What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-05 compared with 2020-02-05 · 78 added, 97 removed, 408 unchanged (30% of the section changed)

18 unchanged sentences

Total costs and expenses excluding stock-based compensation and related payroll tax expense increased 21% to $2.5 billion in 2020, compared to $2.1 billion in 2019.

Net loss decreased 18% to $(1.0) billion in 2019, compared to $(1.3) billion in 2018.

Net loss decreased 9% to $(944.8) million in 2020, compared to $(1.0) billion in 2019.

Diluted net loss per share decreased 13% to $(0.65) in 2020, compared to $(0.75) in 2019.

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Trends in User Metrics

We define a DAU as a registered Snapchat user who opens the Snapchat application at least once during a defined 24-hour period.

We define ARPU as quarterly revenue divided by the average DAUs.

We assess the health of our business by measuring DAUs and ARPU because we believe that these metrics are important ways for both management and investors to understand engagement and monitor the performance of our platform.

User Engagement

We define a Daily Active User as a registered Snapchat user who opens the Snapchat application at least once during a defined 24-hour period.

We calculate average Daily Active Users for a particular quarter by adding the number of DAUs on each day of that quarter and dividing that sum by the number of days in that quarter.

We calculate average DAUs for a particular quarter by adding the number of DAUs on each day of that quarter and dividing that sum by the number of days in that quarter.

DAUs are broken out by geography because markets have different characteristics .

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We monetize our business primarily through advertising.

Our advertising products include Snap Ads and Sponsored Creative Tools.

We measure progress in our business using ARPU because it helps us understand the rate at which we’re monetizing our daily user base.

We define ARPU as quarterly revenue divided by the average Daily Active Users.

ARPU was $2.58 in the fourth quarter of 2019, up from $2.09 a year ago and $2.12 in the third quarter of 2019.

Our advertising products include Snap Ads and AR Ads.

We measure our business using ARPU because it helps us understand the rate at which we are monetizing our daily user base.

ARPU was $3.44 in the fourth quarter of 2020, up from $2.73 in the third quarter of 2020 and $2.58 in the fourth quarter of 2019.

For purposes of calculating ARPU, revenue by user geography is apportioned to each region based on a determination of the geographic location in which advertising impressions are delivered, as this approximates revenue based on user activity.

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Components of Results of Operations

We generate substantially all of our revenue through the sale of our advertising products, which include Snap Ads and Sponsored Creative Tools, and measurement services, referred to as advertising revenue.

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

We generate substantially all of our revenue through the sale of our advertising products, which primarily include Snap Ads and AR Ads, and measurement services, 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 our hardware product, Spectacles.

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Cost of revenue consists primarily of payments to third-party infrastructure partners for hosting our products, which include expenses related to storage, computing, and bandwidth costs.

Cost of revenue also includes payments for content and third party selling costs, referred to as revenue share.

Cost of revenue also includes payments for content and third-party selling costs, referred to as partner arrangements.

In addition, cost of revenue includes advertising measurement services, and personnel-related costs, including salaries, benefits, and stock-based compensation expenses.

In addition, cost of revenue includes facilities and other supporting overhead costs, including depreciation and amortization, and inventory costs for Spectacles.

Cost of revenue also includes facilities and other supporting overhead costs, including depreciation and amortization, and inventory costs for Spectacles.

Research and Development Expenses

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Interest expense consists primarily of interest expense associated with our senior convertible notes, or the Convertible Notes, and commitment fees and amortization of financing costs related to our revolving credit facility.

In the prior period, interest expense also included interest on build-to-suit lease financing obligations.

Other Income (Expense), Net

Other income (expense), net consists of realized gains and losses on sales of marketable securities, our portion of non-marketable investment income and losses, and foreign currency transaction gains and losses.

Other income (expense), net consists of realized gains and losses on sales of marketable securities, our portion of non-marketable investment income and losses, foreign currency transaction gains and losses, and gains and impairments on non-marketable investments.

Other income (expense), net also includes any gains or losses on divestitures of businesses.

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Revenue for the year ended December 31, 2020 increased $791.1 million compared to the same period in 2019.

Revenue increased due to growth in advertising demand, which resulted in an increase in the number of impressions.

We continue to optimize our self-serve platform, enabling advertisers to more easily access our inventory and reach more users at a lower price compared to the prior period.

Revenue increased due to a combination of growth in advertisers and advertising demand and optimization efficiencies, as well as a shift towards higher yielding products and regions.

Cost of Revenue

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2020 compared to 2019

Cost of revenue for the year ended December 31, 2019 increased $97.0 million, or 12% , compared to the same period in 2018.

The increase in cost of revenue primarily consisted of increased revenue share costs of $54.4 million, consistent with our overall increase in revenue.

Additionally, the increase was driven by increased infrastructure costs of $37.9 million, attributable to DAU growth and increased user activity between the periods, net of infrastructure cost efficiencies, and increased advertising measurement expenses.

Cost of revenue for the year ended December 31, 2020 increased $286.7 million compared to the same period in 2019.

The increase in cost of revenue primarily consisted of increased infrastructure costs of $96.7 million, attributable to DAU growth and increased user activity between the periods, net of infrastructure cost efficiencies.

The increase was also a result of higher revenue share due to both the overall increase in revenue and a higher mix of revenue subject to revenue share as well as higher content acquisition costs.

Research and Development Expenses

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Research and development expenses for the year ended December 31, 2020 increased $218.1 million compared to the same period in 2019.

The increase was primarily driven by an increase in stock-based compensation expense of $124.1 million.

The prior period included a $24.6 million stock-based compensation forfeiture benefit related to the 2018 reduction in force.

The increase primarily consisted of an increase in personnel costs, driven by growth in research and development headcount that contributed to higher stock-based compensation expense, and changes to our cash compensation programs.

Sales and Marketing Expenses

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Sales and marketing expenses for the year ended December 31, 2020 increased $96.9 million compared to the same period in 2019.

The increase was primarily driven by increased marketing investments of $52.6 million.

T he increase was primarily driven by increased marketing investments and an increase in personnel expenses due to the growth in sales and marketing headcount and stock-based compensation expense.

The increase was partially offset by the impact of lower travel and event-related spending due to COVID-19 related restrictions on these activities.

General and Administrative Expenses

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2020 compared to 2019

General and administrative expenses for the year ended December 31, 2019 increased $103.9 million compared to the same period in 2018.

The increase was driven by an increase in legal expenses primarily due to the legal charges of $100.0 million for the preliminary settlement agreement of the securities class actions that arose following our IPO.

Additionally, the increase was driven by an increase in personnel expenses of $21.3 million, primarily due to an increase in stock-based compensation expense, and an increase in professional service and other corporate expenses.

The increase was partially offset by a decrease in facilities costs, as the prior period included $33.0 million of lease exit charges.

General and administrative expenses for the year ended December 31, 2020 decreased $51.8 million compared to the same period in 2019.

The decrease was primarily due to the $100.0 million preliminary settlement of the securities class action in the prior period, partially offset by an increase in personnel expenses driven by an increase in headcount and changes to our cash compensation programs.

This decrease was also due to a lower cost per head driven by a decrease in stock-based compensation expense as well as the impact of lower travel and event-related spending due to COVID-19 related restrictions on these activities.

Interest Income

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2020 compared to 2019

Interest income for the year ended December 31, 2019 increased $8.8 million compared to the same period in 2018.

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

government-backed securities and a higher overall invested cash balance as a result of the Convertible Notes offering.

Interest income for the year ended December 31, 2020 decreased $17.9 million compared to the same period in 2019.

The decrease was primarily a result of lower interest rates on U.S.

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

Interest Expense

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2020 compared to 2019

Other income, net for the year ended December 31, 2019 increased $67.3 million, compared to other expense, net of $8.2 million for the same period in 2018.

Other income, net for the current year was primarily a result of a gain of $39.9 million on the divestiture of Placed, LLC, or Placed, a location-based measurement services company that was divested in 2019, as well as gains on non-marketable investments.

Other expense, net in the prior year was primarily a result of $7.2 million of non-marketable investment impairment expense.

Other income, net for the year ended December 31, 2020 decreased $44.0 million, compared to other income, net for the same period in 2019.

Other income, net for the current year was primarily a result of gains on non-marketable investments partially offset by impairments of non-marketable investments.

Other income, net in the comparable period in 2019 was primarily a result of a gain of $39.9 million on the divestiture of Placed, LLC, or Placed, a location-based measurement services company, as well as gains on non-marketable investments.

Income Tax Benefit (Expense)

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Income tax expense was $18.7 million for the year ended December 31, 2020, compared to $0.4 million for the same period in 2019.

This increase was primarily driven by a discrete expense resulting from intra-entity transfers of intangible assets, partially offset by a discrete benefit resulting from a partial valuation allowance release on our deferred tax assets due to deferred tax liabilities originating from acquisitions.

Our effective tax rate differs from the U.S.

statutory tax rate primarily due to a valuation allowance on our deferred tax assets as it is more likely than not that some or all of our deferred tax assets will not be realized.

statutory tax rate primarily due to valuation allowances on our deferred tax assets as it is more likely than not that some or all of our deferred tax assets will not be realized.

For additional discussion, see Note 11 to our consolidated financial statements included in “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

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2020 compared to 2019

Net loss for the year ended December 31, 2019 was $1.0 billion, compared to $1.3 billion for the same period in 2018.

Adjusted EBITDA loss for the year ended December 31, 2019 was $202.2 million, compared to $575.6 million for the same period in 2018.

The decrease in Adjusted EBITDA loss was driven by increased revenues, partially offset by increased cost of revenue and marketing expenses.

Additionally, the decrease in net loss was primarily a result of a gain of $39.9 million on the divestiture of Placed, as well as decreased facilities costs, as the prior period included lease exit charges of $33.0 million.

The decrease was partially offset by an increase in legal expense of $100.0 million for the preliminary settlement agreement of securities class actions that arose following our IPO and an increase in stock-based compensation expense of $147.8 million.

Net loss for the year ended December 31, 2020 was $944.8 million, compared to $1.0 billion for the same period in 2019.

Adjusted EBITDA for the year ended December 31, 2020 was $45.2 million, compared to $(202.2) million for the same period in 2019.

The decrease in net loss was attributable to a legal expense of $100.0 million for the preliminary settlement agreement of securities class actions in the prior period, partially offset by a gain of $39.9 million on the divestiture of Placed recognized in the prior period.

The increase in Adjusted EBITDA was driven by increased revenues, partially offset by increased cost of revenue mainly due to higher infrastructure costs attributable to DAU growth and increased user activity between the periods.

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 “Selected Financial Data—Non-GAAP Financial Measures.”

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The results of historical periods are not necessarily indicative of the results in any future period.

Three Months Ended

September 30,

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Consolidated Statements of Cash Flows Data:

Net cash used in operating activities

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

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The results of historical periods are not necessarily indicative of the results in any future period.

Three Months Ended

September 30,

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Stock-based compensation expense included in the above line items:

Three Months Ended

September 30,

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Depreciation and amortization expense included in the above line items:

Three Months Ended

September 30,

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The following table presents a reconciliation of Free Cash Flow to net cash used in operating activities, the most comparable GAAP financial measure, for each of the periods presented:

Three Months Ended

September 30,

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Reconciliation of Free Cash Flow:

Net cash used in operating activities

Net cash provided by (used in) operating activities

Purchases of property and equipment

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The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the periods presented:

Three Months Ended

September 30,

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Payroll tax expense related to stock-based compensation

Reduction in force charges

Lease exit charges

Securities class actions legal charges

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

Three Months Ended

September 30,

Consolidated Statements of Operations

Consolidated Statements of Operations Data:

Costs and expenses:

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We may contemplate and engage in merger and acquisition activity that could materially impact our liquidity and capital resource position.

In August 2019, we issued the Convertible Notes with an aggregate principal amount of $1.265 billion.

The net proceeds from the issuance of the Convertible Notes were $1.15 billion, net of debt issuance costs and cash used to pay the costs of the capped call transactions, or the Capped Call Transactions.

The Convertible Notes mature on August 1, 2026 unless repurchased, redeemed, or converted in accordance with their terms prior to such date.

The Convertible Notes were not convertible as of December 31, 2019.

In April 2020, we entered into a purchase agreement for the sale of an aggregate of $1.0 billion principal amount of senior convertible notes, or the 2025 Notes .

The net proceeds from the issuance of the 2025 Notes were $888.6 million, net of debt issuance costs and cash used to pay the costs of the capped call transactions, or the 2025 Capped Call Transactions, discussed further in Note 7 .

The 2025 Notes mature on May 1, 2025 unless repurchased, redeemed, or converted in accordance with their terms prior to such date.

The sale price for conversion was satisfied as of December 31, 2020 and as a result, the 2025 Notes first became eligible for optional conversion during the first quarter of 2021.

In August 2019 , we entered into a purchase agreement for the sale of an aggregate of $1.265 billion principal amount of senior convertible notes, or the 2026 Notes .

The net proceeds from the issuance of the 2026 Notes were $1.15 billion, net of debt issuance costs and cash used to pay the costs of the capped call transactions, or the 2026 Capped Call Transactions, discussed further in Note 7 .

The 2026 Notes mature on August 1, 2026 unless repurchased, redeemed, or converted in accordance with their terms prior to such date.

The sale price for conversion was satisfied as of December 31, 2020 and as a result, the 2026 Notes first became eligible for optional conversion during the first quarter of 2021.

In July 2016, we entered into a five-year senior unsecured revolving credit facility, or the Credit Facility, with lenders some of which are affiliated with certain members of the underwriting syndicate for our Convertible Notes offering, that allows us to borrow up to $1.1 billion to fund working capital and general corporate-purpose expenditures.

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In August 2018, we amended the Credit Facility to extend the term to August 2023 with respect to an aggregate of $1.05 billion of the $1.25 billion that we may borrow under the Credit Facility.

In August 2019, we amended the Credit Facility to revise the covenants that restrict the repurchase of equity securities and the incurrence of indebtedness to permit the Capped Call Transactions and issuance of the Convertible Notes.

In August 2019, we amended the Credit Facility to revise the covenants that restrict the repurchase of equity securities and the incurrence of indebtedness to permit the 2026 Capped Call Transactions and issuance of the 2026 Notes.

In April 2020, we amended the Credit Facility to revise the covenants that restrict the incurrence of indebtedness to permit the 2025 Capped Call Transactions and issuance of the 2025 Notes.

As of December 31, 2020, no amounts were outstanding under the Credit Facility.

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2020 compared to 2019

Net cash used in operating activities decreased $385.0 in the year ended December 31, 2019 compared to the same period in 2018.

Net cash used in operating activities was $305.0 million for the year ended December 31, 2019, resulting primarily from net loss, adjusted for non-cash items, including stock-based compensation expense of $686.0 million, and depreciation and amortization expense of $87.2 million, partially offset by a $39.9 million gain on the divestiture of Placed.

Net cash used in operating activities was also driven by a $147.9 million increase in the accounts receivable balance due to an increase in revenue, partially offset by an increase in accrued expenses and other current liabilities of $146.1 million primarily due to the securities class actions legal charges and the timing of payments.

Net Cash Provided by (Used in) Investing Activities

Net cash used in operating activities decreased $137.3 million in the year ended December 31, 2020 compared to the same period in 2019.

Net cash used in operating activities was $167.6 million for the year ended December 31, 2020, resulting primarily from net loss, adjusted for non-cash items, including stock-based compensation expense of $770.2 million, depreciation and amortization expense of $86.7 million, and amortization of debt discount and issuance costs of $81.4 million.

Net cash used in operating activities was also driven by a $255.8 million increase in the accounts receivable balance due to an increase in revenue, partially offset by an increase in accrued expenses and other current liabilities of $108.6 million primarily due to the timing of payments.

Net Cash Used in Investing Activities

2020 compared to 2019

Net cash used in investing activities was $728.6 million for the year ended December 31, 2019, compared to net cash provided by investing activities of $694.5 million for the same period in 2018.

Net cash used in investing activities was $729.9 million and $728.6 million for the years ended December 31, 2020 and 2019, respectively.

Our investing activities in the current period consisted primarily of the purchase of marketable securities of $3.5 billion, partially offset by the sales and maturities of marketable securities of $3.1 billion.

Net cash provided by investing activities in the prior period consisted of sales and maturities of marketable securities of $2.5 billion, partially offset by the purchase of marketable securities of $1.7 billion.

Net cash used in investing activities in the prior period consisted of the purchase of marketable securities of $2.5 billion partially offset by the sales and maturities of marketable securities of $1.8 billion.

Net Cash Provided by Financing Activities

2020 compared to 2019

Net cash provided by financing activities was $1.2 billion and $47.4 million for the years ended December 31, 2019 and 2018, respectively.

Our financing activities in the current period consisted primarily of net proceeds of $1.15 billion from the issuance of the Convertible Notes and the purchase of the Capped Calls.

Net cash provided by financing activities in the prior periods consisted of proceeds from the exercise of stock options.

Net cash provided by financing activities was $922.8 million and $1.2 billion for the years ended December 31, 2020 and 2019, respectively.

Our financing activities in the current period consisted primarily of net proceeds of $888.6 million from the issuance of the 2025 Notes and the purchase of the 2025 Capped Call Transactions.

Net cash provided by financing activities in the prior periods consisted of net proceeds of $1.15 billion from the issuance of the 2026 Convertible Notes and the purchase of the 2026 Capped Call Transactions.

Free Cash Flow

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Total contractual commitments

For additional discussion on our operating and financing leases and hosting and other purchase commitments, see Note 8 to our consolidated financial statements included in “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

For additional discussion on our leases, hosting, and other purchase commitments, see Note 8 and Note 9 to our consolidated financial statements included in “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

In January 2017, we entered into the Google Cloud Platform License Agreement.

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Revenue Recognition

We generate substantially all of our revenue through the delivery of advertisements.

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.

These arrangements are either on a fixed-fee basis over a period of time or based on the number of advertising impressions delivered.

We determine collectability by performing ongoing credit evaluations and monitoring customer accounts receivable balances.

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

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.

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

AR Ads include Sponsored Filters and Sponsored Lenses.

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

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

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

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

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

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

If a revenue share payment is owed to a content partner related to Snap-sold revenue, we recognize that payment as cost of revenue.

Under revenue share arrangements with our content partners, we pay a portion of the advertising revenue generated from the display of Snap-sold advertisements in the content partner’s Publisher Stories.

These arrangements generally do not contain minimum financial commitments to our publisher partners and are generally not tied to specific events or promotions.

Currently, our Sponsored Creative Tools and measurement services are only Snap-sold and are not subject to revenue sharing arrangements.

Snap-sold revenue is recognized based on the gross amount that we charge the advertiser.

Partner-sold revenue is recognized based on the net amount of revenue to be received from the content partners.

There is significant judgment in accounting for these arrangements related to whether we should report revenue based on the gross amount that we charge the advertiser or the net amount of revenue received from the content partner.

To determine if we should report revenue on a gross or net basis, we assess which party is the primary obligor responsible for fulfilling advertising delivery, including the acceptability of services delivered.

We recognize Snap-sold revenue on a gross basis predominantly because we are the primary obligor responsible for fulfilling advertisement delivery, including the acceptability of the services delivered.

For Snap-sold advertising, we enter into contractual arrangements directly with advertisers.

We are directly responsible for the fulfillment of the contractual terms and any remedy for issues with such fulfillment.

For Snap-sold revenue, we also have latitude in establishing the selling price with the advertiser, as we sell advertisements at a rate determined at our sole discretion.

We recognize partner-sold revenue on a net basis predominantly because the content partner, and not us, is the primary obligor responsible for fulfillment, including the acceptability of the services delivered.

In partner-sold advertising arrangements, the content partner has a direct contractual relationship with the advertiser.

There is no contractual relationship between us and the advertiser for partner-sold transactions.

When a content partner sells advertisements, the content partner is responsible for fulfilling the advertisements, and accordingly, we have determined the content partner is the primary obligor.

Additionally, we do not have any latitude in establishing the price with the advertiser for partner-sold advertising.

The content partner may sell advertisements at a rate determined at its sole discretion.

For the periods presented, partner-sold revenue was not material.

In arrangements where another party is involved in providing specified services to a customer, we evaluate whether we are the principal or agent.

In this evaluation, we consider if we obtain control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.

For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis.

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

Stock-Based Compensation

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On the effectiveness of the registration statement for our IPO, we recognized $1.3 billion in stock-based compensation expense.

All RSUs granted after December 31, 2016, or Post-2017 RSUs, vest on the satisfaction of only service-based 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 four years.

All RSUs and RSAs granted after December 31, 2016, or Post-2017 Awards, vest on the satisfaction of only service-based conditions.

The service condition for Post-2017 Awards 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 Post-2017 Awards 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.

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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

As of December 31, 2019, we have approximately $34.5 million of unrecognized stock-based compensation expense related to Pre-2017 RSUs to be recognized over a weighted-average period of approximately 0.8 years.

Total unrecognized compensation cost related to Post-2017 RSUs was $1.4 billion as of December 31, 2019 and is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Awards

As of December 31, 2019, we have approximately $74.2 million of unrecognized stock-based compensation expense related to RSAs to be recognized over a weighted-average period of approximately 3.3 years.

Restricted Stock Units and Restricted Stock Awards

As of December 31, 2020, total unrecognized compensation cost related to Post-2017 Awards was $1.8 billion and is expected to be recognized over a weighted-average period of 2.6 years.

All compensation cost related to Pre-2017 RSUs was recognized as of December 31, 2020.

On the closing of the IPO, our CEO received the CEO award for 37.4 million shares of Series FP preferred stock, which automatically converted into an equivalent number of shares of Class C common stock on the closing of the IPO.

The CEO award represented 3.0% of all outstanding shares on the closing of the IPO, including shares sold by us in the IPO and vested stock options and RSUs on the closing of the IPO, net of shares withheld to satisfy tax withholding obligations.

The CEO award vested immediately on the closing of the IPO, and such shares are being delivered to the CEO in equal quarterly installments over three years which began in November 2017.

As of December 31, 2019, 28.1 million shares subject to the CEO award have been delivered to the CEO.

In the three months ended March 31, 2017, the stock-based compensation expense recognized related to the CEO award was $636.6 million, which is based on the vesting of 37.4 million shares of Class C common stock, at the initial public offering price of $17.00 per share.

The CEO award vested immediately on the closing of the IPO, and such shares were being delivered to the CEO in equal quarterly installments over three years beginning in November 2017.

As of December 31, 2020, all shares subject to the CEO award have been settled.

Business Combinations and Valuation of Goodwill and Other Acquired Intangible Assets

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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