---

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months Ended November 30, 2019.

3.	Canadian Forms 52-109F2 - Certification of Interim Filings

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BlackBerry Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions) (unaudited)

Consolidated Balance Sheets

	As at
	November 30, 2019				February 28, 2019
Assets
Current
Cash and cash equivalents	$	515			$	548
Short-term investments	367				368
Accounts receivable, net	216				233
Other receivables	13				19
Income taxes receivable	10				9
Other current assets	58				56
	1,179				1,233
Restricted cash and cash equivalents	32				34
Long-term investments	56				55
Other long-term assets	23				28
Deferred income tax assets	—				2
Operating lease right-of-use assets	133				—
Property, plant and equipment, net	76				85
Goodwill	1,459				1,463
Intangible assets, net	955				1,068
	$	3,913			$	3,968
Liabilities
Current
Accounts payable	$	27			$	48
Accrued liabilities	193				192
Income taxes payable	19				17
Debentures	609				—
Deferred revenue, current	264				253
	1,112				510
Deferred revenue, non-current	117				136
Operating lease liabilities	127				—
Other long-term liabilities	8				19
Long-term debentures	—				665
Deferred income tax liabilities	1				2
	1,365				1,332
Commitments and contingencies (Note 11)
Shareholders’ equity
Capital stock and additional paid-in capital
Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable
Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares
Issued - 552,131,972 voting common shares (February 28, 2019 - 547,357,972)	2,742				2,688
Deficit	(157		)		(32		)
Accumulated other comprehensive loss	(37		)		(20		)
	2,548				2,636
	$	3,913			$	3,968

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Consolidated Statements of Shareholders’ Equity

 

	Capital Stock and Additional Paid-in Capital				Deficit				Accumulated Other Comprehensive Loss				Total
Balance as at February 28, 2019	$	2,688			$	(32	)		$	(20	)		$	2,636
Net loss	—				(111		)		—				(111		)
Other comprehensive loss	—				—				(17		)		(17		)
Cumulative impact of adoption of ASC 842	—				(14		)		—				(14		)
Shares issued:
Stock-based compensation	46				—				—				46
Exercise of stock options	2				—				—				2
Employee share purchase plan	6				—				—				6
Balance as at November 30, 2019	$	2,742			$	(157	)		$	(37	)		$	2,548

	Capital Stock and Additional Paid-in Capital				Deficit				Accumulated Other Comprehensive Loss				Total
Balance as at February 28, 2018	$	2,560			$	(45	)		$	(10	)		$	2,505
Net income	—				42				—				42
Cumulative impact of adoption of ASC 606	—				(86		)		—				(86		)
Cumulative impact of adoption of ASU 2016-01	—				6				(6		)		—
Shares issued:
Stock-based compensation	53				—				—				53
Exercise of stock options	1				—				—				1
Employee share purchase plan	4				—				—				4
Balance as at November 30, 2018	$	2,618			$	(83	)		$	(16	)		$	2,519

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BlackBerry Limited

(United States dollars, in millions, except per share data) (unaudited)

Consolidated Statements of Operations

 

	Three Months Ended								Nine Months Ended
	November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
Revenue	$	267			$	226			$	758			$	649
Cost of sales	69				56				207				157
Gross margin	198				170				551				492
Operating expenses
Research and development	66				55				199				167
Selling, marketing and administration	132				93				385				299
Amortization	49				33				146				105
Debentures fair value adjustment	(20		)		(69		)		(71		)		(111		)
	227				112				659				460
Operating income (loss)	(29		)		58				(108		)		32
Investment income (loss), net	(1		)		2				2				13
Income (loss) before income taxes	(30		)		60				(106		)		45
Provision for income taxes	2				1				5				3
Net income (loss)	$	(32	)		$	59			$	(111	)		$	42
Earnings (loss) per share
Basic	$	(0.06	)		$	0.11			$	(0.20	)		$	0.08
Diluted	$	(0.07	)		$	(0.01	)		$	(0.27	)		$	(0.09	)

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BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended								Nine Months Ended
	November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
Net income (loss)	$	(32	)		$	59			$	(111	)		$	42
Other comprehensive income (loss)
Net change in unrealized gains on available-for-sale debt securities	—				—				—				1
Net change in fair value of derivatives designated as cash flow hedges during the period, net of income taxes of nil for the three and nine months ended November 30, 2019 and November 30, 2018	—				(2		)		—				(3		)
Amounts reclassified to net income (loss) during the period for derivatives designated as cash flow hedges, net of income taxes of nil for the three and nine months ended November 30, 2019 and November 30, 2018	—				1				—				2
Foreign currency translation adjustment	—				(2		)		(2		)		(6		)
Gain (loss) from change in fair value from instrument-specific credit risk on the Debentures	(2		)		5				(15		)		6
Other comprehensive income (loss)	(2		)		2				(17		)		—
Comprehensive income (loss)	$	(34	)		$	61			$	(128	)		$	42

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BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Cash Flows

	Nine Months Ended
	November 30, 2019				November 30, 2018
Cash flows from operating activities
Net income (loss)	$	(111	)		$	42
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization	160				116
Stock-based compensation	46				53
Non-cash consideration received from contract with a customer	(8		)		—
Debentures fair value adjustment	(71		)		(111		)
Other long-term assets	—				2
Operating leases	(12		)		—
Other	9				4
Net changes in working capital items:
Accounts receivable, net	17				13
Other receivables	6				46
Income taxes receivable	(1		)		13
Other assets	3				(1		)
Accounts payable	(21		)		(14		)
Income taxes payable	2				(1		)
Accrued liabilities	(24		)		(57		)
Deferred revenue	(10		)		(23		)
Other long-term liabilities	7				—
Net cash provided by (used in) operating activities	(8		)		82
Cash flows from investing activities
Acquisition of long-term investments	(1		)		(2		)
Proceeds on sale or maturity of long-term investments	—				2
Acquisition of property, plant and equipment	(9		)		(14		)
Proceeds on sale of property, plant and equipment	—				1
Acquisition of intangible assets	(24		)		(24		)
Business acquisitions, net of cash acquired	1				—
Acquisition of short-term investments	(829		)		(2,754		)
Proceeds on sale or maturity of short-term investments	830				2,962
Net cash provided by (used in) investing activities	(32		)		171
Cash flows from financing activities
Issuance of common shares	8				5
Finance lease liability	(2		)		—
Net cash provided by financing activities	6				5
Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents	(1		)		(3		)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period	(35		)		255
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period	582				855
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	$	547			$	1,110

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1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

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2.	FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS

•	Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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	Three Months Ended								Nine Months Ended
	November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
Balance, beginning of period	$	19			$	20			$	19			$	20
Principal repayments	—				(1		)		—				(1		)
Balance, end of period	$	19			$	19			$	19			$	19

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Cash, Cash Equivalents and Investments

The components of cash, cash equivalents and investments by fair value level as at November 30, 2019 were as follows:

	Cost Basis				Unrealized Gains				Unrealized Losses				Other-than- temporary Impairment				Fair Value				Cash and Cash Equivalents				Short-term Investments				Long-term Investments				Restricted Cash and Cash Equivalents
Bank balances	$	151			$	—			$	—			$	—			$	151			$	151			$	—			$	—			$	—
Other investments	37				—				—				—				37				—				—				37				—
	188				—				—				—				188				151				—				37				—
Level 1:
Equity securities	10				—				(9		)		—				1				—				1				—				—
Level 2:
Term deposits, certificates of deposits and GICs	133				—				—				—				133				20				81				—				32
Bankers’ acceptances/bearer deposit notes	109				—				—				—				109				104				5				—				—
Commercial paper	195				—				—				—				195				162				33				—				—
Non-U.S. promissory notes	186				—				—				—				186				78				108				—				—
Non-U.S. government sponsored enterprise notes	105				—				—				—				105				—				105				—				—
Non-U.S. treasury bills/notes	34				—				—				—				34				—				34				—				—
	762				—				—				—				762				364				366				—				32
Level 3:
Auction rate securities	20				2				—				(3		)		19				—				—				19				—
	$	980			$	2			$	(9	)		$	(3	)		$	970			$	515			$	367			$	56			$	32

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

The components of cash, cash equivalents and investments by fair value level as at February 28, 2019 were as follows:

	Cost Basis				Unrealized Gains				Unrealized Losses				Other-than- temporary Impairment				Fair Value				Cash and Cash Equivalents				Short-term Investments				Long-term Investments				Restricted Cash and Cash Equivalents
Bank balances	$	326			$	—			$	—			$	—			$	326			$	322			$	—			$	—			$	4
Other investments	36				—				—				—				36				—				—				36				—
	362				—				—				—				362				322				—				36				4
Level 1:
Equity securities	10				—				(10		)		—				—				—				—				—				—
Level 2:
Term deposits, certificates of deposits and GICs	85				—				—				—				85				—				55				—				30
Bankers’ acceptances	39				—				—				—				39				4				35				—				—
Commercial paper	264				—				—				—				264				177				87				—				—
Non-U.S. promissory notes	20				—				—				—				20				20				—				—				—
Non-U.S. government sponsored enterprise notes	139				—				—				—				139				25				114				—				—
Non-U.S. treasury bills/notes	35				—				—				—				35				—				35				—				—
U.S. treasury bills/notes	42				—				—				—				42				—				42				—				—
	624				—				—				—				624				226				368				—				30
Level 3:
Auction rate securities	20				2				—				(3		)		19				—				—				19				—
	$	1,016			$	2			$	(10	)		$	(3	)		$	1,005			$	548			$	368			$	55			$	34

	As at
	November 30, 2019				February 28, 2019
Cash and cash equivalents	$	515			$	548
Restricted cash and cash equivalents	32				34
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows	$	547			$	582

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

The contractual maturities of available-for-sale investments as at November 30, 2019 and February 28, 2019 were as follows:

	As at
	November 30, 2019								February 28, 2019
	Cost Basis (1)				Fair Value				Cost Basis (1)				Fair Value
Due in one year or less	$	762			$	762			$	624			$	624
Due after five years	17				19				17				19
No fixed maturity	10				1				10				—
	$	789			$	782			$	651			$	643

^{______________________________} 

(1)	Cost basis includes other-than-temporary impairment.

3.	DERIVATIVE FINANCIAL INSTRUMENTS

	Derivative Assets (1)(2)								Derivative Liabilities (1)(3)
	As at								As at
	November 30, 2019				February 28, 2019				November 30, 2019				February 28, 2019
Foreign exchange contracts
Fair value of derivatives designated as cash flow hedges	$	—			$	1			$	(1	)		$	(1	)
Total estimated fair value	$	—			$	1			$	(1	)		$	(1	)
Notional amount	$	97			$	93			$	155			$	91

^{______________________________} 

(1)	The fair values of derivative assets and liabilities are measured using Level 2 fair value inputs.

(2)	Derivative assets are included in other current assets.

(3)	Derivative liabilities are included in accrued liabilities.

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	Amount of Loss Recognized in Other Comprehensive Income (Loss) on Derivative Instruments (Effective Portion)				Location of Loss Reclassified from AOCI into Income (Effective Portion)		Amount of Loss Reclassified from AOCI into Income (Effective Portion)
							Three Months Ended November 30, 2018				Nine Months Ended November 30, 2018
Foreign exchange contracts	$	(2	)		Selling, marketing and administration		$	(1	)		$	(2	)
Total	$	(2	)				$	(1	)		$	(2	)

			Amount of Gain (Loss) in Income on Derivative Instruments
			Three Months Ended								Nine Months Ended
	Location of Gain (Loss) Recognized in Income on Derivative Instruments		November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
Foreign exchange contracts	Selling, marketing and administration		$	(1	)		$	1			$	(1	)		$	4
Total			$	(1	)		$	1			$	(1	)		$	4

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4.	CONSOLIDATED BALANCE SHEETS DETAILS

	As at
	November 30, 2019				February 28, 2019
Cost
Buildings, leasehold improvements and other	$	74			$	68
BlackBerry operations and other information technology	85				85
Manufacturing, repair and research and development equipment	74				73
Furniture and fixtures	11				14
	244				240
Accumulated amortization	168				155
Net book value	$	76			$	85

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Intangible Assets, Net

Intangible assets comprised the following:

	As at November 30, 2019
	Cost				Accumulated Amortization				Net Book Value
Acquired technology	$	1,019			$	618			$	401
Intellectual property	487				267				220
Other acquired intangibles	494				160				334
	$	2,000			$	1,045			$	955
	As at February 28, 2019
	Cost				Accumulated Amortization				Net Book Value
Acquired technology	$	1,020			$	557			$	463
Intellectual property	466				239				227
Other acquired intangibles	494				116				378
	$	1,980			$	912			$	1,068

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Accrued Liabilities

Accrued liabilities comprised the following:

	As at
	November 30, 2019				February 28, 2019
Variable incentive accrual	$	29			$	36
Operating lease liabilities, current	33				—
Other	131				156
	$	193			$	192

6.	INCOME TAXES

7.	DEBENTURES

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		Three Months Ended								Nine Months Ended
		November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
Income associated with the change in fair value from non-credit components recorded in the consolidated statements of operations		$	20			$	69			$	71			$	111
Income (expense) associated with the change in fair value from instrument-specific credit components recorded in AOCI		(2		)		5				(15		)		6
Total decrease in the fair value of the Debentures		$	18			$	74			$	56			$	117

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8.	CAPITAL STOCK

(a)	Capital Stock

	Capital Stock and Additional Paid-in Capital
	Stock Outstanding (000s)			Amount
Common shares outstanding as at February 28, 2019	547,358			$	2,688
Stock-based compensation	—			46
Exercise of stock options	713			2
Common shares issued for restricted share unit settlements	3,150			—
Common shares issued for employee share purchase plan	911			6
Common shares outstanding as at November 30, 2019	552,132			$	2,742

(b)	Stock-based Compensation

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

9.	EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per share:

	Three Months Ended								Nine Months Ended
	November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
Net income (loss) for basic earnings (loss) per share available to common shareholders	$	(32	)		$	59			$	(111	)		$	42
Less: Debentures fair value adjustment (1)	(20		)		(69		)		(71		)		(111		)
Add: Interest expense on Debentures (1)	6				6				17				17
Net loss for diluted loss per share available to common shareholders	$	(46	)		$	(4	)		$	(165	)		$	(52	)
Weighted average number of shares outstanding (000s) - basic (2)	554,585				540,406				552,931				538,251
Effect of dilutive securities (000s)
Stock-based compensation (3)	—				—				—				—
Conversion of Debentures (1)	60,500				60,500				60,500				60,500
Weighted average number of shares and assumed conversions (000s) - diluted	615,085				600,906				613,431				598,751
Earnings (loss) per share - reported
Basic	$	(0.06	)		$	0.11			$	(0.20	)		$	0.08
Diluted	$	(0.07	)		$	(0.01	)		$	(0.27	)		$	(0.09	)

^{______________________________} 

(1)

The Company has presented the dilutive effect of the Debentures using the if-converted method, assuming conversion at the beginning of the quarter for the three and nine months ended November 30, 2019, and three and nine months ended November 30, 2018. Accordingly, to calculate diluted loss per share, the Company adjusted net income (loss) by eliminating the fair value adjustment made to the Debentures and interest expense incurred on the Debentures in the three and nine months ended November 30, 2019, and three and nine months ended November 30, 2018, and added the number of shares that would have been issued upon conversion to the diluted weighted average number of shares outstanding. See Note 7 for details on the Debentures.

(2)	Includes approximately 4,182,189 common shares to be issued in equal instalments on the next three anniversary dates of the Cylance acquisition, in consideration for the acquisition. There are no service or other requirements associated with the issuance of these shares.

(3)	The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of earnings (loss) per share for the three and nine months ended November 30, 2019, and three and nine months ended November 30, 2018 as to do so would be antidilutive.

		Foreign Currency Cumulative Translation Adjustment				Accumulated Net Unrealized  Losses on Cash Flow Hedges				Other Post-Employment Benefit Obligations				Accumulated Net Unrealized Gains on Available-for-Sale Debt Securities				Change in fair value from instrument-specific credit risk on Debentures				Total
AOCI as at February 28, 2019		$	(7	)		$	—			$	(1	)		$	2			$	(14	)		$	(20	)
Change in cumulative comprehensive loss for the period		(2		)		—				—				—				(15		)		(17		)
AOCI as at November 30, 2019		$	(9	)		$	—			$	(1	)		$	2			$	(29	)		$	(37	)

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11.	COMMITMENTS AND CONTINGENCIES

(a)	Letters of Credit

(b)	Contingencies

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(c)	Concentrations in Certain Areas of the Company’s Business

(d)	Indemnifications

12.	LEASES

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Supplemental cash flow information related to leases was as follows:

		Three Months Ended				Nine Months Ended
		November 30, 2019				November 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Cash used in operating activities related to operating lease payments		$	10			$	31

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Maturities of undiscounted lease liabilities were as follows:

		As at
		November 30, 2019
		Operating Leases				Finance Leases
Fiscal year 2020 (excluding the nine months ended November 30, 2019)		$	10			$	—
Fiscal year 2021		36				1
Fiscal year 2022		34				—
Fiscal year 2023		28				—
Fiscal year 2024		22				—
Thereafter		47				—
Total future minimum lease payments		177				1
Less:
Imputed interest		(17		)		—
Total		$	160			$	1

13.	REVENUE AND SEGMENT DISCLOSURES

Revenue

The Company disaggregates revenue from contracts with customers based on geographical regions, timing of revenue recognition, and the major product and service types. The Company’s revenue, classified by major geographic region in which the Company’s customers are located, was as follows:

	Three Months Ended								Nine Months Ended
	November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
North America (1)	$	188			$	151			$	527			$	423
Europe, Middle East and Africa	60				56				168				161
Other regions	19				19				63				65
Total	$	267			$	226			$	758			$	649
North America (1)	70.4		%		66.8		%		69.5		%		65.2		%
Europe, Middle East and Africa	22.5		%		24.8		%		22.2		%		24.8		%
Other regions	7.1		%		8.4		%		8.3		%		10.0		%
Total	100.0		%		100.0		%		100.0		%		100.0		%

^{______________________________} 

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Total revenue, classified by product and service type, was as follows:

	Three Months Ended								Nine Months Ended
	November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
IoT	$	145			$	148			$	413			$	410
BlackBerry Cylance	40				1				108				2
Licensing	77				68				220				187
Other	5				9				17				50
Total	$	267			$	226			$	758			$	649

	Three Months Ended								Nine Months Ended
	November 30, 2019				November 30, 2018				November 30, 2019				November 30, 2018
Products and services transferred over time	$	122			$	120			$	391			$	365
Products and services transferred at a point in time	145				106				367				284
Total	$	267			$	226			$	758			$	649

	Accounts Receivable				Deferred Revenue				Deferred Commissions
Opening balance as at March 1, 2019, as corrected	$	252			$	389			$	23
Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other	162				415				27
Decreases due to payment, fulfillment of performance obligations, or other	(187		)		(423		)		(24		)
Increase, net	(25		)		(8		)		3
Closing balance as at November 30, 2019	$	227			$	381			$	26

---

	As at November 30, 2019
	Less than 12 Months				12 to 24 Months				Thereafter				Total
Remaining performance obligations	$	278			$	104			$	55			$	437

	As at
	November 30, 2019								February 28, 2019
	Property, Plant and Equipment, Intangible Assets, Operating Lease ROU assets and Goodwill				Total Assets				Property, Plant and Equipment, Intangible Assets and Goodwill				Total Assets
Canada	$	395			$	623			$	396			$	667
United States	2,184				3,116				2,178				3,099
Other	44				174				42				202
	$	2,623			$	3,913			$	2,616			$	3,968

---

•	the Company’s plans, strategies and objectives, including the anticipated benefits of its strategic initiatives and its intentions to increase, enhance and integrate its product and service offerings;

•	the Company’s expectations regarding revenue, billings and earnings for fiscal 2020;

•	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 Company’s ability to enhance, develop, introduce or monetize products and services for the enterprise market in a timely manner with competitive pricing, features and performance;

•	the Company’s ability to maintain or expand its customer base for its software and services offerings to grow revenue or achieve sustained profitability;

•	the intense competition faced by the Company;

•	the occurrence or perception of a breach of the Company’s network or product security measures, or an inappropriate disclosure of confidential or personal information could significantly harm its business;

---

•	risks related to the Company’s continuing ability to attract new personnel, retain existing key personnel and manage its staffing effectively;

•	the Company’s dependence on its relationships with resellers and channel partners; and

•	risks related to acquisitions, divestitures, investments and other business initiatives, which may negatively affect the Company’s results of operations.

---

•	Entered into an agreement with electric carmaker WM Motor to embed BlackBerry’s QNX Neutrino Realtime Operating System and other BlackBerry QNX software products within the company’s third-generation SUVs;

•	Entered into a strategic collaboration to integrate the QNX Platform for Digital Cockpits in MARELLI Electronics China’s eCockpit and Digital Cluster solution;

•	Announced the second cohort of companies for the Company’s joint accelerator program with L-SPARK to advance Canadian startups that are focused on connected vehicle technologies;

•	Announced that its QNX Hypervisor 2.0 for Safety has been recognized as ISO 26262 ASIL D compliant by the independent auditors at TÜV Rheinland, making it the world’s first ASIL D safety-certified commercial hypervisor;

•	Announced that Reece Group has deployed BlackBerry Cylance technology to protect thousands of endpoints across its retail stores and offices in Australia and the United States;

•	Entered into an agreement with Canadian Pacific Railway to deploy BlackBerry Radar across 2,000 of its domestic intermodal chassis;

•	Entered into an agreement for BlackBerry QNX technology to power Arrival’s Generation 2.0 autonomous-ready commercial electric vehicles;

•	Announced an agreement with ETAS GmbH, a subsidiary of Bosch, to cooperate on the joint development and marketing of an automotive software platform based on the AUTOSAR Adaptive standard;

•	Announced that Hyundai Autron selected BlackBerry QNX technology to power its next-generation advanced driver-assistance systems (ADAS) and autonomous driving software platform;

•	Launched AtHoc & BlackBerry SecuSUITE solutions on Amazon Web Services;

•	Launched CylancePROTECT for mobile devices managed by BlackBerry UEM;

•	Announced the promotion of John McClurg to the role of Chief Information Security Officer and Christopher Hummel to the role of Chief Information Officer;

---

•	Announced the integration of CylancePROTECT and CylanceOPTICS with Chronicle’s Backstory security analytics platform;

•	Launched BlackBerry Solutions on the Microsoft Azure Marketplace;

•	Launched the BlackBerry Advanced Technology Development Labs to develop cutting-edge security innovations;

•	Announced the transition of Steve Capelli to the role of Chief Revenue Officer and the promotion of Steve Rai to the role of Chief Financial Officer;

•	Entered into an agreement with Matson Logistics to deploy the BlackBerry Radar-M solution across its entire fleet of domestic intermodal containers;

•	Announced, along with DENSO Corporation, that the first integrated Human Machine Interface digital cockpit system with BlackBerry QNX technology has shipped in SUBARU vehicles;

•	Launched the BlackBerry QNX Acoustics Management Platform 3.0, the latest version of its automotive acoustics software;

•	Announced a deeper partnership with Jaguar Land Rover for the use of the Company’s AI and machine learning technologies, BlackBerry QNX software and BlackBerry Cybersecurity Consulting services in the development of the automaker’s next-generation vehicles;

•	Appointed Lisa Disbrow to the Company’s Board of Directors (the “Board”) and to the audit and risk management committee of the Board;

•	Named as a Leader in Gartner’s 2019 Magic Quadrant for Unified Endpoint Management Tools for the fourth consecutive year;

•	Launched BlackBerry Intelligent Security, the first cloud-based solution that leverages the power of adaptive security, continuous authentication and artificial intelligence to enhance mobile endpoint security in zero trust environments;

•	Entered into an agreement with SYNNEX Corporation to distribute the BlackBerry Enterprise Mobility Suite in the United States and accelerate partner recruitment for the BlackBerry Enterprise Partner Program;

•	Introduced CylanceGUARD, a managed detection and response solution that leverages BlackBerry Cylance security experts and its industry-leading native AI platform to provide continuous threat hunting and monitoring;

•	Entered into a collaborative supply agreement expanding the Company’s partnership with LG Electronics Inc. to accelerate the deployment of connected and autonomous vehicle technology for automotive OEMs and Tier 1 vendors;

•	Announced that BlackBerry QNX Software is embedded in more than 150 million vehicles;

•	Achieved Federal Risk and Authorization Management Program (“FedRAMP”) Ready status for the BlackBerry Government Mobility Suite, a cloud-based endpoint management solution developed specifically for U.S. government agencies;

•	Announced support of Canada’s Digital Charter, aimed at protecting the privacy and data security of Canadians, and that the Company has been recognized by the Government of Canada as a benchmark for trusted technology;

•	Announced that Forrester found that BlackBerry Cylance’s AI-driven endpoint security products delivered a 99 percent return on investment;

•	Announced that BlackBerry Cylance has completed an Australian Information Security Registered Assessors Program (IRAP) assessment to obtain certification as a security solutions provider to Australian federal government agencies;

•	With WITTENSTEIN high integrity systems, announced a new embedded software platform that enables the development of safety-certified and mission-critical applications on heterogenous system-on-chip processors;

•	Launched BlackBerry Radar H2, a new intelligent, data-driven asset monitoring device that can help automate operations, improve utilization of trailers, containers, chassis and other remote assets, as well as ensure assets are safe and secure;

•	Established BlackBerry Government Solutions, to accelerate the company’s FedRAMP initiatives and deepen ties with U.S. federal agencies;

•	BlackBerry Limited announced that the NATO Communications and Information (NCI) Agency has awarded a contract for BlackBerry’s SecuSUITE® for Government to encrypt the conversations of its technology and cyber leaders;

•	Announced that Verizon added BlackBerry Cylance’s AI-driven antivirus security solutions to its Managed Security Services portfolio; and

•	Introduced CylancePERSONA, the first proactive endpoint behavioral analytics solution.

---

•

Debenture fair value adjustment. The Company has elected to measure its outstanding 3.75% unsecured convertible debentures (the “Debentures”) at fair value in accordance with the fair value option under U.S. GAAP. Each period, the fair value of the Debentures is recalculated and resulting gains and losses from the change in fair value from non-credit components of the Debentures are recognized in income.

•

Restructuring charges. The Company believes that restructuring costs relating to operating lease right-of-use (“ROU”) assets, employee termination benefits, facilities, and manufacturing network simplification efforts pursuant to the Resource Allocation Program (“RAP”) do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and are not meaningful in comparison to the Company’s past operating performance.

•

Software deferred revenue acquired. The Company has acquired businesses whose net assets include deferred revenue. In accordance with U.S. GAAP reporting requirements, the Company recorded write-downs of deferred revenue under arrangements pre-dating each acquisition to fair value, which resulted in lower recognized revenue than the original transaction price until the related service obligations under such arrangements are fulfilled. Therefore, U.S. GAAP revenues after the acquisitions will not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. The Company believes that reversing the acquisition-related deferred revenue write-downs (so that the full amount of revenue booked by the acquired companies is included) provides a more appropriate representation of revenue in a given period and, therefore, provides readers of the Company’s financial statements with a more consistent basis for comparison across accounting periods. The Company also believes that the adjustment is more useful in helping readers to understand the Company’s operating results and underlying operational trends, especially in future periods when the contracts underlying the acquired deferred revenue are renewed at amounts more consistent with their transaction price.

•

Software deferred commission expense acquired. The Company has acquired businesses whose net assets include deferred commissions. In accordance with U.S. GAAP reporting requirements, the Company recorded write-downs of deferred commissions under arrangements pre-dating each acquisition to fair value, which in most cases is nil. Therefore, U.S. GAAP commission expense after the acquisitions will not reflect commissions expense that would have been reported if the acquired deferred commissions were not written down to fair value. The Company believes that reversing the acquisition-related deferred commission write-downs (so that the full amount of commission expense is included) provides a more appropriate representation of commission expense in a given period and, therefore, provides readers of the Company’s financial statements with a more consistent basis for comparison across accounting periods. The Company also believes that the adjustment is more useful in helping readers to understand the Company’s operating results and underlying operational trends, especially in future periods when the Company recognizes commissions on the renewals of the contracts underlying the acquired deferred commissions.

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•	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.

•	Business acquisition and integration costs. The Company incurs costs associated with business acquisitions, including legal costs, audit and accounting fees, and other acquisition and integration expenses. These expenditures do not relate to the ongoing operation of the business and they tend to vary significantly based on the circumstances of each transaction.

•	Acquisition valuation allowance. The Company records an income tax valuation allowance associated with business acquisitions.

•	the Q3 Fiscal 2020 Debentures Fair Value Adjustment (as defined below under “Third Quarter Fiscal 2020 Summary Results of Operations – Financial Highlights – Debentures Fair Value Adjustment”) of approximately $20 million;

•	restructuring charges from RAP consisting of amounts associated with operating lease ROU assets, employee termination benefits, and certain other costs of approximately $10 million;

•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $13 million;

•	software deferred commission expense acquired but not recognized due to business combination accounting rules of approximately $4 million;

•	stock compensation expense of approximately $15 million; and

•	amortization of intangible assets acquired through business combinations of approximately $35 million.

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Q3 Fiscal 2020 Non-GAAP Adjustments			For the Three Months Ended November 30, 2019
			(in millions, except for per share amounts)
	Income statement location		Revenue				Gross margin (before taxes)				Gross margin % (before taxes)			Income (loss) before income taxes				Net income (loss)				Basic earnings (loss) per share
As reported			$	267			$	198			74.2	%		$	(30	)		$	(32	)		$	(0.06	)
Debentures fair value adjustment (1)	Debentures fair value adjustment		—				—				—	%		(20		)		(20		)
Restructuring charges (2)	Cost of sales		—				3				1.1	%		3				3
Restructuring charges (2)	Selling, marketing and administration		—				—				—	%		7				7
Software deferred revenue acquired (3)	Revenue		13				13				1.1	%		13				13
Software deferred commission expense acquired	Selling, marketing and administration		—				—				—	%		(4		)		(4		)
Stock compensation expense	Cost of sales		—				1				0.4	%		1				1
Stock compensation expense	Research and development		—				—				—	%		4				4
Stock compensation expense	Selling, marketing and administration		—				—				—	%		10				10
Acquired intangibles amortization	Amortization		—				—				—	%		35				35
Adjusted			$	280			$	215			76.8	%		$	19			$	17			$	0.03

^{______________________________} 

(1)	See “Third Quarter Fiscal 2020 Summary Results of Operations – Financial Highlights - Debentures Fair Value Adjustment”.

(2)	See “Third Quarter Fiscal 2020 Summary Results of Operations – Financial Highlights - Restructuring Charges”.

(3)	Included in BlackBerry Cylance revenue.

•	the Fiscal 2020 Debentures Fair Value Adjustment (as defined below under “Third Quarter Fiscal 2020 Summary Results of Operations – Financial Highlights – Debentures Fair Value Adjustment”) of approximately $71 million;

•	restructuring charges from RAP consisting of amounts associated with operating lease ROU assets, employee termination benefits, and certain other costs of approximately $14 million;

•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $50 million;

•	software deferred commission expense acquired but not recognized due to business combination accounting rules of approximately $13 million;

•	stock compensation expense of approximately $46 million;

•	amortization of intangible assets acquired through business combinations of approximately $106 million;

•	business acquisition and integration costs incurred through or as a result of business combinations of approximately $3 million; and

•	income tax valuation allowance related to the acquisition of Cylance of approximately $1 million.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Fiscal 2020 Non-GAAP Adjustments			For the Nine Months Ended November 30, 2019
			(in millions, except for per share amounts)
	Income statement location		Revenue				Gross margin (before taxes)				Gross margin % (before taxes)			Income (loss) before income taxes				Net income (loss)				Basic earnings (loss) per share
As reported			$	758			$	551			72.7	%		$	(106	)		$	(111	)		$	(0.20	)
Debentures fair value adjustment (1)	Debentures fair value adjustment		—				—				—	%		(71		)		(71		)
Restructuring charges (2)	Cost of sales		—				5				0.7	%		5				5
Restructuring charges (2)	Selling, marketing and administration		—				—				—	%		9				9
Software deferred revenue acquired (3)	Revenue		50				50				1.6	%		50				50
Software deferred commission expense acquired	Selling, marketing and administration		—				—				—	%		(13		)		(13		)
Stock compensation expense	Cost of sales		—				3				0.4	%		3				3
Stock compensation expense	Research and development		—				—				—	%		10				10
Stock compensation expense	Selling, marketing and administration		—				—				—	%		33				33
Acquired intangibles amortization	Amortization		—				—				—	%		106				106
Business acquisition and integration costs	Selling, marketing and administration		—				—				—	%		3				3
Acquisition valuation allowance	Income taxes		—				—				—	%		—				(1		)
Adjusted			$	808			$	609			75.4	%		$	29			$	23			$	0.04

^{______________________________} 

(1)	See “Third Quarter Fiscal 2020 Summary Results of Operations – Financial Highlights - Debentures Fair Value Adjustment”.

(2)	See “Third Quarter Fiscal 2020 Summary Results of Operations – Financial Highlights - Restructuring Charges”.

(3)	$48 million was included in BlackBerry Cylance revenue and $2 million was included in IoT revenue.

•	a fair value adjustment associated with the Debentures of approximately $69 million (the “Q3 Fiscal 2019 Debentures Fair Value Adjustment”);

•	restructuring charges from RAP consisting of amounts associated with employee termination benefits, facilities, and certain other costs of approximately $1 million;

•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $2 million;

•	stock compensation expense of approximately $15 million; and

•	amortization of intangible assets acquired through business combinations of approximately $20 million.

•	a fair value adjustment associated with the Debentures of approximately $111 million (the “Fiscal 2019 Debentures Fair Value Adjustment”);

•	restructuring charges from RAP and recoveries from the Cost Optimization and Resource Efficiency (“CORE”) program consisting of amounts associated with employee termination benefits, facilities, and certain other costs of approximately $8 million on a net basis;

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•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $10 million;

•	stock compensation expense of approximately $54 million;

•	amortization of intangible assets acquired through business combinations of approximately $64 million; and

•	business acquisition and integration costs recovered through business combinations of approximately $1 million.

			For the Three Months Ended November 30, 2018																For the Nine Months Ended November 30, 2018
			(in millions)																(in millions)
	Income statement location		Revenue				Gross margin (before taxes)				Income before income taxes				Net income				Revenue				Gross margin (before taxes)				Income before income taxes				Net income
As reported			$	226			$	170			$	60			$	59			$	649			$	492			$	45			$	42
Debentures fair value adjustment	Debentures fair value adjustment		—				—				(69		)		(69		)		—				—				(111		)		(111		)
Restructuring charges	Cost of sales		—				—				—				—				—				1				1				1
Restructuring charges	Research and development		—				—				—				—				—				—				2				2
Restructuring charges	Selling, marketing and administration		—				—				1				1				—				—				5				5
Software deferred revenue acquired (1)	Revenue		2				2				2				2				10				10				10				10
Stock compensation expense	Cost of sales		—				1				1				1								3				3				3
Stock compensation expense	Research and development		—				—				3				3				—				—				9				9
Stock compensation expense	Selling, marketing and administration		—				—				11				11				—				—				42				42
Acquired intangibles amortization	Amortization		—				—				20				20				—				—				64				64
Business acquisition and integration costs recovered	Selling, marketing and administration		—				—				—				—				—				—				(1		)		(1		)
Adjusted			$	228			$	173			$	29			$	28			$	659			$	506			$	69			$	66

^{______________________________} 

(1)	Included in IoT revenue.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company also reported adjusted EBITDA and adjusted EBITDA margin percentage, as presented in the tables below, for the three and nine months ended November 30, 2019 of $38 million and 14%, and $81 million and 10%, respectively. These are non-GAAP financial measures that do not have any standardized meaning as prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies.

		For the Three Months Ended November 30, 2019				For the Nine Months Ended November 30, 2019
		(in millions)				(in millions)
Operating loss		$	(29	)		$	(108	)
Non-GAAP adjustments to operating loss
Debentures fair value adjustment		(20		)		(71		)
Restructuring charges		10				14
Software deferred revenue acquired		13				50
Software deferred commission acquired		(4		)		(13		)
Stock compensation expense		15				46
Acquired intangibles amortization		35				106
Business acquisition and integration costs		—				3
Total non-GAAP adjustments to operating loss		49				135
Non-GAAP operating income		20				27
Amortization		53				160
Acquired intangibles amortization		(35		)		(106		)
Adjusted EBITDA		$	38			$	81
Adjusted revenue (per above)		280				808
Adjusted EBITDA margin percentage		14		%		10		%

		For the Three Months Ended November 30, 2018				For the Nine Months Ended November 30, 2018
		(in millions)				(in millions)
Operating income		$	58			$	32
Non-GAAP adjustments to operating income
Debentures fair value adjustment		(69		)		(111		)
Restructuring charges		1				8
Software deferred revenue acquired		2				10
Stock compensation expense		15				54
Acquired intangibles amortization		20				64
Business acquisition and integration recovery		—				(1		)
Total non-GAAP adjustments to operating income		(31		)		24
Non-GAAP operating income		27				56
Amortization		37				116
Acquired intangibles amortization		(20		)		(64		)
Adjusted EBITDA		$	44			$	108
Adjusted revenue (per above)		228				659
Adjusted EBITDA margin percentage		19		%		16		%

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Third Quarter Fiscal 2020 Summary Results of Operations

The following table sets forth certain unaudited consolidated statements of operations data for the quarter ended November 30, 2019 compared to the quarter ended November 30, 2018 under U.S. GAAP.

	For the Three Months Ended
	(in millions, except for share and per share amounts)
	November 30, 2019							November 30, 2018							Change
Revenue (1)(2)	$	267			100.0	%		$	226			100.0	%		$	41
Gross margin (1)(2)	198				74.2	%		170				75.2	%		28
Operating expenses (1)(2)	227				85.0	%		112				49.6	%		115
Income before income taxes	(30		)		(11.2	%)		60				26.5	%		(90		)
Provision for income taxes	2				0.7	%		1				0.4	%		1
Net income (loss)	$	(32	)		(12.0	%)		$	59			26.1	%		$	(91	)
Earnings (loss) per share - reported
Basic	$	(0.06	)					$	0.11						$	(0.17	)
Diluted (3)	$	(0.07	)					$	(0.01	)					$	(0.06	)
Weighted-average number of shares outstanding (000s)
Basic (4)	554,585							540,406
Diluted (3)	615,085							600,906

^{______________________________} 

(1)	See “Non-GAAP Financial Measures” for the impact of the Q3 Fiscal 2020 Non-GAAP Adjustments on adjusted revenue, adjusted gross margin and adjusted operating expenses in the third quarter of fiscal 2020.

(2)	See “Non-GAAP Financial Measures” for the impact of the Q3 Fiscal 2019 Non-GAAP Adjustments on adjusted revenue, adjusted gross margin and adjusted operating expenses in the third quarter of fiscal 2019.

(3)	Diluted loss per share on a U.S. GAAP basis for the third quarter of fiscal 2020 and fiscal 2019 does not include the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares, as it would be anti-dilutive. See Note 9 to the Consolidated Financial Statements for the Company’s calculation of diluted loss per share.

(4)	Basic loss per share on a U.S. GAAP basis for the third quarter of fiscal 2020 includes approximately 4,182,189 common shares to be issued in equal instalments on the next three anniversary dates of the Cylance acquisition, in consideration for the acquisition. There are no service or other requirements associated with the issuance of these shares.

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	For the Three Months Ended (in millions)
	November 30, 2019							November 30, 2018							Change
Revenue by Product and Service
IoT	$	145			54.3	%		$	148			65.5	%		$	(3	)		(2.0	)%
BlackBerry Cylance	40				15.0	%		1				0.4	%		39				3,900.0	%
Licensing	77				28.8	%		68				30.1	%		9				13.2	%
Other	5				1.9	%		9				4.0	%		(4		)		(44.4	)%
	$	267			100.0	%		$	226			100.0	%		$	41			18.1	%

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	For the Three Months Ended (in millions)
	November 30, 2019							November 30, 2018							Change
Revenue by Geography
North America	$	188			70.4	%		$	151			66.8	%		$	37			24.5	%
Europe, Middle East and Africa	60				22.5	%		56				24.8	%		4				7.1	%
Other regions	19				7.1	%		19				8.4	%		—				—	%
	$	267			100.0	%		$	226			100.0	%		$	41			18.1	%

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Non-GAAP Revenue by Product and Service

Comparative breakdowns of revenue by product and service on a non-GAAP basis are set forth below.

	For the Three Months Ended (in millions)
	November 30, 2019							November 30, 2018							Change
Revenue by Product and Service
IoT (1)	$	145			51.8	%		$	150			65.9	%		$	(5	)		(3.3	)%
BlackBerry Cylance (1)	53				18.9	%		1				0.4	%		52				5,200.0	%
Licensing	77				27.5	%		68				29.8	%		9				13.2	%
Other	5				1.8	%		9				3.9	%		(4		)		(44.4	)%
	$	280			100.0	%		$	228			100.0	%		$	52			22.8	%

^{______________________________} 

(1)	See “Non-GAAP Financial Measures” for the relevant Q3 Fiscal 2020 Non-GAAP Adjustments and Q3 Fiscal 2019 Non-GAAP Adjustments made to BlackBerry Cylance and IoT.

IoT

IoT non-GAAP revenue was $145 million, or 51.8% of revenue, in the third quarter of fiscal 2020, a decrease of $5 million compared to $150 million, or 65.9% of revenue, in the third quarter of fiscal 2019. IoT non-GAAP revenue decreased due to the reasons described above in “U.S. GAAP Revenue by Product and Service” and due to a decrease of $2 million in the non-GAAP adjustment of deferred software revenue acquired to nil in the third quarter of fiscal 2020 from $2 million in the third quarter of fiscal 2019,

After the end of the second quarter of fiscal 2020, the Company previously stated that it expected modest sequential growth in Enterprise non-GAAP revenue for the remainder of fiscal 2020. Enterprise software and services revenue grew in the third quarter of fiscal 2020, compared to the second quarter of fiscal 2020.

BlackBerry Cylance

BlackBerry Cylance non-GAAP revenue was $53 million, or 18.9% of revenue, in the third quarter of fiscal 2020, an increase of $52 million compared to $1 million, or 0.4% of revenue, in the third quarter of fiscal 2019. The increase in BlackBerry Cylance revenue of $52 million was due to the acquisition of Cylance in the fourth quarter of fiscal 2019; revenue reported in the prior year period related solely to BlackBerry Cybersecurity Services

Cylance recorded U.S. GAAP revenue of $46 million for the three months ended November 30, 2018. After including BlackBerry Cybersecurity Services revenue, Cylance revenue was $47 million for the three months ended November 30, 2018. After removing the effect of the purchase accounting related adjustment, BlackBerry Cylance non-GAAP revenue was $53 million for the three months ended November 30, 2019, representing an increase of $6 million, or 13.0% over the prior year period.

The Company expects BlackBerry Cylance non-GAAP revenue growth excluding BlackBerry Cybersecurity Services to be approximately 20% in fiscal 2020. The Company previously stated that it expected BlackBerry Cylance non-GAAP revenue growth excluding BlackBerry Cybersecurity Services of between 25% and 30% in fiscal 2020. The Company’s expectation has been revised due to a shortfall in anticipated contract renewals. With a more complete product and services offering, the Company expects to win new customer contracts in fiscal 2021 and that BlackBerry Cylance non-GAAP revenue growth will be stronger than the growth in the third quarter of fiscal 2020.

Licensing

Licensing revenue was $77 million, or 27.5% of revenue, in the third quarter of fiscal 2020, an increase of $9 million compared to $68 million, or 29.8% of revenue from the third quarter of fiscal 2019. Licensing revenue increased due to the reasons described above in “U.S. GAAP Revenue by Product and Service”.

The Company expects Licensing revenue to grow in fiscal 2020 over the prior fiscal year and for IP licensing revenue in the second half of fiscal 2020 to be stronger than in the first half of the fiscal year. The Company has not provided its financial outlook for Licensing revenue in fiscal 2021.

16

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other

Other revenue was $5 million related to SAF, or 1.8% of revenue, in the third quarter of fiscal 2020, compared to $9 million, or 3.9% of revenue, in the third quarter of fiscal 2019, representing a decrease of $4 million. Other revenue decreased primarily due to the reasons discussed above in “U.S. GAAP Revenue by Product and Service”.

Gross Margin

Consolidated Gross Margin

Consolidated gross margin increased by $28 million to approximately $198 million in the third quarter of fiscal 2020 from $170 million in the third quarter of fiscal 2019. The increase was primarily due to an increase in gross margin associated with BlackBerry Cylance and Licensing, partially offset by a decrease in gross margin associated with Other and IoT.

The increase in gross margin associated with BlackBerry Cylance and Licensing is primarily due to the increase in revenue discussed above in “U.S. GAAP Revenue by Product and Service”. The decrease in gross margin associated with Other is due to the decline in SAF revenue discussed above in “U.S. GAAP Revenue by Product and Service”, as the cost of goods sold associated with SAF was consistent in the third quarter of fiscal 2020 and the third quarter of fiscal 2019 due to certain fixed costs associated with SAF infrastructure. The decrease in gross margin associated with IoT is primarily due to the reasons discussed above in “U.S. GAAP Revenue by Product and Service”.

Consolidated Gross Margin Percentage

Consolidated gross margin percentage decreased by 1.0%, to approximately 74.2% of consolidated revenue in the third quarter of fiscal 2020 from 75.2% of consolidated revenue in the third quarter of fiscal 2019. The decrease was primarily due to lower gross margin percentage associated with BlackBerry Cylance, which has a higher proportion of revenue related to professional services.

Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the quarter ended November 30, 2019, compared to the quarter ended August 31, 2019 and the quarter ended November 30, 2018. The Company believes it is also meaningful to provide a sequential comparison between the third quarter of fiscal 2020 and the second quarter of fiscal 2020.

	For the Three Months Ended (in millions)
	November 30, 2019							August 31, 2019							November 30, 2018
					% of Revenue							% of Revenue							% of Revenue
Revenue	$	267						$	244						$	226
Operating expenses
Research and development (1)(2)(3)	$	66			24.7	%		$	62			25.4	%		$	55			24.3	%
Selling, marketing and administration (1)(2)(3)	132				49.4	%		132				54.1	%		93				41.2	%
Amortization (1)(2)(3)	49				18.4	%		48				19.7	%		33				14.6	%
Debentures fair value adjustment (1)(2)(3)	(20		)		(7.5	)%		(23		)		(9.4	)%		(69		)		(30.5	)%
Total	$	227			85.0	%		$	219			89.8	%		$	112			49.5	%

^{______________________________} 

(1)	See “Non-GAAP Financial Measures” for the impact of the Q3 Fiscal 2020 Non-GAAP Adjustments on adjusted operating expenditures in the third quarter of fiscal 2020.

(2)	See “Non-GAAP Financial Measures” for the impact of the Q3 Fiscal 2019 Non-GAAP Adjustments on adjusted operating expenditures in the third quarter of fiscal 2019.

(3)

In the second quarter of fiscal 2020, the Company recognized non-cash income associated with a change in the fair value of the Debentures of approximately $23 million (the “Q2 Fiscal 2020 Debentures Fair Value Adjustment”), restructuring charges of approximately $2 million in selling, marketing and administration expenses, software deferred commission acquired of $4 million in selling, marketing and administration expense, stock compensation expense of $3 million and $10 million in research and development and selling, marketing and administration expenses, respectively, acquired intangibles amortization of $36 million and business acquisition and integration costs of $2 million in selling, marketing and administration expense (collectively, the “Q2 Fiscal 2020 Non-GAAP Adjustments”).

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

U.S. GAAP Operating Expenses

Operating expenses increased by $8 million, or 3.7%, to $227 million, or 85.0% of revenue, in the third quarter of fiscal 2020, compared to $219 million, or 89.8% of revenue, in the second quarter of fiscal 2020. The increase was primarily attributable to an increase in variable incentive plan costs, bad debt expense and the difference between the Q3 Fiscal 2020 Debentures Fair Value Adjustment and Q2 Fiscal 2020 Debentures Fair Value Adjustment, partially offset by costs associated with a direct IP licensing arrangement in the second quarter of fiscal 2020 which did not recur.

Operating expenses increased by $115 million, or 102.7%, to $227 million or 85.0% of revenue in the third quarter of fiscal 2020, compared to approximately $112 million or 49.5% of revenue in the third quarter of fiscal 2019. The increase was primarily attributable to the difference between the Q3 Fiscal 2020 Debentures Fair Value Adjustment and Q3 Fiscal 2019 Debentures Fair Value Adjustment, amortization expense, and an increase in salaries and benefits expense primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX (the “SIF Claims”).

Non-GAAP Operating Expenses

Non-GAAP operating expenses increased by $2 million, or 1.0%, to $195 million in the third quarter of fiscal 2020, compared to $193 million in the second quarter of fiscal 2020. The increase was primarily attributable to an increase in variable incentive plan costs, bad debt expense and marketing and advertising expense, partially offset by costs associated with a direct IP licensing arrangement in the second quarter of fiscal 2020 which did not recur.

Non-GAAP operating expenses increased by $49 million, or 33.6%, to $195 million in the third quarter of fiscal 2020, compared to approximately $146 million in the third quarter of fiscal 2019. The increase was primarily attributable to an increase in salaries and benefits expense, marketing and advertising costs and sales incentives plan costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by the SIF Claims.

Research and Development Expenses

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

Research and development increased by $11 million, or 20.0%, to $66 million in the third quarter of fiscal 2020 compared to $55 million in the third quarter of fiscal 2019. After giving effect to the relevant Q3 Fiscal 2020 Non-GAAP Adjustments and Q3 Fiscal 2019 Non-GAAP Adjustments, non-GAAP research and development expenses increased by $10 million, or 19.2%, to $62 million in the third quarter of fiscal 2020 compared to $52 million in the third quarter of fiscal 2019 . The increase was primarily attributable to an increase in salaries and benefits expense and infrastructure costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019 and professional services costs, partially offset by the SIF Claims.

Selling, Marketing and Administration Expenses

Selling, marketing and administration expenses consist primarily of marketing, advertising and promotion, salaries and benefits, external advisory fees, information technology costs, office and related staffing infrastructure costs and travel expenses.

Selling, marketing and administration expenses increased by $39 million, or 41.9%, to $132 million in the third quarter of fiscal 2020 compared to $93 million in the third quarter of fiscal 2019. After giving effect to the relevant Q3 Fiscal 2020 Non-GAAP Adjustments and Q3 Fiscal 2019 Non-GAAP Adjustments, non-GAAP selling, marketing and administration expenses increased by $38 million, or 46.9%, to $119 million in the third quarter of fiscal 2020 compared to $81 million in the third quarter of fiscal 2019. The increase was primarily attributable to an increase in salaries and benefits expense, marketing and advertisement costs and sales incentive plan costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019 and an increase in variable incentive plan costs.

Amortization Expense

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019. Intangible assets are comprised of patents, licenses and acquired technology.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

	For the Three Months Ended (in millions)
	Included in Amortization												Included in Cost of Sales
	November 30, 2019				November 30, 2018				Change				November 30, 2019				November 30, 2018				Change
Property, plant and equipment	$	5			$	4			$	1			$	1			$	2			$	(1	)
Intangible assets	44				29				15				3				2				1
Total	$	49			$	33			$	16			$	4			$	4			$	—

Amortization

Amortization expense increased by $16 million to $49 million for the third quarter of fiscal 2020, compared to $33 million for the third quarter of fiscal 2019. The increase in amortization expense reflects the intangible assets acquired as part of the Cylance acquisition in the fourth quarter of fiscal 2019.

After giving effect to the relevant Q3 Fiscal 2020 Non-GAAP Adjustments and Q3 Fiscal 2019 Non-GAAP Adjustments, non-GAAP amortization expense increased by $1 million to $14 million for the third quarter of fiscal 2020, compared to $13 million for the third quarter of fiscal 2019.

Cost of Sales

Amortization expense relating to assets employed in the Company’s service and IP operations was $4 million for the third quarter of fiscal 2020, consistent with $4 million for the third quarter of fiscal 2019.

Investment Income

Investment income, which includes the interest expense from the Debentures, decreased by $3 million to $1 million in investment loss in the third quarter of fiscal 2020, compared to investment income of $2 million in the third quarter of fiscal 2019. The decreased investment income was due to lower cash and investment balances in the third quarter of fiscal 2020 versus the third quarter of fiscal 2019 as a result of the use of cash to fund the Cylance acquisition.

Income Taxes

For the third quarter of fiscal 2020, the Company’s net effective income tax expense rate was approximately 7%, compared to a net effective income tax expense rate of approximately 2% for the same period in the prior fiscal year. The Company’s net effective income tax rate reflects the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the Debentures, amongst other items, was offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.

Net Income (Loss)

The Company’s net loss for the third quarter of fiscal 2020 was $32 million, reflecting a decrease in net income of $91 million, compared to a net income of $59 million in the third quarter of fiscal 2019, primarily due to the difference between the Q3 Fiscal 2020 Debentures Fair Value Adjustment and Q3 Fiscal 2019 Debentures Fair Value Adjustment, an increase in operating expenses as described above in “Operating Expenses”, partially offset by an increase in revenue as described above in “U.S. GAAP Revenue by Product and Service ”. After giving effect to the relevant Q3 Fiscal 2020 Non-GAAP Adjustments and Q3 Fiscal 2019 Non-GAAP Adjustments, the Company’s non-GAAP net income was $17 million for the third quarter of fiscal 2020 compared to non-GAAP net income of $28 million for the third quarter of fiscal 2019, reflecting a decrease in non-GAAP net income of $11 million primarily due to an increase in operating expenses as described above in “Operating Expenses”, partially offset by an increase in revenue and gross margin percentage.

For the third quarter of fiscal 2020, U.S. GAAP basic loss and diluted loss per share were $0.06 and $0.07, respectively, compared to U.S. GAAP basic earnings per share of $0.11 and diluted loss per share of $0.01 for the same period in the prior fiscal year. After giving effect to the relevant Q3 Fiscal 2020 Non-GAAP Adjustments and Q3 Fiscal 2019 Non-GAAP Adjustments, the Company’s non-GAAP basic earnings per share was $0.03 for the third quarter of fiscal 2020 compared to non-GAAP basic earnings per share of $0.05 for the third quarter of fiscal 2019.

The weighted average number of shares outstanding was approximately 555 million common shares for basic loss per share and 615 million common shares for diluted loss per share for the three months ended November 30, 2019, and approximately 540

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

million common shares for basic earnings per share and 601 million common shares for diluted loss per share for the three months ended November 30, 2018.

Common Shares Outstanding

On December 17, 2019, there were 552 million common shares, 6 million options to purchase common shares, 25 million restricted share units and 1.0 million deferred share units outstanding. In addition, 60.5 million common shares are issuable upon conversion in full of the Debentures as described in Note 7 to the Consolidated Financial Statements.

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

Results of Operations - Nine months ended November 30, 2019 compared to nine months ended November 30, 2018

Revenue

The following table sets forth certain unaudited consolidated statements of operations data as at November 30, 2019 and November 30, 2018 under U.S. GAAP.

	For the Nine Months Ended
	(in millions, except for share and per share amounts)
	November 30, 2019							November 30, 2018							Change
Revenue (1)(2)	$	758			100.0	%		$	649			100.0	%		$	109
Gross margin (1)(2)	551				72.7	%		492				75.8	%		59
Operating expenses (1)(2)	659				86.9	%		460				70.9	%		199
Income (loss) before income taxes	(106		)		(14.0	%)		45				6.9	%		(151		)
Provision for income taxes	5				0.7	%		3				0.5	%		2
Net income (loss) (1)	$	(111	)		(14.6	%)		$	42			6.5	%		$	(153	)
Earnings (loss) per share - reported
Basic	$	(0.20	)					$	0.08						$	(0.28	)
Diluted (3)	$	(0.27	)					$	(0.09	)					$	(0.18	)
Weighted-average number of shares outstanding (000s)
Basic (4)	552,931							538,251
Diluted (3)	613,431							598,751

^{______________________________} 

(1)	See “Non-GAAP Financial Measures” for the impact of the Fiscal 2020 Non-GAAP Adjustments on adjusted revenue, adjusted gross margin, adjusted operating expenses and adjusted net income (loss) in fiscal 2020.

(2)	See “Non-GAAP Financial Measures” for the impact of the Fiscal 2019 Non-GAAP Adjustments on adjusted revenue, adjusted gross margin and adjusted operating expenses in fiscal 2019.

(3)	Diluted loss per share on a U.S. GAAP basis for the first nine months of fiscal 2020 and fiscal 2019 does not include the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares, as it would be anti-dilutive. See Note 9 to the Consolidated Financial Statements for the Company’s calculation of diluted loss per share.

(4)	Basic loss per share on a U.S. GAAP basis for the first nine months of fiscal 2020 includes approximately 4,182,189 common shares to be issued in equal instalments on the next three anniversary dates of the Cylance acquisition, in consideration for the acquisition. There are no service or other requirements associated with the issuance of these shares.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

U.S. GAAP Revenue by Product and Service

	For the Nine Months Ended
	(in millions)
	November 30, 2019							November 30, 2018							Change
Revenue by Product and Service
IoT	$	413			54.6	%		$	410			63.2	%		$	3			0.7	%
BlackBerry Cylance	108				14.2	%		2				0.3	%		106				5,300.0	%
Licensing	220				29.0	%		187				28.8	%		33				17.6	%
Other	17				2.2	%		50				7.7	%		(33		)		(66.0	)%
	$	758			100.0	%		$	649			100.0	%		$	109			16.8	%

IoT

IoT revenue was $413 million, or 54.6% of revenue, in the first nine months of fiscal 2020, an increase of $3 million compared to $410 million, or 63.2% of revenue, in the first nine months of fiscal 2019. The increase in IoT revenue of $3 million was due to the conversion of a portion of certain existing BlackBerry QNX royalty-bearing licenses to fixed pricing from volume-based pricing, resulting in recognition of the fixed price in the current period rather than as units are shipped, partially offset by a lower number of Enterprise software licenses sold due to the reorganization of the Enterprise sales force, which caused a delay in developing and closing Enterprise sales transactions.

BlackBerry Cylance

BlackBerry Cylance revenue was $108 million, or 14.2% of revenue, in the first nine months of fiscal 2020. The increase in BlackBerry Cylance revenue of $106 million was due to the acquisition of Cylance in the fourth quarter of fiscal 2019; revenue reported in the prior year period related solely to BlackBerry Cybersecurity Services.

Licensing

Licensing revenue increased by $33 million, or 17.6%, to $220 million, or 29.0% of revenue in the first nine months of fiscal 2020, compared to $187 million, or 28.8% of revenue, in the first nine months of fiscal 2019. The increase in Licensing revenue of $33 million was primarily due to higher IP revenue from direct licensing arrangements, including higher IP revenue from the Company’s patent licensing agreement with Teletry, partially offset by a decrease in licensing revenue related to the BBM Consumer licensing arrangement and the impact of an IP settlement in the first nine months of fiscal 2019 which did not recur in the first nine months of fiscal 2020.

Other

Other revenue was $17 million, or 2.2% of revenue, in the first nine months of fiscal 2020 compared to $50 million, or 7.7% of revenue, in the first nine months of fiscal 2019, representing a decrease of $33 million. The decrease in Other revenue of $33 million was primarily attributable to a decrease in SAF revenue and revenue from the legacy handheld business. The decrease in SAF revenue is primarily attributable to a lower number of BlackBerry 7 users and lower revenue from those users compared to the first nine months of fiscal 2019. The decrease in revenue from the legacy handheld business is primarily attributable to the release of previously accrued amounts in the first nine months of fiscal 2019 when the Company determined it had no further performance obligations, which did not recur in the first nine months fiscal 2020.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Non-GAAP Revenue by Product and Service

Comparative breakdowns of revenue by product and service on a non-GAAP basis are set forth below.

	For the Nine Months Ended
	(in millions)
	November 30, 2019							November 30, 2018							Change
Revenue by Product and Service
IoT (1)	$	415			51.4	%		$	420			63.7	%		$	(5	)		(1.2	)%
BlackBerry Cylance (1)	156				19.3	%		2				0.3	%		154				7,700.0	%
Licensing	220				27.2	%		187				28.4	%		33				17.6	%
Other	17				2.1	%		50				7.6	%		(33		)		(66.0	)%
	$	808			100.0	%		$	659			100.0	%		$	149			22.6	%

^{______________________________} 

(1)	See “Non-GAAP Financial Measures” for the relevant Fiscal 2020 Non-GAAP Adjustments and Fiscal 2019 Non-GAAP Adjustments made to BlackBerry Cylance and IoT.

IoT

IoT non-GAAP revenue was $415 million, or 51.4% of revenue, in the first nine months of fiscal 2020, compared to $420 million, or 63.7% of revenue, in the first nine months of fiscal 2019, representing a decrease of $5 million. The $5 million decrease in IoT non-GAAP revenue is primarily due to a decrease of $8 million in the non-GAAP adjustment of deferred software revenue acquired to $2 million in the first nine months of fiscal 2020 versus $10 million in the first nine months of fiscal 2019, partially offset by the reasons described above in “U.S. GAAP Revenue by Product and Service”.

BlackBerry Cylance

BlackBerry Cylance non-GAAP revenue was $156 million, or 19.3% of revenue, in the first nine months of fiscal 2020, compared to $2 million or 0.3% in the first nine months of fiscal 2019, representing an increase of $154 million. The $154 million increase in BlackBerry Cylance revenue was due to the acquisition of Cylance in the fourth quarter of fiscal 2019; revenue reported in the prior year period related solely to BlackBerry Cybersecurity Services.

Cylance recorded U.S. GAAP revenue of $126 million for the nine months ended November 30, 2018. After including BlackBerry Cybersecurity Services revenue, Cylance revenue was $128 million for the nine months ended November 30, 2018.After removing the effect of the purchase accounting related adjustment, BlackBerry Cylance non-GAAP revenue was $156 million for the nine months ended November 30, 2019, representing an increase of $28 million, or 21.9% over the prior year period.

Licensing

Licensing revenue increased by $33 million, or 17.6%, to $220 million, or 27.2% of revenue in the first nine months of fiscal 2020, compared to $187 million, or 28.4% of revenue, in the first nine months of fiscal 2019. The $33 million increase was primarily due to the reasons described above in “U.S. GAAP Revenue by Product and Service”.

Other

Other revenue was $17 million, or 2.1% of revenue, in the first nine months of fiscal 2020 compared to $50 million, or 7.6% of revenue, in the first nine months of fiscal 2019, representing a decrease of $33 million. The $33 million decrease in Other revenue was primarily due to the reasons discussed above in “U.S. GAAP Revenue by Product and Service”.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Gross Margin

Consolidated Gross Margin

Consolidated gross margin increased by $59 million to approximately $551 million in the first nine months of fiscal 2020 from $492 million in the first nine months of fiscal 2019. The increase was primarily due to the increase in gross margin associated with BlackBerry Cylance and Licensing, partially offset by a decrease in gross margin associated with Other.

The increase in gross margin associated with BlackBerry Cylance and Licensing is primarily due to the reasons discussed above in “U.S. GAAP Revenue by Product and Service”. The decrease in gross margin associated with Other is primarily due to the decline in SAF revenue discussed above in “U.S. GAAP Revenue by Product and Service”, as the cost of goods sold associated with SAF was consistent in the first nine months of fiscal 2020 and the first nine months of fiscal 2019 due to certain fixed costs associated with SAF infrastructure and the decrease in gross margin associated with the legacy handheld business was primarily due to the decline in revenue discussed above in “U.S. GAAP Revenue by Product and Service”.

Consolidated Gross Margin Percentage

Consolidated gross margin percentage decreased by 3.1%, to approximately 72.7% of consolidated revenue in the first nine months of fiscal 2020 from 75.8% of consolidated revenue in the first nine months of fiscal 2019. The decrease was primarily due to a lower gross margin percentage associated with BlackBerry Cylance, which has a higher proportion of revenue related to professional services.

Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the nine months ended November 30, 2019, compared to the nine months ended November 30, 2018.

	For the Nine Months Ended
	(in millions)
	November 30, 2019							November 30, 2018							Change
					% of Revenue							% of Revenue							% of Change
Revenue	$	758						$	649						$	109			16.8	%
Operating expenses
Research and development (1)(2)	$	199			26.3	%		$	167			25.7	%		$	32			19.2	%
Selling, marketing and administration (1)(2)	385				50.8	%		299				46.1	%		86				28.8	%
Amortization (1)(2)	146				19.3	%		105				16.2	%		41				39.0	%
Debentures fair value adjustment (1) (2)	(71		)		(9.4	)%		(111		)		(17.1	)%		40				(36.0	)%
Total	$	659			87.0	%		$	460			70.9	%		$	199			43.3	%

^{______________________________} 

(1)	See “Non-GAAP Financial Measures” for the impact of the Fiscal 2020 Non-GAAP Adjustments on adjusted operating expenditures in fiscal 2020.

(2)	See “Non-GAAP Financial Measures” for the impact of the Fiscal 2019 Non-GAAP Adjustments on adjusted operating expenditures in fiscal 2019.

Operating expenses increased by $199 million, or 43.3%, to $659 million or 87.0% of revenue in the first nine months of fiscal 2020, compared to approximately $460 million or 70.9% of revenue in the first nine months of fiscal 2019. The increase was primarily attributable to an increase in salaries and benefits expense, amortization expense and marketing and advertising costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, and the difference between the Fiscal 2020 Debentures Fair Value Adjustment and the Fiscal 2019 Debentures Fair Value Adjustment, partially offset by lower stock compensation expense and the SIF Claims.

After giving effect to the relevant Fiscal 2020 Non-GAAP Adjustments and Fiscal 2019 Non-GAAP Adjustments, non-GAAP operating expenses increased by $132 million, or 29.3%, to $582 million in the first nine months of fiscal 2020, compared to approximately $450 million in the first nine months of fiscal 2019 due to the reasons discussed below in “Research and Development Expenses”, “Selling, Marketing and Administrative Expenses” and “Amortization Expense”.

Research and Development Expenses

Research and development expenses increased by $32 million to $199 million, or 26.3% of revenue, in the first nine months of fiscal 2020, compared to $167 million, or 25.7% of revenue, in the first nine months of fiscal 2019. After giving effect to the relevant Fiscal 2020 Non-GAAP Adjustments and Fiscal 2019 Non-GAAP Adjustments, non-GAAP research and development

23

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

expenses increased by $33 million, or 21.2%, to $189 million in the first nine months of fiscal 2020, compared to $156 million in the first nine months of fiscal 2019. The increase is primarily attributable to an increase in salaries and benefits expense, professional services and infrastructure costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by the SIF Claims.

Selling, Marketing and Administration Expenses

Selling, marketing and administration expenses increased by $86 million to $385 million, or 50.8% of revenue, in the first nine months of fiscal 2020, compared to approximately $299 million, or 46.1% of revenue, in the first nine months of fiscal 2019. After giving effect to the relevant Fiscal 2020 Non-GAAP Adjustments and Fiscal 2019 Non-GAAP Adjustments, non-GAAP selling marketing and administration expenses increased by $100 million, or 39.5%, to $353 million in the first nine months of fiscal 2020, compared to approximately $253 million in the first nine months of fiscal 2019. The increase is primarily attributable to an increase in salaries and benefits expense, sales incentive plan costs, and marketing and advertising costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019 and costs associated with a direct IP licensing arrangement.

Amortization Expense

The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018. Intangible assets are comprised of acquired technology, IP, and other acquired intangible assets such as customer relationships and brand.

	For the Nine Months Ended
	(in millions)
	Included in Amortization												Included in Cost of sales
	November 30, 2019				November 30, 2018				Change				November 30, 2019				November 30, 2018				Change
Property, plant and equipment	$	14			$	10			$	4			$	4			$	5			$	(1	)
Intangible assets	132				95				37				10				6				4
Total	$	146			$	105			$	41			$	14			$	11			$	3

Amortization

Amortization expense increased by $41 million to $146 million in the first nine months of fiscal 2020 compared to $105 million for the comparable period in fiscal 2019. The increase in amortization expense primarily reflects the amortization of assets acquired in the Cylance acquisition.

After giving effect to the relevant Fiscal 2020 Non-GAAP Adjustments and Fiscal 2019 Non-GAAP Adjustments, non-GAAP amortization expense decreased by $1 million to $40 million in the first nine months of fiscal 2020 compared to $41 million for the comparable period in fiscal 2019

Cost of sales

Amortization expense relating to assets employed in the Company’s service operations increased by $3 million to $14 million in the first nine months of fiscal 2020 compared to $11 million for the comparable period in fiscal 2019. This increase is due to a higher portion of the amortization of patents being classified as cost of goods sold due to the Company’s IP licensing arrangements versus the first nine months of fiscal 2019.

Investment Income

Investment income, which includes the interest expense from the Debentures, decreased by $11 million to $2 million in investment income in the first nine months of fiscal 2020, from an investment income of $13 million in the comparable period of fiscal 2019. The decreased investment income was due to lower cash and investment balances in the first nine months of fiscal 2020 versus the first nine months of fiscal 2019 as a result of the use of cash to fund the Cylance acquisition.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Income Taxes

For the first nine months of fiscal 2020, the Company’s net effective income tax expense rate was approximately 5%, compared to a net effective income tax expense rate of approximately 7% for the same period in the prior fiscal year. The Company’s net effective income tax rate reflects 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.

After giving effect to the relevant Fiscal 2020 Non-GAAP Adjustments, the Company’s non-GAAP income tax rate was approximately 21% compared to a net effective income tax expense rate of approximately 4% for the same period in the prior fiscal year. The increase is due to current year taxable items that could not be offset with carried forward tax attributes such as tax losses.

Net Income (Loss)

The Company’s net loss for the first nine months of fiscal 2020 was $111 million, reflecting a decrease in net income of $153 million compared to net income of approximately $42 million in the first nine months of fiscal 2019, primarily due to an increase in operating expenses, as described above in “Operating Expenses”, the difference between the Fiscal 2020 Debentures Fair Value Adjustment and Fiscal 2019 Debentures Fair Value Adjustment and a decrease in gross margin percentage, as describe above in “Consolidated Gross Margin Percentage”, partially offset by an increase in revenue as described above in “U.S. GAAP Revenue by Product and Service”. After giving effect to the relevant Fiscal 2020 Non-GAAP Adjustments and Fiscal 2019 Non-GAAP Adjustments, the Company’s non-GAAP net income for the first nine months of fiscal 2020 was $23 million compared to non-GAAP net income of $66 million for the first nine months of fiscal 2019, reflecting a decrease in net income of $43 million primarily due to an increase in operating expenditures and a decrease in the gross margin percentage, partially offset by an increase in revenue.

U.S. GAAP basic and diluted loss per share were $0.20 and $0.27, respectively, in the first nine months of fiscal 2020, compared to a U.S. GAAP basic earnings per share of $0.08 and diluted loss per share of $0.09, in the first nine months of fiscal 2019, due to the reasons noted above. After giving effect to the relevant Fiscal 2020 Non-GAAP Adjustments and Fiscal 2019 Non-GAAP Adjustments, the Company’s non-GAAP basic earnings per share was $0.04 for the first nine months of fiscal 2020 compared to non-GAAP basic earnings per share of $0.12 for the first nine months of fiscal 2019. The Company expects to achieve non-GAAP earnings per share of approximately $0.08 for fiscal 2020.

The weighted average number of shares outstanding was approximately 553 million common shares for basic loss per share and 613 million for diluted loss per share for the nine months ended November 30, 2019, and approximately 538 million common shares for basic earnings per share and 599 million for diluted loss per share for the nine months ended November 30, 2018.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Selected Quarterly Financial Data

The following table sets forth the Company’s unaudited quarterly consolidated results of operations data for each of the eight most recent quarters, including the quarter ended November 30, 2019. The information in the table below has been derived from the Company’s unaudited interim consolidated financial statements that, in management’s opinion, have been prepared on a basis consistent with the audited consolidated financial statements of the Company and include all adjustments necessary for a fair presentation of information when read in conjunction with the audited consolidated financial statements of the Company. The Company’s quarterly operating results have varied substantially in the past and may vary substantially in the future. Accordingly, the information below is not necessarily indicative of results for any future quarter.

	(in millions, except per share data)
	Fiscal Year 2020												Fiscal Year 2019																Fiscal Year 2018
	Third Quarter				Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Fourth Quarter
Revenue	$	267			$	244			$	247			$	255			$	226			$	210			$	213			$	233
Gross margin	198				176				177				206				170				161				161				177
Operating expenses	227				219				213				178				112				122				226				194
Income (loss) before income taxes	(30		)		(43		)		(33		)		32				60				44				(59		)		(14		)
Provision for (recovery of) income taxes	2				1				2				(19		)		1				1				1				(4		)
Net income (loss)	$	(32	)		$	(44	)		$	(35	)		$	51			$	59			$	43			$	(60	)		$	(10	)
Earnings (loss) per share
Basic earnings (loss) per share	$	(0.06	)		$	(0.08	)		$	(0.06	)		$	0.09			$	0.11			$	0.08			$	(0.11	)		$	(0.02	)
Diluted earnings (loss) per share	$	(0.07	)		$	(0.10	)		$	(0.09	)		$	0.08			$	(0.01	)		$	(0.04	)		$	(0.11	)		$	(0.06	)

Financial Condition

Liquidity and Capital Resources

Cash, cash equivalents, and investments decreased by $35 million to approximately $970 million as at November 30, 2019 from approximately $1.01 billion as at February 28, 2019, primarily as a result of changes in working capital. The majority of the Company’s cash, cash equivalents, and investments are denominated in U.S. dollars as at November 30, 2019.

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

	As at (in millions)
	November 30, 2019				February 28, 2019				Change
Cash and cash equivalents	$	515			$	548			$	(33	)
Short-term investments	367				368				(1		)
Restricted cash and cash equivalents	32				34				(2		)
Long-term investments	56				55				1
Cash, cash equivalents, and investments	$	970			$	1,005			$	(35	)

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

	As at (in millions)
	November 30, 2019				February 28, 2019				Change
Current assets	$	1,179			$	1,233			$	(54	)
Current liabilities	1,112				510				602
Working capital	$	67			$	723			$	(656	)

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current Assets

The decrease in current assets of $54 million at the end of the third quarter of fiscal 2020 from the end of the fourth quarter of fiscal 2019 was primarily due to decreases in cash and cash equivalents of $33 million, accounts receivables of $17 million, other receivables of $6 million and short-term investments of $1 million, partially offset by an increase other current assets of $2 million and income taxes receivable of $1 million.

At November 30, 2019, accounts receivable was $216 million, a decrease of $17 million from February 28, 2019. The decrease reflects a decrease in days sales outstanding to 73 days at the end of the third quarter of fiscal 2020 from 82 days at the end of the fourth quarter of fiscal 2019, partially offset by higher revenue recognized over the three months ended November 30, 2019.

At November 30, 2019, other receivables were $13 million, a decrease of $6 million from February 28, 2019. The decrease was primarily due to a decrease in GST and VAT receivable.

At November 30, 2019, other current assets were $58 million, an increase of $2 million from February 28, 2019. The increase in other current assets was primarily due to increases in prepaid maintenance, partially offset by a decrease in prepaid rent.

At November 30, 2019, income taxes receivable was $10 million, an increase of $1 million from February 28, 2019. The increase was primarily due to changes in the quarterly tax provision.

Current Liabilities

The increase in current liabilities of $602 million at the end of the third quarter of fiscal 2020 from the end of the fourth quarter of fiscal 2019 was primarily due to the Debentures balance of $609 million moving from long-term to current liabilities as they mature on November 13, 2020, an increase in deferred revenue, current of $11 million and income taxes payable of $2 million, partially offset by a decrease in accounts payable of $21 million.

As at November 30, 2019, deferred revenue, current was $264 million, reflecting an increase of $11 million from February 28, 2019, which was primarily attributable to an increase in deferred revenue related to BlackBerry Cylance, partially offset by a decrease in deferred revenue related to IoT.

Cash flows for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018 were as follows:

	For the Nine Months Ended
	(in millions)
	November 30, 2019				November 30, 2018				Change
Net cash flows provided by (used in):
Operating activities	$	(8	)		$	82			$	(90	)
Investing activities	(32		)		171				(203		)
Financing activities	6				5				1
Effect of foreign exchange on cash and cash equivalents	(1		)		(3		)		2
Net increase (decrease) in cash and cash equivalents	$	(35	)		$	255			$	(290	)

Operating Activities

The decrease in net cash flows provided by operating activities of $90 million for the first nine months of fiscal 2020 primarily reflects the net changes in working capital and lower net income after adjustments for non-cash items.

Investing Activities

During the nine months ended November 30, 2019, cash flows used in investing activities were $32 million and included cash used in transactions involving intangible asset additions of $24 million, and acquisitions of property, plant and equipment of $9 million, offset by proceeds received from the decrease in consideration paid for the Cylance acquisition. For the same period in the prior fiscal year, cash flows provided by investing activities were $171 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $208 million offset by cash used in intangible asset additions of $24 million, and acquisitions of property, plant and equipment of $14 million.

Financing Activities

The increase in cash flows provided by financing activities was $1 million for the first nine months of fiscal 2020 due to an increase in common shares issued, partially offset by cash used for the finance lease liability.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Aggregate Contractual Obligations

Purchase obligations and commitments amounted to approximately $416 million as at November 30, 2019, including future interest payments of $22 million on the Debentures and operating lease obligations of $178 million. The remaining balance consists of purchase orders for goods and services utilized in the operations of the Company. Total aggregate contractual obligations as at November 30, 2019 decreased by $26 million as compared to the February 28, 2019 balance of approximately $442 million, which was attributable to a decrease in operating lease obligations and interest payments on the Debentures.

Debenture Financing and Other Funding Sources

See Note 7 to the Consolidated Financial Statements for a description of the Debentures.

The Company had $27 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of November 30, 2019. See Note 2 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.

Cash, cash equivalents, and investments were approximately $970 million as at November 30, 2019. The Company’s management remains focused on maintaining appropriate cash balances, efficiently managing working capital balances and managing the liquidity needs of the business. Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities and access to other potential financing arrangements, should be sufficient to meet funding requirements for current financial commitments and future operating expenditures not yet committed, and should provide the necessary financial capacity for the foreseeable future.

The Company does not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended, or under applicable Canadian securities laws.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Legal Proceedings

The Company is involved in litigation in the normal course of its business, both as a defendant and as a plaintiff. Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount of any potential loss. Where a potential loss is considered probable and the amount is reasonably estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum amount in the range. The Company does not provide for claims for which the outcome is not determinable or claims for which the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provisioned for when reasonably determinable.

As of November 30, 2019, there are no claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable, therefore no accrual has been made. See Note 11 to the Consolidated Financial Statements for a further discussion of the Company’s legal matters.

Market Risk of Financial Instruments

The Company is engaged in operating and financing activities that generate risk in three primary areas:

Foreign Exchange

The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency, the U.S. dollar. The majority of the Company’s revenue in the third quarter of fiscal 2020 were transacted in U.S. dollars. Portions of the revenue were denominated in Canadian dollars, euros and British pounds. Other expenses, consisting mainly of salaries and certain operating costs were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros, British pounds, and other global currencies. At November 30, 2019, approximately 10% of cash and cash equivalents, 23% of accounts receivables and 14% of accounts payable were denominated in foreign currencies (February 28, 2019 – 9%, 29% and 4%, respectively). These foreign currencies primarily include the Canadian dollar, euro and British pound. As part of its business operations, the Company maintains net monetary asset and/or liability balances in foreign currencies and engages in foreign currency hedging activities using derivative financial instruments, including currency forward contracts and currency options. The Company does not use derivative instruments for speculative purposes. See Note 3 to the Consolidated Financial Statements for information concerning the Company’s foreign currency hedging activities.

Interest Rate

Cash and cash equivalents and investments are invested in certain instruments of varying maturities. Consequently, the Company is exposed to interest rate risk as a result of holding investments of varying maturities. The fair value of investments, as well as the investment income derived from the investment portfolio, will fluctuate with changes in prevailing interest rates. The Company has also issued the Debentures with a fixed 3.75% interest rate. The fair value of the Debentures will fluctuate with changes in prevailing interest rates. Consequently, the Company is exposed to interest rate risk as a result of the Debentures. The Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio or changes in market value of the Debentures.

Credit and Customer Concentration

The Company, in the normal course of business, monitors the financial condition of its customers and reviews the credit history of each new customer. The Company establishes an allowance for doubtful accounts (“AFDA”) that corresponds to the specific credit risk of its customers, historical trends and economic circumstances. The AFDA as at November 30, 2019 was $8 million (February 28, 2019 - $25 million). There was one customer that comprised more than 10% of accounts receivable as at November 30, 2019 (February 28, 2019 - one customer comprised more than 10%). During the third quarter of fiscal 2020, the percentage of the Company’s receivable balance that was past due decreased by 1.8% compared to the fourth quarter of fiscal 2019. Although the Company actively monitors and attempts to collect on its receivables as they become due, the risk of further delays or challenges in obtaining timely payments of receivables exists. The occurrence of such delays or challenges in obtaining timely payments could negatively impact the Company’s liquidity and financial condition. There was one customer that comprised more than 10% of the Company’s revenue in the third quarter of fiscal 2020 (one customer comprised more than 10% of the Company’s revenue in the third quarter of fiscal 2019).

Market values are determined for each individual security in the investment portfolio. The Company assesses declines in the value of individual investments for impairment to determine whether the decline is other-than-temporary. The Company makes this assessment by considering available evidence including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial condition, the near-term prospects of the individual investment and, in the case of debt securities, the Company’s ability and

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

intent to hold the investments to maturity. During the nine months ended November 30, 2019 the Company did not record any other-than-temporary impairment charges related to investments (November 30, 2018 - nil).

See Note 3 to the Consolidated Financial Statements for additional information regarding the Company’s credit risk as it pertains to its foreign exchange derivative counterparties.

Changes in Internal Control Over Financial Reporting

During the three months ended November 30, 2019, no changes were made to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, JOHN CHEN, Chief Executive Officer of BlackBerry Limited, certify the following:

1	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BlackBerry Limited (the “issuer”) for the interim period ended November 30, 2019.

2	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4	Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2N/A

5.3N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on September 1, 2019 and ended on November 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

DATE: December 20, 2019

 

/S/ JOHN CHEN

JOHN CHEN

Chief Executive Officer

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FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, STEVE RAI, Chief Financial Officer of BlackBerry Limited, certify the following:

1	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BlackBerry Limited (the “issuer”) for the interim period ended November 30, 2019.

2	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4	Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2N/A

5.3N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on September 1, 2019 and ended on November 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

DATE: December 20, 2019

 

/S/ STEVE RAI

STEVE RAI

Chief Financial Officer

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		BLACKBERRY LIMITED
		(Registrant)
Date:	December 20, 2019	By:	/S/ STEVE RAI
			Name: Steve Rai
			Title:   Chief Financial Officer