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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                

Commission File Number: 001-38017

 

SNAP INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

45-5452795

(State or other jurisdiction of

incorporation or organizations)

 

(I.R.S. Employer

Identification Number)

 

3000 31st Street

Santa Monica, California 90405

(Address of principal executive offices, including zip code)

(310) 399-3339

(Registrant's telephone, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.00001 per share

SNAP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class

 

Number of Shares Outstanding

Class A common stock, $0.00001 par value

 

1,382,050,725  shares outstanding as of April 19, 2022

Class B common stock, $0.00001 par value

 

22,646,636  shares outstanding as of April 19, 2022

Class C common stock, $0.00001 par value

 

231,626,943  shares outstanding as of April 19, 2022

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

Note Regarding Forward-Looking Statements

 

3

Note Regarding User Metrics and Other Data

 

4

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

5

 

 

  Consolidated Statements of Cash Flows

 

5

 

 

  Consolidated Statements of Operations

 

6

 

 

  Consolidated Statements of Comprehensive Income (Loss)

 

7

 

 

  Consolidated Balance Sheets

 

8

 

 

  Consolidated Statements of Stockholders’ Equity

 

9

 

 

  Notes to Consolidated Financial Statements

 

10

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

Item 4.

 

Controls and Procedures

 

39

 

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

40

Item 1A.

 

Risk Factors

 

40

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

76

Item 3.

 

Defaults Upon Senior Securities

 

76

Item 4.

 

Mine Safety Disclosures

 

76

Item 5.

 

Other Information

 

76

Item 6.

 

Exhibits

 

77

Signatures

 

 

 

78

 

Snap Inc., “Snapchat,” and our other registered and common-law trade names, trademarks, and service marks appearing in this Quarterly Report on Form 10-Q are the property of Snap Inc. or our subsidiaries.

 

2


 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding guidance, our future results of operations or financial condition, business strategy and plans, user growth and engagement, product initiatives, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “going to,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. We caution you that the foregoing may not include all of the forward-looking statements made in this report.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends, including our financial outlook, geo-political conflicts, and the COVID-19 pandemic, that we believe may continue to affect our business, financial condition, results of operations, and prospects. These forward-looking statements are subject to risks, uncertainties, and other factors described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, including among other things:

 

our financial performance, including our revenues, cost of revenues, operating expenses, and our ability to attain and sustain profitability;

 

our ability to generate and sustain positive cash flow;

 

our ability to attract and retain users and partners;

 

our ability to attract and retain advertisers;

 

our ability to compete effectively with existing competitors and new market entrants;

 

our ability to effectively manage our growth and future expenses;

 

our ability to comply with modified or new laws, regulations, and executive actions applying to our business;

 

our ability to maintain, protect, and enhance our intellectual property;

 

our ability to successfully expand in our existing market segments and penetrate new market segments;

 

our ability to attract and retain qualified team members and key personnel;

 

our ability to repay outstanding debt;

 

future acquisitions of or investments in complementary companies, products, services, or technologies; and

 

the potential adverse impact of climate change, natural disasters, health epidemics, including the COVID-19 pandemic, and war or other armed conflict, including Russia’s invasion of Ukraine, on our business, operations, and the markets and communities in which we and our partners, advertisers, and users operate.

Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, including future developments related to geo-political conflicts and the COVID-19 pandemic, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, dispositions, joint ventures, restructurings, legal settlements, or investments.

Investors and others should note that we may announce material business and financial information to our investors using our websites (including investor.snap.com), filings with the U.S. Securities and Exchange Commission, or SEC, webcasts, press releases, and conference calls. We use these mediums, including Snapchat and our website, to communicate with our members and the public about our company, our products, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our websites.

3


NOTE REGARDING USER METRICS AND OTHER DATA

We define a Daily Active User, or DAU, as a registered Snapchat user who opens the Snapchat application at least once during a defined 24-hour period. 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. We define average revenue per user, or ARPU, as quarterly revenue divided by the average DAUs. For purposes of calculating ARPU, revenue by user geography is apportioned to each region based on our determination of the geographic location in which advertising impressions are delivered, as this approximates revenue based on user activity. This allocation differs from our components of revenue disclosure in the notes to our consolidated financial statements, where revenue is based on the billing address of the advertising customer. For information concerning these metrics as measured by us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Unless otherwise stated, statistical information regarding our users and their activities is determined by calculating the daily average of the selected activity for the most recently completed quarter included in this report.

While these metrics are determined based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring how our products are used across large populations globally. For example, there may be individuals who have unauthorized or multiple Snapchat accounts, even though we forbid that in our Terms of Service and implement measures to detect and suppress that behavior. We have not determined the number of such multiple accounts.

Changes in our products, infrastructure, mobile operating systems, or metric tracking system, or the introduction of new products, may impact our ability to accurately determine active users or other metrics and we may not determine such inaccuracies promptly. We also believe that we don’t capture all data regarding each of our active users. Technical issues may result in data not being recorded from every user’s application. For example, because some Snapchat features can be used without internet connectivity, we may not count a DAU because we don’t receive timely notice that a user has opened the Snapchat application. This undercounting may increase as we grow in Rest of World markets where users may have poor connectivity. We do not adjust our reported metrics to reflect this underreporting. We believe that we have adequate controls to collect user metrics, however, there is no uniform industry standard. We continually seek to identify these technical issues and improve both our accuracy and precision, including ensuring that our investors and others can understand the factors impacting our business, but these and new issues may continue in the future, including if there continues to be no uniform industry standard.

Some of our demographic data may be incomplete or inaccurate. For example, because users self-report their dates of birth, our age-demographic data may differ from our users’ actual ages. And because users who signed up for Snapchat before June 2013 were not asked to supply their date of birth, we may exclude those users from our age demographics or estimate their ages based on a sample of the self-reported ages that we do have. If our active users provide us with incorrect or incomplete information regarding their age or other attributes, then our estimates may prove inaccurate and fail to meet investor expectations.

In the past we have relied on third-party analytics providers to calculate our metrics, but today we rely primarily on our analytics platform that we developed and operate. We count a DAU only when a user opens the application and only once per user per day. We believe this methodology more accurately measures our user engagement. We have multiple pipelines of user data that we use to determine whether a user has opened the application during a particular day, and becoming a DAU. This provides redundancy in the event one pipeline of data were to become unavailable for technical reasons, and also gives us redundant data to help measure how users interact with our application.

If we fail to maintain an effective analytics platform, our metrics calculations may be inaccurate. We regularly review, have adjusted in the past, and are likely in the future to adjust our processes for calculating our internal metrics to improve their accuracy. As a result of such adjustments, our DAUs or other metrics may not be comparable to those in prior periods. Our measures of DAUs may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology or data used.

4


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Snap Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(359,624

)

 

$

(286,882

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

38,100

 

 

 

23,498

 

Stock-based compensation

 

275,444

 

 

 

237,073

 

Amortization of debt issuance costs

 

1,413

 

 

 

1,044

 

Losses (gains) on debt and equity securities, net

 

79,127

 

 

 

(22,518

)

Other

 

1,125

 

 

 

6,836

 

Change in operating assets and liabilities, net of effect of

   acquisitions:

 

 

 

 

 

 

 

Accounts receivable, net of allowance

 

126,027

 

 

 

129,316

 

Prepaid expenses and other current assets

 

(27,178

)

 

 

(12,436

)

Operating lease right-of-use assets

 

16,984

 

 

 

11,198

 

Other assets

 

(308

)

 

 

(898

)

Accounts payable

 

54,980

 

 

 

56,505

 

Accrued expenses and other current liabilities

 

(62,828

)

 

 

5,349

 

Operating lease liabilities

 

(17,816

)

 

 

(13,295

)

Other liabilities

 

2,013

 

 

 

2,096

 

Net cash provided by operating activities

 

127,459

 

 

 

136,886

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

(21,175

)

 

 

(10,851

)

Purchases of strategic investments

 

(150

)

 

 

(1,350

)

Cash paid for acquisitions, net of cash acquired

 

(788

)

 

 

(108,912

)

Purchases of marketable securities

 

(1,342,381

)

 

 

(523,219

)

Sales of marketable securities

 

9,777

 

 

 

108,056

 

Maturities of marketable securities

 

342,545

 

 

 

816,931

 

Other

 

(5,493

)

 

 

(100

)

Net cash (used in) provided by investing activities

 

(1,017,665

)

 

 

280,555

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of convertible notes, net of issuance costs

 

1,483,500

 

 

 

 

Purchase of capped calls

 

(177,000

)

 

 

 

Proceeds from the exercise of stock options

 

2,266

 

 

 

4,453

 

Net cash provided by financing activities

 

1,308,766

 

 

 

4,453

 

Change in cash, cash equivalents, and restricted cash

 

418,560

 

 

 

421,894

 

Cash, cash equivalents, and restricted cash, beginning of period

 

1,994,723

 

 

 

546,543

 

Cash, cash equivalents, and restricted cash, end of period

$

2,413,283

 

 

$

968,437

 

Supplemental disclosures

 

 

 

 

 

 

 

Cash paid for income taxes, net

$

2,636

 

 

$

11,008

 

Cash paid for interest

$

3,454

 

 

$

5,127

 

 

See Notes to Consolidated Financial Statements.

 

5


 

Snap Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Revenue

$

1,062,727

 

 

$

769,584

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenue

 

420,897

 

 

 

412,601

 

Research and development

 

455,563

 

 

 

348,580

 

Sales and marketing

 

241,886

 

 

 

150,286

 

General and administrative

 

215,908

 

 

 

161,723

 

Total costs and expenses

 

1,334,254

 

 

 

1,073,190

 

Operating loss

 

(271,527

)

 

 

(303,606

)

Interest income

 

3,123

 

 

 

1,137

 

Interest expense

 

(5,173

)

 

 

(5,031

)

Other (expense) income, net

 

(77,537

)

 

 

22,058

 

Loss before income taxes

 

(351,114

)

 

 

(285,442

)

Income tax expense

 

(8,510

)

 

 

(1,440

)

Net loss

$

(359,624

)

 

$

(286,882

)

Net loss per share attributable to Class A, Class B, and Class C

   common stockholders (Note 3):

 

 

 

 

 

 

 

Basic

$

(0.22

)

 

$

(0.19

)

Diluted

$

(0.22

)

 

$

(0.19

)

Weighted average shares used in computation of net loss per

   share:

 

 

 

 

 

 

 

Basic

 

1,619,113

 

 

 

1,501,636

 

Diluted

 

1,619,113

 

 

 

1,501,636

 

 

See Notes to Consolidated Financial Statements.

6


Snap Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Net loss

$

(359,624

)

 

$

(286,882

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities, net of tax

 

(6,692

)

 

 

116

 

Foreign currency translation

 

(2,842

)

 

 

(9,569

)

Total other comprehensive income (loss), net of tax

 

(9,534

)

 

 

(9,453

)

Total comprehensive loss

$

(369,158

)

 

$

(296,335

)

 

See Notes to Consolidated Financial Statements.

7


Snap Inc.

Consolidated Balance Sheets

(in thousands, except par value)

 

 

March 31,

2022

 

 

December 31,

2021

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

2,412,372

 

 

$

1,993,809

 

Marketable securities

 

2,588,619

 

 

 

1,699,076

 

Accounts receivable, net of allowance

 

941,715

 

 

 

1,068,873

 

Prepaid expenses and other current assets

 

117,102

 

 

 

92,244

 

Total current assets

 

6,059,808

 

 

 

4,854,002

 

Property and equipment, net

 

214,441

 

 

 

202,644

 

Operating lease right-of-use assets

 

426,027

 

 

 

322,252

 

Intangible assets, net

 

292,310

 

 

 

277,654

 

Goodwill

 

1,645,284

 

 

 

1,588,452

 

Other assets

 

307,067

 

 

 

291,302

 

Total assets

$

8,944,937

 

 

$

7,536,306

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

180,387

 

 

$

125,282

 

Operating lease liabilities

 

51,684

 

 

 

52,396

 

Accrued expenses and other current liabilities

 

610,728

 

 

 

674,108

 

Total current liabilities

 

842,799

 

 

 

851,786

 

Convertible senior notes, net

 

3,736,843

 

 

 

2,253,087

 

Operating lease liabilities, noncurrent

 

426,834

 

 

 

325,509

 

Other liabilities

 

375,425

 

 

 

315,756

 

Total liabilities

 

5,381,901

 

 

 

3,746,138

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Class A non-voting common stock, $0.00001 par value. 3,000,000 shares

   authorized, 1,378,259 shares issued and outstanding at March 31, 2022, and

   3,000,000 shares authorized, 1,364,887 shares issued and outstanding

   at December 31, 2021.

 

14

 

 

 

14

 

Class B voting common stock, $0.00001 par value. 700,000 shares authorized,

   22,677 shares issued and outstanding at March 31, 2022, and 700,000 shares

   authorized, 22,769 shares issued and outstanding at December 31, 2021.

 

 

 

 

 

Class C voting common stock, $0.00001 par value. 260,888 shares authorized,

   231,627 shares issued and outstanding at March 31, 2022, and 260,888 shares

   authorized, 231,627 shares issued and outstanding at December 31, 2021.

 

2

 

 

 

2

 

Additional paid-in capital

 

12,211,123

 

 

 

12,069,097

 

Accumulated other comprehensive income (loss)

 

(4,013

)

 

 

5,521

 

Accumulated deficit

 

(8,644,090

)

 

 

(8,284,466

)

Total stockholders’ equity

 

3,563,036

 

 

 

3,790,168

 

Total liabilities and stockholders’ equity

$

8,944,937

 

 

$

7,536,306

 

 

See Notes to Consolidated Financial Statements.

 

8


 

Snap Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Class A non-voting common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

1,364,887

 

 

$

14

 

 

 

1,248,010

 

 

$

12

 

Shares issued in connection with exercise

   of stock options under stock-based

   compensation plans

 

160

 

 

 

 

 

 

314

 

 

 

 

Issuance of Class A non-voting common stock in connection with acquisitions

 

1,118

 

 

 

 

 

 

 

 

 

 

Issuance of Class A non-voting common

   stock for vesting of restricted stock

   units and restricted stock awards, net

 

11,996

 

 

 

 

 

 

15,348

 

 

 

1

 

Conversion of Class B voting common

   stock to Class A non-voting common

   stock

 

98

 

 

 

 

 

 

61

 

 

 

 

Balance, end of period

 

1,378,259

 

 

 

14

 

 

 

1,263,733

 

 

 

13

 

Class B voting common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

22,769

 

 

 

 

 

 

23,696

 

 

 

 

Shares issued in connection with exercise

   of stock options under stock-based

   compensation plans

 

6

 

 

 

 

 

 

5

 

 

 

 

Conversion of Class C voting common

   stock to Class B voting common stock

 

 

 

 

 

 

 

 

 

 

 

Conversion of Class B voting common

   stock to Class A non-voting common

   stock

 

(98

)

 

 

 

 

 

(61

)

 

 

 

Balance, end of period

 

22,677

 

 

 

 

 

 

23,640

 

 

 

 

Class C voting common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

231,627

 

 

 

2

 

 

 

231,627

 

 

 

2

 

Issuance of Class C voting common stock

   for settlement of restricted stock units,

   net

 

 

 

 

 

 

 

 

 

 

 

Conversion of Class C voting common

   stock to Class B voting common

   stock

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

231,627

 

 

 

2

 

 

 

231,627

 

 

 

2

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

12,069,097

 

 

 

 

 

 

10,200,141

 

Stock-based compensation expense

 

 

 

 

272,720

 

 

 

 

 

 

237,073

 

Shares issued in connection with exercise

   of stock options under stock-based

   compensation plans

 

 

 

 

2,267

 

 

 

 

 

 

4,453

 

Cumulative-effect adjustment from

   accounting changes

 

 

 

 

 

 

 

 

 

 

(664,021

)

Issuance of Class A non-voting common

   stock in connection with acquisitions

 

 

 

 

44,039

 

 

 

 

 

 

 

Purchase of capped calls

 

 

 

 

(177,000

)

 

 

 

 

 

 

Balance, end of period

 

 

 

 

12,211,123

 

 

 

 

 

 

9,777,646

 

Accumulated deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

(8,284,466

)

 

 

 

 

 

(7,891,542

)

Cumulative-effect adjustment from

   accounting changes

 

 

 

 

 

 

 

 

 

 

95,031

 

Net loss

 

 

 

 

(359,624

)

 

 

 

 

 

(286,882

)

Balance, end of period

 

 

 

 

(8,644,090

)

 

 

 

 

 

(8,083,393

)

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

5,521

 

 

 

 

 

 

21,363

 

Other comprehensive income (loss), net

   of tax

 

 

 

 

 

(9,534

)

 

 

 

 

 

(9,453

)

Balance, end of period

 

 

 

 

(4,013

)

 

 

 

 

 

11,910

 

Total stockholders’ equity

 

1,632,563

 

 

$

3,563,036

 

 

 

1,519,000

 

 

$

1,706,178

 

 

See Notes to Consolidated Financial Statements.

9


Snap Inc.

Notes to Consolidated Financial Statements

 

1. Description of Business and Summary of Significant Accounting Policies

Snap Inc. is a camera company.

Snap Inc. (“we,” “our,” or “us”) was formed as Future Freshman, LLC, a California limited liability company, in 2010. We changed our name to Toyopa Group, LLC in 2011, incorporated as Snapchat, Inc., a Delaware corporation, in 2012, and changed our name to Snap Inc. in 2016. Snap Inc. is headquartered in Santa Monica, California. Our flagship product, Snapchat, is a camera application that was created to help people communicate through short videos and images called “Snaps.”

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Our consolidated financial statements include the accounts of Snap Inc. and our wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Our fiscal year ends on December 31. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) in February 2022 (the “Annual Report”).

In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position, results of operations, and cash flows. Certain reclassifications have been made in the prior periods to conform to the current year's presentation. None of these reclassifications had a material impact on our consolidated financial statements. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

There have been no changes to our significant accounting policies described in our Annual Report that have had a material impact on our consolidated financial statements and related notes.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Management’s estimates are based on historical information available as of the date of the consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates.

Key estimates relate primarily to determining the fair value of assets and liabilities assumed in business combinations, evaluation of contingencies, uncertain tax positions, forfeiture rate, the fair value of stock-based awards, and the fair value of strategic investments. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

Recent Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance, which improves the transparency of government assistance received by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on an entity's financial statements. The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted. Effective January 1, 2022, we early adopted ASU 2021-10 on a prospective basis. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance is effective for interim and annual periods beginning after December

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15, 2022, with early adoption permitted. Effective January 1, 2022, we early adopted ASU 2021-08 on a prospective basis. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a modified retrospective or a full retrospective approach. Effective January 1, 2021, we early adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard resulted in a decrease to accumulated deficit of $95.0 million, a decrease to additional paid-in capital of $664.0 million, and an increase to convertible senior notes, net of $569.0 million.

2. 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.

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. 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 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.

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.

We also generate revenue from sales of hardware products. For the periods presented, revenue from the sales of hardware products was not material.

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

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

 

(in thousands)

 

Revenue:

 

 

 

 

 

 

 

North America (1) (2)

$

749,243

 

 

$

531,363

 

Europe (3)

 

159,076

 

 

 

129,118

 

Rest of world

 

154,408

 

 

 

109,103

 

Total revenue

$

1,062,727

 

 

$

769,584

 

 

(1)

North America includes Mexico, the Caribbean, and Central America.

(2)

United States revenue was $727.4 million and $514.6 million for the three months ended March 31, 2022 and 2021, respectively.

(3)

Europe includes Russia and Turkey.

 

3. Net Loss per Share

We compute net loss per share using the two-class method required for multiple classes of common stock. We have three classes of authorized common stock for which voting rights differ by class.

Basic net loss per share is computed by dividing net loss attributable to each class of stockholders by the weighted-average number of shares of stock outstanding during the period, adjusted for vested restricted stock units (“RSUs”) that have not been settled and restricted stock awards (“RSAs”) for which the risk of forfeiture has not yet lapsed.

For the calculation of diluted net loss per share, net loss per share attributable to common stockholders for basic net loss per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. Diluted net loss per share attributable to common stockholders is computed by dividing the resulting net loss attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding. We use the if-converted method for calculating any potential dilutive effect of the convertible senior notes due in 2025, 2026, 2027, and 2028 (collectively, the “Convertible Notes”) on diluted net loss per share. The Convertible Notes would have a dilutive impact on net income per share when the average market price of Class A common stock for a given period exceeds the respective conversion price of the Convertible Notes. For the periods presented, our potentially dilutive shares relating to stock options, RSUs, RSAs, and Convertible Notes were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive.

The numerators and denominators of the basic and diluted net loss per share computations for our common stock are calculated as follows for the three months ended March 31, 2022 and 2021:

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

 

(in thousands, except per share data)

 

 

Class A

Common

 

 

Class B

Common

 

 

Class C

Common

 

 

Class A

Common

 

 

Class B

Common

 

 

Class C

Common

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(303,132

)

 

$

(5,045

)

 

$

(51,447

)

 

$

(238,107

)

 

$

(4,523

)

 

$

(44,252

)

Net loss attributable to

   common stockholders

$

(303,132

)

 

$

(5,045

)

 

$

(51,447

)

 

$

(238,107

)

 

$

(4,523

)

 

$

(44,252

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average

   common shares

   - Basic

 

1,364,772