What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-22 compared with 2021-10-22 · 121 added, 175 removed, 281 unchanged (51% of the section changed)

4 unchanged sentences

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 2021 Results

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

Daily Active Users, or DAUs, increased 23% year-over-year to reach 306 million in Q3 2021.

Average revenue per user, or ARPU, increased 28% year-over-year to reach $3.49 in Q3 2021.

Overview of First Quarter 2022 Results

Our key user metrics and financial results for the first quarter of 2022 were as follows:

Daily Active Users, or DAUs, increased 18% year-over-year to 332 million in Q1 2022.

Average revenue per user, or ARPU, increased 17% year-over-year to $3.20 in Q1 2022.

Financial Results

Revenue increased 57% year-over-year to reach $1,067.5 million in Q3 2021.

Revenue increased 38% year-over-year to $1,062.7 million in Q1 2022.

Total costs and expenses, excluding stock-based compensation and other payroll related tax expense, increased 30% to $1,036.4 million in Q1 2022.

Net loss improved by $127.9 million year-over-year to $(72.0) million in Q3 2021.

Diluted net loss per share improved by 67% to $(0.05) in Q3 2021, compared to $(0.14) in Q3 2020.

Adjusted EBITDA improved by $117.8 million year-over-year to $174.2 million in Q3 2021.

Cash provided by operating activities was $71.6 million in Q3 2021, compared to cash used in operating activities of $(54.8) million in Q3 2020.

Capital expenditures were $19.8 million in Q3 2021, compared to $14.7 million in Q3 2020.

Net loss was $359.6 million, compared to $286.9 million in Q1 2021 .

Diluted net loss per share was $(0.22) in Q1 2022, compared to $(0.19) in Q1 2021.

Adjusted EBITDA was $64.5 million, compared to $(1.7) million in Q1 2021.

Cash provided by operating activities was $127.5 million in Q1 2022, compared to cash provided by operating activities of $136.9 million in Q1 2021.

Free Cash Flow was $106.3 million in Q1 2022, compared to $126.0 million in Q1 2021.

Cash, cash equivalents, and marketable securities were $3.5 billion as of September 30, 2021.

Common shares outstanding plus shares underlying stock-based awards, including restricted stock units, restricted stock awards, and outstanding stock options, totaled 1,698 million at September 30, 2021, compared to 1,624 million one year ago.

Cash, cash equivalents, and marketable securities were $5.0 billion as of March 31, 2022.

is a camera company.

5 unchanged sentences

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

We assess the health of our business by measuring DAUs because we believe that this metric is an important way for management and investors to understand engagement and monitor the performance of our platform.

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.

We also measure ARPU because we believe that this metric helps our management and investors to assess the extent to which we are monetizing our service.

2 unchanged sentences

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

We had 306 million DAUs on average in the third quarter of 2021, an increase of 57 million, or 23%, from the third quarter of 2020.

We had 332 million DAUs on average in the first quarter of 2022, an increase of 52 million, or 18%, from the first quarter of 2021.

Quarterly Average Daily Active Users

2 unchanged sentences

Europe includes Russia and Turkey.

We recorded revenue of $1,067.5 million for the three months ended September 30, 2021, compared to revenue of $678.7 million for the same period in 2020, an increase of 57% year-over-year.

We recorded revenue of $1,062.7 million for the three months ended March 31, 2022, compared to revenue of $769.6 million for the same period in 2021, an increase of 38% year-over-year.

We monetize our business primarily through advertising.

1 unchanged sentence

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

ARPU was $3.49 in the third quarter of 2021, up from $2.73 in the third quarter of 2020.

ARPU was $3.20 in the first quarter of 2022, up from $2.74 in the first quarter of 2021.

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.

5 unchanged sentences

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)

5 unchanged sentences

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

We also generate revenue from sales of hardware.

We also generate revenue from sales of hardware products.

This revenue is reported net of allowances for returns.

Cost of Revenue

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, 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 consists 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, developer, and advertiser partner costs.

In addition, cost of revenue includes third-party selling costs and 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.

14 unchanged sentences

Other Income (Expense), Net

Other income (expense), net consists of realized and unrealized gains and losses on sales of marketable securities, foreign currency transaction gains and losses, and gains and impairment on strategic investments.

Income Tax Benefit (Expense)

15 unchanged sentences

Discussion of Results of Operations

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 revenue growth and will likely continue to adversely impact many aspects of our business and our partners and contribute to uncertainty in various aspects of our business.

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)

9 unchanged sentences

Interest expense

Other income (expense), net

Other (expense) income, net

Loss before income taxes

Income tax benefit (expense)

Income tax expense

Adjusted EBITDA (3)

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)

5 unchanged sentences

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)

6 unchanged sentences

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:

8 unchanged sentences

Interest expense

Other income (expense), net

Other (expense) income, net

Loss before income taxes

Income tax benefit (expense)

Three and Nine Months Ended September 30, 2021 and 2020

Three Months Ended September 30,

Nine Months Ended September 30,

Income tax expense

Three Months Ended March 31, 2022 and 2021

Three Months Ended March 31,

(dollars in thousands)

1 unchanged sentence

Revenue as a percentage change

Revenue for the three and nine months ended September 30, 2021 increased $388.8 million and $1,223.9 million, respectively, compared to the same periods in 2020.

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

Revenue for the three months ended March 31, 2022 increased $293.1 million compared to the same period in 2021.

Revenue increased due to a combination of growth in advertisers and auction-based 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)

2 unchanged sentences

Cost of Revenue as a percentage change

Cost of revenue for the three and nine months ended September 30, 2021 increased $150.4 million and $504.1 million, respectively, compared to the same periods in 2020.

The increase in cost of revenue was primarily driven by higher content costs which included $35.5 million and $201.2 million for the three and nine months ended September 30, 2021, respectively, for Spotlight, which launched in Q4 2020.

In addition, the increases were driven by the growth in revenue share due to the overall increase in revenue and higher mix of revenue subject to revenue share.

The increases were also a result of increased infrastructure costs attributable to DAU growth net of infrastructure cost efficiencies, campaign delivery and measurement costs, and content review costs across the platform.

Cost of revenue for the three months ended March 31, 2022 increased $8.3 million compared to the same period in 2021.

The increase was primarily driven by the growth in revenue share due to the overall increase in revenue and higher mix of revenue subject to revenue share, partially offset by lower Spotlight-related expenses.

The increase was also a result of increased infrastructure costs attributable to DAU growth net of infrastructure cost efficiencies and content review costs across the platform.

Research and Development Expenses

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

2 unchanged sentences

Research and Development Expenses as a percentage change

Research and development expenses for the three and nine months ended September 30, 2021 increased $128.4 million and $348.2 million, respectively, compared to the same periods in 2020.

The increases were primarily driven by higher personnel expenses due to growth in research and development headcount, including increased cash- and stock-based compensation expense .

Research and development expenses for the three months ended March 31, 2022 increased $107.0 million compared to the same period in 2021.

The increase was primarily driven by higher personnel expenses due to growth in research and development headcount, including increased cash- and stock-based compensation expenses .

Sales and Marketing Expenses

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

2 unchanged sentences

Sales and Marketing Expenses as a percentage change

Sales and marketing expenses for the three and nine months ended September 30, 2021 increased $74.0 million and $149.7 million, respectively, compared to the same periods in 2020.

The increases were primarily driven by higher personnel expenses due to growth in sales and marketing headcount, including increased cash- and stock-based compensation expense , as well as increased marketing investments.

Sales and marketing expenses for the three months ended March 31, 2022 increased $91.6 million compared to the same period in 2021.

The increase was primarily driven by higher personnel expenses due to growth in sales and marketing headcount, including increased cash- and stock-based compensation expense , as well as increased marketing investments.

General and Administrative Expenses

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

2 unchanged sentences

General and Administrative Expenses as a percentage change

General and administrative expenses for the three and nine months ended September 30, 2021 increased $49.0 million and $134.0 million, respectively, compared to the same periods in 2020.

The increases were primarily driven by higher personnel expenses due to growth in headcount, including increased cash- and stock-based compensation expense, as well as an increase in professional service fees.

General and administrative expenses for the three months ended March 31, 2022 increased $54.2 million compared to the same period in 2021.

The increase was primarily driven by higher personnel expenses due to growth in headcount, including increased cash- and stock-based compensation expense, as well as an increase in other administrative expenses.

Interest Income

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

2 unchanged sentences

Interest Income as a percentage change

Interest income for the three and nine months ended September 30, 2021 decreased $1.5 million and $12.5 million, respectively, compared to the same periods in 2020.

The decreases were primarily a result of lower interest rates on U.S.

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

Interest income for the three months ended March 31, 2022 increased $2.0 million compared to the same period in 2021.

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

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

Interest Expense

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

2 unchanged sentences

Interest Expense as a percentage change

Interest expense for the three and nine months ended September 30, 2021 decreased $24.2 million and $54.4 million, respectively, compared to the same periods in 2020 primarily due to the early adoption of ASU 2020-06 on January 1, 2021.

As a result of this adoption, 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 $1.1 million and $3.3 million for the three and nine months ended September 30, 2021, respectively, while interest expense related to the amortization of debt discount and issuance costs was $24.5 million and $56.5 million for the three and nine months ended September 30, 2020, respectively.

Contractual interest expense was $1.9 million and $7.2 million for the three and nine months ended September 30, 2021, respectively, and $3.0 million and $8.2 million for the three and nine months ended September 30, 2020, respectively.

Interest expense for the three months ended March 31, 2022 increased $0.1 million compared to the same period in 2021, primarily due to the increase in amortization of debt issuance costs, partially offset by lower contractual interest expense.

Other Income (Expense), Net

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

(NM = Not Meaningful)

Other Income (Expense), Net

Other Income (Expense), Net as a dollar change

Other Income (Expense), Net as a percentage change

Other income, net for the three and nine months ended September 30, 2021 was $112.6 million and $177.0 million, respectively, compared to other expense, net of $5.7 million and other expense, net of $14.5 million, respectively, in the same periods in 2020.

Other income, net for the three months ended September 30, 2021 was primarily a result of a $123.2 million unrealized gain on strategic investments.

Other income, net for the nine months ended September 30, 2021 was primarily a result of a $198.6 million unrealized gain and a $27.8 million realized gain on strategic investments offset by induced conversion expense related to the Convertible Notes of $41.5 million.

Other expense, net for the nine months ended September 30, 2020 was primarily a result of a $15.5 million impairment of strategic investments.

Income Tax Benefit (Expense)

Three Months Ended September 30,

Nine Months Ended September 30,

Other (Expense) Income, Net

Other (Expense) Income, Net as a dollar change

Other (Expense) Income, Net as a percentage change

Other expense, net for the three months ended March 31, 2022 was $77.5 million compared to other income, net of $22.1 million in the same period in 2021.

Other expense, net for the three months ended March 31, 2022 was primarily a result of a $92.1 million unrealized loss on publicly traded securities classified as marketable securities, offset by a $13.3 million unrealized gain on strategic investments.

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

Income Tax Expense

Three Months Ended March 31,

(dollars in thousands)

Income Tax Benefit (Expense)

Income Tax Benefit (Expense) as a dollar change

Income Tax Benefit (Expense) as a percentage change

Income Tax Expense

Income Tax Expense as a dollar change

Income Tax Expense as a percentage change

Effective Tax Rate

Income tax expense for the three and nine months ended September 30, 2021 was $(1.0) million and $(0.6) million, respectively, compared to an income tax expense of $(0.9) million and $(0.5) million, respectively, for the same periods in 2020.

Income tax expense for the three months ended March 31, 2022 and 2021, was $8.5 million and $1.4 million, respectively.

Our effective tax rate differs from the U.S.

1 unchanged sentence

Net Loss and Adjusted EBITDA

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

4 unchanged sentences

Adjusted EBITDA as a percentage change

Net loss for the three and nine months ended September 30, 2021 was $72.0 million and $510.5 million, respectively, compared to $199.9 million and $831.7 million, respectively, for the same periods in 2020.

Adjusted EBITDA for the three and nine months ended September 30, 2021 was $174.2 million and $289.9 million, respectively, compared to $56.4 million and $(120.4) million, respectively, for the same periods in 2020.

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

The decreases in net loss were also partially offset by an increase in stock-based compensation expense in both periods.

Net loss for the three months ended March 31, 2022 was $359.6 million compared to $286.9 million for the same period in 2021.

Adjusted EBITDA for the three months ended March 31, 2022 was $64.5 million compared to $(1.7) million for the same period in 2021.

The increase in Adjusted EBITDA was attributable to higher revenue, partially offset by increased research and development and sales and marketing expenses 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 “Non-GAAP Financial Measures.”

13 unchanged sentences

depreciation and amortization;

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

stock-based compensation expense;

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

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

7 unchanged sentences

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 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 stock-based compensation expense and payroll and other tax expense related to stock-based compensation, 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 provided by (used in) operating activities

Net cash provided by operating activities

Purchases of property and equipment

1 unchanged sentence

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)

3 unchanged sentences

Interest expense

Other (income) expense, net

Income tax (benefit) expense

Other expense (income), net

Income tax expense

Depreciation and amortization

3 unchanged sentences

Liquidity and Capital Resources

Cash, cash equivalents, and marketable securities were $3.5 billion as of September 30, 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.

Cash, cash equivalents, and marketable securities were $5.0 billion as of March 31, 2022, primarily consisting of cash on deposit with banks and highly liquid investments in U.S.

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

Our primary source of liquidity is cash generated through financing activities.

3 unchanged sentences

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

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

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

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

The 2028 Notes were not convertible as of March 31, 2022.

In April 2021, we entered into a purchase agreement for the sale of an aggregate of $1.15 billion principal amount of convertible senior notes due in 2027.

1 unchanged sentence

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

The 2027 Notes were not convertible as of September 30, 2021.

The 2027 Notes were not convertible as of March 31, 2022.

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 .

1 unchanged sentence

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 requirement for conversion was satisfied as of September 30, 2021 and as a result, the 2025 Notes will continue to be eligible for optional conversion during the fourth quarter of 2021 .

The sale price requirement for conversion was satisfied as of March 3 1 , 202 2 and as a result, the 2025 Note s will continue to be eligible for optional conversion during the second quarter of 202 2 .

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.

1 unchanged sentence

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 requirement for conversion was satisfied as of September 30, 2021 and as a result, the 2026 Notes will continue to be eligible for optional conversion during the fourth 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 the Convertible Notes offerings that allows us to borrow up to $1.1 billion to fund working capital and general corporate-purpose expenditures.

The loan bears

interest at LIBO plus 0.75%, as well as an annual commitment fee of 0.10% on the daily undrawn balance of the facility.

No origination fees were incurred at the closing of the Credit Facility.

In December 2016, the amount we are permitted to borrow under the Credit Facility was increased to $1.2 billion.

In February 2018, the amount we are permitted to borrow under the Credit Facility was increased to $1.25 billion.

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 2026 Capped Call Transaction s and issuance of the 2026 Notes .

In April 20 20 , we amended the Credit Facility to revise the covenants that restrict the incurrence of indebtedness to permit the issuance of the 2025 Notes .

In April 2021, we amended the Credit Facility to revise the covenants that restrict the incurrence of indebtedness to permit the issuance of the 2027 Notes and subject to satisfaction of a specified senior net leverage ratio , additional future indebtedness .

In July 2021 , the amount we are permitted to borrow under the Credit Facility decreased to $1.05 billion.

As of September 30, 2021 , no amounts were outstanding under the Credit Facility.

As of September 30, 2021 , we had $ 2 2 .

4 million in the form of outstan ding standby letters of credit.

The sale price requirement for conversion was satisfied as of March 31, 2022 and as a result, the 2026 Notes will continue to be eligible for optional conversion during the second quarter of 2022 .

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

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

As of March 31, 2022, the Credit Facility has a maximum borrowing amount of $1.05 billion, bears interest at LIBO plus 0.75%, as well as an annual commitment fee of 0.10% on the daily undrawn balance of the facility and terminates in August 2023.

As of March 31, 2022, no amounts were outstanding under the Credit Facility.

As of March 31, 2022, we had $25.5 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.

1 unchanged sentence

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, 2021, approximately 8% of our cash, cash equivalents, and marketable securities was held outside the United States.

As of March 31, 2022, approximately 5% 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.

3 unchanged sentences

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 provided by (used in) operating activities

Net cash provided by operating activities

Net cash provided by (used in) investing activities

3 unchanged sentences

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, 2021 and 2020

Net Cash Provided by (Used In) Operating Activities

Net cash provided by operating activities was $71.6 million in the three months ended September 30, 2021, as compared to net cash used in operations of $54.8 million in the three months ended September 30, 2020 resulting primarily from our net loss, adjusted for non-cash items, including stock-based compensation expense of $300.9 million and depreciation and amortization expense of $32.5 million, partially offset by gains on debt and equity securities, net of $121.0 million.

Net cash provided by operating activities for the three months ended September 30, 2021 was also impacted by an increase in the accounts receivable balance of $132.9 million due to an increase in revenue in the period.

Net cash provided by operating activities was $107.4 million in the nine months ended September 30, 2021, as compared to net cash used in operations of $115.1 million in the nine months ended September 30, 2020 resulting primarily from our net loss, adjusted for non-cash items, including stock-based compensation expense of $794.6 million and depreciation and amortization expense of $84.3 million, partially offset by gains on debt and equity securities, net of $223.5 million.

Net cash provided by operating activities for the nine months ended September 30, 2021 was also impacted by an increase in the accounts receivable balance of $178.0 million due to an increase in revenue in the period, partially offset by a $89.7 million increase in accrued expenses and other current liabilities primarily due to the timing of payments.

Three Months Ended March 31, 2022 and 2021

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $127.5 million in the three months ended March 31, 2022, as compared to net cash provided by operations of $136.9 million in the three months ended March 31, 2021, resulting primarily from our net loss, adjusted for non-cash items, including stock-based compensation expense of $275.4 million, depreciation and amortization expense of $38.1 million and losses on debt and equity securities, net of $79.1 million.

Net cash provided by operating activities for the three months ended March 31, 2022 was also impacted by a decrease of $62.8 million in accrued expenses and other current liabilities primarily due to the timing of payments.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $155.2 million for the three months ended September 30, 2021, compared to net cash used in investing activities of $375.3 million for the same period in 2020.

Our investing activities in the three months ended September 30, 2021 consisted of cash used in the purchase of marketable securities of $609.2 million partially offset by cash provided by the sales and maturities of marketable securities of $512.9 million.

Net cash used in investing activities for the three months ended September 30, 2020 consisted primarily of cash used in the purchase of marketable securities of $1.1 billion, partially offset by the sales and maturities of marketable securities of $824.8 million.

Net cash provided by investing activities was $257.2 million for the nine months ended September 30, 2021, compared to net cash used in investing activities of $495.8 million for the same period in 2020.

Our investing activities in the nine months ended September 30, 2021 consisted of cash provided by the sales and maturities of marketable securities of $2.4 billion, partially offset by the purchase of marketable securities of $1.9 billion and cash paid for acquisitions of $176.6 million.

Net cash used in investing activities for the nine months ended September 30, 2020 consisted of cash used in the purchase of marketable securities of $2.6 billion and strategic investments of $95.3 million, partially offset by the sales and maturities of marketable securities of $2.3 billion.

Net cash used in investing activities was $1.0 billion for the three months ended March 31, 2022, compared to net cash provided by investing activities of $280.6 million for the same period in 2021.

Our investing activities in the three months ended March 31, 2022 consisted mainly of the purchase of marketable securities of $1.3 billion, partially offset by maturities of marketable securities of $342.5 million.

Net cash provided by investing activities for 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 Financing Activities

Net cash provided by financing activities was $4.0 million and $1.1 billion for the three and nine months ended September 30, 2021, compared to net cash provided by financing activities of $2.4 million and $914.6 million for the same periods in 2020, respectively.

Our financing activities for the nine months ended September 30, 2021 consisted primarily of net proceeds of $1.1 billion from the issuance of the 2027 Notes, offset by the purchase of the 2027 Capped Call Transactions of $86.8 million.

Our financing activities for the nine months ended September 30, 2020 consisted primarily of net proceeds of $988.6 million from the issuance of the 2025 Notes, offset by the purchase of the 2025 Capped Call Transactions of $100.0 million.

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 $1.3 billion and $4.5 million for the three months ended March 31, 2022 and 2021, respectively.

Our financing activities for the three months ended March 31, 2022 consisted primarily of net proceeds of $1.5 billion from the issuance of the 2028 Notes, offset by the purchase of the 2028 Capped Call Transactions of $177.0 million.

Net cash provided by financing activities in the three months ended March 31, 2021, includes proceeds from the exercise of stock options.

Free Cash Flow

Free Cash Flow was $51.7 million and $62.0 million for the three and nine months ended September 30, 2021, respectively, compared to $(69.6) million and $(156.5) million for the three and nine months ended September 30, 2020, respectively.

Free Cash Flow was $106.3 million for the three months ended March 31, 2022, compared to $126.0 million for the three months ended March 31, 2021.

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

Free Cash Flow also included purchases of property and equipment of $19.8 million and $45.3 million for the three and nine months ended September 30, 2021, respectively, compared to $14.7 million and $41.4 million for the three and nine months ended September 30, 2020, respectively.

Free Cash Flow also included purchases of property and equipment of $21.2 million for the three months ended March 31, 2022 compared to $10.9 million for the three months ended March 31, 2021.

See “Non-GAAP Financial Measures.”

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements for any of the periods presented.

Contingencies

6 unchanged sentences

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, 2021:

(Remainder of

(2022 and 2023)

(2024 and 2025)

(in thousands)

Hosting commitments

Lease commitments

Other commitments

Total contractual commitments

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.

Under the agreement, we were granted a license to access and use certain cloud services.

The agreement has an initial term of five years and we are required to purchase at least $400.0 million of cloud services in each year of the agreement.

For each of the first four years, up to 15% of this amount may be moved to a subsequent year.

If we fail to meet the minimum purchase commitment during any year, we are required to pay the difference.

In March 2016, we entered into the AWS Enterprise Agreement for the use of cloud services from Amazon Web Services, Inc.

We are committed to spend an aggregate of $1.1 billion between January 2017 and December 2022 on AWS services ($90.0 million in 2018, $150.0 million in 2019, $215.0 million in 2020, $280.0 million in 2021, and $349.0 million in 2022).

If we fail to meet the minimum purchase commitment during any year, we are required to pay the difference.

Any such payment may be applied to future use of AWS services during the term, although it will not count towards meeting the future minimum purchase commitments.

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

We had $4.4 billion in commitments, as of March 31, 2022, primarily due within three years.

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

Critical Accounting Policies and Estimates

4 unchanged sentences

Our actual results could differ from these estimates.

The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are revenue recognition, stock-based compensation, business combinations and valuation of goodwill and other acquired intangible assets, Convertible Notes, loss contingencies, and income taxes.

There have been no material changes to our critical accounting policies and estimates as described in our Annual Report, other than described below.

There have been no material changes to our critical accounting policies and estimates as described in our Annual Report.

Recent Accounting Pronouncements

4 unchanged sentences

Interest Rate Risk

We had cash and cash equivalents totaling $2.0 billion and $545.6 million at September 30, 2021 and December 31, 2020, respectively.

We had marketable securities totaling $1.5 billion and $2.0 billion at September 30, 2021 and December 31, 2020, respectively.

We had cash and cash equivalents totaling $2.4 billion and $2.0 billion at March 31, 2022 and December 31, 2021, respectively.

We had marketable securities totaling $2.6 billion and $1.7 billion at March 31, 2022 and December 31, 2021, respectively.

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

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

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

The primary objectives of our investment activities are to preserve principal and provide liquidity without significantly increasing risk.

1 unchanged sentence

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 April 2021, we issued the 2027 Notes with an aggregate principal amount of $1.15 billion, the full amount of which is outstanding as of September 30, 2021.

In February 2022, we issued the 2028 Notes with an aggregate principal amount of $1.5 billion, the full amount of which is outstanding as of March 31, 2022.

We carry the 2028 Notes at face value less the unamortized debt issuance costs on our consolidated balance sheets.

The 2028 Notes have a fixed interest rate;

therefore, we have no financial statement risk associated with changes in interest rates with respect to the 2028 Notes.

The fair value of the 2028 Notes changes when the market price of our stock fluctuates or market interest rates change.

In April 2021, we issued the 2027 Notes with an aggregate principal amount of $1.15 billion, the full amount of which is outstanding as of March 31, 2022.

We carry the 2027 Notes at face value less the unamortized debt issuance costs on our consolidated balance sheets.

The 2027 Notes do not bear regular interest;

1 unchanged sentence

The fair value of the 2027 Notes changes when the market price of our stock fluctuates or market interest rates change.

In April 2020, we issued the 2025 Notes with an aggregate principal amount of $1.0 billion, of which $0.3 billion remains outstanding as of September 30, 2021.

In April 2020, we issued the 2025 Notes with an aggregate principal amount of $1.0 billion, of which $0.3 billion remains outstanding as of March 31, 2022.

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

2 unchanged sentences

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

In August 2019, we issued the 2026 Notes with an aggregate principal amount of $1.265 billion, of which $0.8 billion remains outstanding as of September 30, 2021.

In August 2019, we issued the 2026 Notes with an aggregate principal amount of $1.265 billion, of which $0.8 billion remains outstanding as of March 31, 2022.

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

12 unchanged sentences

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