What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-07 compared with 2023-02-01 · 65 added, 89 removed, 393 unchanged (28% of the section changed)

11 unchanged sentences

Financial Results

• Revenue increased 12% year-over-year to $4.6 billion in 2022.

• Revenue was $4.6 billion in 2023, compared to $4.6 billion in 2022.

• Total costs and expenses were $6.0 billion in 2023, compared to $6.0 billion in 2022.

• Net loss was $1.4 billion in 2022, compared to $488.0 million in 2021 .

• Diluted net loss per share was $(0.89) in 2022, compared to $(0.31) in 2021.

• Net loss was $1.3 billion in 2023, compared to $1.4 billion in 2022 .

• Adjusted EBITDA was $161.6 million in 2023, compared to $377.6 million in 2022.

• Diluted net loss per share was $(0.82) in 2023, compared to $(0.89) in 2022.

• Cash provided by operating activities was $246.5 million in 2023, compared to $184.6 million in 2022.

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• Cash, cash equivalents, and marketable securities were $3.5 billion as of December 31, 2023.

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

Total restructuring charges included in our consolidated statements of operations for the year ended December 31, 2022 were $188.9 million, consisting primarily of severance and related charges, stock-based compensation expense, lease exit and related charges, impairment charges, contract termination charges, and intangible asset amortization.

Business and Macroeconomic Conditions

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However, the impact of this strategic reprioritization is difficult to predict.

Macroeconomic factors such as labor shortages, supply chain disruptions, inflation, changes in interest and foreign currency exchange rates, and other risks and uncertainties, including the COVID-19 pandemic and the conflict in Ukraine, continue to cause logistical challenges, increased input costs, and inventory constraints for our advertisers, which in turn may cause our advertisers to halt or decrease advertising spending on our platform.

Such macroeconomic factors may also

negatively impact, in the short-term or long-term, the global economy, advertising ecosystem, our customers and their budgets with us, user engagement, other user metrics, and our business, financial condition, and results of operations.

Macroeconomic factors such as labor shortages and disruptions, supply chain disruptions, inflation, changes in interest and foreign currency exchange rates, banking instability, and other risks and uncertainties continue to cause logistical challenges, increased input costs, and inventory constraints for our advertisers, which in turn may cause our advertisers to halt or decrease advertising spending on our platform.

Such macroeconomic factors may also negatively impact, in the short-term or long-term, the global economy, advertising ecosystem, our customers and their budgets with us, user engagement, other user metrics, and our business, financial condition, and results of operations.

In addition, competition for advertising dollars has increased and demand growth on our advertising platform has slowed.

We expect to continue to experience increased competition, which may result in reduced advertising demand, and could adversely affect our revenue growth, pricing, business, financial condition, and results of operations.

Demand has also been disrupted by recent changes we made to our advertising platform, and, in the future, we may

continue to experience adverse impacts to our revenue growth as a result of these changes.

Our revenue, particularly in North America, has further been impacted by platform policy changes and restrictions that affected our targeting, measurement, and optimization capabilities, and in turn our ability to measure the effectiveness of advertisements on our services.

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These and other risks and uncertainties are further described in the sections titled “Competition” in Part I, Item 1.

Business, and “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

Business, and “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K.

Trends in User Metrics

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20% 18% 18% 19% 17% 15% 14% 12% 10%

(1) Numbers may not foot due to rounding.

North America (2)

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41 % 36 % 35 % 34 % 31 % 27 % 25 % 21 % 19 %

In the year ended December 31, 2022, we recorded revenue of $4.6 billion compared to revenue of $4.1 billion for the year ended December 31, 2021, an increase of 12% year-over-year.

In the year ended December 31, 2023, we recorded revenue of $4.6 billion compared to $4.6 billion for the year ended December 31, 2022.

We monetize our business primarily through advertising.

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We generate substantially all of our revenue through the sale of our advertising products, which primarily include Snap Ads and AR Ads, referred to as advertising revenue.

Snap Ads may be subject to revenue sharing arrangements between us and the media partner.

We also generate revenue from sales of hardware products.

This revenue is reported net of allowances for returns.

Snap Ads may be subject to revenue sharing arrangements between us and the content partner.

We also generate revenue from subscriptions and sales of hardware products, net of allowances for returns.

Cost of Revenue

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payroll and other tax expense related to stock-based compensation;

and certain other non-cash or non-recurring items impacting net income (loss) from time to time.

We consider the exclusion of certain non-cash and non-recurring expenses in calculating Adjusted EBITDA to provide a useful measure for period-to-period comparisons of our business and for investors and others to evaluate our operating results in the same manner as does our management.

and certain other items impacting net income (loss) from time to time.

We consider the exclusion of these items in calculating Adjusted EBITDA to provide a useful measure for period-to-period comparisons of our business and for investors and others to evaluate our operating results in the same manner as does our management.

See “Non-GAAP Financial Measures” for additional information and a reconciliation of net loss to Adjusted EBITDA.

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Total $ 168,441 $ 202,173 $ 119,141

(3) See “Non-GAAP Financial Measures” of this Annual Report on Form 10-K for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.

(3) See “Non-GAAP Financial Measures” in this Annual Report on Form 10-K for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.

The following table sets forth the components of our consolidated statements of operations data for each of the periods presented as a percentage of revenue:

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Revenue for the year ended December 31, 2023 increased $4.3 million compared to the same period in 2022.

Revenue increased due to a combination of growth in advertisers and auction-based advertising demand and optimization efficiencies.

In 2023, subscription revenue increased, partially offset by a reduction in advertiser spend and auction-based advertising demand.

Cost of Revenue

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Cost of revenue for the year ended December 31, 2023 increased $298.8 million compared to the same period in 2022.

The increase in cost of revenue was primarily driven by the growth in revenue share due to the overall increase in revenue and higher mix of revenue subject to revenue share, increased infrastructure costs attributable to DAU growth, and

$20.6 million relating to restructuring charges.

The increase was offset by infrastructure cost efficiencies and lower content costs.

The increase was primarily driven by increased infrastructure costs attributable to DAU growth and investments in machine learning and AI, partially offset by lower content and advertising partner costs and $20.6 million relating to restructuring charges in the prior period.

Research and Development Expenses

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2023 compared to 2022

Research and development expenses for the year ended December 31, 2022 increased $544.3 million compared to the same period in 2021.

The increase was primarily driven by higher personnel expenses, including increased cash- and stock-based compensation expenses, and $78.9 million relating to restructuring charges.

Research and development expenses for the year ended December 31, 2023 decreased $198.9 million compared to the same period in 2022.

The decrease was primarily driven by lower cash- and stock-based compensation expenses due to decreased headcount compared to the prior period and $78.9 million relating to restructuring charges in the prior period.

Sales and Marketing Expenses

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Sales and marketing expenses for the year ended December 31, 2023 increased $3.3 million compared to the same period in 2022.

The increase was primarily driven by higher personnel expenses, including increased cash- and stock-based compensation expense, marketing investments, and $30.8 million relating to restructuring charges .

The increase was also due to higher amortization expense, which resulted from our revision of the useful lives of certain customer relationships and trademarks .

The increase was primarily driven by higher stock-based compensation expenses and increased marketing investments , partially offset by lower cash-based compensation expenses.

The prior period included higher amortization expense from our revision of the useful lives of certain customer relationships and trademarks and $30.8 million relating to restructuring charges .

General and Administrative Expenses

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2023 compared to 2022

General and administrative expenses for the year ended December 31, 2022 increased $242.6 million compared to the same period in 2021.

The increase was primarily driven by higher personnel expenses, higher other administrative expenses, and $58.7 million relating to restructuring charges.

General and administrative expenses for the year ended December 31, 2023 decreased $95.8 million compared to the same period in 2022.

The decrease was primarily driven by lower personnel expenses, including cash- and stock-based compensation expenses compared to the prior period, and $58.7 million relating to restructuring charges in the prior period.

Interest Income

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2023 compared to 2022

Interest income for the year ended December 31, 2022 increased $53.4 million compared to the same period in 2021.

The increase was primarily a result of higher interest rates on U.S.

government-backed securities and a higher overall invested cash balance.

Interest income for the year ended December 31, 2023 increased $109.8 million compared to the same period in 2022, primarily due to higher interest rates on U.S.

government-backed securities, offset by a lower overall invested cash balance.

Interest Expense

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2023 compared to 2022

Interest expense for the year ended December 31, 2022 increased $3.8 million, compared to the same period in 2021 primarily due to increases in amortization of debt issuance costs.

Interest expense for the year ended December 31, 2023 increased $0.6 million compared to the same period in 2022.

Interest expense for all periods consists primarily of amortization of debt issuance costs and contractual interest expense.

Other Income (Expense), Net

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2023 compared to 2022

Other expense, net for the year ended December 31, 2022 was $42.5 million, compared to other income, net of $240.2 million for the same period in 2021, an increase in other expense, net of $282.7 million.

Other expense, net for the current year was primarily a result of $101.3 million total losses on publicly traded securities primarily classified as marketable securities, offset by $19.9 million unrealized gains and $45.9 million realized gains on strategic investments.

Other income, net in the comparable period in 2021 was primarily a result of $207.7 million of unrealized gains and $27.8 million of realized gains on strategic investments, an d $59.4 million of unrealized gains on publicly traded securities reclassified from strategic investments to marketable securities in the fourth quarter, partially offset by an induced conversion expense related to the Convertible Notes of $41.5 million.

Other expense, net for the year ended December 31, 2023 was $42.4 million, compared to other expense, net of $42.5 million for the same period in 2022 .

Other expense, net for the current year was primarily a result of $28.4 million in unrealized losses on strategic investments and $6.7 million in total losses on publicly traded securities classified as marketable securities.

Other expense, net in the comparable period in 2022 was primarily a result of $101.3 million in total losses on publicly traded securities primarily classified as marketable securities, offset by $19.9 million in unrealized gains and $45.9 million in realized gains on strategic investments.

Income Tax Benefit (Expense)

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Income tax expense was $28.1 million for the year ended December 31, 2023 , compared to $29.0 million for the same period in 2022 .

The increase was primarily attributable to the partial valuation allowance releases on our deferred tax assets in the prior period due to deferred tax liabilities acquired in business acquisitions, as well as the capitalization of research and development expenditures under Section 174 of the Internal Revenue Code.

Beginning in 2022, the Tax Cuts and Jobs Act eliminates the option to currently deduct research and development expenditures in the period incurred and requires taxpayers to capitalize and amortize such expenditures over five or fifteen years, as applicable, pursuant to Section 174 of the Internal Revenue Code.

Although this tax law change did not result in any U.S.

federal tax liability due to the use of existing U.S.

federal net operating loss carryforwards, it did result in incremental state tax liability and expense due to limitations on the use of existing state net operating loss carryforwards.

Our effective tax rate differs from the U.S.

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Adjusted EBITDA for the year ended December 31, 2023 was $161.6 million, compared to $377.6 million for the same period in 2022.

The decrease in Adjusted EBITDA was attributable to increased cost of revenue and overall operating expenses, partially offset by increased revenues.

The decrease in Adjusted EBITDA was attributable to increased cost of revenue and sales and marketing expenses, partially offset by decreased research and development and general and administrative expenses.

For a discussion of the limitations associated with using Adjusted EBITDA rather than GAAP measures and a reconciliation of this measure to net loss, see “Non-GAAP Financial Measures.”

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In October 2023, 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.

During the fourth quarter of 2023, we repurchased 18.4 million shares of our Class A common stock for an aggregate of $189.4 million, including costs associated with the repurchases.

As of December 31, 2023, the remaining availability under the stock repurchase authorization was $310.8 million.

In May 2022, we entered into a five-year senior unsecured revolving credit facility, or 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, or 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.

Loans bear interest, at our option, at a rate equal to (i) a term secured overnight financing rate, or 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, or (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.

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As of December 31, 2023, we had $49.6 million in the form of outstanding standby letters of credit, with no amounts outstanding under the Credit Facility.

In February 2022, we entered into a purchase agreement for the sale of an aggregate of $1.5 billion principal amount of convertible senior notes due in 2028, the full amount of which is outstanding as of December 31, 2022.

In February 2022, we entered into a purchase agreement for the sale of an aggregate of $1.5 billion principal amount of convertible senior notes due in 2028.

The net proceeds from the issuance of the 2028 Notes were $1.31 billion, net of debt issuance costs and the 2028 Capped Call Transactions discussed further in Note 7.

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The sale price requirement for conversion was not satisfied as of December 31, 2023 and as a result, the 2028 Notes will not be eligible for optional conversion during the first quarter of 2024.

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 full amount of which is outstanding as of December 31, 2022.

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 net proceeds from the issuance of the 2027 Notes were $1.05 billion, net of debt issuance costs and the 2027 Capped Call Transactions discussed further in Note 7.

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We believe our existing cash balance is sufficient to fund our ongoing working capital, investing, and financing requirements for at least the next 12 months.

Our future capital requirements will depend on many factors including our growth rate, headcount, sales and marketing activities, research and development efforts, the introduction of new features,

products, and acquisitions, and continued user engagement.

Our future capital requirements will depend on many factors including our growth rate, headcount, sales and marketing activities, research and development efforts, the introduction of new features, products, and acquisitions, and continued user engagement.

We continually evaluate opportunities to issue or repurchase equity or debt securities, obtain, retire, or restructure credit facilities or financing arrangements, or declare dividends for strategic reasons or to further strengthen our financial position.

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2023 compared to 2022

Net cash provided by operating activities was $184.6 million for the year ended December 31, 2022, compared to net cash provided by operating activities of $292.9 million for the year ended December 31, 2021, resulting primarily from our net loss, adjusted for non-cash items, including stock-based compensation expense of $1.4 billion, depreciation and amortization expense of $202.2 million, and losses on debt and equity securities, net of $36.8 million.

Net cash provided by operating activities for the year ended December 31, 2022 was also impacted by an increase in the accounts receivable balance of $119.8 million due to the timing of collections.

Net cash provided by operating activities was $246.5 million for the year ended December 31, 2023, compared to net cash provided by operating activities of $184.6 million for the year ended December 31, 2022, resulting primarily from our net loss, adjusted for non-cash items, including stock-based compensation expense of $1.3 billion and depreciation and amortization expense of $168.4 million.

Net cash provided by operating activities for the year ended December 31, 2023 was also driven by a $95.0 million increase in accounts payable and a $62.1 million increase in accrued expenses and other current liabilities, primarily due to the timing of payments, partially offset by a $98.1 million increase in accounts receivables due to the timing of collections and an increase in billings in the period.

Net Cash Provided by (Used in) Investing Activities

2023 compared to 2022

Net cash used in investing activities was $1.1 billion for the year ended December 31, 2022, compared to net cash provided by investing activities of $90.2 million for the year ended December 31, 2021.

Our investing activities in the year ended December 31, 2022 consisted of purchases of marketable securities of $3.5 billion, partially offset by maturities of marketable securities of $2.5 billion.

Our investing activities for the year ended December 31, 2021 consisted of cash provided by the sales and maturities of marketable securities of $2.9 billion, partially offset by the purchase of marketable securities of $2.4 billion and cash paid for acquisitions of $310.9 million.

Net cash provided by investing activities was $571.0 million for the year ended December 31, 2023, compared to net cash used in investing activities of $1.1 billion for the year ended December 31, 2022.

Our investing activities in the year ended December 31, 2023 consisted primarily of maturities of marketable securities of $2.4 billion and sales of marketable securities of $459.5 million, partially offset by purchases of marketable securities of $2.0 billion and purchases of property and equipment of $211.7 million.

Our investing activities for the year ended December 31, 2022 consisted of purchases of marketable securities of $3.5 billion, partially offset by maturities of marketable securities of $2.5 billion.

Net Cash Provided by (Used in) Financing Activities

2023 compared to 2022

Net cash provided by financing activities was $306.7 million for the year ended December 31, 2022, compared to net cash provided by financing activities of $1.1 billion for the year ended December 31, 2022 and 2021, respectively.

Our financing activities for the year ended December 31, 2022 consisted primarily of net proceeds of $1.5 billion from the issuance of the 2028 Notes, offset by the purchase of the 2028 Capped Call Transactions of $177.0 million and repurchases of our Class A common stock for an aggregate of $1.0 billion, representing the entire amount approved by our board of directors and including costs associated with the repurchases.

Our financing activities for the year ended December 31,

2021 consisted primarily of net proceeds of $1.1 billion from the issuance of the 2027 Notes, offset by the purchase of the 2027 Capped Call Transactions of $86.8 million.

Net cash provided by (used in) financing activities in all periods presented includes proceeds from the exercise of stock options.

Net cash used in financing activities was $458.8 million for the year ended December 31, 2023, compared to net cash provided by financing activities of $306.7 million for the year ended December 31, 2022.

Our financing activities for the year ended December 31, 2023 consisted primarily of $189.4 million of repurchases of our Class A common stock and $270.4 million of deferred payments for acquisitions completed in prior periods.

Free Cash Flow

2023 compared to 2022

Free Cash Flow was $55.3 million for the year ended December 31, 2022 and was composed of net cash provided by operating activities, resulting primarily from net loss, adjusted for non-cash items and changes in working capital.

Free Cash Flow also included purchases of property and equipment of $129.3 million for the year ended December 31, 2022.

Free Cash Flow was $223.0 million for the year ended December 31, 2021 and was composed of net cash provided by operating activities, resulting primarily from net loss, adjusted for non-cash items and changes in working capital.

Free Cash Flow also included purchases of property and equipment of $69.9 million for the year ended December 31, 2021.

Free Cash Flow was $34.8 million for the year ended December 31, 2023, compared to $55.3 million for the year ended December 31, 2022.

Free Cash Flow in all periods was composed of net cash provided by operating activities, resulting primarily from net loss, adjusted for non-cash items and changes in working capital.

Free Cash Flow also

included purchases of property and equipment of $211.7 million for the year ended December 31, 2023, compared to $129.3 million for the year ended December 31, 2022.

See “Non-GAAP Financial Measures.”

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payroll and other tax expense related to stock-based compensation;

and certain other non-cash or non-recurring items impacting net income (loss) from time to time.

and certain other items impacting net income (loss) from time to time.

We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

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Restructuring charges (1)

40,850 188,949 —

Adjusted EBITDA $ 161,577 $ 377,573 $ 616,686

(1) Restructuring charges in 2022 were composed primarily of severance and related charges of $97.1 million, stock-based compensation expense, lease exit and related charges, impairment charges, contract termination charges, and intangible asset amortization.

These charges are non-recurring and not reflective of underlying trends in our business.

(1) Restructuring charges in 2023 relating to the wind down of our AR Enterprise business were composed primarily of cash severance, stock-based compensation expense, and charges related to the revision of the useful lives and disposal of certain acquired intangible assets.

Additionally, we recognized an income tax benefit of $5.7 million relating to the wind down, which is included in the income tax (benefit) expense line item above.

Restructuring charges in 2022 relating to the strategic reprioritization plan were composed primarily of severance and related charges of $97.1 million, stock-based compensation expense, lease exit and related charges, impairment charges, contract termination charges, and intangible asset amortization.

These charges are not reflective of underlying trends in our business.

See Note 18 to our consolidated financial statements included in the “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information.

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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.

We had $3.0 billion in commitments, as of December 31, 2023, primarily due within three years.

For additional discussion on our leases, see Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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Revenue Recognition

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.

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

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Sales tax, including value added tax, is excluded from reported revenue.

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 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.

AR Ads include Sponsored Lenses, which allow users to interact with an advertiser’s brand by enabling branded augmented reality experiences.

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

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

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

Stock-Based Compensation

In the year ended December 31, 2022, total stock-based compensation expense recognized was $1.4 billion.

We have granted stock-based awards consisting primarily of restricted stock units, or RSUs, restricted stock awards, or RSAs, and to a lesser extent, stock options to employees, members of our board of directors, and non-employee advisors.

The substantial majority of our stock-based awards have been made to employees.

RSUs vest and RSAs lapse to a forfeiture condition 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.

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.

We account for stock-based employee compensation under the fair value recognition and measurement provisions, in accordance with applicable accounting standards, which requires stock-based awards to be measured based on the grant date fair value.

Stock-based compensation expense is recorded net of estimated forfeitures in our consolidated statements of operations.

Accordingly, stock-based compensation expense is only recorded for those potential stock-based awards that we expect to vest.

We estimate the forfeiture rate using historical forfeitures of equity awards and other expected changes in facts and circumstances, if any.

We will re-evaluate our estimated forfeiture rate if actual forfeitures differ from our initial estimates.

A modification of the terms of a stock-based award is treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value of the modification to the award.

Restricted Stock Units and Restricted Stock Awards

As of December 31, 2022, total unrecognized compensation cost related to outstanding RSUs and RSAs was $2.0 billion and is expected to be recognized over a weighted-average period of 1.8 years.

Business Combinations and Valuation of Goodwill and Other Acquired Intangible Assets

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During the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

On the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

On the conclusion of the measurement period or final determination of the

values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

Loss Contingencies

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Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different.

We make adjustments to these reserves when facts and

circumstances change, such as the closing of a tax audit or the refinement of an estimate.

We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.

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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 7. Management’s Discussion and Analysis