What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-23 compared with 2020-10-21 · 108 added, 144 removed, 308 unchanged (45% of the section changed)

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Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors,” “Note Regarding Forward-Looking Statements,” and “Note Regarding User Metrics and Other Data.”

Overview of Third Quarter 2020 Results

Our key user metrics and financial results for the third quarter of 2020 were as follows:

Overview of First Quarter 2021 Results

Our key user metrics and financial results for the first quarter of 2021 were as follows:

Daily Active Users, or DAUs, increased to 280 million in Q1 2021, compared to 229 million in Q1 2020.

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Financial Results

Cash used in operating activities was $(54.8) million in Q3 2020, compared to $(76.1) million in Q3 2019.

Free Cash Flow was $(69.6) million in Q3 2020, compared to $(84.1) million in Q3 2019.

Common shares outstanding plus shares underlying stock-based awards, including restricted stock units, restricted stock awards, and outstanding stock options, totaled 1,624 million at September 30, 2020, compared with 1,565 million one year ago.

Capital expenditures were $14.7 million in Q3 2020, compared to $7.9 million in Q3 2019.

Cash, cash equivalents, and marketable securities were $2.7 billion as of September 30, 2020.

Revenue increased 66% to $769.6 million in Q1 2021, compared to $462.5 million in Q1 2020.

Total costs and expenses, excluding stock-based compensation and related payroll tax expense, increased 26% to $644.1 million in Q3 2020, compared to $509.2 million in Q3 2019.

Total costs and expenses, excluding stock-based compensation and other payroll related tax expense, increased 41% to $794.8 million in Q1 2021, compared to $564.9 million in Q1 2020.

Net loss decreased 6% to $(286.9) million in Q1 2021, compared to $(305.9) million in Q1 2020.

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Adjusted EBITDA increased 98% to $(1.7) million in Q1 2021, compared to $(81.2) million in Q1 2020.

Cash provided by operating activities was $136.9 million in Q1 2021, compared to $6.3 million in Q1 2020.

Capital expenditures were $10.9 million in Q1 2021, compared to $10.9 million in Q1 2020.

Free Cash Flow was $126.0 million in Q1 2021, compared to $(4.6) million in Q1 2020.

Cash, cash equivalents, and marketable securities were $2.6 billion as of March 31, 2021.

Common shares outstanding plus shares underlying stock-based awards, including restricted stock units, restricted stock awards, and outstanding stock options, totaled 1,629 million at March 31, 2021, compared with 1,589 million one year ago.

is a camera company.

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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 our platform.

User Engagement

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

We had 249 million DAUs on average in the third quarter of 2020, an increase of 39 million, or 18%, from the third quarter of 2019.

We had 280 million DAUs on average in the first quarter of 2021, an increase of 51 million, or 22%, from the first quarter of 2020.

Quarterly Average Daily Active Users

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Europe includes Russia and Turkey.

We recorded revenue of $678.7 million for the three months ended September 30, 2020, compared to revenue of $446.2 million for the same period in 2019, an increase of 52% year-over-year.

In the nine months ended September 30, 2020, we recorded revenue of $1.6 billion compared to revenue of $1.2 billion for the same period in 2019, an increase of 38% year-over-year.

We recorded revenue of $769.6 million for the three months ended March 31, 2021, compared to revenue of $462.5 million for the same period in 2020, an increase of 66% year-over-year.

We monetize our business primarily through advertising.

Our advertising products include Snap Ads and Sponsored Creative Tools.

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’re monetizing our daily user base.

ARPU was $2.73 in the third quarter of 2020, up from $2.12 in the third quarter of 2019 and $1.91 in the second quarter of 2020.

ARPU was $2.74 in the first quarter of 2021, up from $2.02 in the first quarter of 2020.

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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The following table summarizes certain selected historical financial results:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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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.

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.

We also generate revenue from sales of hardware.

This revenue is reported net of allowances for returns.

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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.

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 payments for content, developer, and advertiser partner costs as well as advertising measurement services.

In addition, cost of revenue includes third-party selling costs, personnel-related costs, including salaries, benefits, and stock-based compensation expenses.

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

Research and Development Expenses

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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, foreign currency transaction gains and losses, and impairment on non-marketable investments.

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

Income Tax Benefit (Expense)

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depreciation and amortization;

stock-based compensation expense and related payroll tax expense;

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

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

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The broader impact of the recent COVID-19 pandemic on our results of operations and overall financial performance continues to remain uncertain.

The COVID-19 pandemic has impacted our year to date revenue growth, and will likely continue to adversely impact many aspects of our business and our partners.

The COVID-19 pandemic has impacted revenue growth, and will likely continue to adversely impact many aspects of our business and our partners.

See “Risk Factors” for further discussion of the potential adverse impacts of the COVID-19 pandemic and related events on our business and partners.

The following table sets forth our consolidated statements of operations data:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Depreciation and amortization expense included in the above line items:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Consolidated Statements of Operations Data:

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Income tax benefit (expense)

Three and Nine Months Ended September 30, 2020 and 2019

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31, 2021 and 2020

Three Months Ended March 31,

(dollars in thousands)

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Revenue as a percentage change

Revenue for the three months ended September 30, 2020 increased $232.5 million, or 52%, compared to the same period in 2019.

Revenue was $1.6 billion for the nine months ended September 30, 2020, compared to $1.2 billion for the same period in 2019, an increase of $440.7 million, or 38%.

Revenue increased due to overall growth in advertiser demand.

Revenue for the three months ended March 31, 2021 increased $307.1 million compared to the same period in 2020.

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

Cost of Revenue

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Cost of Revenue as a percentage change

Cost of revenue for the three and nine months ended September 30, 2020 increased $70.0 million and $154.6 million, respectively, compared to the same periods in 2019.

The increase in cost of revenue primarily consisted of increased infrastructure costs of $27.6 million and $71.3 million for the three and nine months ended September 30, 2020, respectively, attributable to DAU growth and increased user activity between the periods, net of infrastructure cost efficiencies.

Additionally, the increases were driven by increased revenue share costs due to the overall increase in revenue and a higher mix of revenue subject to revenue share.

Cost of revenue for the three months ended March 31, 2021 increased $159.2 million compared to the same period in 2020.

The increase in cost of revenue was primarily driven by higher content costs which include $90.0 million for Spotlight, which launched in Q4 2020, as well as increases in revenue share due to the overall increase in revenue and higher mix of revenue subject to revenue share.

The increase was also a result of increased infrastructure costs, attributable to DAU growth, net of infrastructure cost efficiencies and rate improvements.

Research and Development Expenses

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Research and Development Expenses as a percentage change

Research and development expenses for the three and nine months ended September 30, 2020 increased $72.0 million and $119.1 million, respectively, compared to the same periods in 2019.

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

Research and development expenses for the three months ended March 31, 2021 increased $110.0 million compared to the same period in 2020.

The increase was primarily driven by an increase in personnel expenses due to the growth in research and development headcount and stock-based compensation expense, and changes to our cash compensation programs.

Sales and Marketing Expenses

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Sales and Marketing Expenses as a percentage change

Sales and marketing expenses for the three and nine months ended September 30, 2020 increased $20.3 million and $65.2 million compared to the same periods in 2019.

T he increase was primarily driven by an increase in personnel expenses due to the growth in sales and marketing headcount as well as increased marketing initiatives.

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

Sales and marketing expenses for the three months ended March 31, 2021 increased $28.1 million compared to the same period in 2020.

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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General and Administrative Expenses as a percentage change

General and administrative expenses for the three months ended September 30, 2020 increased $9.2 million, or 8%, compared to the same period in 2019.

The increase primarily consisted of higher personnel expenses, driven by an increase in headcount.

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

General and administrative expenses for the nine months ended September 30, 2020 increased $16.9 million , or 5% , compa red to the same period in 2019.

The increase consisted of a n increase in legal settlement expenses primarily related to the preliminary settlement of the Vaporstream matter in the first quarter of 2020 , as well as an increase in personnel expenses driven by an increase in headcount.

This increase was partially offset by a lower cost per head driven by a decrease in stock - based compensation expense and the impact of lower travel and event-related spending given COVID-19 related restrictions on these activities .

General and administrative expenses for the three months ended March 31, 2021 increased $27.1 million compared to the same period in 2020.

The increase was primarily due to an increase in personnel expenses driven by stock-based compensation expense as well as headcount growth.

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

Interest Income

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Interest Income as a percentage change

Interest income for the three and nine months ended September 30, 2020 decreased $7.5 million and $9.4 million, respectively, compared to the same periods in 2019.

Interest income for the three months ended March 31, 2021 decreased $7.5 million compared to the same period in 2020.

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

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Interest Expense

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

(NM = Not Meaningful)

Interest Expense

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Interest Expense as a percentage change

Interest expense for the three and nine months ended September 30, 2020 increased $19.6 million and $57.8 million, respectively, compared to the same periods in 2019.

The increase in interest expense is related to the Convertible Notes.

Interest expense for the three months ended March 31, 2021 decreased $10.1 million compared to the same period in 2020 due to the early adoption of ASU 2020-06 on January 1, 2021.

As a result, we account for the Convertible Notes as a single liability, which eliminates the amortization of the debt discount.

Prior to January 1, 2021, the carrying amount of the equity component was recorded as a debt discount and amortized to interest expense.

Interest expense related to the amortization of debt issuance costs was $1.0 million for the three months ended March 31, 2021 while interest expense related to the amortization of debt discount and issuance costs was $11.6 million for the three months ended March 31, 2020.

Contractual interest expense was $3.0 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively.

Other Income (Expense), Net

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Other Income (Expense), Net as a percentage change

Other expense, net for the three months ended September 30, 2020 was $(5.7) million compared to $(1.5) million in the same period in 2019.

Other expense, net for the three months ended September 30, 2020 was primarily a result of a $5.0 million impairment of a non-marketable investment.

Other expense, net in the comparable period in 2019 was primarily a result of losses on non-marketable investments.

Other expense, net for the nine months ended September 30, 2020 was $(14.5) million, compared to other income, net of $41.5 million in the same period in 2019.

Other expense, net for the nine months ended September 30, 2020 was primarily a result of a $15.5 million in impairment 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, as well as gains on non-marketable investments.

Other income, net for the three months ended March 31, 2021 was $22.1 million, compared to other expense, net of $(12.4) million in the same period in 2020.

Other income, net for the three months ended March 31, 2021 was primarily a result of a $23.3 million gain on non-marketable investments.

Other expense, net for the three months ended March 31, 2020 was primarily a result of a $10.5 million impairment of non-marketable investments.

Income Tax Benefit (Expense)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Effective Tax Rate

Income tax expense for the three and nine months ended September 30, 2020 was $(0.9) million and $(0.5) million, respectively, compared to an income tax benefit of $1.3 million and a tax expense of $(0.1) million, respectively, for the same periods in 2019.

Income tax expense for the three months ended March 31, 2021 was $1.4 million compared to an income tax expense of $0.7 million for the same period in 2020.

Our effective tax rate differs from the U.S.

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Net Loss and Adjusted EBITDA

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Adjusted EBITDA as a percentage change

Net loss for the three and nine months ended September 30, 2020 was $(199.9) million and $(831.7) million, respectively, compared to $(227.4) million and $(793.0) million, respectively, for the same periods in 2019.

Adjusted EBITDA for the three and nine months ended September 30, 2020 was $56.4 million and $(120.4) million, respectively, compared to $(42.4) million and $(244.5) million, respectively, for the same periods in 2019.

Adjusted EBITDA for the three and nine months ended September 30, 2020 increased $98.7 million and $124.1 million, respectively, compared to the same periods in 2019 due to an increase in revenue partially offset by an increase in cost of revenue attributable to DAU growth and an increase in personnel expenses.

The increase in net loss for the nine months ended September 30, 2020 was primarily due to the $39.9 million gain from the Placed divestiture recognized in the prior periods.

Net loss for the three months ended March 31, 2021 was $286.9 million compared to $305.9 million for the same period in 2020.

Adjusted EBITDA for the three months ended March 31, 2021 was $(1.7) million compared to $(81.2) million for the same period in 2020.

The increase in Adjusted EBITDA was attributable to increased revenues, partially offset by increased cost of revenue primarily due to higher content acquisition costs between the periods.

The decrease in net loss was also partially offset by the increase in stock-based compensation expense.

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

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depreciation and amortization;

stock-based compensation expense and related payroll tax expense;

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

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

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Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets and amortization of acquired intangible assets and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

Adjusted EBITDA excludes stock-based compensation expense and related payroll tax expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy;

Adjusted EBITDA does not reflect tax payments that reduce cash available to us.

Adjusted EBITDA excludes stock-based compensation expense and other payroll related tax expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy;

Adjusted EBITDA excludes income tax expense.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

Free Cash Flow reconciliation:

Net cash used in operating activities

Net cash provided by 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,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Stock-based compensation expense

Payroll tax expense related to stock-based compensation

Payroll and other tax expense related to stock-based compensation

Adjusted EBITDA

Liquidity and Capital Resources

Cash, cash equivalents, and marketable securities were $2.7 billion as of September 30, 2020, primarily consisting of cash on deposit with banks and highly liquid investments in U.S.

Cash, cash equivalents, and marketable securities were $2.6 billion as of March 31, 2021, primarily consisting of cash on deposit with banks and highly liquid investments in U.S.

government and agency securities, corporate debt securities, certificates of deposit, and commercial paper.

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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 April 2020, we issued the 2025 Notes with an aggregate principal amount of $1.0 billion.

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 2025 Capped Call Transactions.

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 2025 Notes were not convertible as of September 30, 2020.

In August 2019, we issued the 2026 Notes with an aggregate principal amount of $1.265 billion.

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 2026 Capped Call Transactions.

The sale price for conversion was satisfied as of March 31, 2021 and as a result, the 2025 Notes will continue to be eligible for optional conversion during the second 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 2026 Notes were not convertible as of September 30, 2020.

The sale price for conversion was satisfied as of March 31, 2021 and as a result, the 2026 Note s will continue to be eligible for optional conversion during the second 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 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 September 30, 2020, no amounts were outstanding under the Credit Facility.

As of September 30, 2020, we had $25.4 million in the form of outstanding standby letters of credit.

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

As of March 31, 2021, we had $26.1 million in the form of outstanding standby letters of credit.

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

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

As of September 30, 2020, approximately 5% of our cash, cash equivalents, and marketable securities was held outside the United States.

As of March 31, 2021, approximately 12% of our cash, cash equivalents, and marketable securities was held outside the United States.

These amounts were primarily held in the United Kingdom and are utilized to fund our foreign operations.

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The following table sets forth the major components of our consolidated statements of cash flows for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by operating activities

Net cash provided by investing activities

Net cash provided by financing activities

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For information on how we define and calculate Free Cash Flow and a reconciliation to net cash provided by (used in) operating activities to Free Cash Flow, see “Non-GAAP Financial Measures.”

Three and Nine Months Ended September 30, 2020 and 2019

Net Cash Used in Operating Activities

Net cash used in operating activities decreased $21.3 million in the three months ended September 30, 2020, compared to the same period in 2019.

Net cash used in operating activities was $(54.8) million for three months ended September 30, 2020, resulting primarily from net loss, adjusted for non-cash items, primarily stock-based compensation expense of $192.1 million and depreciation and amortization expense of $21.8 million.

Net cash used in operating activities for the three months ended September 30, 2020 was also driven by an increase in the accounts receivable balance of $151.9 million due to an increase in revenue, partially offset by a $61.6 million increase in accrued expenses and other current liabilities primarily due to the timing of payments.

Net cash used in operating activities decreased $123.0 million in the nine months ended September 30, 2020, compared to the same period in 2019.

Net cash used in operating activities was $(115.1) million for the nine months ended September 30, 2020, resulting primarily from net loss, adjusted for non-cash items, primarily stock-based compensation expense of $550.3 million and depreciation and amortization expense of $63.9 million.

Net cash used in operating activities for the nine months ended September 30, 2020 was also driven by an increase in the accounts receivable balance of $43.3 million due to an increase in revenue, partially offset by a $94.4 million increase in accrued expenses and other current liabilities primarily due to the timing of payments.

Net Cash Used in Investing Activities

Net cash used in investing activities was $(375.3) million for the three months ended September 30, 2020, compared to net cash used in investing activities of $(688.3) million for the same period in 2019.

Our investing activities in the three months ended September 30, 2020 consisted of cash used in the purchase of marketable securities of $1.1 billion, partially offset by the maturities of marketable securities of $668.9 million and sales of marketable securities of $155.9 million.

Net cash used in investing activities in the prior period consisted of t he purchase of marketable securities of $1.1 billion, partially offset by the maturities of marketable securities of $411.0 million.

Net cash used in investing activities was $(495.8) million for the nine months ended September 30, 2020, compared to net cash provided by investing activities of $584.5 million for the same period in 2019.

Our investing activities in the nine months ended September 30, 2020 consisted of cash used in the purchase of marketable securities of $2.6 billion and non-marketable investments of $95.3 million, partially offset by the maturities of marketable securities of $1.9 billion and sales of marketable securities of $373.9 million.

Net cash used in investing activities in the prior period c onsisted of the purchase of marketable securities of $1.9 billion, partially offset by maturities of marketable securities of $1.2 billion and sales of marketable securities of $102.4 million.

Three Months Ended March 31, 2021 and 2020

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased $130.6 million in the three months ended March 31, 2021, compared to the same period in 2020.

Net cash provided by operating activities was $136.9 million for the three months ended March 31, 2021, resulting primarily from our net loss, adjusted for non-cash items, including stock-based compensation expense of $237.1 million and depreciation and amortization expense of $23.5 million.

Net cash provided by operating activities for the three months ended March 31, 2021 was also driven by a decrease in the accounts receivable balance of $129.3 million due to higher collections in the period, and a $56.5 million increase in accounts payable primarily due to the timing of payments.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $280.6 million for the three months ended March 31, 2021, compared to net cash provided by investing activities of $371.6 million for the same period in 2020.

Our investing activities in the three months ended March 31, 2021 consisted of cash provided by the sales and maturities of marketable securities of $925.0 million, partially offset by the purchase of marketable securities of $523.2 million and cash paid for acquisitions of $108.9 million.

Net cash provided by investing activities in the prior period consisted of cash provided by the sales and maturities of marketable securities of $970.6 million, partially offset by cash used in the purchase of marketable securities of $552.7 million .

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $2.4 million and $914.6 million for the three months and nine months ended September 30, 2020, respectively, compared to net cash provided by financing activities of $1.2 billion for the same periods in 2019.

Our financing activities for the nine months ended September 30, 2020 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 period consisted primarily of net proceeds of $1.15 billion from the issuance of the 2026 Notes and the purchase of the 2026 Capped Call Transactions.

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

Net cash provided by financing activities was $4.5 million for the three months ended March 31, 2021 compared to net cash provided by financing activities of $3.1 million for the same period in 2020.

Our financing activities for the three months ended March 31, 2021 and 2020 consisted of net proceeds from the exercise of stock options.

Free Cash Flow

Free Cash Flow was $(69.6) million and $(84.1) million in the three months ended September 30, 2020 and 2019, respectively, and was composed of net cash used in operating activities, resulting primarily from net loss, adjusted for non-cash items as well as changes in working capital and other operating assets and liabilities.

Free Cash Flow also included purchases of property and equipment of $14.7 million and $7.9 million for the three months ended September 30, 2020 and 2019, respectively.

Free Cash Flow was $(156.5) million and $(265.5) million in the nine months ended September 30, 2020 and 2019, respectively, and was composed of net cash used in operating activities, resulting primarily from net loss, adjusted for non-cash items as well as changes in working capital and other operating assets and liabilities.

Free Cash Flow also included purchases of property and equipment of $(41.4) million and $(27.4) million for the three months ended September 30, 2020 and 2019, respectively.

Free Cash Flow was $126.0 million and $(4.6) million in the three months ended March 31, 2021 and 2020, respectively, and was composed of net cash provided by operating activities, resulting primarily from net loss, adjusted for non-cash items as well as changes in working capital and other operating assets and liabilities.

Free Cash Flow also included purchases of property and equipment of $(10.9) million and $(10.9) million for the three months ended March 31, 2021 and 2020, respectively.

See “Non-GAAP Financial Measures.”

Off-Balance Sheet Arrangements

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Should any of these estimates and assumptions change or prove to be incorrect, it could have a material impact on our results of operations, financial position, and cash flows.

The following table summarizes our contractual obligations as of September 30, 2020:

The following table summarizes our contractual obligations as of March 31, 2021:

(Remainder of

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Total contractual commitments

For additional discussion on our data hosting and other purchase commitments, see Note 8 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

For additional discussion on our leases, hosting, and other purchase commitments, see Note 7 and Note 8 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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

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Interest Rate Risk

We had cash and cash equivalents totaling $824.1 million and $520.3 million at September 30, 2020 and December 31, 2019, respectively.

We had marketable securities totaling $1.9 billion and $1.6 billion at September 30, 2020 and December 31, 2019, respectively.

We had cash and cash equivalents totaling $967.5 million and $545.6 million at March 31, 2021 and December 31, 2020, respectively.

We had marketable securities totaling $1.6 billion and $2.0 billion at March 31, 2021 and December 31, 2020, respectively.

Our cash and cash equivalents consist of cash in bank accounts and marketable securities consisting of U.S.

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Due to the relatively short-term nature of our investment portfolio, a hypothetical 100 basis point change in interest rates would not have a material effect on the fair value of our portfolio for the periods presented.

In August 2019, we issued 2026 Notes with an aggregate principal amount of $1.265 billion.

We carry the 2026 Notes at face value less the unamortized debt discount and issuance costs on our consolidated balance sheets.

In April 2020, we issued 2025 Notes with an aggregate principal amount of $1.0 billion.

We carry the 2025 Notes at face value less the unamortized debt issuance costs on our consolidated balance sheets.

The 2025 Notes have a fixed interest rate;

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The fair value of the 2025 Notes changes when the market price of our stock fluctuates or market interest rates change.

In April 2020, we issued 2025 Notes with an aggregate principal amount of $1.0 billion.

We carry the 2025 Notes at face value less the unamortized debt discount and issuance costs on our consolidated balance sheets.

In August 2019, we issued 2026 Notes with an aggregate principal amount of $1.265 billion.

We carry the 2026 Notes at face value less the unamortized debt issuance costs on our consolidated balance sheets.

The 2026 Notes have a fixed interest rate;

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Foreign Currency Risk

For all periods presented, the majority of our sales and operating expenses were denominated in U.S.

For all periods presented, our sales and operating expenses were predominately denominated in U.S.

We therefore have not had material foreign currency risk associated with sales and cost-based activities.

The functional currency of our material operating entities is the U.S.

For the periods presented, our operations outside of the United States are not considered material and incur a majority of their operating expenses in foreign currencies.

Therefore, our results of operations and cash flows are minimally subject to fluctuations from changes in foreign currency rates.

We believe the exposure to foreign currency fluctuation from operating expenses is immaterial at this time as the related costs do not constitute a significant portion of our total expenses.

For the periods presented, we believe the exposure to foreign currency fluctuation from operating expenses is immaterial as the related costs do not constitute a significant portion of our total expenses.

As we grow operations, our exposure to foreign currency risk will likely become more significant.

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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-Q

Item 2. Management’s Discussion and Analysis