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2019-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2020
or
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 001-38017
SNAP INC.
(Exact name of registrant
as specified in its charter)
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Delaware
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45-5452795
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(State or other jurisdiction of
incorporation or organizations)
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(I.R.S. Employer
Identification Number)
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2772 Donald Douglas Loop North
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:
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Title of each
class
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Trading
Symbol(s)
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Name of each exchange on
which registered
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Class A Common Stock, par value $0.00001 per share
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SNAP
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New York Stock Exchange
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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.
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☒
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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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.
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Class
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Number of Shares Outstanding
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Class A common stock, $0.00001 par value
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1,188,374,911 shares outstanding as of April 17, 2020
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Class B common stock, $0.00001 par value
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24,279,209 shares outstanding as of April 17, 2020
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Class C common stock, $0.00001 par value
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232,782,607 shares outstanding as of April 17, 2020
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TABLE OF CONTENTS
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
that we believe may 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:
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•
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our financial
performance, including our revenues, cost of revenues, operating
expenses, and our ability to attain and sustain
profitability;
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•
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our ability to generate
and sustain positive cash flow;
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•
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our ability to attract
and retain users and publishers;
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•
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our ability to attract
and retain advertisers;
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•
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our ability to compete
effectively with existing competitors and new market
entrants;
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•
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our ability to
effectively manage our growth and future expenses;
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•
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our ability to comply
with modified or new laws and regulations applying to our
business;
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•
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our ability to maintain,
protect, and enhance our intellectual property;
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•
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our ability to
successfully expand in our existing market segments and penetrate
new market segments;
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our ability to attract
and retain qualified employees and key personnel;
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our ability to repay
outstanding debt;
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future acquisitions of
or investments in complementary companies, products, services, or
technologies; and
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the potential adverse
impact of the COVID-19 pandemic on our business, operations, and
the markets and communities in which we and our partners,
advertisers, and users operate.
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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, 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
investor relations website (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 website.
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 grow 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 exclude those users and
estimate their ages based on a sample of the self-reported ages 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 thus is 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. CONSOLIDATED FINANCIAL STATEMENTS
Snap Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(305,936
|
)
|
|
$
|
(310,407
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
21,204
|
|
|
|
23,319
|
|
|
Stock-based compensation
|
|
172,049
|
|
|
|
162,556
|
|
|
Deferred income taxes
|
|
(394
|
)
|
|
|
(266
|
)
|
|
Amortization of debt discount and issuance costs
|
|
11,563
|
|
|
|
—
|
|
|
Other
|
|
10,424
|
|
|
|
(1,917
|
)
|
|
Change in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance
|
|
92,892
|
|
|
|
71,870
|
|
|
Prepaid expenses and other current assets
|
|
(12,867
|
)
|
|
|
271
|
|
|
Operating lease right-of-use assets
|
|
8,716
|
|
|
|
9,812
|
|
|
Other assets
|
|
(1,155
|
)
|
|
|
(368
|
)
|
|
Accounts payable
|
|
5,734
|
|
|
|
3,090
|
|
|
Accrued expenses and other current liabilities
|
|
17,910
|
|
|
|
(14,323
|
)
|
|
Operating lease liabilities
|
|
(13,994
|
)
|
|
|
(10,470
|
)
|
|
Other liabilities
|
|
137
|
|
|
|
655
|
|
|
Net cash provided by (used in) operating activities
|
|
6,283
|
|
|
|
(66,178
|
)
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(10,891
|
)
|
|
|
(11,814
|
)
|
|
Non-marketable investments
|
|
(35,500
|
)
|
|
|
(2,250
|
)
|
|
Purchases of marketable securities
|
|
(552,675
|
)
|
|
|
(525,520
|
)
|
|
Sales of marketable securities
|
|
217,958
|
|
|
|
—
|
|
|
Maturities of marketable securities
|
|
752,685
|
|
|
|
458,627
|
|
|
Other
|
|
—
|
|
|
|
29
|
|
|
Net cash provided by (used in) investing activities
|
|
371,577
|
|
|
|
(80,928
|
)
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
3,130
|
|
|
|
5,596
|
|
|
Net cash provided by financing activities
|
|
3,130
|
|
|
|
5,596
|
|
|
Change in cash, cash equivalents, and restricted cash
|
|
380,990
|
|
|
|
(141,510
|
)
|
|
Cash, cash equivalents, and restricted cash, beginning of
period
|
|
521,260
|
|
|
|
388,974
|
|
|
Cash, cash equivalents, and restricted cash, end of period
|
$
|
902,250
|
|
|
$
|
247,464
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net
|
$
|
808
|
|
|
$
|
320
|
|
|
Cash paid for interest
|
|
4,899
|
|
|
|
358
|
|
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,
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenue
|
$
|
462,478
|
|
|
$
|
320,426
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
253,410
|
|
|
|
203,767
|
|
|
Research and development
|
|
238,613
|
|
|
|
216,185
|
|
|
Sales and marketing
|
|
122,205
|
|
|
|
97,882
|
|
|
General and administrative
|
|
134,614
|
|
|
|
118,653
|
|
|
Total costs and expenses
|
|
748,842
|
|
|
|
636,487
|
|
|
Operating loss
|
|
(286,364
|
)
|
|
|
(316,061
|
)
|
|
Interest income
|
|
8,589
|
|
|
|
7,816
|
|
|
Interest expense
|
|
(15,113
|
)
|
|
|
(756
|
)
|
|
Other income (expense), net
|
|
(12,389
|
)
|
|
|
(1,127
|
)
|
|
Loss before income taxes
|
|
(305,277
|
)
|
|
|
(310,128
|
)
|
|
Income tax benefit (expense)
|
|
(659
|
)
|
|
|
(279
|
)
|
|
Net loss
|
$
|
(305,936
|
)
|
|
$
|
(310,407
|
)
|
|
Net loss per share attributable to Class A, Class B, and Class
C
common stockholders (Note 3):
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.21
|
)
|
|
$
|
(0.23
|
)
|
|
Diluted
|
$
|
(0.21
|
)
|
|
$
|
(0.23
|
)
|
|
Weighted average shares used in computation of net loss per
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
1,426,305
|
|
|
|
1,340,615
|
|
|
Diluted
|
|
1,426,305
|
|
|
|
1,340,615
|
|
See Notes to Consolidated Financial Statements.
6
Snap Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Net loss
|
$
|
(305,936
|
)
|
|
$
|
(310,407
|
)
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities, net of tax
|
|
3,694
|
|
|
|
309
|
|
|
Foreign currency translation
|
|
(7,163
|
)
|
|
|
(3,524
|
)
|
|
Total other comprehensive income (loss), net of tax
|
|
(3,469
|
)
|
|
|
(3,215
|
)
|
|
Total comprehensive income (loss)
|
$
|
(309,405
|
)
|
|
$
|
(313,622
|
)
|
See Notes to Consolidated Financial Statements.
7
Snap Inc.
Consolidated
Balance Sheets
(in thousands, except par value)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
901,342
|
|
|
$
|
520,317
|
|
|
Marketable securities
|
|
1,180,533
|
|
|
|
1,592,488
|
|
|
Accounts receivable, net of allowance
|
|
394,053
|
|
|
|
492,194
|
|
|
Prepaid expenses and other current assets
|
|
51,943
|
|
|
|
38,987
|
|
|
Total current assets
|
|
2,527,871
|
|
|
|
2,643,986
|
|
|
Property and equipment, net
|
|
173,751
|
|
|
|
173,667
|
|
|
Operating lease right-of-use assets
|
|
267,479
|
|
|
|
275,447
|
|
|
Intangible assets, net
|
|
83,900
|
|
|
|
92,121
|
|
|
Goodwill
|
|
756,389
|
|
|
|
761,153
|
|
|
Other assets
|
|
89,120
|
|
|
|
65,550
|
|
|
Total assets
|
$
|
3,898,510
|
|
|
$
|
4,011,924
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
54,068
|
|
|
$
|
46,886
|
|
|
Operating lease liabilities
|
|
40,189
|
|
|
|
42,179
|
|
|
Accrued expenses and other current liabilities
|
|
428,934
|
|
|
|
410,610
|
|
|
Total current liabilities
|
|
523,191
|
|
|
|
499,675
|
|
|
Convertible senior notes, net
|
|
903,339
|
|
|
|
891,776
|
|
|
Operating lease liabilities, noncurrent
|
|
289,754
|
|
|
|
303,178
|
|
|
Other liabilities
|
|
57,319
|
|
|
|
57,382
|
|
|
Total liabilities
|
|
1,773,603
|
|
|
|
1,752,011
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Class A non-voting common stock, $0.00001 par value. 3,000,000
shares
authorized, 1,160,127 shares issued and outstanding at
December 31, 2019, and
3,000,000 shares authorized, 1,182,527 shares issued
and outstanding
at March 31, 2020.
|
|
12
|
|
|
|
12
|
|
|
Class B voting common stock, $0.00001 par value. 700,000 shares
authorized,
24,522 shares issued and outstanding at December 31,
2019, and 700,000 shares
authorized, 24,279 shares issued and outstanding at
March 31, 2020.
|
|
—
|
|
|
|
—
|
|
|
Class C voting common stock, $0.00001 par value. 260,888 shares
authorized,
231,147 shares issued and outstanding at December 31,
2019, and 260,888 shares
authorized, 232,783 shares issued and outstanding at
March 31, 2020.
|
|
2
|
|
|
|
2
|
|
|
Additional paid-in capital
|
|
9,380,435
|
|
|
|
9,205,256
|
|
|
Accumulated other comprehensive income (loss)
|
|
(2,896
|
)
|
|
|
573
|
|
|
Accumulated deficit
|
|
(7,252,646
|
)
|
|
|
(6,945,930
|
)
|
|
Total stockholders’ equity
|
|
2,124,907
|
|
|
|
2,259,913
|
|
|
Total liabilities and stockholders’ equity
|
$
|
3,898,510
|
|
|
$
|
4,011,924
|
|
See Notes to Consolidated Financial Statements.
8
Snap Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Class A non-voting common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
1,160,127
|
|
|
$
|
12
|
|
|
|
999,304
|
|
|
$
|
10
|
|
|
Shares issued in connection with exercise of stock options under
stock-based compensation plans
|
|
396
|
|
|
|
—
|
|
|
|
1,260
|
|
|
|
—
|
|
|
Issuance of Class A non-voting common stock for vesting of
restricted stock units and restricted stock awards, net
|
|
21,759
|
|
|
|
—
|
|
|
|
13,382
|
|
|
|
—
|
|
|
Conversion of Class B voting common stock to Class A non-voting
common stock
|
|
245
|
|
|
|
—
|
|
|
|
43,189
|
|
|
|
1
|
|
|
Balance, end of period
|
|
1,182,527
|
|
|
|
12
|
|
|
|
1,057,135
|
|
|
|
11
|
|
|
Class B voting common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
24,522
|
|
|
|
—
|
|
|
|
93,846
|
|
|
|
1
|
|
|
Shares issued in connection with exercise of stock options under
stock-based compensation plans
|
|
2
|
|
|
|
—
|
|
|
|
650
|
|
|
|
—
|
|
|
Issuance of Class B voting common stock for vesting of restricted
stock units, net
|
|
—
|
|
|
|
—
|
|
|
|
203
|
|
|
|
—
|
|
|
Conversion of Class B voting common stock to Class A non-voting
common stock
|
|
(245
|
)
|
|
|
—
|
|
|
|
(43,189
|
)
|
|
|
—
|
|
|
Balance, end of period
|
|
24,279
|
|
|
|
—
|
|
|
|
51,510
|
|
|
|
1
|
|
|
Class C voting common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
231,147
|
|
|
|
2
|
|
|
|
224,611
|
|
|
|
2
|
|
|
Issuance of Class C voting common stock for settlement of
restricted stock units, net
|
|
1,636
|
|
|
|
—
|
|
|
|
1,676
|
|
|
|
—
|
|
|
Balance, end of period
|
|
232,783
|
|
|
|
2
|
|
|
|
226,287
|
|
|
|
2
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
—
|
|
|
|
9,205,256
|
|
|
|
—
|
|
|
|
8,220,417
|
|
|
Stock-based compensation expense
|
|
—
|
|
|
|
172,049
|
|
|
|
—
|
|
|
|
162,556
|
|
|
Shares issued in connection with exercise of stock options under
stock-based compensation plans
|
|
—
|
|
|
|
3,130
|
|
|
|
—
|
|
|
|
5,635
|
|
|
Balance, end of period
|
|
—
|
|
|
|
9,380,435
|
|
|
|
—
|
|
|
|
8,388,608
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
—
|
|
|
|
(6,945,930
|
)
|
|
|
—
|
|
|
|
(5,912,578
|
)
|
|
Cumulative-effect adjustment from accounting changes
|
|
—
|
|
|
|
(780
|
)
|
|
|
—
|
|
|
|
308
|
|
|
Net loss
|
|
—
|
|
|
|
(305,936
|
)
|
|
|
—
|
|
|
|
(310,407
|
)
|
|
Balance, end of period
|
|
—
|
|
|
|
(7,252,646
|
)
|
|
|
—
|
|
|
|
(6,222,677
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
—
|
|
|
|
573
|
|
|
|
—
|
|
|
|
3,147
|
|
|
Other comprehensive income (loss), net of tax
|
|
—
|
|
|
|
(3,469
|
)
|
|
|
—
|
|
|
|
(3,215
|
)
|
|
Balance, end of period
|
|
—
|
|
|
|
(2,896
|
)
|
|
|
—
|
|
|
|
(68
|
)
|
|
Total stockholders’ equity
|
|
1,439,589
|
|
|
$
|
2,124,907
|
|
|
|
1,334,932
|
|
|
$
|
2,165,877
|
|
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, 2019, as
filed with the SEC on February 4, 2020 (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. The results of operations
for the three months ended March 31, 2020 are not
necessarily indicative of the results to be expected for the year
ending December 31, 2020.
Other than described below, 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, excess inventory
reserves, lease exit charges, forfeiture rate, the fair value of
convertible senior notes, and the fair value of stock-based awards.
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 August 2018, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2018-15, Intangibles —
Goodwill and Other — Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract. ASU 2018-15
aligns the requirements for capitalizing implementation costs in a
cloud computing arrangement service contract with the requirements
for capitalizing implementation costs incurred for an internal-use
software license. The guidance is effective for interim and annual
periods beginning after December 15, 2019, with early adoption
permitted. We adopted ASU 2018-15 effective January 1, 2020. The
impact of adoption of these standards on our consolidated financial
statements, including accounting policies, processes, and systems,
was not material.
10
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. ASU 2016-13 replaced the incurred loss
impairment methodology under current GAAP with a methodology that
reflects expected credit losses and requires consideration of a
broader range of reasonable and supportable information to inform
credit loss estimates. ASU 2016-13 requires use of a
forward-looking expected credit loss model for accounts
receivables, loans, and other financial instruments. ASU 2016-13 is
effective for fiscal years beginning after December 15, 2019, with
early adoption permitted. Adoption of the standard requires using a
modified retrospective approach through a cumulative-effect
adjustment to retained earnings as of the effective date to align
existing credit loss methodology with the new
standard.
In November 2019, the FASB issued ASU 2019-11, Codification
Improvements to Topic 326, Financial Instruments—Credit Losses. ASU
2019-11 requires entities that did not adopt the amendments in ASU
2016-13 as of November 2019 to adopt ASU 2019-11. This ASU contains
the same effective dates and transition requirements as ASU
2016-13. We adopted ASU 2016-13 and ASU 2019-11 effective January
1, 2020. The impact of adoption of these standards on our
consolidated financial statements, including accounting policies,
processes, and systems,
was
not material.
2. Revenue
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
Sponsored Creative Tools, and measurement services, referred to as
advertising revenue. Sponsored Creative Tools include Sponsored
Geofilters and Sponsored Lenses. Sponsored Geofilters 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 determining whether an arrangement exists, we ensure that an
agreement, such as an insertion order or self-serve terms, have
been fully executed or accepted electronically.
We sell advertising directly to advertisers (“Snap-sold” revenue)
and certain partners that provide content on Snapchat (“content
partners”) also sell directly to advertisers (“partner-sold”
revenue). Snap Ads may be subject to revenue sharing
agreements between us and our content partners. Our Sponsored
Creative Tools and measurement services are only Snap-sold and are
not subject to revenue sharing arrangements. Snap-sold revenue is
recognized based on the gross amount that we charge the advertiser.
Partner-sold revenue is recognized based on the net amount of
revenue to be received from the content partners.
We recognize Snap-sold revenue on a gross basis predominantly
because we are the primary obligor responsible for fulfilling
advertisement delivery, including the acceptability of the services
delivered. For Snap-sold advertising, we enter into contractual
arrangements directly with advertisers. We are directly responsible
for the fulfillment of the contractual terms and any remedy for
issues with such fulfillment. For Snap-sold revenue, we also have
latitude in establishing the selling price with the advertiser, as
we sell advertisements at a rate determined at our sole
discretion.
We recognize partner-sold revenue on a net basis predominantly
because the content partner, and not Snap, is the primary obligor
responsible for fulfillment, including the acceptability of the
services delivered. In partner-sold advertising arrangements, the
content partner has a direct contractual relationship with the
advertiser. There is no contractual relationship between us and the
advertiser for partner-sold transactions. When a content partner
sells advertisements, the content partner is responsible for
fulfilling the advertisements, and accordingly, we have determined
the content partner is the primary obligor. Additionally, we do not
have any latitude in establishing the price with the advertiser for
partner-sold advertising. The content partner may sell
advertisements at a rate determined at its sole discretion. For the
periods presented, partner-sold revenue was not material.
11
We also generate revenue from sales of our hardware product,
Spectacles. For the periods presented, revenue from the sales of
Spectacles was not material.
The following table represents our revenue disaggregated by
geography based on the billing address of the advertising
customer:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
North America (1)
(2)
|
$
|
281,274
|
|
|
$
|
195,958
|
|
|
Europe (3)
|
|
81,077
|
|
|
|
56,581
|
|
|
Rest of world
|
|
100,127
|
|
|
|
67,887
|
|
|
Total revenue
|
$
|
462,478
|
|
|
$
|
320,426
|
|
|
(1)
|
North America includes Mexico, the Caribbean, and Central
America.
|
|
(2)
|
United States revenue was $273.2 million and $188.8 million for the
three months ended March 31, 2020 and 2019, 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. Vested
restricted stock units (“RSUs”) that have not been settled,
including the vested Chief Executive Officer (“CEO”) RSU award that
was received upon our initial public offering (“IPO”) (“CEO
Award”), and restricted stock awards (“RSAs”) for which the risk of
forfeiture has lapsed have been included in the appropriate common
share class used to calculate basic net loss per share.
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 senior convertible notes (the “Convertible
Notes”) on diluted net loss per share, subject to meeting the
criteria for using the treasury stock method in future periods. 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 conversion price of the Convertible Notes.
For the periods presented, our potentially dilutive shares relating
to stock options, RSUs, RSAs, Convertible Notes, and common stock
subject to repurchase 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.
12
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, 2020 and
2019:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(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
|
|
$
|
(249,240
|
)
|
|
$
|
(5,223
|
)
|
|
$
|
(51,473
|
)
|
|
$
|
(239,860
|
)
|
|
$
|
(13,601
|
)
|
|
$
|
(56,946
|
)
|
|
Net loss attributable to common
stockholders
|
|
$
|
(249,240
|
)
|
|
$
|
(5,223
|
)
|
|
$
|
(51,473
|
)
|
|
$
|
(239,860
|
)
|
|
$
|
(13,601
|
)
|
|
$
|
(56,946
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common
shares - Basic
|
|
|
1,161,982
|
|
|
|
24,352
|
|
|
|
239,971
|
|
|
|
1,035,932
|
|
|
|
58,741
|
|
|
|
245,942
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common
shares - Diluted
|
|
|
1,161,982
|
|
|
|
24,352
|
|
|
|
239,971
|
|
|
|
1,035,932
|
|
|
|
58,741
|
|
|
|
245,942
|
|
|
Net loss per share attributable to
common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.21
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.23
|
)
|
|
Diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.23
|
)
|
The following potentially dilutive shares were excluded from the
calculation of diluted net loss per share because their effect
would have been anti-dilutive for the periods presented:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(in thousands)
|
|
|
Stock options
|
|
|
9,793
|
|
|
|
13,382
|
|
|
Unvested RSUs and RSAs
|
|
|
143,511
|
|
|
|
181,321
|
|
|
Convertible Notes (if-converted)
|
|
|
55,468
|
|
|
|
—
|
|
4. Stockholders’ Equity
We maintain three share-based employee compensation plans: the 2017
Equity Incentive Plan (“2017 Plan”), the 2014 Equity Incentive Plan
(“2014 Plan”), and the 2012 Equity Incentive Plan (“2012 Plan”, and
collectively with the 2017 Plan and the 2014 Plan, the “Stock
Plans”). In January 2017, our board of directors adopted the 2017
Plan, and in February 2017 our stockholders approved the 2017 Plan,
effective on March 1, 2017, which serves as the successor to the
2014 Plan and 2012 Plan and provides for the grant of incentive
stock options to employees, including employees of any parent or
subsidiary, and for the grant of nonstatutory stock options, stock
appreciation rights, RSAs, RSUs, performance stock awards,
performance cash awards, and other forms of stock awards to
employees, directors, and consultants, including employees and
consultants of our affiliates.
Restricted Stock Units and Restricted Stock Awards
The following table summarizes the RSU and RSA activity during the
three months ended March 31, 2020:
|
|
|
Class A
Outstanding
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
|
|
(in thousands, except per share data)
|
|
|
Unvested at December 31, 2019
|
|
|
148,797
|
|
|
$
|
12.39
|
|
|
Granted
|
|
|
14,903
|
|
|
$
|
16.58
|
|
|
Vested
|
|
|
(17,915
|
)
|
|
$
|
13.43
|
|
|
Forfeited
|
|
|
(2,274
|
)
|
|
$
|
13.59
|
|
|
Unvested at March 31, 2020
|
|
|
143,511
|
|
|
$
|
12.68
|
|
13
RSUs granted to employees before January 1, 2017 (“Pre-2017
Awards”) included both service-based and performance conditions to
vest in the underlying common stock. The performance condition
related to Pre-2017 Awards was satisfied on the effectiveness of
the registration statement for our IPO, which occurred in March
2017. Total unrecognized compensation cost related to Pre-2017
Awards was $17.0 million as of March 31, 2020 and is expected
to be recognized over a weighted-average period of 0.6 years.
All RSUs and RSAs granted after December 31, 2016 vest on the
satisfaction of only a service-based condition (“Post-2017
Awards”). Total unrecognized compensation cost related to Post-2017
Awards was $1.5 billion as of March 31, 2020 and is expected
to be recognized over a weighted-average period of 2.8 years. The
service condition for Post-2017 Awards granted prior to February
2018 is generally satisfied over four years, 10% after the first
year of service, 20% over the second year, 30% over the third year,
and 40% over the fourth year. In limited instances, we have issued
Post-2017 Awards with vesting periods in excess of four years. The
service condition for Post-2017 Awards granted after February 2018
is generally satisfied in equal monthly or quarterly installments
over four years.
Additionally, we had 7.6 million and 9.4 million RSUs that were
vested but have not yet settled as of March 31, 2020 and
December 31, 2019, respectively. These RSUs are primarily related
to the CEO award.
Stock Options
The following table summarizes the stock option award activity
under the Stock Plans during the three months ended March 31,
2020:
|
|
|
Class A
Number
of Shares
|
|
|
Class B
Number
of Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value(1)
|
|
|
|
|
(in thousands, except per share data)
|
|
|
Outstanding at December 31, 2019
|
|
|
8,712
|
|
|
|
1,550
|
|
|
$
|
9.00
|
|
|
|
5.59
|
|
|
$
|
75,460
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Exercised
|
|
|
(396
|
)
|
|
|
(2
|
)
|
|
$
|
7.86
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
|
|
(71
|
)
|
|
|
—
|
|
|
$
|
12.79
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding at March 31, 2020
|
|
|
8,245
|
|
|
|
1,548
|
|
|
$
|
9.02
|
|
|
|
5.26
|
|
|
$
|
41,095
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying stock option awards
and the closing market price of our Class A common stock as of
December 31, 2019 and March 31, 2020, respectively.
|
Total unrecognized compensation cost related to unvested stock
options was $13.2 million as of March 31, 2020 and is
expected to be recognized over a weighted-average period of 2.0
years.
Stock-Based Compensation Expense by Function
Total stock-based compensation expense by function was as
follows:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
Cost of revenue
|
|
$
|
1,782
|
|
|
$
|
1,849
|
|
|
Research and development
|
|
|
118,317
|
|
|
|
112,242
|
|
|
Sales and marketing
|
|
|
24,806
|
|
|
|
17,760
|
|
|
General and administrative
|
|
|
27,144
|
|
|
|
30,705
|
|
|
Total
|
|
$
|
172,049
|
|
|
$
|
162,556
|
|
14
5. Business Acquisitions and Divestitures
2019 Acquisitions and Divestiture
AI Factory, Inc.
In December 2019, we acquired the remaining ownership interest in
AI Factory, Inc. (“AI Factory”), a content and technology company.
Prior to the acquisition, we owned a minority interest in the
company. The purpose of the acquisition was to enhance the
functionality of our platform.
The acquisition date fair value of AI Factory was $128.1 million,
which primarily represents current and future cash consideration
payments to sellers, as well as the $13.5 million fair value of our
original minority interest. We recognized the change in
pre-acquisition fair value of our original minority interest as a
gain in other income (expense), net on the consolidated statement
of operations.
The allocation of acquisition date fair value is as follows:
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
Technology
|
|
$
|
16,000
|
|
|
Goodwill
|
|
|
110,734
|
|
|
Other assets acquired and liabilities assumed, net
|
|
|
1,353
|
|
|
Total
|
|
$
|
128,087
|
|
The goodwill amount represents synergies related to our existing
platform expected to be realized from this business combination and
assembled workforce. The associated goodwill and intangible assets
are not deductible for tax purposes.
Placed, LLC
In June 2019, we divested our membership interest in Placed, LLC
(“Placed”) to Foursquare Labs, Inc. (“Foursquare”). The total
cash consideration received was $77.8 million, which includes
amounts paid for severance and equity compensation. The remaining
$66.9 million represents purchase consideration and we recognized a
net gain on divestiture of $39.9 million, which is included in
other income (expense), net, on our consolidated statements of
operations. The operating results of Placed were not material to
our consolidated revenue or consolidated operating loss for all
periods presented. We determined that Placed did not meet the
criteria to be classified as discontinued operations.
Placed assets and liabilities on completion of the divestiture were
as follows:
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Trademarks, net
|
$
|
1,052
|
|
|
Technology, net
|
|
14,193
|
|
|
Customer relationships, net
|
|
5,246
|
|
|
Goodwill
|
|
2,682
|
|
|
Other assets and liabilities, net
|
|
3,827
|
|
|
Total
|
$
|
27,000
|
|
Other Acquisitions
In the fourth quarter of 2019, we acquired a business to enhance
our existing platform, technology, and workforce. The purchase
consideration was $34.0 million of which $23.5 million was
allocated to goodwill and the remainder primarily to identifiable
intangible assets. The goodwill amount represents synergies related
to our existing platform expected to be realized from this business
combination and assembled workforce. The associated goodwill and
intangible assets are deductible for tax purposes.
15
6. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the three months
ended March 31, 2020 were as follows:
|
|
Goodwill
|
|
|
|
(in thousands)
|
|
|
Balance as of December 31, 2019
|
$
|
761,153
|
|
|
Foreign currency translation
|
|
(4,764
|
)
|
|
Balance as of March 31, 2020
|
$
|
756,389
|
|
Intangible assets consisted of the following:
|
|
March 31, 2020
|
|
|
|
Weighted-
Average
Remaining
Useful Life -
Years
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
(in thousands, except years)
|
|
|
Domain names
|
|
2.4
|
|
|
$
|
414
|
|
|
$
|
220
|
|
|
$
|
194
|
|
|
Acquired developed technology
|
|
3.4
|
|
|
|
157,400
|
|
|
|
85,579
|
|
|
|
71,821
|
|
|
Patents
|
|
5.7
|
|
|
|
19,360
|
|
|
|
7,475
|
|
|
|
11,885
|
|
|
|
|
|
|
|
$
|
177,174
|
|
|