What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-01 compared with 2022-02-04 · 346 added, 273 removed, 756 unchanged (45% of the section changed)

16 unchanged sentences

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 3, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated January 31, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Revenue Recognition

Description of the Matter

As described in Note 2 to the consolidated financial statements, the Company generates substantially all of its revenues by offering various advertising products on Snapchat.

Description of the Matter As described in Note 2 to the consolidated financial statements, the Company generates substantially all of its revenues by offering various advertising products on Snapchat.

The substantial majority of such advertising revenues is generated based upon contractual agreements with customers that are on a fixed fee basis for advertisements delivered over a period of time, or fees based on the number of advertising impressions delivered.

Revenues related to fixed fee agreements are recognized ratably over the service period while revenues related to agreements based on the number of advertising impressions delivered are recognized when the advertisements are displayed.

The Company’s revenue recognition process utilizes multiple complex, proprietary systems and tools for the initiation, processing and recording of transactions which comprise a high volume of individually low monetary value transactions.

This process is dependent on the effective design and operation of multiple systems, sub-processes, data sources and controls which required significant audit effort.

Also, the identification and evaluation of certain non-standard terms and conditions required incremental audit effort to determine the distinct performance obligations and the timing of revenue recognition.

How We Addressed the Matter in Our Audit

With the support of our information technology professionals, we identified and tested the relevant systems and tools used for the determination of initiation, processing, recording and billing of revenue, which included processes and controls related to access to the relevant systems and data, changes to the relevant systems and interfaces, and configuration of the relevant systems.

Also, the identification and evaluation of certain non-standard terms and conditions, which may arise through side agreements, required incremental audit effort to determine the distinct performance obligations and the timing of revenue recognition.

How We Addressed the Matter in Our Audit With the support of our information technology professionals, we identified and tested the relevant systems and tools used for the determination of initiation, processing, recording and billing of revenue, which included processes and controls related to access to the relevant systems and data, changes to the relevant systems and interfaces, and configuration of the relevant systems.

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's internal controls over the identification and evaluation of revenue recognition for standard and non-standard terms and conditions.

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Los Angeles, California

February 3, 2022

January 31, 2023

Report of Independent Registered Public Accounting Firm

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 3, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated January 31, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Los Angeles, California

February 3, 2022

January 31, 2023

Consolidated Statements of Cash Flows

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Year Ended December 31,

2022 2021 2020

Cash flows from operating activities

Net loss $ ( 1,429,653 ) $ ( 487,955 ) $ ( 944,839 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

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Amortization of debt discount and issuance costs 6,865 4,311 81,401

(Gains) losses on debt and equity securities, net

Losses (gains) on debt and equity securities, net 36,838 ( 289,052 ) ( 10,250 )

Induced conversion expense related to convertible notes — 41,538 —

Gain on divestiture

Other 15,596 8,643 2,963

Change in operating assets and liabilities, net of effect of acquisitions:

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Operating lease right-of-use assets 71,441 47,258 38,940

Other assets ( 504 ) ( 10,916 ) ( 11,442 )

Accounts payable 46,492 53,579 20,374

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Purchases of strategic investments ( 26,346 ) ( 41,160 ) ( 111,586 )

Sales of strategic investments 63,276 36,777 —

Cash paid for acquisitions, net of cash acquired ( 67,067 ) ( 310,915 ) ( 168,850 )

Proceeds from divestiture, net

Purchases of marketable securities ( 3,485,638 ) ( 2,438,983 ) ( 3,524,599 )

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Maturities of marketable securities 2,525,215 2,536,725 2,737,523

Other ( 18,125 ) ( 1,897 ) 5,506

Net cash provided by (used in) investing activities ( 1,062,275 ) 90,227 ( 729,864 )

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Proceeds from the exercise of stock options 4,272 14,671 34,209

Net cash provided by financing activities

Payments of debt issuance costs ( 3,006 ) — —

Repurchases of Class A non-voting common stock ( 1,001,052 ) — —

Net cash provided by (used in) financing activities 306,714 1,065,073 922,791

Change in cash, cash equivalents, and restricted cash ( 570,947 ) 1,448,180 25,283

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Cash paid for interest $ 8,873 $ 10,887 $ 12,019

Supplemental disclosures of non-cash activities

Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions

See Notes to Consolidated Financial Statements.

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Year Ended December 31,

2022 2021 2020

Revenue $ 4,601,847 $ 4,117,048 $ 2,506,626

Costs and expenses:

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Income tax benefit (expense) ( 28,956 ) ( 13,584 ) ( 18,654 )

Net loss per share attributable to Class A, Class B, and Class C

common stockholders (Note 3):

Net loss $ ( 1,429,653 ) $ ( 487,955 ) $ ( 944,839 )

Net loss per share attributable to Class A, Class B, and Class C common stockholders (Note 3):

Basic $ ( 0.89 ) $ ( 0.31 ) $ ( 0.65 )

Diluted $ ( 0.89 ) $ ( 0.31 ) $ ( 0.65 )

Weighted average shares used in computation of net loss per share:

Basic 1,608,304 1,558,997 1,455,693

Diluted 1,608,304 1,558,997 1,455,693

See Notes to Consolidated Financial Statements.

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Year Ended December 31,

2022 2021 2020

Net loss $ ( 1,429,653 ) $ ( 487,955 ) $ ( 944,839 )

Other comprehensive income (loss), net of tax

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Total other comprehensive income (loss), net of tax ( 19,495 ) ( 15,842 ) 20,790

Total comprehensive income (loss)

Total comprehensive loss $ ( 1,449,148 ) $ ( 503,797 ) $ ( 924,049 )

See Notes to Consolidated Financial Statements.

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Intangible assets, net 204,480 277,654

Goodwill 1,646,120 1,588,452

Other assets 279,562 291,302

Total assets $ 8,029,538 $ 7,536,306

Liabilities and Stockholders’ Equity

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Class A non-voting common stock, $ 0.00001 par value.

3,000,000 shares authorized, 1,364,887 shares issued and outstanding at December 31, 2021 and 3,000,000 shares authorized, 1,248,010 shares issued and outstanding at December 31, 2020.

3,000,000 shares authorized, 1,371,242 shares issued, 1,319,930 shares outstanding at December 31, 2022 and 3,000,000 shares authorized, 1,364,887 shares issued and outstanding at December 31, 2021.

Class B voting common stock, $ 0.00001 par value.

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260,888 shares authorized, 231,627 shares issued and outstanding at December 31, 2022 and 260,888 shares authorized, 231,627 shares issued and outstanding at December 31, 2021.

Treasury stock, at cost.

51,312 shares of Class A non-voting common stock at December 31, 2022.

( 500,514 ) —

Additional paid-in capital 13,309,828 12,069,097

Accumulated other comprehensive income (loss)

Accumulated deficit ( 10,214,657 ) ( 8,284,466 )

Accumulated other comprehensive income (loss) ( 13,974 ) 5,521

Total stockholders’ equity 2,580,698 3,790,168

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Year Ended December 31,

2022 2021 2020

Shares Amount Shares Amount Shares Amount

Class A non-voting common stock

Balance, beginning of period 1,364,887 $ 14 1,248,010 $ 12 1,160,127 $ 12

Shares issued in connection with exercise of

stock options under stock-based compensation

Issuance of Class A non-voting common stock

for vesting of restricted stock units and

restricted stock awards, net

Issuance of Class A non-voting common stock for the induced conversion related to convertible senior notes

Conversion of Class B voting common stock to

Class A non-voting common stock

Shares issued in connection with exercise of stock options under stock-based compensation plans 334 — 1,174 — 3,824 —

Issuance of Class A non-voting common stock in connection with acquisitions 1,277 — 6,732 — — —

Issuance of Class A non-voting common stock for vesting of restricted stock units and restricted stock awards, net 58,342 — 55,466 1 78,042 —

Issuance of Class A non-voting common stock for the induced conversion related to convertible senior notes — — 52,410 1 — —

Conversion of Class B voting common stock to Class A non-voting common stock 298 — 1,095 — 6,017 —

Repurchases of Class A non-voting common stock ( 105,208 ) ( 1 ) — — — —

Balance, end of period 1,319,930 13 1,364,887 14 1,248,010 12

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Balance, beginning of period 22,769 — 23,696 — 24,522 —

Shares issued in connection with exercise of

stock options under stock-based compensation

Issuance of Class B voting common stock for

vesting of restricted stock units, net

Conversion of Class B voting common stock to

Class A non-voting common stock

Conversion of Class C voting common stock to

Class B voting common stock

Shares issued in connection with exercise of stock options under stock-based compensation plans 58 — 168 — 754 —

Conversion of Class B voting common stock to Class A non-voting common stock ( 298 ) — ( 1,095 ) — ( 6,017 ) —

Conversion of Class C voting common stock to Class B voting common stock — — — — 4,437 —

Balance, end of period 22,529 — 22,769 — 23,696 —

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Balance, beginning of period 231,627 2 231,627 2 231,147 2

Conversion of Class C voting common stock to

Class B voting common stock

Issuance of Class C voting common stock for

settlement of restricted stock units, net

Conversion of Class C voting common stock to Class B voting common stock — — — — ( 4,437 ) —

Issuance of Class C voting common stock for settlement of restricted stock units, net — — — — 4,917 —

Balance, end of period 231,627 2 231,627 2 231,627 2

Treasury stock

Balance, beginning of period — — — — — —

Repurchases of Class A non-voting common stock 105,208 ( 1,001,052 ) — — — —

Retirement of Class A non-voting common stock ( 53,896 ) 500,538 — — — —

Balance, end of period 51,312 ( 500,514 ) — — — —

Additional paid-in capital

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Stock-based compensation expense — 1,369,407 — 1,088,506 — 771,084

Cumulative-effect adjustment from accounting

Shares issued in connection with exercise of

stock options under stock-based compensation

Shares issued in connection with exercise of stock options under stock-based compensation plans — 4,285 — 14,680 — 34,209

Cumulative-effect adjustment from accounting changes — — — ( 664,021 ) — —

Issuance of Class A non-voting common stock in connection with acquisitions and divestitures — 44,039 — 341,425 — 3,003

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Balance, beginning of period — ( 8,284,466 ) — ( 7,891,542 ) — ( 6,945,930 )

Cumulative-effect adjustment from accounting

Cumulative-effect adjustment from accounting changes — — — 95,031 — ( 773 )

Net loss — ( 1,429,653 ) — ( 487,955 ) — ( 944,839 )

Retirement of Class A non-voting common stock — ( 500,538 ) — — — —

Balance, end of period — ( 10,214,657 ) — ( 8,284,466 ) — ( 7,891,542 )

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Summary of Significant Accounting Policies

is a camera company.

is a technology company.

(“we,” “our,” or “us”) was formed as Future Freshman, LLC, a California limited liability company, in 2010.

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is headquartered in Santa Monica, California.

Our flagship product, Snapchat, is a camera application that was created to help people communicate through short videos and images called “Snaps.”

Our flagship product, Snapchat, is a visual messaging application that was created to help people communicate through short videos and images called “Snaps.”

Basis of Presentation

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Our fiscal year ends on December 31.

Certain reclassifications have been made in the prior periods to conform to the current year's presentation.

None of these reclassifications had a material impact on our consolidated financial statements.

Use of Estimates

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Actual results could differ from those estimates.

Key estimates relate primarily to determining the fair value of assets and liabilities assumed in business combinations, evaluation of contingencies, uncertain tax positions, forfeiture rate, the fair value of convertible senior notes, the fair value of stock-based awards, and the fair value of strategic investments.

Key estimates relate primarily to determining the fair value of assets and liabilities assumed in business combinations, evaluation of contingencies, uncertain tax positions, forfeiture rate, the fair value of stock-based awards, and the fair value of strategic investments.

On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

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Shares of our Class C common stock are convertible into an equivalent number of shares of our Class B common stock and generally convert into shares of our Class B common stock upon transfer.

Future Stock Split to be Effected in the Form of a Stock Dividend

In July 2022, our board of directors determined that it was advisable and in our best interest to approve a stock split to be effected in the form of a special dividend of one share of Class A common stock on each outstanding share of our common stock at a future date (the “Future Stock Split”).

In connection with the Future Stock Split, we entered into certain agreements (the “Co-Founder Agreements”) with Evan Spiegel and Robert Murphy, our co-founders, and certain of their respective affiliates requiring them, among other things, to convert shares of Class B common stock and Class C common stock into Class A common stock under certain circumstances.

The Future Stock Split will be not be declared and paid until the later of (i) June 30, 2023 and (ii) the first business day following the date on which the average of the volume weighted average price per share of Class A common stock equals or exceeds $ 40 per share for 65 consecutive trading days.

If this does not occur by July 21, 2032, the Future Stock Split will not be declared and paid, and the Co-Founder Agreements will terminate.

No adjustments have been made to share or per share amounts for Class A common stock in the accompanying consolidated financial statements for the effects of the Future Stock Split as these triggering conditions have not been met.

Stock-based Compensation

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The grant date fair value of RSUs and RSAs is estimated based on the fair value of our underlying common stock.

RSUs vest on the satisfaction of service conditions.

The service condition for RSUs granted prior to February 2018 is generally satisfied over four years , 10 % after the first year of service, 20 % over the second year, 30 % over the third year, and 40 % over the fourth year.

RSUs and RSAs are subject to the satisfaction of service conditions.

The service condition for RSUs granted prior to February 2018 is generally satisfied over four years , 10 % after the first year of service, 20 % over the second year, 30 %

over the third year, and 40 % over the fourth year.

In limited instances, we have issued RSUs with vesting periods in excess of four years.

The service condition for RSUs and RSAs granted after February 2018 is generally satisfied in equal monthly or quarterly installments over three or four years .

For these awards, we recognize stock-based compensation expense on a straight-line basis over the vesting period.

For these awards, we recognize stock-based compensation expense on a straight-line basis over the requisite service p eriod.

Stock-based compensation expense recognized for all periods presented is based on awards that are expected to vest, including an estimate of forfeitures.

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We are subject to income taxes in the United States and numerous foreign jurisdictions.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured

using the enacted tax rates and laws that will be in effect when the deferred tax asset or liability is expected to be realized or settled.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the deferred tax asset or liability is expected to be realized or settled.

In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including historical operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis.

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Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses, with any allowance for credit losses recognized as a charge in other income (expense), net on our consolidated statements of income.

We did no t record any credit losses for the years ended December 31, 2021 and December 31, 2020 on our available-for-sale debt securities.

We did not record any credit losses on our available-for-sale debt securities in any of the periods presented.

We determine gains or losses on the sale or maturities of marketable securities using the specific identification method and these gains or losses are recorded in other income (expense), net in our consolidated statements of operations.

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Strategic Investments

We hold strategic investments in privately held companies, consisting primarily of equity securities without readily determinable fair values, and to a lesser extent, debt securities.

We adjust the carrying value of these equity securities to fair

value upon observable transactions for identical or similar investments of the same issuer or upon impairment.

We hold strategic investments primarily in privately held companies, consisting primarily of equity securities without readily determinable fair values, and to a lesser extent, debt securities.

We adjust the carrying value of these equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment.

Any adjustments to carrying value of these investments are recorded in other income (expense), net in our consolidated statements of operations.

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We compute depreciation using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer hardware, software, and equipment, five years for furniture, and over the shorter of lease term or useful life of the assets for leasehold improvements.

Buildings are depreciated over a useful life ranging from 20 to 45 years .

Buildings are generally depreciated over a useful life ranging from 20 to 45 years.

Maintenance and repairs are expensed as incurred.

We have various non-cancelable lease agreements for certain of our offices.

We have non-cancelable lease agreements for certain of our offices with original lease terms expiring between 2023 and 2042 .

Leases are recorded as operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets.

Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets.

We recognize rent expense on a straight-line basis over the lease term.

We account for lease and non-lease components as a single lease component and do not record leases with

an initial term of twelve months or less on the consolidated balance sheets.

We use our incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments over the lease term .

Our lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise that option.

Certain agreements have free rent periods or escalating rent payment provisions.

Rent expense is recognized on a straight-line basis over the lease term.

Software Development Costs

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Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding

offset to goodwill.

During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill.

At the conclusion of the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations.

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For all periods presented, we had a single operating segment and reporting unit structure.

In testing for goodwill impairment, we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after assessing the totality of events or circumstances, we determine it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not required.

However, if we conclude otherwise, we perform the first of a two-step impairment test.

The first step compares the estimated fair value of a reporting unit to its book value, including goodwill.

If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary.

However, if the fair value of the reporting unit is less than book value, then under the second step the carrying amount of the goodwill is compared to its implied fair value.

There were no impairment charges in any of the periods presented.

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The estimated useful lives of intangible assets are generally as follows:

Intangible Asset

Estimated Useful

Acquired developed technology

Customer relationships

3 to 11 Years

Intangible Asset Estimated Useful

Domain names 5 Years

Trademarks 3 Years

Acquired developed technology 3 to 7 Years

Customer relationships 2 to 8 Years

Patents 4 to 14 Years

Impairment of Long-Lived Assets

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If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

We determined that there were no events or changes in circumstances that indicated our long-lived assets were impaired during any of the periods presented.

Legal Contingencies

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Note 8 provides additional information regarding our legal contingencies.

Convertible Notes

In April 2020, we entered into a purchase agreement for the sale of an aggregate of $ 1.0 billion principal amount of convertible senior notes due in 2025 (the “2025 Notes”).

In August 2019, we entered into a purchase agreement for the sale of an aggregate of $ 1.265 billion principal amount of convertible senior notes due in 2026 (the “2026 Notes”).

Prior to January 1, 2021, we accounted for the 2025 Notes and the 2026 Notes as separate liability and equity components.

On issuance, the carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was calculated by deducting the fair value of the liability component from the principal amount of the convertible notes as a whole.

This amount represents a debt discount which is amortized to interest expense over the term of the convertible notes using the effective interest rate method, which maintains a constant rate of interest expense based on the increasing carrying value of the debt.

Effective January 1, 2021 , we early adopted Accounting Standards Update (“ASU”) 2020-06 using the modified retrospective approach.

As a result, the Convertible Notes are each accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

Adoption of the new standard resulted in a decrease to accumulated deficit of $ 95.0 million, a decrease to additional paid-in capital of $ 664.0 million, and an increase to convertible senior notes, net of $ 569.0 million.

Recent Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805):

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.

The guidance is effective for annual periods beginning after December 15, 2023, with early adoption permitted.

Effective April 1, 2022, we early adopted ASU 2022-03 on a prospective basis.

The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosure by Business Entities about Government Assistance, which improves the transparency of government assistance received by requiring the disclosure of:

(1) the types of government assistance received;

(2) the accounting for such assistance;

and (3) the effect of the assistance on an entity's financial statements.

The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted.

Effective January 1, 2022, we early adopted ASU 2021-10 on a prospective basis.

The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

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Interest expense recognized in the current and future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.

Interest expense recognized in periods subsequent to the adoption date will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarifies the interaction between the accounting for equity securities in Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815.

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The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license.

The guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.

We adopted ASU 2018-15 effective January 1, 2020 .

The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses.

ASU 2019-11 requires entities that did not adopt the amendments in ASU 2016-13 as of November 2019 to adopt ASU 2019-11.

This ASU contains the same effective dates and transition requirements as ASU 2016-13.

We adopted ASU 2016-13 and ASU 2019-11 effective January 1, 2020 .

The impact of adoption of these standards on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

We determine revenue recognition by first identifying the contract or contracts with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when, or as, we satisfy a performance obligation.

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We generate substantially all of our revenues by offering various advertising products on Snapchat, which include Snap Ads and AR Ads, referred to as advertising revenue.

AR Ads include Sponsored Filters and Sponsored Lenses.

Sponsored Filters allow users to interact with an advertiser’s brand by enabling stylized brand artwork to be overlaid on a Snap.

Sponsored Lenses allow users to interact with an advertiser’s brand by enabling branded augmented reality experiences.

AR Ads include Sponsored Lenses, which allow users to interact with an advertiser’s brand by enabling branded augmented reality experiences, and Sponsored Filters, which allow users to interact with an advertiser’s brand by enabling stylized brand artwork to be overlaid on a Snap.

The substantial majority of advertising revenue is generated from the display of advertisements on Snapchat through contractual agreements that are either on a fixed fee basis over a period of time or based on the number of advertising impressions delivered.

Revenue related to agreements based on the number of impressions delivered is recognized when the advertisement is displayed.

Revenue related to agreements based on the number of impressions delivered is recognized when the advertisement is served.

Revenue related to fixed fee arrangements is recognized ratably over the service period, typically less than 30 days in duration, and such arrangements do not contain minimum impression guarantees.

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For the periods presented, revenue for arrangements where we are the agent was not material.

We also generate revenue from sales of hardware products.

For the periods presented, revenue from the sales of hardware products was not material.

We also generate revenue from subscriptions and sales of hardware products.

For the periods presented, all such revenue was not material.

The following table represents our revenue disaggregated by geography based on the billing address of the advertising customer:

Year Ended December 31,

2022 2021 2020

(in thousands)

North America (1) (2)

$ 3,205,554 $ 2,871,369 $ 1,649,937

712,764 660,473 425,445

Rest of world 683,529 585,206 431,244

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(3) Europe includes Russia and Turkey.

Effective March 2022, we halted advertising sales to Russian and Belarusian entities.

Net Loss per Share

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We have three classes of authorized common stock for which voting rights differ by class.

Basic net loss per share is computed by dividing net loss attributable to each class of stockholders by the weighted-average number of shares of stock outstanding during the period, adjusted for vested RSUs that have not been settled and RSAs for which the risk of forfeiture has not yet lapsed.

Basic net loss per share is computed by dividing net loss attributable to each class of stockholders by the weighted-average number of shares of stock outstanding during the period, adjusted for RSAs for which the risk of forfeiture has not yet lapsed.

For the calculation of diluted net loss per share, net loss per share attributable to common stockholders for basic net loss per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans.

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Year Ended December 31,

2022 2021 2020

(in thousands, except per share data)

Net loss attributable to common

Class A Class B Class C Class A Class B Class C Class A Class B Class C

Net loss $ ( 1,203,614 ) $ ( 20,141 ) $ ( 205,898 ) $ ( 408,118 ) $ ( 7,339 ) $ ( 72,498 ) $ ( 775,801 ) $ ( 15,577 ) $ ( 153,461 )

Net loss attributable to common stockholders $ ( 1,203,614 ) $ ( 20,141 ) $ ( 205,898 ) $ ( 408,118 ) $ ( 7,339 ) $ ( 72,498 ) $ ( 775,801 ) $ ( 15,577 ) $ ( 153,461 )

Basic shares:

Weighted-average common

shares - Basic

Weighted-average common shares - Basic 1,354,019 22,658 231,627 1,303,921 23,449 231,627 1,195,259 23,999 236,435

Diluted shares:

Weighted-average common

shares - Diluted

Net loss per share attributable to

common stockholders:

Weighted-average common shares - Diluted 1,354,019 22,658 231,627 1,303,921 23,449 231,627 1,195,259 23,999 236,435

Net loss per share attributable to common stockholders:

Basic $ ( 0.89 ) $ ( 0.89 ) $ ( 0.89 ) $ ( 0.31 ) $ ( 0.31 ) $ ( 0.31 ) $ ( 0.65 ) $ ( 0.65 ) $ ( 0.65 )

Diluted $ ( 0.89 ) $ ( 0.89 ) $ ( 0.89 ) $ ( 0.31 ) $ ( 0.31 ) $ ( 0.31 ) $ ( 0.65 ) $ ( 0.65 ) $ ( 0.65 )

The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:

Year Ended December 31,

2022 2021 2020

(in thousands)

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On a liquidation event, as defined in our certificate of incorporation, any distribution to common stockholders is made on a pro rata basis to the holders of the Class A common stock, Class B common stock, and Class C common stock.

As of December 31, 2021, there were 1,364,886,581 shares, 22,769,005 shares, and 231,626,943 shares of Class A common stock, Class B common stock, and Class C common stock, respectively, issued and outstanding.

As of December 31, 2022, there were 1,371,241,822 shares issued and 1,319,929,508 shares outstanding of Class A common stock, and 22,529,132 shares and 231,626,943 shares issued and outstanding of Class B common stock and Class C common stock, respectively.

Stock-based Compensation Plans

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the 2017 Equity Incentive Plan (“2017 Plan”), the 2014 Equity Incentive Plan (“2014 Plan”), and the 2012 Equity Incentive Plan (“2012 Plan”, and collectively with the 2017 Plan and the 2014 Plan, the “Stock Plans”).

In January 2017, our board of directors adopted the 2017 Plan, and in February 2017 our stockholders approved the 2017 Plan, effective on March 1, 2017, which serves as the successor to the 2014 Plan and 2012 Plan and provides for the grant of incentive stock options to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, stock appreciation rights, RSAs, RSUs, performance stock awards, performance cash awards, and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our affiliates.

In January 2017, our board of directors adopted the 2017 Plan, and in February

2017 our stockholders approved the 2017 Plan, effective on March 1, 2017, which serves as the successor to the 2014 Plan and 2012 Plan and provides for the grant of incentive stock options to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, stock appreciation rights, RSAs, RSUs, performance stock awards, performance cash awards, and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our affiliates.

We do not expect to grant any additional awards under the 2014 Plan or 2012 Plan as of the effective date of the 2017 Plan, other than awards for up to 2,500,000 shares of Class A common stock to our employees and consultants in France under the 2014 Plan.

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With respect to each share that returns to the 2017 Plan pursuant to (i) and (ii) of the prior sentence that was associated with an award that was outstanding under the 2014 Plan and 2012 Plan as of October 31, 2016, an additional share of Class A common stock will be added to the share reserve of the 2017 Plan, up to a maximum of 86,737,997 shares .

capital stock outstanding on December 31st of the immediately preceding calendar year, and (ii) a number determined by our board of directors.

The number of shares reserved for issuance under the 2017 Plan will increase automatically on January 1st of each calendar year, beginning on January 1, 2018 through January 1, 2027, by the lesser of (i) 5.0 % of the total number of shares of our capital stock outstanding on December 31st of the immediately preceding calendar year, and (ii) a number determined by our board of directors.

The maximum term for stock options granted under the 2017 Plan may not exceed ten years from the date of grant.

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The following table summarizes the RSU and RSA activity during the year ended December 31, 2022:

Number of Shares Weighted-

(in thousands, except per share data)

Unvested at December 31, 2021 86,180 $ 26.07

Granted 134,446 $ 15.17

Vested ( 62,349 ) $ 19.36

Forfeited ( 25,885 ) $ 25.46

Unvested at December 31, 2022 132,392 $ 18.28

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The following table summarizes the stock option award activity under the Stock Plans during the year ended December 31, 2022:

of Shares Class B

of Shares Weighted-

Price Weighted-

(in years) Aggregate Intrinsic Value (1)

(in thousands, except per share data)

Outstanding at December 31, 2021 3,676 628 $ 10.59 4.19 $ 157,374

Granted 119 — $ 15.03

Exercised ( 334 ) ( 58 ) $ 10.94

Forfeited ( 872 ) — $ 14.33

Outstanding at December 31, 2022 2,589 570 $ 9.68 4.05 $ 9,669

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Stock-based compensation expense for stock options was not material in the years ended December 31, 2022, 2021, and 2020.

Total unrecognized compensation cost related to unvested stock options was $ 2.9 million as of December 31, 2021 and is expected to be recognized over a weighted-average period of 1.0 year.

Total unrecognized compensation cost related to unvested stock options was $ 0.8 million as of December 31, 2022 and is expected to be recognized over a weighted-average period of 1.2 years.

The total grant date fair value of stock options that vested in the years ended December 31, 2022, 2021, and 2020 was $ 3.2 million, $ 7.7 million, and $ 11.1 million, respectively.

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Year Ended December 31,

2022 2021 2020

(in thousands)

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General and administrative 201,661 170,543 119,273

Total $ 1,387,787 $ 1,092,135 $ 770,182

Stock Repurchases

In October 2022, our board of directors authorized a stock repurchase program of up to $ 500.0 million of our Class A common stock.

The program was completed in the fourth quarter of 2022, during which we repurchased, and subsequently retired, 53.9 million shares of our Class A common stock for an aggregate of $ 500.5 million, representing the entire amount approved by our board of directors and including costs associated with the repurchases.

In July 2022, our board of directors authorized a stock repurchase program of up to $ 500.0 million of our Class A common stock.

The program was completed in the third quarter of 2022, during which we repurchased 51.3 million shares of our Class A common stock for an aggregate of $ 500.5 million, representing the entire amount approved by our board of directors and including costs associated with the repurchases.

These shares are recorded as treasury stock on our consolidated balance sheets and remain available for re-issuance.

Business Acquisitions and Divestitures

2022 Acquisitions

In 2022, we completed acquisitions to enhance our existing platform, technology, and workforce.

The aggregate purchase consideration was $ 120.5 million, which included $ 17.7 million in cash, $ 44.0 million in shares of our Class A common stock, and $ 58.8 million recorded in other liabilities on our consolidated balance sheets.

Of the aggregate purchase consideration, $ 69.3 million was allocated to goodwill and the remainder primarily to identifiable intangible assets.

The goodwill amount represents synergies related to our existing platform expected to be realized from the business acquisitions and assembled workforces.

Of the acquired goodwill and intangible assets, $ 101.7 million is deductible for tax purposes.

2021 Acquisitions

In May 2021, we acquired Wave Optics Limited (“Wave Optics”), a display technology company that supplies light engines and diffractive waveguides for augmented reality displays.

The total consideration was $ 541.8 million, of which $ 510.4 million represents purchase consideration and primarily consisted of 4.7 million shares of our Class A common stock with a fair value of $ 252.0 million, cash of $ 13.7 million, and a $ 238.4 million payable due no later than May 2023 in either cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election.

The remaining $ 31.4 million of total consideration transferred represents compensation for future employment services.

The allocation of purchase price is subject to change based on information received related to the assets and liabilities that existed as of the acquisition date.

The allocation of the total purchase consideration for this acquisition is estimated as follows:

The total consideration was $ 541.8 million, of which $ 510.4 million represented purchase consideration and primarily consisted of 4.7 million shares of our Class A common stock with a fair value of $ 252.0 million, cash of $ 13.7 million, and a $ 238.4 million payable due no later than May 2023 in either cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election.

The remaining $ 31.4 million of total consideration transferred represented compensation for future employment services.

The allocation of the total purchase consideration for this acquisition was as follows:

(in thousands)

Trademarks $ 20,584

Technology 77,118

Customer relationships 32,708

Goodwill 370,236

Net deferred tax liability ( 3,313 )

Other assets acquired and liabilities assumed, net 13,111

Total $ 510,444

The goodwill amount represents synergies expected to be realized from the business combination and assembled workforce.

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In March 2021, we acquired Fit Analytics GmbH (“Fit Analytics”), a sizing technology company that powers solutions for retailers and brands, to grow our e-commerce and shopping offerings.

The purchase consideration for Fit Analytics was $ 124.4 million, which primarily represents current and future cash consideration payments.

The allocation of purchase price is subject to change based on information received related to the assets and liabilities that existed as of the acquisition date.

The allocation of the total purchase consideration for this acquisition is as follows:

The purchase consideration for Fit Analytics was $ 124.4 million, which primarily represented current and future cash consideration payments.

The allocation of the total purchase consideration for this acquisition was as follows:

(in thousands)

Trademarks $ 800

Technology 17,000

Customer relationships 17,000

Goodwill 88,132

Net deferred tax liability ( 5,643 )

Other assets acquired and liabilities assumed, net 7,160

Total $ 124,449

The goodwill amount represents synergies expected to be realized from this business combination and assembled workforce.

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For the year ended December 31, 2021, we completed other acquisitions to enhance our existing platform, technology, and workforce.

The aggregate purchase consideration was $ 266.1 million, which included $ 139.5 million in cash, $ 93.7 million in shares of our Class A common stock, and $ 32.9 million recorded in other liabilities on the consolidated balance sheet.

The aggregate allocation of purchase consideration was as follows:

(in thousands)

Technology $ 64,150

Customer relationships 4,000

Goodwill 203,482

Net deferred tax liability ( 11,871 )

Other assets acquired and liabilities assumed, net 6,325

Total $ 266,086

The goodwill amount represents synergies related to our existing platform expected to be realized from the business acquisitions and assembled workforces.

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(in thousands)

Technology $ 46,112

Goodwill 162,747

Net deferred tax liability ( 5,741 )

Other assets acquired and liabilities assumed, net 1,392

Total $ 204,510

The goodwill amount represents synergies related to our existing platform expected to be realized from the business acquisitions and assembled workforces.

Of the acquired goodwill and intangible assets, $ 49.6 million is deductible for tax purposes.

2019 Acquisitions and Divestiture

AI Factory, Inc.

In December 2019, we acquired the remaining ownership interest in AI Factory, Inc.

(“AI Factory”), a content and technology company.

Prior to the acquisition, we owned a minority interest in the company.

The purpose of the acquisition was to enhance the functionality of our platform.

The acquisition date fair value of AI Factory was $ 128.1 million, which primarily represents current and future cash consideration payments to sellers, as well as the $ 13.5 million estimated fair value of our original minority interest.

We recognized the change in pre-acquisition fair value of our original minority interest as a gain in Other income (expense), net on the consolidated statement of operations.

The allocation of acquisition date fair value was as follows:

(in thousands)

Other assets acquired and liabilities assumed, net

The goodwill amount represents synergies related to our existing platform expected to be realized from this business combination and assembled workforce.

The associated goodwill and intangible assets are not deductible for tax purposes.

In June 2019, we divested our membership interest in Placed, a location-based measurement services company, to Foursquare Labs, Inc.

(“Foursquare”).

The total cash consideration received was $ 77.8 million, which includes amounts paid for severance and equity compensation.

$ 66.9 million represents purchase consideration and we recognized a net gain on divestiture of $ 39.9 million, which is included in other income (expense), net, on our consolidated statements of operations.

The operating results of Placed were not material to our consolidated revenue or consolidated operating loss for all periods presented.

We determined that Placed did not meet the criteria to be classified as discontinued operations.

Placed assets and liabilities on completion of the divestiture were as follows:

(in thousands)

Trademarks, net

Technology, net

Customer relationships, net

Other assets and liabilities, net

Other Acquisitions

In the fourth quarter of 2019, we acquired a business to enhance our existing platform, technology, and workforce.

The purchase consideration was $ 34.0 million of which $ 23.5 million was allocated to goodwill and the remainder primarily to identifiable intangible assets.

The goodwill amount represents synergies related to our existing platform expected to be realized from this business combination and assembled workforce.

The associated goodwill and intangible assets are deductible for tax purposes.

Additional Information on 2022, 2021, and 2020 Acquisitions

The operating results of the above acquisitions were included in the results of our operations from the acquisition date and were not material to our consolidated revenue or consolidated operating loss.

In addition, u naudited pro forma results of operations assuming the above acquisitions had taken place at the beginning of each period are not provided because the historical operating results of the acquired entities were not material and pro forma results would not be materially different from reported results for the periods presented.

In addition, unaudited pro forma results of operations assuming the above acquisitions had taken place at the beginning of each period are not provided because the historical operating results of the acquired entities were not material and pro forma results would not be materially different from reported results for the periods presented.

Goodwill and Intangible Assets

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Useful Life -

Amount Accumulated

Amortization Net

(in thousands, except years)

Domain names 4.0 $ 954 $ ( 690 ) $ 264

Trademarks 1.2 800 ( 478 ) 322

Technology 3.1 340,375 ( 178,427 ) 161,948

Customer relationships 5.7 21,000 ( 6,641 ) 14,359

Patents 9.1 39,373 ( 14,912 ) 24,461

Other 1.0 6,000 ( 2,874 ) 3,126

$ 408,502 $ ( 204,022 ) $ 204,480

December 31, 2021

Useful Life -

Amount Accumulated

Amortization Net

(in thousands, except years)

Domain names 4.6 $ 967 $ ( 365 ) $ 602

Trademarks 4.3 21,384 ( 2,613 ) 18,771

Technology 3.6 343,800 ( 142,588 ) 201,212

Customer relationships 5.1 53,709 ( 6,332 ) 47,377

Patents 4.0 21,195 ( 11,503 ) 9,692

$ 441,055 $ ( 163,401 ) $ 277,654

Amortization of intangible assets for the years ended December 31, 2022, 2021, and 2020 was $ 132.3 million, $ 63.2 million, and $ 33.5 million, respectively.

In 2022, we revised the useful lives of certain customer relationships, trademarks, domain names, and technology, which resulted in a $ 49.3 million increase to amortization expense for the year ended December 31, 2022.

As of December 31, 2022, the estimated intangible asset amortization expense for the next five years and thereafter is as follows:

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Year ending December 31,

2023 $ 70,126

Thereafter 12,093

Total $ 204,480

Long-Term Debt

Convertible Notes

In April 2021, we entered into a purchase agreement with certain counterparties for the sale of an aggregate of $ 1.15 billion principal amount of convertible senior notes due in 2027 (the “2027 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

In February 2022, we entered into a purchase agreement with certain counterparties for the sale of an aggregate of $ 1.50 billion principal amount of convertible senior notes due in 2028 (the “2028 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

The 2028 Notes consisted of a $ 1.30 billion initial placement and an over-allotment option that provided the initial purchasers of the 2028 Notes with the option to purchase an additional $ 200.0 million aggregate principal amount of the 2028 Notes, which was fully exercised.

The 2027 Notes were issued pursuant to an indenture dated April 30, 2021 .

The net proceeds from the issuance of the 2027 Notes were $ 1.05 billion, net of debt issuance costs and cash used to purchase the capped call transactions (“2027 Capped Call Transactions”) discussed below.

The 2028 Notes were issued pursuant to an indenture dated February 11, 2022.The net proceeds from the issuance of the 2028 Notes were $ 1.31 billion, net of debt issuance costs and cash used to purchase the capped call transactions (“2028 Capped Call Transactions”) discussed below.

The debt issuance costs are amortized to interest expense using the effective interest rate method.

The 2027 Notes are unsecured and unsubordinated obligations which do not bear regular interest and for which the principal balance will not accrete.

The 2027 Notes will mature on May 1, 2027 unless repurchased, redeemed, or converted in accordance with their terms prior to such date.

The 2027 Notes are convertible into cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election, at an initial conversion rate of 11.2042 shares of Class A common stock per $ 1,000 principal amount of 2027 Notes, which is equivalent to an initial conversion price of approximately $ 89.25 per share of our Class A common stock.

The 2028 Notes are unsecured and unsubordinated obligations.

Interest is payable in cash semi-annually in arrears beginning on September 1, 2022 at a rate of 0.125 % per year.

The 2028 Notes mature on March 1, 2028 unless repurchased, redeemed, or converted in accordance with their terms prior to such date.

The 2028 Notes are convertible into cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election, at an initial conversion rate of 17.7494 shares of Class A common

stock per $ 1,000 principal amount of 2028 Notes, which is equivalent to an initial conversion price of approximately $ 56.34 per share of our Class A common stock.

The conversion rate is subject to customary adjustments for certain events as described in the indenture governing the 2028 Notes.

We may redeem for cash all or any portion of the 2027 Notes, at our option, on or after May 5, 2024 if the last reported sale price of our Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100 % of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid special interest or additional interest, if any.

Holders of the 2027 Notes may convert all or a portion of their 2027 Notes at their option prior to February 1, 2027, in multiples of $ 1,000 principal amounts, only under the following circumstances:

We may redeem for cash all or any portion of the 2028 Notes, at our option, on or after March 5, 2025 if the last reported sale price of our Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100 % of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest, if any.

Holders of the 2028 Notes may convert all or a portion of their 2028 Notes at their option prior to December 1, 2027, in multiples of $ 1,000 principal amounts, only under the following circumstances:

• if the last reported sale price of our Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the 2028 Notes on each such trading day;

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• on the occurrence of specified corporate events.

On or after February 1, 2027, the 2027 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

On or after December 1, 2027, the 2028 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

Holders of the 2028 Notes who convert the 2028 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2028 Notes, or in connection with a redemption are entitled to an increase in the conversion rate.

Additionally, in the event of a fundamental change, holders of the 2027 Notes may require us to repurchase all or a portion of the 2027 Notes at a price equal to 100 % of the principal amount of 2027 Notes, plus any accrued and unpaid special interest, if any.

Additionally, in the event of a fundamental change, holders of the 2028 Notes may require us to repurchase all or a portion of the 2028 Notes at a price equal to 100 % of the principal amount of 2028 Notes, plus any accrued and unpaid interest, if any.

We accounted for the issuance of the 2028 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

In April 2020, we entered into the 2025 Notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The net proceeds from the issuance of the 2025 Notes were $ 888.6 million, net of debt issuance costs and cash used to purchase the capped call transactions (the “2025 Capped Call Transactions”) discussed below.

In April 2021, we entered into a purchase agreement for the sale of an aggregate of $ 1.15 billion principal amount of convertible senior notes due in 2027 (the “2027 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The net proceeds from the issuance of the 2027 Notes were $ 1.05 billion, net of debt issuance costs and cash used to purchase the capped call transactions (the “2027 Capped Call Transactions”) discussed below.

The debt issuance costs are amortized to interest expense using the effective interest rate method.

The 2027 Notes are unsecured and unsubordinated obligations which do not bear regular interest and for which the principal balance will not accrete.

The 2027 Notes will mature on May 1, 2027 unless repurchased, redeemed, or converted in accordance with their terms prior to such date.

We may redeem for cash all or portions of the 2027 Notes, at our option, on or after May 5, 2024 based on certain circumstances.

In April 2020, we entered into a purchase agreement for the sale of an aggregate of $ 1.0 billion principal amount of convertible senior notes due in 2025 (the “2025 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The net proceeds from the issuance of the 2025 Notes were $ 888.6 million, net of debt

issuance costs and cash used to purchase the capped call transactions (the “2025 Capped Call Transactions”) discussed below.

The debt issuance costs are amortized to interest expense using the effective interest rate method.

The 2025 Notes are unsecured and unsubordinated obligations.

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We may redeem for cash all or portions of the 2025 Notes, at our option, on or after May 6, 2023 based on certain circumstances.

In August 2019, we entered into the 2026 Notes (and together with the 2027 Notes and the 2025 Notes, the “Convertible Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

In August 2019, we entered into a purchase agreement for the sale of an aggregate of $ 1.265 billion principal amount of convertible senior notes due in 2026 (the “2026 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The net proceeds from the issuance of the 2026 Notes were $ 1.15 billion, net of debt issuance costs and cash used to purchase the capped call transactions (“2026 Capped Call Transactions”) discussed below.

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We may redeem for cash all or portions of the 2026 Notes, at our option, on or after August 6, 2023 based on certain circumstances.

Exchange Transactions

In 2021, we entered into various exchange agreements (collectively, the “Exchange Agreements”) with certain holders of the 2025 Notes and the 2026 Notes pursuant to which we exchanged approximately $ 715.9 million principal amount of the 2025 Notes and approximately $ 426.5 million principal amount of the 2026 Notes for aggregate consideration of approximately 52.4 million shares of Class A common stock (the “Exchange Shares”).

The Exchange Shares included an additional 0.7 million shares of our Class A common stock not provided for under the original conversion terms of the 2025 Notes and the 2026 Notes to induce the holders to agree to the exchange.

The Exchange Agreements were accounted for as an induced conversion with the fair value of 0.7 million Exchange Shares, less accrued interest, recognized as an inducement expense in other income (expense), net in our consolidated statements of operations and included as an adjustment to reconcile net loss to net cash provided by (used in) operating activities in our consolidated statements of cash flows.

Inducement expense recorded for the year ended December 31, 2021 was $ 41.5 million.

The common stock consideration issued under the original terms of the 2025 Notes and 2026 Notes was accounted for under the general conversion accounting guidance with the net carrying amount of $ 1,132.6 million recorded in additional paid-in-capital and as a non-cash transaction excluded from cash activities on the consolidated statements of cash flows.

The Convertible Notes consisted of the following:

December 31, 2021

December 31, 2020

As of December 31,

Principal Unamortized Debt Issuance Costs Net Carrying Amount Principal Unamortized Debt Issuance Costs Net Carrying Amount

(in thousands)

Unamortized debt discount and issuance costs (1)

Net carrying amount

The 2020 amounts include unamortized debt discount expense prior to the adoption of ASU 2020-06 on January 1, 2021.

Prior to January 1, 2021 , we separated the 2025 Notes and the 2026 Notes into liability and equity components.

On issuance, the carrying amount of the equity components was recorded as a debt discount and subsequently amortized to interest expense.

Effective January 1, 2021, we early adopted ASU 2020-06 using the modified retrospective approach.

As a result, the 2025 Notes and 2026 Notes are each accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

The 2027 Notes were issued after January 1, 2021.

As of December 31, 2021, the debt issuance costs on the 2027 Notes, the 2025 Notes, and the 2026 Notes will be amortized over the remaining period of approximately 5.3 years, 3.3 years and 4.6 years, respectively.

Interest expense related to the amortization of debt issuance costs was $ 4.3 million for the year ended December 31, 2021.

Interest expense related to the amortization of debt discount and issuance costs was $ 81.4 million and $ 17.8 million for the years ended December 31, 2020 and 2019, respectively.

2025 Notes $ 284,105 $ ( 1,521 ) $ 282,584 $ 284,105 $ ( 2,168 ) $ 281,937

2026 Notes 838,482 ( 4,698 ) 833,784 838,493 ( 5,982 ) 832,511

2027 Notes 1,150,000 ( 9,239 ) 1,140,761 1,150,000 ( 11,361 ) 1,138,639

2028 Notes 1,500,000 ( 14,609 ) 1,485,391 — — —

Total $ 3,772,587 $ ( 30,067 ) $ 3,742,520 $ 2,272,598 $ ( 19,511 ) $ 2,253,087

As of December 31, 2022, the debt issuance costs on the 2025 Notes, 2026 Notes, 2027 Notes, and 2028 Notes will be amortized over the remaining period of approximately 2.3 years, 3.6 years, 4.3 years and 5.2 years, respectively.

Interest expense related to the amortization of debt issuance costs was $ 6.5 million and $ 4.3 million for the years ended December 31, 2022 and 2021, respectively.

Interest expense related to the amortization of debt discount and issuance costs was $ 81.4 million for the year ended December 31, 2020.

Contractual interest expense was $ 8.7 million, $ 8.9 million, and $ 11.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2021, the if-converted value of the 2025 Notes and 2026 Notes exceeded the principal amount by $ 332.2 million and $ 890.6 million, respectively.

As of December 31, 2021, the if-converted value of the 2027 Notes did not exceed the principal amount.

The sale price for conversion was satisfied as of December 31, 2021 for the 2025 Notes and the 2026 Notes, and as a result, the 2025 Notes and 2026 Notes will continue to be eligible for optional conversion during the first quarter of 2022.

The 2027 Notes were not eligible for conversion as of December 31, 2021.

As of December 31, 2022, the if-converted value of the Convertible Notes did not exceed the principal amount.

The sale price for conversion was not satisfied as of December 31, 2022 for the Convertible Notes, and as a result, the Convertible Notes will not be eligible for optional conversion during the first quarter of 2023.

No sinking fund is provided for the Convertible Notes, which means that we are not required to redeem or retire them periodically.

Capped Call Transactions

In connection with the pricing of the 2027 Notes, 2025 Notes, and 2026 Notes, we entered into the 2027 Capped Call Transactions, the 2025 Capped Call Transactions, and the 2026 Capped Call Transactions (collectively, the “Capped Call Transactions”), respectively, with certain counterparties at a net cost of $ 86.8 million, $ 100.0 million, and $ 102.1 million, respectively.

The cap price of the 2027 Capped Call Transactions, the 2025 Capped Call Transactions, and the 2026 Capped Call Transaction is initially $ 121.02 , $ 32.12 , and $ 32.58 per share of our Class A common stock, respectively.

In connection with the pricing of the 2025 Notes, the 2026 Notes, the 2027 Notes, and the 2028 Notes, we entered into the 2025 Capped Call Transactions, the 2026 Capped Call Transactions, the 2027 Capped Call Transactions, and the 2028 Capped Call Transactions (collectively, the “Capped Call Transactions”), respectively, with certain counterparties at a net cost of $ 100.0 million, $ 102.1 million, $ 86.8 million, and $ 177.0 million, respectively.

The cap price of the 2025 Capped Call Transactions, the 2026 Capped Call Transactions, the 2027 Capped Call Transactions, and the 2028 Capped Call Transactions is initially $ 32.12 , $ 32.58 , $ 121.02 , and $ 93.90 per share of our Class A common stock, respectively.

All are subject to certain adjustments under the terms of the Capped Call Transactions.

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The Capped Call Transactions will not be remeasured as long as they continue to meet the conditions for equity classification.

As of December 31, 2021, the 2025 Capped Call Transactions and the 2026 Capped Call Transactions were in-the-money.

Exchange Transactions

Inducement expense recorded for the year ended December 31, 2021 was $ 41.5 million.

As of December 31, 2022, the Capped Call Transactions were out-of-the-money.

Credit Facility

In July 2016, we entered into a senior unsecured revolving credit facility (“Credit Facility”) with certain lenders, some of which are affiliated with certain members of the underwriting syndicate for our Convertible Notes offerings, to fund working capital and general corporate-purpose expenditures.

Since July 2016, we have amended the Credit Facility multiple times.

As of December 31, 2021, the Credit Facility has a maximum borrowing amount of $ 1.05 billion, bears interest at LIBO plus 0.75 %, as well as an annual commitment fee of 0.10 % on the daily undrawn balance of the facility and terminates in August 2023 .

As of December 31, 2021, no amounts were outstanding under the Credit Facility.

As of December 31, 2021, we had $ 23.9 million in the form of outstanding standby letters of credit.

In May 2022, we entered into a five-year senior unsecured revolving credit facility (“Credit Facility”) with certain lenders that allows us to borrow up to $ 1.05 billion to fund working capital and general corporate-purpose expenditures.

The prior revolving credit facility entered into in July 2016 (as amended) was terminated concurrently with the entry into the Credit Facility.

The prior credit facility was never drawn upon and, as of December 31, 2021, there were no amounts outstanding on the prior credit facility.

On the Credit Facility, loans bear interest, at our option, at a rate equal to (i) a term secured overnight financing rate (“SOFR”) plus 0.75 % or the base rate, if selected by us, for loans made in U.S.

dollars, (ii) the Sterling overnight index average plus 0.7826 % for loans made in Sterling, and (iii) foreign indices as stated in the credit agreement plus 0.75 % for loans made in other permitted foreign currencies.

The base rate is defined as the greatest of (i) the Wall Street Journal prime rate, (ii) the greater of the (a) federal funds rate and (b) the overnight bank funding rate,

plus 0.50 %, and (iii) the applicable SOFR for a period of one month (but not less than zero) plus 1.00 .

The Credit Facility also contains an annual commitment fee of 0.10 % on the daily undrawn balance of the facility.

As of December 31, 2022, we had $ 40.1 million in the form of outstanding standby letters of credit, with no amounts outstanding under the Credit Facility.

Commitments and Contingencies

We have non-cancelable contractual agreements primarily related to the hosting of our data storage processing, storage, and other computing services, as well as lease, content and developer partner, and other commitments.

We had $ 2.7 billion in commitments as of December 31, 2021, primarily due within three years.

We have non-cancelable contractual agreements primarily related to the hosting of our data processing, storage, and other computing services, as well as lease, content and developer partner, and other commitments.

We had $ 3.7 billion in commitments as of December 31, 2022, primarily due within 3 years.

For additional discussion on leases, see Note 9 to our consolidated financial statements.

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Pending Matters

Beginning in May 2017, we, certain of our officers and directors, and the underwriters for our IPO were named as defendants in securities class actions purportedly brought on behalf of purchasers of our Class A common stock, alleging violation of securities laws that arose following our IPO.

On January 17, 2020, we reached a preliminary agreement to settle the securities class actions.

The preliminary settlement agreement was signed in January 2020 and provided for a resolution of all of the pending claims in the securities class actions for $ 187.5 million.

In the fourth quarter of 2019, we recorded legal expense, net of amounts directly covered by insurance, of $ 100.0 million for the expected settlement of the stockholder actions since we concluded the loss was probable and estimable.

The amount was recorded in general and administrative expense in our consolidated statements of operations.

The settlement agreement was preliminarily approved by the federal court in April 2020 and by the state court in November 2020.

The settlement amount was paid into escrow in December 2020.

In March 2021, the federal court granted final approval of the settlement and entered judgment while the state court granted final approval of the settlement in March 2021 and entered judgment in April 2021.

The settlement amount is being released from escrow as determined by the plaintiffs’ lawyers and the settlement administrator.

In November 2021, we and certain of our officers and directors, were named as defendants in a securities class actions purportedly brought on behalf of purchasers of our Class A common stock, alleging that we and certain of our officers made false or misleading statements and omissions concerning the impact that Apple’s App Tracking Transparency framework would have on our business.

Management believes these lawsuits are without merit and intend s to vigorously defend them.

Management believes these lawsuits are without merit and intends to vigorously defend them.

Based on the preliminary nature of the proceedings in this case, the outcome of this matter remains uncertain.

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We believe the fair value of these liabilities is immaterial and accordingly have no liabilities recorded for these agreements at December 31, 2022.

We have various non-cancelable lease agreements for certain of our offices with original lease periods expiring between 2022 and 2042.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise that option.

Certain of the arrangements have free rent periods or escalating rent payment provisions.

Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets.

We recognize rent expense on a straight-line basis over the lease term.

The components of lease cost were as follows:

Year Ended December 31,

2022 2021 2020

(in thousands)

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Total net lease costs $ 108,420 $ 67,353 $ 57,635

Lease Term and Discount Rate

The weighted-average remaining lease term (in years) and discount rate related to the operating leases were as follows:

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Weighted-average discount rate 5.0 % 5.0 %

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments.

Maturity of Lease Liabilities

The present value of our operating lease liabilities as of December 31, 2021 were as follows:

The maturities of our operating lease liabilities as of December 31, 2022, were as follows:

Operating Leases

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Year ending December 31,

2023 $ 66,698

Thereafter 166,883

Total lease payments $ 523,105

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Present value of lease liabilities $ 432,756

As of December 31, 2021, we have additional operating leases for facilities that have not yet commenced with lease obligations of $ 104.4 million.

These operating leases will commence in 2022 with lease terms of greater than one year to ten years .

This table does not include lease payments that were not fixed at commencement or modification.

Other Information

Cash payments included in the measurement of our o perating lease liabilities were $ 73.9 million and $ 73.3 million for the years ended December 31, 2021 and 2020, respectively.

Lease liabilities arising from obtaining operating lease right-of-use assets were $ 99.3 million and $ 36.2 million for the years ended December 31, 2021 and 2020, respectively .

As of December 31, 2022, we had additional operating leases that have not yet commenced for facilities with lease obligations of $ 31.2 million.

These operating leases will commence in 2023 with lease terms of approximately 7 years to 11 years.

Cash payments included in the measurement of our o perating lease liabilities were $ 94.9 million, $ 73.9 million, and $ 73.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Lease liabilities arising from obtaining operating lease right-of-use assets were $ 147.4 million, $ 99.3 million, and $ 36.2 million for the years ended December 31, 2022, 2021, and 2020, respectively .

Strategic Investments

We hold strategic investments in privately held companies with a carrying value of $ 262.7 million and $ 169.5 million as of December 31, 2021 and December 31, 2020, respectively, which consist primarily of equity securities, and to a lesser extent, debt securities.

We hold strategic investments primarily in privately held companies with a carrying value of $ 252.3 million and $ 262.7 million as of December 31, 2022 and December 31, 2021, respectively, which consist primarily of equity securities, and to a lesser extent, debt securities.

These strategic investments are primarily recorded at fair value on a non-recurring basis.

The estimation of fair value for these privately held strategic investments requires the use of significant unobservable inputs, such as the issuance of new equity by the company, and as a result, we deem these assets as Level 3 financial instruments within the fair value measurement framework.

We recognized unrealized gains on investments in privately held companies of $ 145.0 million and $ 42.4 million for the year ended December 31, 2021 and 2020, respectively and realized gains of $ 27.8 million for the year ended December 31, 2021.

The components of gains and losses on strategic investments were as follows:

Year Ended December 31,

2022 2021 2020

(in thousands)

Unrealized gains (losses) on investments in privately held companies, net $ 19,946 $ 145,010 $ 42,363

Realized gains (losses) on investments in privately held companies, net 45,935 27,820 —

Unrealized and realized gains on all strategic investments are included within other income (expense), net on the consolidated statements of operations and included as an adjustment to reconcile net loss to net cash provided by (used in) operating activities in our consolidated statements of cash flows.

Strategic investments are included within other assets on the consolidated balance sheets.

In the fourth quarter of 2021, we reclassified a publicly traded strategic investment to marketable securities.

See Note 11 for further information.

All strategic investments are reviewed periodically for impairment.

Impairment expense recorded for the year ended December 31, 2020 was $ 29.5 million.

Impairment expense for the year ended December 31, 2021 was not material .

Impairment expense was not material for the years ended December 31, 2022 and 2021, respectively.

Impairment expense for the year ended December 31, 2020 was $ 29.5 million.

Fair Value Measurements

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December 31, 2022

Amortized Cost

Total Estimated

Amortized Cost Gross

Losses Total Estimated

(in thousands)

Cash $ 1,325,946 $ — $ — $ 1,325,946

Level 1 securities:

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Publicly traded equity securities (1)

102,189 20,859 ( 31,548 ) 91,500

Level 2 securities:

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Certificates of deposit 157,965 — ( 1 ) 157,964

In the third quarter of 2021, we reclassified a strategic investment from Level 3 to Level 1 at its fair value using the beginning-of-period approach, following the commencement of public market trading of the investment during the period (which was subject to short-term lock-up restrictions as of December 31, 2021).

Total $ 3,992,124 $ 21,019 $ ( 42,683 ) $ 3,970,460

(1) During the year ended December 31, 2022, we reclassified strategic investments from Level 3 to Level 1 at their fair value using the beginning-of-period approach, following the commencement of public market trading of the investments during the quarter (a portion of which was subject to short-term lock-up restrictions as of December 31, 2022).

December 31, 2021

Amortized Cost

Total Estimated

Amortized Cost Gross

Losses Total Estimated

(in thousands)

Cash $ 1,966,966 $ — $ — $ 1,966,966

Level 1 securities:

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government agency securities 77,409 1 ( 8 ) 77,402

Publicly traded equity securities 71,139 122,064 — 193,203

Level 2 securities:

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Certificates of deposit 80,431 — — 80,431

We held an investment in a publicly traded company with a carrying value of $ 193.2 million as of December 31, 2021, recorded as a marketable security.

We recorded $ 122.1 million in unrealized gains related to this investment.

Unrealized gains are included within other income (expense), net on the consolidated statements of operations.

Gross unrealized losses were not material as of December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, we considered any decreases in fair value on our marketable securities to be driven by factors other than credit risk, including market risk.

Total $ 3,572,489 $ 122,066 $ ( 1,670 ) $ 3,692,885

We held investments in publicly traded companies with an aggregate carrying value of $ 91.5 million and $ 193.2 million as of December 31, 2022 and 2021, respectively, primarily recorded as marketable securities.

We recorded total losses of $ 101.3 million and unrealized gains of $ 122.1 million related to these investments for the years ended December 31, 2022 and 2021, respectively, within other income (expense), net on our consolidated statements of operations.

Unrealized losses related to publicly traded equity securities still held as of December 31, 2022 were $ 79.2 million for the year ended December 31, 2022.

Gross unrealized losses on marketable debt securities were not material as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, we considered any decreases in fair value on our marketable debt securities to be driven by factors other than credit risk, including market risk.

As of December 31, 2022, $ 357.5 million of our total $ 2.5 billion in marketable debt securities have contractual maturities between one and five years .

All other marketable debt securities have contractual maturities less than one year.

W e carry the Convertible Notes at face value less the unamortized discount and issuance costs on our consolidated balance sheets and present that fair value for disclosure purposes only.

As of December 31, 2021, the fair value of the 2027 Notes, the 2025 Notes and the 2026 Notes was $ 1.1 billion, $ 650.1 million and $ 1.9 billion, respectively.

We carry the Convertible Notes at face value less the unamortized debt issuance costs on our consolidated balance sheets and present the fair value for disclosure purposes only.

As of December 31, 2022, the fair value of the 2025 Notes, the 2026 Notes, the 2027 Notes, and the 2028 Notes was $ 257.0 million, $ 711.9 million, $ 796.2 million, and $ 1.0 billion, respectively.

As of December 31, 2021, the fair value of the 2025 Notes, the 2026 Notes, and the 2027 Notes was $ 650.1 million, $ 1.9 billion, and $ 1.1 billion, respectively.

The estimated fair value of the Convertible Notes, which are classified as Level 2 financial instruments, was determined based on the estimated or actual bid prices of the Convertible Notes in an over-the-counter market on the last business day of the period.

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Year Ended December 31,

2022 2021 2020

(in thousands)

$ ( 538,311 ) $ 364,989 $ ( 320,757 )

( 862,386 ) ( 839,360 ) ( 605,428 )

Loss before income taxes $ ( 1,400,697 ) $ ( 474,371 ) $ ( 926,185 )

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Year Ended December 31,

2022 2021 2020

(in thousands)

Total current income tax expense

Total deferred income tax benefit

Income tax expense

Federal $ — $ — $ —

State 10,704 919 1,035

Foreign 22,404 22,078 23,945

Total current income tax expense (benefit) 33,108 22,997 24,980

Federal 1,212 ( 6,295 ) ( 1,720 )

State 837 ( 445 ) ( 414 )

Foreign ( 6,201 ) ( 2,673 ) ( 4,192 )

Total deferred income tax expense (benefit) ( 4,152 ) ( 9,413 ) ( 6,326 )

Income tax expense (benefit) $ 28,956 $ 13,584 $ 18,654

The following is a reconciliation of the statutory federal income tax rate to our effective tax rate:

Year Ended December 31,

2022 2021 2020

Tax benefit (expense) computed at the federal statutory rate 21.0 % 21.0 % 21.0 %

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Intangible assets 177,762 183,441

IRC 174 Capitalized R&D (1)

Stock-based compensation 102,364 61,885

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Lease liability 98,668 93,312

Other 20,154 29,572

Total deferred tax assets $ 4,178,196 $ 3,745,453

Deferred tax liabilities:

Convertible debt

Right-of-use asset ( 75,212 ) ( 75,782 )

Investments ( 30,962 ) ( 66,792 )

Other ( 17,309 ) ( 2,549 )

Total deferred tax liabilities $ ( 123,483 ) $ ( 145,123 )

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Net deferred taxes $ ( 6,230 ) $ ( 10,912 )

For the year ended December 31, 2020 was originally included in “Other Liabilities” in our December 31, 2020 Annual Report as it was not significant.

The increase in the current year is primarily due to unrealized gains on our marketable securities and strategic investments.

Income tax expense was $ 13.6 million for the year ended December 31, 2021, compared to a tax expense of $ 18.7 million for the year ended December 31, 2020.

(1) An offsetting reduction is included in loss carryforwards as of December 31, 2022 as U.S.

federal and state loss carryforwards were utilized to offset the increase in federal and state tax liability resulting from capitalization under Section 174 of the Internal Revenue Code.

On July 22, 2020 the U.K.

Finance Bill 2020 was enacted, increasing the U.K.

Finance Act 2020 was enacted, increasing the U.K.

tax rate from 17 % to 19 % effective April 1, 2020.

On June 10, 2021, the U.K.

Finance Act 2021 was enacted to further increase the tax rate from 19% to 25 % effective April 1, 2023.

Finance Act 2021 was enacted, further increasing the U.K.

tax rate from 19 % to 25 % effective April 1, 2023.

These changes to the U.K.

tax rate resulted in an increase to our U.K.

net deferred tax assets (before valuation allowance) of $ 188.9 million and $ 39.7 million for the periods ending December 31, 2021 and 2020, respectively, both of which were fully offset by an increase in our valuation allowance.

Prior to January 1, 2021, the separation of the Convertible Notes into liability and equity components resulted in a temporary difference for which a net deferred tax liability, with an offsetting valuation allowance, was recognized in additional paid-in capital.

Upon the adoption of ASU 2020-06 on January 1, 2021, the existing temporary difference on the Convertible Notes was eliminated, which resulted in the derecognition of a $ 138.8 million deferred tax liability.

Both the $ 138.8 million reduction to deferred tax liability and the offsetting increase to our valuation allowance were recorded to additional paid-in capital and accumulated deficit under the modified retrospective approach.

net deferred tax assets (before valuation allowance) of $ 188.9 million and $ 39.7 million for the period ending December 31, 2021 and 2020, respectively, both of which were fully offset by an increase in our valuation allowance.

As of December 31, 2022, we had an immaterial amount of unremitted earnings related to certain foreign subsidiaries.

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The remaining $ 6.2 billion can be carried forward indefinitely but is subject to an 80 % taxable income limitation.

The pre- 2018 federal and certain state net operating loss carryforwards will begin to expire in 2031 and 2025 , respectively.

The pre-2018 federal and certain significant state net operating loss carryforwards will begin to expire in 2037 and 2031, respectively.

As of December 31, 2022, we had $ 3.6 billion of U.K.

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We had valuation allowances against net deferred tax assets of $ 4.1 billion and $ 3.6 billion as of December 31, 2022 and 2021, respectively.

In 202 1 , the increase in the valuation allowance was primarily attributable to a net increase in our deferred tax assets resulting from the loss from operations, the U.K.

tax rate increase, windfall tax benefits from share-based compensation, and the recognition of valuation allowance in additional paid-in-capital related to the adoption of ASU 2020-06 pertaining to the Convertible Notes .

In 2022, the increase in the valuation allowance was primarily attributable to a net increase in our deferred tax assets resulting from the loss from operations.

Uncertain Tax Positions

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Substantially all of the unrecognized tax benefit was recorded as a reduction in our gross deferred tax assets, offset by a corresponding reduction in our valuation allowance.

We have net unrecognized tax benefits of $ 15.9 million and $ 11.8 million that is included in other liabilities on our consolidated balance sheet as of December 31, 20 21 and 20 20 , respectively.

Assuming there continues to be a valuation allowance against deferred tax assets in future periods when gross unrecognized tax benefits are realized, this would result in a tax benefit of $ 15.9 million within our provision of income taxes at such time.

We have net unrecognized tax benefits of $ 21.7 million and $ 15.9 million included in other liabilities on our consolidated balance sheet as of December 31, 2022 and 2021, respectively.

Assuming there continues to be a valuation allowance against deferred tax assets in future periods when gross unrecognized tax benefits are realized, this would result in a tax benefit of $ 21.7 million within our income tax provision at such time.

Our policy is to recognize interest and penalties associated with tax matters as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our consolidated balance sheet.

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We are currently under examination by the U.S.

Internal Revenue Service for the tax year ending December 31, 2018.

Internal Revenue Service for the tax year ending December 31, 2018, and by the U.K.

tax authorities for the tax year ending December 31, 2020.

Accumulated Other Comprehensive Income (Loss)

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Changes in Accumulated Other Comprehensive Income (Loss) by Component

Foreign Currency

Securities Foreign Currency

Translation Total

(in thousands)

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Amounts reclassified from AOCI (1)

( 18 ) — ( 18 )

Net current period OCI ( 9,307 ) ( 10,188 ) ( 19,495 )

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Computer hardware and software $ 62,945 $ 51,984

Buildings 21,486 —

Leasehold improvements 225,647 203,124

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Construction in progress 80,267 44,304

Total 490,370 377,904

accumulated depreciation and amortization ( 218,593 ) ( 175,260 )

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Depreciation and amortization expense on property and equipment was $ 69.9 million, $ 55.9 million, and $ 53.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Noncash property and equipment additions in accounts payable, accrued expenses and other current liabilities were $ 28.0 million, $ 14.2 million, and $ 7.0 million as of December 31, 2022, 2021, and 2020, respectively.

The following table lists property and equipment, net by geographic area:

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United States $ 214,857 $ 174,826

United Kingdom 36,774 15,843

Rest of world (1)

20,146 11,975

Total property and equipment, net $ 271,777 $ 202,644

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Deferred revenue 50,782 44,473

Other 108,128 97,538

Total accrued expenses and other current liabilities $ 987,340 $ 674,108

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Acquisition liability $ 66,020 $ 280,194

Other 38,430 35,562

Total other liabilities $ 104,450 $ 315,756

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Eligible employees may contribute up to 100 % of their eligible compensation, but are limited to the maximum annual dollar amount allowable under the Code.

We match 100 % of each participant’s contribution up to a maximum of 3 % of the participant’s eligible compensation paid during the period, and we match 50 % of each participant’s contribution between 3 % and 5 % of the participant’s eligible compensation paid during the period.

We match 100 % of each participant’s contribution up to a maximum of 3 % of the participant’s eligible compensation paid during the period, and also match 50 % of each participant’s contribution between 3 % and 5 % of the participant’s eligible compensation paid during the period.

During the years ended December 31, 2022, 2021, and 2020, we recognized expense of $ 33.6 million, $ 25.0 million, and $ 18.4 million, respectively, related to matching contributions.

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The value of these arrangements is not material to our consolidated financial statements for the current period or for the term of the agreement.

Restructuring

In the third quarter of 2022, we initiated a strategic reprioritization plan, which included a reduction of our global employee headcount by approximately 20 %.

We substantially completed the reprioritization plan in the fourth quarter of 2022.

The following table summarizes the restructuring charges (benefits) in our consolidated statements of operations for the year ended December 31, 2022:

Severance and Related Charges (1)

Stock-Based Compensation Expense (Benefit) Lease Exit and Related Charges (2)

(in thousands)

Cost of revenue $ 2,291 $ 709 $ — $ 17,585 $ 20,585

Research and development 46,994 29,188 — 2,733 78,915

Sales and marketing 30,565 ( 504 ) — 730 30,791

General and administrative 17,211 5,111 31,227 5,109 58,658

Total $ 97,061 $ 34,504 $ 31,227 $ 26,157 $ 188,949

(1) Severance and related charges include cash severance expense and other termination benefits.

The majority of cash paid for restructuring in 2022 was related to severance and benefits.

(2) Lease exit and related charges are non-cash and presented in other cash flows from operating activities in our consolidated statements of cash flows.

(3) Other includes impairment charges, contract termination charges, and intangible asset amortization.

The liabilities related to the reprioritization plan were immaterial as of December 31, 2022.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data