What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-07 compared with 2023-02-01 · 160 added, 197 removed, 905 unchanged (28% of the section changed)

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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, 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.

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, 2023, 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 6, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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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 served.

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, 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.

To test the Company’s recognition of revenue, our audit procedures included, among others, testing the completeness and accuracy of the underlying data within the Company’s billing systems by agreeing amounts recognized to contractual terms and conditions, and testing revenue recognized to accounts receivable and cash receipts.

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

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

The Company’s advertising revenue recognition process utilizes proprietary systems 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 systems, data sources, and controls that required significant audit effort.

How We Addressed the Matter in Our Audit With the support of our information technology professionals, we identified and tested the relevant systems 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.

To test the Company’s recognition of advertising revenue, our audit procedures included, among others, testing the completeness and accuracy of the underlying data within the Company’s billing systems by agreeing amounts recognized to contractual terms and conditions, and testing revenue recognized to accounts receivable and cash receipts.

Additionally, we examined standard customer online terms and conditions to understand the distinct performance obligations and tested the timing of revenue recognition.

Further, we selected a sample of non-standard contractual arrangements to understand the performance obligations and the timing of revenue recognition.

To assess completeness of non-standard terms and conditions, we obtained external confirmations of terms and conditions for a sample of customers.

/s/ Ernst & Young LLP

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Los Angeles, California

January 31, 2023

February 6, 2024

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, 2023, 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, 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.

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, 2023 and 2022, 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, 2023, and the related notes and our report dated February 6, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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Los Angeles, California

January 31, 2023

February 6, 2024

Consolidated Statements of Cash Flows

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Stock-based compensation 1,324,004 1,387,787 1,092,135

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

Amortization of debt issuance costs 7,361 6,865 4,311

Losses (gains) on debt and equity securities, net 33,027 36,838 ( 289,052 )

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Repurchases of Class A non-voting common stock ( 189,394 ) ( 1,001,052 ) —

Deferred payments for acquisitions ( 270,433 ) — —

Net cash provided by (used in) financing activities ( 458,789 ) 306,714 1,065,073

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

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.

3,000,000 shares authorized, 1,440,541 shares issued, 1,391,341 shares outstanding at December 31, 2023, and 3,000,000 shares authorized, 1,371,242 shares issued, 1,319,930 shares outstanding at December 31, 2022.

Class B voting common stock, $ 0.00001 par value.

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Class C voting common stock, $ 0.00001 par value.

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.

260,888 shares authorized, 231,627 shares issued and outstanding at December 31, 2023 and December 31, 2022.

Treasury stock, at cost.

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

49,200 and 51,312 shares of Class A non-voting common stock at December 31, 2023 and December 31, 2022, respectively.

( 479,903 ) ( 500,514 )

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Repurchases of Class A non-voting common stock ( 18,423 ) — ( 105,208 ) ( 1 ) — —

Reissuances of Class A non-voting common stock for vesting of restricted stock units 2,112 — — — — —

Balance, end of period 1,391,341 14 1,319,930 13 1,364,887 14

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Conversion of Class B voting common stock to Class A non-voting common stock ( 566 ) — ( 298 ) — ( 1,095 ) —

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

Balance, end of period 22,528 — 22,529 — 22,769 —

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

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 — — — — — —

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Retirement of Class A non-voting common stock ( 18,423 ) 189,394 ( 53,896 ) 500,538 — —

Reissuances of Class A non-voting common stock for vesting of restricted stock units ( 2,112 ) 20,611 — — — —

Balance, end of period 49,200 ( 479,903 ) 51,312 ( 500,514 ) — —

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

Equity component of convertible senior notes, net — — — — — 286,589

Issuance of Class A non-voting common stock for the induced conversion related to convertible senior notes — — — — — 1,175,191

Purchase of capped calls — — — ( 177,000 ) — ( 86,825 )

Reissuances of Class A non-voting common stock for vesting of restricted stock units — ( 20,611 ) — — — —

Balance, end of period — 14,613,404 — 13,309,828 — 12,069,097

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is a technology company.

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

We changed our name to Toyopa Group, LLC in 2011, incorporated as Snapchat, Inc., a Delaware corporation, in 2012, and changed our name to Snap Inc.

is headquartered in Santa Monica, California.

(“we,” “our,” or “us”), a Delaware corporation, is headquartered in Santa Monica, California.

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

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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 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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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.

The Future Stock Split will not be declared and paid until the first business day following the date on which the average of the volume weighted average price (the “VWAP”) 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.

In June 2023, in connection with a proposed settlement of a class-action lawsuit, and as amended in December 2023, we agreed to modify the conditions for the Future Stock Split, subject to various conditions, including judicial approval of the settlement.

If approved, the Future Stock Split will not be declared and paid until the first business day following the date on which (i) the VWAP per share of Class A common stock equals or exceeds $ 40 per share for 90 consecutive trading days (the “90-Day VWAP”) and (ii) the ratio of the 90-Day VWAP to $ 8.70 equals or exceeds the ratio of the average closing price of the S&P 500 Total Return index for the same 90 trading days for which the 90-Day VWAP was calculated to 8,862.85 .

The original ten year time period to trigger the Future Stock Split would remain unchanged.

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.

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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 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 .

RSUs and RSAs vest on the satisfaction of a service-based condition.

The service condition for RSUs and RSAs 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 requisite service p eriod.

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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.

All strategic investments are reviewed periodically for impairment.

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

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

Strategic investments are included within other assets in our consolidated balance sheets.

When we exercise significant influence over, but do not control the investee, such strategic investments are accounted for using the equity method.

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Maintenance and repairs are expensed as incurred.

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.

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 have non-cancelable lease agreements for primarily offices that are recorded as operating lease right-of-use assets and operating lease liabilities in our consolidated balance sheets.

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 in our consolidated balance

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 .

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Costs capitalized for developing such software applications were not material for the periods presented.

Our CEO is our chief operating decision maker.

Our CEO is our chief operating decision maker ( “ CODM ” ).

We have determined that we have a single operating segment.

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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.

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

When we issue payments or grants of equity to selling stockholders in connection with an acquisition, we evaluate whether the payments or awards are compensatory.

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Recent Accounting Pronouncements

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.

Under ASU 2021-08, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

Effective January 1, 2022, we early adopted ASU 2021-08 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 August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Derivatives and Hedging (Topic 815), or that do not result in substantial premiums accounted for as paid-in capital.

Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

The guidance also requires the if-converted method to be applied for all convertible instruments.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

Adoption of the standard requires using either a modified retrospective or a full retrospective approach.

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

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.

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.

The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

Effective January 1, 2021, we adopted this standard 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 December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires public entities to provide greater disaggregation within their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose both percentages and dollar amounts, and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items meet a quantitative threshold.

The guidance also requires disaggregating the annual disclosure of income taxes paid, net of refunds received, by federal (national), state, and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold.

The guidance is effective for annual periods beginning after December 15, 2024 on a prospective basis, with a retrospective option, and early adoption is permitted.

We are currently evaluating the impact of adoption of this standard on our consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the CODM and included within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment's profit or loss to assess performance and decide how to allocate resources.

The guidance is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, applied retrospectively with early adoption permitted.

We are currently evaluating the impact of adoption of this standard on our consolidated financial statements and disclosures.

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 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, all such revenue was not material.

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

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

Year Ended December 31,

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Diluted net loss per share attributable to common stockholders is computed by dividing the resulting net loss attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding.

We use the if-converted method for calculating any potential dilutive effect of the Convertible Notes on diluted net loss per share.

We use the if-converted method for calculating any potential dilutive effect of the convertible senior notes due in 2025, 2026, 2027, and 2028 (collectively, the “Convertible Notes”) on diluted net loss per share.

The Convertible Notes would have a dilutive impact on net income per share when the average market price of Class A common stock for a given period exceeds the respective conversion price of the Convertible Notes.

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Stockholders’ Equity

As of December 31, 2022, we are authorized to issue 3,000,000,000 shares of Class A nonvoting common stock, 700,000,000 shares of Class B voting common stock, and 260,887,848 shares of Class C voting common stock, each with a par value of $ 0.00001 per share.

As of December 31, 2023, we are authorized to issue 3,000,000,000 shares of Class A non-voting common stock, 700,000,000 shares of Class B voting common stock, and 260,887,848 shares of Class C voting common stock, each with a par value of $ 0.00001 per share.

Class A common stockholders have no voting rights, Class B common stockholders are entitled to one vote per share, and Class C common stockholders are entitled to ten votes per share.

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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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A total of 16,484,690 shares of Class A common stock were initially reserved for issuance under the 2017 ESPP.

No shares of our Class A common stock have been issued or offered under the 2017 ESPP.

our Class A common stock have been issued or offered under the 2017 ESPP.

The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1st of each calendar year, beginning on January 1, 2018 through January 1, 2027, by the lesser of (i) 1.0 % of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (ii) 15,000,000 shares;

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Unvested at December 31, 2023 157,130 $ 12.82

The total fair value of RSUs and RSAs vested during the years ended December 31, 2022, 2021, and 2020 was $ 1.2 billion, $ 3.6 billion, and $ 1.7 billion, respectively.

The total fair value of RSUs and RSAs vested for the years ended December 31, 2023, 2022, and 2021 was $ 1.0 billion, $ 1.2 billion, and $ 3.6 billion, respectively.

Total unrecognized compensation cost related to outstanding RSUs and RSAs was $ 1.7 billion as of December 31, 2023 and is expected to be recognized over a weighted-average period of 2.0 years.

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(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of our Class A common stock as of December 31, 2023 and December 31, 2022, respectively.

The weighted-average fair value of stock options granted during the years ended December 31, 2022 and 2021 was $ 8.41 and $ 36.17 per share, respectively.

The weighted-average fair value of stock options granted during the year ended December 31, 2022 and 2021 was $ 8.41 and $ 36.17 per share.

The expense is estimated based on the option’s fair value as calculated by the Black-Scholes option pricing model.

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 $ 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.

The intrinsic value of stock options exercised in the years ended December 31, 2022, 2021, and 2020 was $ 5.9 million, $ 69.4 million, and $ 75.5 million, respectively.

Stock-based compensation expense for stock options was not material for the years ended December 31, 2023, 2022, and 2021.

As of December 31, 2023, there was no unrecognized compensation cost related to stock options granted under the Stock Plans.

The total grant date fair value of stock options that vested for the years ended December 31, 2023, 2022, and 2021 was $ 1.1 million, $ 3.2 million, and $ 7.7 million, respectively.

The intrinsic value of stock options exercised for the years ended December 31, 2023, 2022, and 2021 was $ 12.3 million, $ 5.9 million, and $ 69.4 million, respectively.

Stock-Based Compensation Expense

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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.

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 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.

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

Business Acquisitions and Divestitures

Business Acquisitions

2023 Acquisitions

In 2023, aggregate purchase consideration for business acquisitions was $ 73.1 million, which primarily consisted of $ 56.3 million in cash and $ 12.6 million recorded in other liabilities in our consolidated balance sheet.

Of the aggregate purchase consideration, $ 42.8 million was allocated to goodwill and the remainder primarily to identifiable intangible assets.

The acquired assets are expected to enhance our existing platform, technology, and workforce.

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

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

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.

The goodwill amount represents synergies related to our existing platform expected to be realized from the business

acquisitions and assembled workforce.

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

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Of the acquired goodwill and intangible assets, $ 8.2 million is deductible for tax purposes.

2020 Acquisitions

For the year ended December 31, 2020, we completed acquisitions to enhance our existing platform, technology, and workforce.

The aggregate allocation of acquisition date fair value was as follows:

(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.

Additional Information on 2023, 2022, and 2021 Acquisitions

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Domain names 3.0 $ 745 $ ( 546 ) $ 199

Trademarks 1.2 800 ( 478 ) 322

Technology 2.8 323,313 ( 197,608 ) 125,705

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

Patents 8.8 39,373 ( 19,099 ) 20,274

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

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

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

Amortization of intangible assets for the years ended December 31, 2023, 2022, and 2021 was $ 81.1 million, $ 132.3 million, and $ 63.2 million, respectively.

In 2023, we recognized $ 19.9 million in charges related to the revision of the useful lives and disposal of certain acquired intangible assets.

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.

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Convertible Notes

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 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.

In February 2022, we entered into a purchase agreement 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 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.

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

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 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;

• during the five business day period after any ten consecutive trading day period in which the trading price per $ 1,000 principal amount of the 2028 Notes for each day of that ten consecutive trading day period was less than 98 % of the product of the last reported sale price of our Class A common stock and the applicable conversion rate of the 2028 Notes on such trading day;

• on a notice of redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, in which case we may be required to increase the conversion rate for the 2028 Notes so surrendered for conversion in connection with such redemption notice;

• on the occurrence of specified corporate events.

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 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.

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.

We may redeem for cash all or any portion of the 2028 Notes, at our option, on or after March 5, 2025 based on certain circumstances.

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.

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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 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.

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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.

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 (the “2026 Capped Call Transactions”) discussed below.

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

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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:

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As of December 31, 2023, the debt issuance costs on the 2025 Notes, 2026 Notes, 2027 Notes, and 2028 Notes will be amortized over the remaining period of approximately 1.3 years, 2.6 years, 3.3 years and 4.2 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.

Interest expense related to the amortization of debt issuance costs was $ 6.9 million, $ 6.5 million, and $ 4.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Contractual interest expense was $ 8.9 million, $ 8.7 million, and $ 8.9 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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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 .

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, 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 .

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

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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 leases, see Note 9 to our consolidated financial statements.

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Pending Matters

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 intends to vigorously defend them.

In November 2021, we and certain of our officers and directors, were named as defendants in a securities class-action lawsuit 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.

We believe we have meritorious defenses to this lawsuit and

continue to defend the lawsuit vigorously.

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

The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our financial condition, results of operations, and cash flows for a particular period.

For the pending matters described above, it is not possible to estimate the reasonably possible loss or range of loss.

For the pending matter described above, it is not possible to estimate the reasonably possible loss or range of loss.

We are subject to various other legal proceedings and claims in the ordinary course of business, including certain patent, trademark, privacy, regulatory, and employment matters.

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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, 2023.

The components of lease cost were as follows:

Year Ended December 31,

2022 2021 2020

(in thousands)

Operating lease expense $ 109,506 $ 69,831 $ 60,450

Sublease income ( 1,086 ) ( 2,478 ) ( 2,815 )

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

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

Total operating lease costs were $ 101.0 million, $ 109.5 million, and $ 69.8 million for the years ended December 31, 2023, 2022 , and 2021 , respectively.

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

For the Year Ended December 31,

As of December 31,

Weighted-average remaining lease term 10.0 6.8

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As of December 31, 2023, we had additional operating leases that have not yet commenced for facilities with lease obligations of $ 70.7 million.

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

These operating leases will commence starting in 2024 with lease terms of approximately 7 years to 11 years.

Cash payments included in the measurement of our o perating lease liabilities were $ 97.7 million, $ 94.9 million, and $ 73.9 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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Strategic Investments

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.

We hold strategic investments primarily in privately held companies, which consist 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.

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

The following table summarizes our strategic investments as of December 31, 2023 and 2022:

As of December 31,

(in thousands)

Initial cost $ 106,368 $ 125,564

Cumulative upward adjustments 147,317 157,186

Cumulative downward adjustments, including impairments ( 58,357 ) ( 30,411 )

Carrying value $ 195,328 $ 252,339

Gains and losses recognized during the periods presented were as follows:

Year Ended December 31,

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(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.

All strategic investments are reviewed periodically for impairment.

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.

Gains (losses) recognized on strategic investments sold during the period, net $ — $ 45,935 $ 27,820

Unrealized gains on strategic investments still held at the reporting date 1,368 19,946 145,010

Unrealized losses, including impairments, on strategic investments still held at the reporting date ( 28,423 ) ( 1,421 ) ( 2,854 )

Gains (losses) on strategic investments, net $ ( 27,055 ) $ 64,460 $ 169,976

Gains and losses on all strategic investments are included within other income (expense), net on 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.

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

Fair Value Measurements

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We classify our cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value.

The following table sets forth our financial assets as of December 31, 2022 and 2021 that are measured at fair value on a recurring basis during the period:

The following tables set forth our financial assets that are measured at fair value on a recurring basis, excluding publicly traded equity securities, as of December 31, 2023 and 2022:

December 31, 2023

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government agency securities 138,420 31 ( 188 ) 138,263

Publicly traded equity securities (1)

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

Level 2 securities:

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Total $ 3,533,181 $ 1,502 $ ( 4,206 ) $ 3,530,477

(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, 2022

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government agency securities 175,269 19 ( 188 ) 175,100

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

Level 2 securities:

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Total $ 3,889,935 $ 160 $ ( 11,135 ) $ 3,878,960

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.

Gross unrealized losses on marketable debt securities were not material for the years ended December 31, 2023 and 2022.

As of December 31, 2023 and 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, 2023, $ 760.2 million of our total $ 1.8 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.

We hold investments in publicly traded companies with an aggregate carrying value of $ 13.6 million and $ 91.5 million as of December 31, 2023 and 2022, respectively, primarily recorded as marketable securities.

We classify these publicly traded equity securities within Level 1 because we use quoted market prices to determine their fair value.

Gains and losses recognized during the periods presented, which are included within other income (expense), net on our consolidated statements of operations, were as follows:

Year Ended December 31,

2023 2022 2021

(in thousands)

Gains (losses) recognized on publicly traded equity securities sold during the period, net $ 11,046 $ ( 22,095 ) $ —

Unrealized gains (losses) on publicly traded equity securities still held at the reporting date, net ( 17,731 ) ( 79,214 ) 122,064

Gains (losses) on publicly traded equity securities, net $ ( 6,685 ) $ ( 101,309 ) $ 122,064

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, 2023, the fair value of the 2025 Notes, the 2026 Notes, the 2027 Notes, and the 2028 Notes was $ 300.9 million, $ 893.2 million, $ 921.5 million, and $ 1,181.7 million, respectively.

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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Loss before income taxes $ ( 1,294,423 ) $ ( 1,400,697 ) $ ( 474,371 )

(1) Includes the impact of intercompany charges to foreign affiliates for management fees and research and development cost sharing, inclusive of stock-based compensation.

(1) Includes the impact of intercompany charges to foreign affiliates for financing, management fees, and research and development cost sharing, inclusive of stock-based compensation.

The components of our income tax (benefit) expense were as follows:

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and foreign tax rates on foreign income 3.3 2.5 3.9

Stock-based compensation benefit ( 0.1 ) 119.3 17.8

Stock-based compensation ( 7.0 ) ( 0.1 ) 119.3

federal research & development credit benefit 8.6 5.0 36.7

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Deferred tax assets:

Accrued expenses $ 37,731 $ 30,169

Accruals and reserves $ 22,475 $ 37,731

Intangible assets 168,661 177,762

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Net deferred taxes $ 1,005 $ ( 6,230 )

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

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

On December 20, 2021, the Organisation for Economic Co-operation and Development (“OECD”) published Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%.

The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax.

A number of countries, including the United Kingdom, are currently proposing or have enacted legislation to implement core elements of the Pillar Two proposal by the start of 2024.

On February 1, 2023, the FASB indicated that they believe the minimum tax imposed under Pillar Two is an alternative minimum tax, and, accordingly, deferred tax assets and liabilities associated with the minimum tax would not be recognized or adjusted for the estimated future effects of the minimum tax but would be recognized in the period incurred.

While we are still closely monitoring developments and evaluating the potential impact on future periods, we do not expect

Pillar Two to have a significant impact on our financial results, particularly due to safe harbor relief during the transition period.

Beginning January 1, 2022, the Tax Cuts and Jobs Act eliminated the option to currently deduct research and development expenditures in the period incurred and required 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 through December 31, 2023 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.

On June 10, 2021, the U.K.

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

Finance Act 2021 was enacted, 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 period ending December 31, 2021 and 2020, respectively, both of which were fully offset by an increase in our valuation allowance.

This change in tax rate resulted in a $ 188.9 million increase to our U.K.

net deferred tax assets, which was fully offset by an increase in our valuation allowance, for the period ending December 31, 2021.

As of December 31, 2023, we had an immaterial amount of unremitted earnings related to certain foreign subsidiaries.

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Uncertain Tax Positions

The following table summarizes the activity related to our gross unrecognized tax benefits during the years ended December 31, 2022 and 2021:

The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended December 31, 2023, 2022, and 2021:

Year Ended December 31,

2023 2022 2021

(in thousands)

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Changes due to lapse of statute of limitations ( 31,786 ) ( 1,887 ) ( 2,077 )

Reductions for settlements with taxing authorities ( 4,927 ) — —

Changes due to foreign currency translation adjustments ( 175 ) ( 929 ) ( 357 )

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Ending balance of unrecognized tax benefits (including interest and penalties) $ 514,371 $ 511,054 $ 469,697

The total amount of gross unrecognized tax benefits, including related interest and penalties, was $ 511.1 million and $ 469.7 million as of December 31, 2022 and 2021, respectively.

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 $ 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.

We have net unrecognized tax benefits of $ 27.3 million and $ 21.7 million included in other liabilities on our consolidated balance sheet as of December 31, 2023 and 2022, respectively, which, if recognized, would result in a tax benefit.

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.

During the year ended December 31, 2023, interest expense recorded related to uncertain tax positions was not material.

The income taxes we pay are subject to review by taxing jurisdictions globally.

The income taxes we pay are subject to potential review by taxing jurisdictions globally.

Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time.

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However, our future results may include adjustments to estimates in the period the audits are resolved, which may impact our effective tax rate.

Tax years ending on or after December 31, 2012 are subject to examination in the U.S., and tax years ending on or after December 31, 2020 are subject to examination in the U.K.

We are currently under examination by the U.S.

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.

The material tax jurisdictions in which we are subject to potential examination include the United States for tax years ending on or after 2012, and the United Kingdom for tax years ending on or after 2020.

We are currently under examination by the U.K.

tax authorities for tax years 2020 and 2021, and also in various other jurisdictions covering multiple tax years.

Accumulated Other Comprehensive Income (Loss)

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Balance at December 31, 2023 $ ( 2,860 ) $ 9,991 $ 7,131

(1) Realized gains and losses on marketable securities are reclassified from AOCI into other income (expense), net in the consolidated statements of operations.

(1) Realized gains and losses on marketable securities are reclassified from AOCI into other income (expense), net in our consolidated statements of operations.

Property and Equipment, Net

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(in thousands)

Property and equipment, net:

United States $ 247,106 $ 214,857

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(in thousands)

Accrued compensation and related expenses $ 206,441 $ 177,659

Accrued infrastructure costs $ 281,682 $ 169,886

Partner revenue share liability 83,395 86,991

Acquisition liability 293,332 49,870

Other operating costs 75,376 48,635

Partner revenue share liabilities 99,877 83,395

Accrued compensation and related expenses 95,600 206,441

Deferred revenue (1)

93,706 50,782

Other operating costs 75,905 75,376

Acquisition liabilities 7,359 293,332

Other 151,707 108,128

Total accrued expenses and other current liabilities $ 805,836 $ 987,340

Other liabilities at December 31, 2022 and 2021 consisted of the following:

As of December 31,

(in thousands)

Acquisition liability $ 66,020 $ 280,194

Other 38,430 35,562

Total other liabilities $ 104,450 $ 315,756

(1) We expect a substantial majority of our deferred revenue to be realized in less than one year.

Employee Benefit Plans

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Upon termination of the sublease, this entity will purchase the hangar from Snap at its fair market value on the termination date.

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

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

Restructuring

AR Enterprise Strategic Review

In the third quarter of 2023, we initiated the wind down of our AR Enterprise business, which included a reduction of our global employee headcount by approximately 3 %.

We substantially completed the program in the fourth quarter of 2023.

During the year ended December 31, 2023, we recognized pre-tax restructuring charges of $ 40.8 million, primarily recorded in sales and marketing and general and administrative expenses in our consolidated statement of operations, and an income tax benefit of $5.7 million.

The pre-tax restructuring charges primarily include cash severance, stock-based compensation expense, and charges related to the revision of the useful lives and disposal of certain acquired intangible assets.

Strategic Reprioritization

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

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(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.

The liabilities related to the strategic reprioritization plan were immaterial as of December 31, 2023 and 2022.

Subsequent Events

On February 5, 2024, we announced a plan to reduce our global headcount by approximately 10 % of our global full-time employees.

As a result, we currently estimate that we will incur pre-tax charges in the range of $ 55 million to $ 75 million, primarily consisting of severance and related costs, and other charges, of which $ 45 million to $ 55 million are expected to be future cash expenditures.

The majority of these costs are expected to be incurred during the first quarter of 2024.

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