.7% of revenue in the second
quarter of fiscal 2022, reflecting an increase of $1 million compared to $16
million or 6.2% of revenue in the second quarter of fiscal 2021. The increase in
revenue is primarily due to an increase of $1 million in development seat
revenue.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin decreased by $87 million to approximately $112 million
in the second quarter of fiscal 2022 from $199 million in the second 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 12.8% to approximately 64.0%
of consolidated revenue in the second quarter of fiscal 2022 from 76.8% of
consolidated revenue in the second 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".
44
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Gross Margin by Segment
See "Business Overview" and "Second 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
August 31 , August 31 , August 31,
2021 August 31, 2020 Change August 31, 2021 August 31, 2020 Change 2021 August 31, 2020 Change 2021 August 31, 2020 Change
Segment revenue $ 120 $ 120 $ - $ 40 $ 31 $ 9 $ 15 $ 108 $ (93) $ 175 $ 259 $ (84)
Segment cost of sales 49 46 3 7 6 1 6 7 (1) 62 59 3
Segment gross margin $ 71 $ 74 $ (3) $ 33 $ 25 $ 8 $ 9 $ 101 $ (92) $ 113 $ 200 $ (87)
Segment gross margin % 59 % 62 % (3 %) 83 % 81 % 2 % 60 % 94 % (34 %) 65 % 77 % (12 %)
Cyber Security
Cyber Security gross margin decreased by $3 million to approximately $71 million
in the second quarter of fiscal 2022 from $74 million in the second 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 3% to approximately 59% of
Cyber Security revenue in the second quarter of fiscal 2022 from 62% of Cyber
Security revenue in the second quarter of fiscal 2021. The decrease was
primarily due to the reasons discussed above in "Revenue by Segment".
IoT
IoT gross margin increased by $8 million to approximately $33 million in the
second quarter of fiscal 2022 from $25 million in the second 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 2% to approximately 83% of IoT revenue
in the second quarter of fiscal 2022 from 81% of IoT revenue in the second
quarter of fiscal 2021. The increase was primarily due to 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 $92 million to approximately $9
million in the second quarter of fiscal 2022 from $101 million in the second
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 34% to approximately
60% of Licensing and Other revenue in the second quarter of fiscal 2022 from 94%
of Licensing and Other revenue in the second quarter of fiscal 2021. The
decrease was primarily due to the reasons discussed above in "Revenue by
Segment".
45
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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
August 31, 2021 , compared to the quarter ended May 31, 2021 and the quarter
ended August 31, 2020 . The Company believes it is meaningful to provide a
sequential comparison between the second quarter of fiscal 2022 and the first
quarter of fiscal 2022.
For the Three Months Ended
(in millions)
August 31, 2021 May 31, 2021 August 31, 2020
Revenue $ 175 $ 174 $ 259
Operating expenses
Research and development 58 57 57
Selling, marketing and administration 83 73 79
Amortization 45 46 46
Impairment of long-lived assets - - 21
Debentures fair value adjustment 67 (4) 18
Total $ 253 $ 172 $ 221
Operating Expenses as % of Revenue
Research and development 33.1 % 32.8 % 22.0 %
Selling, marketing and administration 47.4 % 42.0 % 30.5 %
Amortization 25.7 % 26.4 % 17.8 %
Impairment of long-lived assets - % - % 8.1 %
Debentures fair value adjustment 38.3 % (2.3 %) 6.9 %
Total 144.6 % 98.9 % 85.3 %
See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the three months ended August 31,
2021 , May 31, 2021 and August 31, 2020 .
U.S. GAAP Operating Expenses
Operating expenses increased by $81 million , or 47.1%, to $253 million , or
144.6% of revenue, in the second quarter of fiscal 2022, compared to $172
million , or 98.9% of revenue, in the first quarter of fiscal 2022. The increase
was primarily attributable to the difference between the Q2 Fiscal 2022
Debentures Fair Value Adjustment and the fair value adjustment related to the
Debentures incurred in the first quarter of fiscal 2022 of $71 million , an
increase of $6 million in stock compensation expenses, a decrease in benefits of
$4 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 an increase of $3 million in the Company's deferred share
unit costs, partially offset by a decrease of $7 million in legal expenses.
Operating expenses increased by $32 million , or 14.5%, to $253 million , or
144.6% of revenue, in the second quarter of fiscal 2022, compared to $221
million , or 85.3% of revenue, in the second quarter of fiscal 2021. The increase
was primarily attributable the difference between the Q2 Fiscal 2022 Debentures
Fair Value Adjustment and the fair value adjustment related to the Debentures
incurred in the second quarter of fiscal 2021 of $49 million , a decrease in
benefits of $7 million in CEWS funding and an increase of $4 million in stock
compensation expenses, partially offset by long-lived asset impairment of $21
million in the second quarter of fiscal 2021 which did not recur and a decrease
of $7 million in legal expenses.
Adjusted Operating Expenses
Adjusted operating expenses increased by $5 million , or 3.6%, to $143 million in
the second quarter of fiscal 2022 compared to $138 million in the first quarter
of fiscal 2022. The increase was primarily attributable to a decrease in
benefits of $4 million in CEWS funding, an increase of $3 million in the
Company's deferred share unit costs and a reversal of previously accrued
liabilities of $3 million in the first quarter of fiscal 2021 which did not
recur, partially offset by a decrease of $7 million in legal expenses.
Adjusted operating expenses increased by $2 million , or 1.4%, to $143 million in
the second quarter of fiscal 2022, compared to $141 million in the second
quarter of fiscal 2021. The increase was primarily attributable to a decrease in
benefits of $7 million in CEWS funding, an increase of $2 million in the
Company's deferred share unit costs and an increase of $2 million in
46
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variable incentive plan costs, partially offset by a decrease of $7 million in
legal expenses and a decrease of $4 million in salaries and benefits 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 $1 million , or 1.8%, to $58
million in the second quarter of fiscal 2022 compared to $57 million in the
second quarter of fiscal 2021. This increase was primarily attributable to the
increase of $1 million in variable incentive plan costs and an increase of $1
million in infrastructure costs, partially offset by a decrease of $1 million in
operating lease costs.
Adjusted research and development expenses increased by $1 million , or 1.8%, to
$56 million in the second quarter of fiscal 2022 compared to $55 million in the
second quarter of fiscal 2021. The increase was primarily attributable to the
increase of $1 million in infrastructure costs, partially offset by a decrease
of $1 million in operating lease costs.
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 increased by $4 million , or 5.1%,
to $83 million in the second quarter of fiscal 2022 compared to $79 million in
the second quarter of fiscal 2021. This increase was primarily attributable to a
decrease in benefits of $7 million in CEWS funding, an increase of $4 million in
stock compensation expenses, an increase of $2 million in variable incentive
costs and an increase of $2 million in the Company's deferred share unit costs,
partially offset by a decrease of $7 million in legal expenses and a decrease of
$5 million in salaries and benefits expenses.
Adjusted selling, marketing and administration expenses increased by $2 million ,
or 2.8%, to $74 million in the second quarter of fiscal 2022 compared to $72
million in the second quarter of fiscal 2021. This increase was primarily
attributable to a decrease in benefits of $7 million in CEWS funding, an
increase of $2 million in the Company's deferred share unit costs, an increase
of $2 million in variable incentive costs and unfavorable foreign currency
translation of $2 million , partially offset by a decrease of $7 million in legal
expenses and a decrease of $5 million in salaries and benefits expenses.
Amortization Expense
The table below presents a comparison of amortization expense relating to
property, plant and equipment and intangible assets recorded as amortization or
cost of sales for the quarter ended August 31, 2021 compared to the quarter
ended August 31, 2020 . Intangible assets are comprised of patents, licenses and
acquired technology.
For the Three Months Ended
(in millions)
Included in Operating Expense
August 31, 2021 August 31, 2020 Change
Property, plant and equipment $ 3 $ 5 $ (2)
Intangible assets 42 41 1
Total $ 45 $ 46 $ (1)
Included in Cost of Sales
August 31, 2021 August 31, 2020 Change
Property, plant and equipment $ 1 $ 1 $ -
Intangible assets 2 3 (1)
Total $ 3 $ 4 $ (1)
Amortization included in Operating Expense
Amortization expense relating to property, plant and equipment and certain
intangible assets decreased by $1 million to $45 million in the second quarter
of fiscal 2022 compared to $46 million in the second quarter of fiscal 2021. The
decrease in amortization expense was due to the lower cost base of assets.
Adjusted amortization decreased by $1 million to $13 million in the second
quarter of fiscal 2022 compared to $14 million in the second quarter of fiscal
2021 due to the lower cost base of assets.
47
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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 second quarter of fiscal 2022 compared to $4
million in the second 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, decreased by $4 million to an investment loss, net of $1 million in
the second quarter of fiscal 2022, compared to investment loss, net of $5
million in the second quarter of fiscal 2021. The decrease in investment loss,
net is primarily due to a decrease in interest expense from the Debentures
partially offset by a lower average cash and investments balance compared to the
second quarter of fiscal 2021 as a result of the redemption of the 3.75%
Debentures and issuance of the 1.75% Debentures.
Income Taxes
For the second quarter of fiscal 2022, the Company's net effective income tax
expense rate was approximately 1%, compared to an effective income tax recovery
rate of approximately 15% 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 second quarter of fiscal 2022 was $144 million ,
or $0.25 basic and diluted loss per share on a U.S. GAAP basis, reflecting an
increase in net loss of $121 million compared to a net loss of $23 million , or
$0.04 basic and diluted loss per share, in the second quarter of fiscal 2021.
The increase in net loss of $121 million was 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 primarily due to an increase in the fair value
adjustment related to the Debentures, as described above in "Operating
Expenses".
Adjusted net loss was $33 million in the second quarter of fiscal 2022 compared
to adjusted net income of $58 million in the second quarter of fiscal 2021,
reflecting a decrease in adjusted net income of $91 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".
The weighted average number of shares outstanding was 568 million common shares
for basic and diluted loss per share for the second quarter of fiscal 2022. The
weighted average number of shares outstanding was 559 million common shares for
basic loss and diluted loss per share for the second quarter of fiscal 2021.
48
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Results of Operations - Six months ended August 31, 2021 compared to the six
months ended August 31, 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 six months ended August 31, 2021
and August 31, 2020 :
For the Six Months Ended
(in millions,except for share and per share amounts)
August 31, 2021 August 31, 2020 Change
Revenue $ 349 $ 465 $ (116)
Gross margin 226 342 (116)
Operating expenses 425 1,009 (584)
Investment loss, net (3) (5) 2
Loss before income taxes (202) (672) 470
Provision for (recovery of) income taxes 4 (13) 17
Net loss $ (206) $ (659) $ 453
Loss per share - reported
Basic $ (0.36) $ (1.18) $ 0.82
Diluted $ (0.36) $ (1.18) $ 0.82
Weighted-average number of shares outstanding (000's)
Basic (1) 567,724 558,365
Diluted (2) 567,724 558,365
______________________________
(1)Basic loss per share on aU.S. GAAP basis for the first six 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 theCylance acquisition completed onFebruary 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 aU.S. GAAP basis for the first six months of fiscal 2022 and fiscal 2021 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive. Diluted loss per share on aU.S. GAAP basis for the first six 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. 49
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Revenue
Revenue by Segment
Comparative breakdowns of revenue by segment are set forth below.
For the Six Months Ended
(in millions)
August 31, 2021 August 31, 2020 Change
Revenue by Segment
Cyber Security $ 227 $ 239 $ (12)
IoT 83 60 23
Licensing and Other 39 166 (127)
$ 349 $ 465 $ (116)
% Revenue by Segment
Cyber Security 65.0 % 51.4 %
IoT 23.8 % 12.9 %
Licensing and Other 11.2 % 35.7 %
100.0 % 100.0 %
Cyber Security
Cyber Security revenue was $227 million , or 65.0% of revenue in the first six
months of fiscal 2022, a decrease of $12 million compared to $239 million , or
51.4% of revenue in the first six months of fiscal 2021. The decrease in Cyber
Security revenue of $12 million was primarily due to a decrease of $19 million
relating to product revenue in BlackBerry Spark and a decrease of $6 million
relating to professional services, offset by an increase of $14 million related
to the sale of Secusmart solutions.
IoT
IoT revenue was $83 million , or 23.8% of revenue in the first six months of
fiscal 2022, an increase of $23 million compared to $60 million , or 12.9% of
revenue in the first six months of fiscal 2021. The increase in IoT revenue of
$23 million was primarily due to an increase of $12 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 six months of fiscal
2021, an increase of $8 million in development seat revenue and an increase of
$2 million in BlackBerry Radar revenue.
Licensing and Other
Licensing and Other revenue was $39 million , or 11.2% of revenue in the first
six months of fiscal 2022, a decrease of $127 million compared to $166 million ,
or 35.7% of revenue in the first six months of fiscal 2021. The decrease in
Licensing and Other revenue of $127 million was primarily due to a decrease in
revenue from the Company's intellectual property licensing arrangements
including its patent licensing agreement with Teletry .
50
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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 Six Months Ended
(in millions)
August 31, 2021 August 31, 2020 Change
Revenue by Geography
North America $ 212 $ 345 $ (133)
Europe, Middle East and Africa 102 89 13
Other regions 35 31 4
$ 349 $ 465 $ (116)
% Revenue by Geography
North America 60.8 % 74.2 %
Europe, Middle East and Africa 29.2 % 19.1 %
Other regions 10.0 % 6.7 %
100.0 % 100.0 %
North America Revenue
Revenue in North America was $212 million , or 60.8% of revenue, in the first six
months of fiscal 2022, reflecting a decrease of $133 million compared to $345
million , or 74.2% of revenue in the first six months of fiscal 2021. The
decrease in North American revenue is primarily due to a decrease of $124
million in Licensing and Other revenue due to the reasons discussed above in
"Revenue by Segment", a decrease of $16 million in product revenue in BlackBerry
Spark and a decrease of $2 million relating to non-automotive OEM business,
partially offset by an increase of $10 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 $102 million , or 29.2% of revenue,
in the first six months of fiscal 2022, reflecting an increase of $13 million
compared to $89 million , or 19.1% of revenue, in the first six months of fiscal
2021. The increase in revenue is primarily due to an increase of $14 million
related to the sale of Secusmart solutions, an increase of $3 million in
development seat revenue and an increase of $2 million in BlackBerry QNX royalty
revenue due to the reasons discussed above in "Revenue by Segment", partially
offset by a decrease of $4 million in product revenue in BlackBerry Spark.
Other Regions Revenue
Revenue in other regions was $35 million , or 10.0% of revenue, in the first six
months of fiscal 2022, reflecting an increase of $4 million compared to $31
million , or 6.7% of revenue, in the first six months of fiscal 2021. The
increase in revenue is primarily due to an increase of $3 million in development
seat revenue.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin decreased by $116 million to approximately $226
million in the first six months of fiscal 2022 from $342 million in the first
six 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 8.7%, to approximately 64.8%
of consolidated revenue in the first six months of fiscal 2022 from 73.5% of
consolidated revenue in the first six 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".
51
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Gross Margin by Segment
See "Business Overview" and "Second Quarter Fiscal 2022 Summary Results of
Operations" for information about the Company's operating segments and the basis
of operating segment results.
For the Six Months Ended
(in millions)
Cyber Security IoT Licensing and Other Segment Totals
August 31 , August 31 , August 31,
2021 August 31, 2020 Change August 31, 2021 August 31, 2020 Change 2021 August 31, 2020 Change 2021 August 31, 2020 Change
Segment revenue $ 227 $ 239 $ (12) $ 83 $ 60 $ 23 $ 39 $ 166 $ (127) $ 349 $ 465 $ (116)
Segment cost of sales 95 93 2 14 12 2 12 15 (3) 121 120 1
Segment gross margin $ 132 $ 146 $ (14) $ 69 $ 48 $ 21 $ 27 $ 151 $ (124) $ 228 $ 345 $ (117)
Segment gross margin % 58 % 61 % (3 %) 83 % 80 % 3 % 69 % 91 % (22 %) 65 % 74 % (9 %)
Cyber Security
Cyber Security gross margin decreased by $14 million to approximately $132
million in the first six months of fiscal 2022 from $146 million in the first
six 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.
Cyber Security gross margin percentage decreased by 3% to approximately 58% of
Cyber Security revenue in the first six months of fiscal 2022 from 61% of Cyber
Security revenue in the first six months of fiscal 2021. The decrease was
primarily due to the reasons discussed above in "Revenue by Segment".
IoT
IoT gross margin increased by $21 million to approximately $69 million in the
first six months of fiscal 2022 from $48 million in the first six 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 six months of fiscal 2022 from 80% of IoT revenue in the first six
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".
Licensing and Other
Licensing and Other gross margin decreased by $124 million to approximately $27
million in the first six months of fiscal 2022 from $151 million in the first
six 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 22% to approximately
69% of Licensing and Other revenue in the first six months of fiscal 2022 from
91% of Licensing and Other revenue in the first six months of fiscal 2021. The
decrease was primarily due to the reasons discussed above in "Revenue by
Segment".
52
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Operating Expenses
The table below presents a comparison of research and development, selling,
marketing and administration, and amortization expense for the six months ended
August 31, 2021 , compared to the six months ended August 31, 2020 .
For the Six Months Ended
(in millions)
August 31, 2021 August 31, 2020 Change
Revenue $ 349 $ 465 $ (116)
Operating expenses
Research and development 115 114 1
Selling, marketing and administration 156 169 (13)
Amortization 91 92 (1)
Impairment of goodwill - 594 (594)
Impairment of long-lived assets - 21 (21)
Debentures fair value adjustment 63 19 44
Total $ 425 $ 1,009 $ (584)
Operating Expense as % of Revenue
Research and development 33.0 % 24.5 %
Selling, marketing and administration 44.7 % 36.3 %
Amortization 26.1 % 19.8 %
Impairment of goodwill - % 127.7 %
Impairment of long-lived assets - % 4.5 %
Debentures fair value adjustment 18.1 % 4.1 %
Total 121.8 % 217.0 %
See "Non-GAAP Financial Measures" for a reconciliation of selected U.S.
GAAP-based measures to adjusted measures for the six months ended August 31,
2021 and August 31, 2020 .
U.S. GAAP Operating Expenses
Operating expenses decreased by $584 million , or 57.9%, to $425 million , or
121.8% of revenue in the first six months of fiscal 2022, compared to $1,009
million , or 217.0% of revenue, in the first six 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, long-lived assets
impairment of $21 million in the second quarter of fiscal 2021 which did not
recur, a decrease of $9 million in salaries and benefits expense, and a decrease
of $3 million in operating lease cost, partially offset by the difference
between the Fiscal 2022 Debentures Fair Value Adjustment and the fair value
adjustment of $44 million related to the Debentures incurred in the first six
months of fiscal 2021, and an increase of $6 million in variable incentive plan
costs.
Adjusted Operating Expenses
Adjusted operating expenses decreased by $7 million , or 2.4%, to $281 million in
the first six months of fiscal 2022, compared to $288 million in the first six
months of 2021. The decrease was primarily attributable to a decrease of $8
million in salaries and benefits expense, a decrease of $3 million in operating
lease cost, partially offset by 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 $1 million , or 0.9%, to $115
million , or 33.0% of revenue, in the first six months of fiscal 2022, compared
to $114 million , or 24.5% of revenue, in the first six months of fiscal 2021.
The increase was primarily attributable to a decrease 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, and an increase of $1 million in variable incentive plan costs,
partially offset by a decrease of $2 million in operating lease cost.
53
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Adjusted research and development expenses increased by $2 million , or 1.8% to
$111 million in the first six months of fiscal 2022 compared to $109 million in
the first six months of fiscal 2021. The increase was primarily attributable to
a decrease of $2 million in SIF claims, partially offset by a decrease of $2
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 $13 million , or
7.7%, to $156 million , or 44.7% of revenue, in the first six months of fiscal
2022 compared to $169 million in the first six months of fiscal 2021, or 36.3%
of revenue. The decrease was primarily attributable to a decrease of $8 million
in salaries and benefits expenses, a recovery of $2 million in expected credit
losses, and a decrease of $2 million in consulting expenses, partially offset by
an increase of $5 million in variable incentive plan costs, and an increase of
$2 million in the Company's deferred share unit liability due to increases in
the Company's stock price.
Adjusted selling, marketing and administration expenses decreased by $9 million ,
or 5.9%, to $143 million in the first six months of fiscal 2022 compared to $152
million in the first six months of fiscal 2021. The decrease was primarily due
to the same reasons described above on a U.S. GAAP basis.
Amortization Expense
The table below presents a comparison of amortization expense relating to
property, plant and equipment and intangible assets recorded as amortization or
cost of sales for the six months ended August 31, 2021 compared to the six
months ended August 31, 2020 . Intangible assets are comprised of patents,
licenses and acquired technology.
For the Six Months Ended
(in millions)
Included in Operating Expense
August 31, 2021 August 31, 2020 Change
Property, plant and equipment $ 6 $ 9 $ (3)
Intangible assets 85 83 2
Total $ 91 $ 92 $ (1)
Included in Cost of Sales
August 31, 2021 August 31, 2020 Change
Property, plant and equipment $ 2 $ 2 $ -
Intangible assets 4 6 (2)
Total $ 6 $ 8 $ (2)
Amortization included in Operating Expense
Amortization expense relating to certain property, plant and equipment and
intangible assets decreased by $1 million to $91 million in the first six months
of fiscal 2022, compared to $92 million in the first six months of fiscal 2021.
The decrease in amortization expense was due to the lower cost base of assets.
Adjusted amortization expense was $27 million in the first six months of fiscal
2022, consistent with $27 million in the first six 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 $2
million to $6 million in the first six months of fiscal 2022, compared to $8
million in the first six months of fiscal 2021. The decrease in amortization
expense was due to the lower cost base of assets.
54
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Investment Loss, Net
Investment loss, net, which includes the interest expense from the Debentures,
decreased by $2 million to investment loss of $3 million in the first six months
of fiscal 2022, from investment loss of $5 million in the first six months of
fiscal 2021. The decrease in investment loss, net was due to a decrease in
interest expense from the Debentures, partially offset by a lower yield on cash
and investments and lower average cash and investments balances in the first six
months of fiscal 2022 compared to the first six months of fiscal 2021 as a
result of the redemption of the 3.75% Debentures and issuance of the 1.75%
Debentures.
Income Taxes
For the first six months of fiscal 2022, the Company's net effective income tax
expense rate was approximately 2%, compared to a net effective income tax
recovery 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 Loss
The Company's net loss for the first six months of fiscal 2022 was $206 million ,
reflecting a decrease in net loss of $453 million compared to net loss of $659
million in the first six months of fiscal 2021, primarily due to a decrease in
operating expenses due to the goodwill impairment in the first six months 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 in the first six months of fiscal 2022 was $60 million
compared to adjusted net income of $65 million in the first six months of fiscal
2021, reflecting a decrease in adjusted net income of $125 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 expenditures as
described above in "Operating Expenses".
Basic and diluted loss per share on a U.S. GAAP basis was $0.36 in the first six
months of fiscal 2022, a decrease in basic and diluted loss per share of $0.82 ,
compared to basic and diluted loss per share on a U.S. GAAP basis of $1.18 in
the first six months of fiscal 2021.
The weighted average number of shares outstanding was 568 million for basic and
diluted loss per share for the first six months of August 31, 2021 . The weighted
average number of shares outstanding was 558 million for basic and diluted loss
per share for the first six months of August 31, 2020 .
Common Shares Outstanding
On September 20, 2021 , there were 567 million voting common shares, options to
purchase 1 million voting common shares, 20 million restricted share units and 1
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.
Financial Condition
Liquidity and Capital Resources
Cash, cash equivalents, and investments decreased by $32 million to $772 million
as at August 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 August 31,
2021 .
55--------------------------------------------------------------------------------
A comparative summary of cash, cash equivalents, and investments is set out
below:
As at
(in millions)
February 28,
August 31, 2021 2021 Change
Cash and cash equivalents $ 291 $ 214 $ 77
Restricted cash equivalents and restricted short-term
investments 27 28 (1)
Short-term investments 416 525 (109)
Long-term investments 38 37 1
Cash, cash equivalents, and investments $ 772 The table below summarizes the current assets, current liabilities, and working capital of the Company:
As at
(in millions)
August 31, 2021 February 28, 2021 Change
Current assets $ 910 $ 1,006 $ (96)
Current liabilities 403 429 (26)
Working capital $ 507 $ 577 $ (70)
Current Assets
The decrease in current assets of $96 million at the end of the second 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 $109 million , a decrease in
accounts receivable, net of allowance of $61 million , a decrease in other
receivables of $2 million , and a decrease in income taxes receivable of $1
million , partially offset by an increase in cash and cash equivalents of $77
million .
At August 31, 2021 , accounts receivable was $121 million , a decrease of $61
million from February 28, 2021 . The decrease was primarily due to lower revenue
recognized over the three months ended August 31, 2021 compared to the three
months ended February 28, 2021 , and a decrease in days sales outstanding to 72
days at the end of the second quarter of fiscal 2022 from 85 days at the end of
the fourth quarter of fiscal 2021.
At August 31, 2021 , other receivables decreased by $2 million to $23 million
compared to $25 million as at February 28, 2021 . The decrease was primarily due
to a decrease of $3 million relating to the CEWS program, partially offset by an
increase of $2 million relating to the SIF claims.
At August 31, 2021 , income taxes receivable was $9 million , a decrease of $1
million from February 28, 2021 . This decrease was primarily due to changes in
the quarterly tax provision.
Current Liabilities
The decrease in current liabilities of $26 million at the end of the second
quarter of 2022 from the end of the fourth quarter of fiscal 2021 was primarily
due to a decrease in deferred revenue, current of $27 million , and a decrease in
accrued liabilities of $4 million , partially offset by an increase in income
taxes payable of $3 million and an increase in accounts payable of $2 million .
Deferred revenue, current was $198 million , which reflects a decrease of $27
million compared to February 28, 2021 that was attributable to a $20 million
decrease in deferred revenue, current related to BlackBerry Spark and $7 million
related to BlackBerry AtHoc, partially offset by an increase of $2 million in
deferred revenue, current related to BlackBerry QNX.
Accrued liabilities were $174 million , reflecting a decrease of $4 million
compared to February 28, 2021 , which was primarily attributable to a $3 million
decrease in the operating lease liability, current, partially offset by an
increase of $3 million in the Company's deferred share unit liability due to
increases in the Company's stock price.
Income taxes payable were $9 million , reflecting an increase of $3 million
compared to February 28, 2021 , which was primarily due to changes in the
quarterly tax provision.
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 six months ended
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