SNAP Snap Inc

Snap Inc. (NYSE: SNAP) today announced financial results for the quarter ended September 30, 2017.

Third Quarter 2017 Financial Highlights:

        Three Months Ended Nine Months Ended September 30, Percent September 30, Percent 2017   2016 Change 2017   2016 Change (dollars in thousands) (dollars in thousands) (Unaudited) (NM = Not Meaningful) (NM = Not Meaningful)   Revenue $ 207,937 $ 128,204 62 % $ 539,256 $ 238,800 126 % Net loss(1) $ (443,159 ) $ (124,228 ) NM $ (3,095,089 ) $ (344,698 ) NM Adjusted EBITDA(2) $ (178,901 ) $ (108,604 ) 65 % $ (561,134 ) $ (306,959 ) 83 %   Other Financial Highlights Cash, cash equivalents, and marketable securities $ 2,298,068 Cash used in operating activities $ (194,013 ) $ (216,866 ) $ (558,584 ) $ (443,517 ) Free Cash Flow(3) $ (219,961 ) $ (234,058 ) $ (621,890 ) $ (489,582 ) Capital expenditures $ (25,948 ) $ (17,192 ) $ (63,306 ) $ (46,065 )   (1)   Net loss for the nine months ended September 30, 2017 includes $2.5 billion of stock-based compensation expense, primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our initial public offering. (2) Adjusted EBITDA is defined as net income (loss), excluding interest income; interest expense; other income (expense) net; income tax benefit (expense); depreciation and amortization; stock-based compensation expense and related payroll tax expense; and certain other non-cash or non-recurring items impacting net income (loss) from time to time, as described below. (3) Free Cash Flow is defined as net cash used in operating activities, reduced by purchases of property and equipment.  

Note: For adjustments and additional information regarding the non-GAAP financial measures discussed, please see “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures” below.

Operational Highlights

• Daily active users (DAU)(1) – DAUs grew from 153 million in Q3 2016 to 178 million in Q3 2017, an increase of 25.2 million or 17% year-over-year. DAUs increased 4.5 million or 3% quarter-over-quarter, from 173 million in Q2 2017.
• Average revenue per user (ARPU)(2) – ARPU was $1.17 in Q3 2017, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.
• Hosting costs per DAU – Hosting costs per DAU were $0.68 in Q3 2017, as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.
• Capital expenditures – Capital expenditures were $25.9 million in Q3 2017, as compared to $17.2 million in Q3 2016 and $19.4 million in Q2 2017.
• Excess inventory and related charges – In Q3 2017, we recorded $39.9 million of charges related to Spectacles inventory, primarily related to excess inventory reserves and inventory purchase commitment cancellation charges.

(1)   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 measure average Daily Active Users for a particular quarter by calculating the average Daily Active Users for that quarter. (2) We define ARPU as quarterly revenue divided by the average Daily Active Users.  

CONFERENCE CALL INFORMATION

Snap Inc. will host a conference call to discuss the results at 2:00 p.m. Pacific / 5:00 p.m. Eastern today. The live audio webcast along with supplemental information will be accessible at investor.snap.com. A recording of the webcast will also be available following the conference call.

Snap Inc. uses the investor.snap.com and snap.com/news websites as means of disclosing material non-public information and for complying with its disclosure obligation under Regulation FD.

Forward-Looking Statements

This press release contains “forward-looking” statements that are based on our management’s beliefs and assumptions and on information currently available to management. Forward-looking statements include statements about expected financial metrics, such as revenue, non-GAAP Adjusted EBITDA, capital expenditures, and stock-based compensation, as well as non-financial metrics, such as DAU and video views. They also include statements about our possible or assumed business strategies, potential growth opportunities, new products, and potential market opportunities.

Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “believes,” “continue,” “could,” “potential,” “remain,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks include, but are not limited to, risks and uncertainties related to: our limited operating history, our lack of significant revenue to date, our ability to monetize our products, the highly competitive and rapidly changing market for internet and advertising companies, infrastructure costs, our ability to create new and innovative products, our ability to manage any future user growth, and our international expansion strategies. Additional risks and uncertainties that could affect our financial results are included in the section titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the final prospectus for our initial public offering, dated March 1, 2017, which is available on the SEC’s website at www.sec.gov. Additional information will be made available in Snap Inc.’s quarterly report on Form 10-Q and other filings that we make from time to time with the SEC. In addition, any forward-looking statements contained in this press release are based on assumptions that we believe to be reasonable as of this date. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons if actual results differ materially from those anticipated in the forward-looking statements.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income (loss); excluding interest income; interest expense; other income (expense), net; income tax benefit (expense); depreciation and amortization; stock-based compensation expense and related payroll tax expense; and certain other non-cash or non-recurring items impacting net income (loss) from time to time, as described below. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

We use the non-GAAP financial measure of Free Cash Flow, which is defined as net cash used in operating activities, reduced by purchases of property and equipment. We believe Free Cash Flow is an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in our business and is a key financial indicator used by management. Additionally, we believe that Free Cash Flow is an important measure since we use third-party infrastructure partners to host our services and therefore we do not incur significant capital expenditures to support revenue generating activities. Free Cash Flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.

We use the non-GAAP financial measure of Non-GAAP Net Loss, which is defined as net income (loss); excluding amortization of intangible assets; stock-based compensation expense and related payroll tax expense; certain other non-cash or non-recurring items impacting net income (loss) from time to time; and related income tax adjustments. Non-GAAP Net Loss and weighted average diluted shares are then used to calculate Non-GAAP diluted net loss per share. Similar to Adjusted EBITDA, we believe these measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses we exclude in the measure.

We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP measures to assist investors in seeing our financial performance through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure, please see “Reconciliation of GAAP to Non-GAAP Financial Measures” below.

Snap Inc., “Snapchat,” and our other registered and common law trade names, trademarks, and service marks are the property of Snap Inc. or our subsidiaries.

  SNAP INC. CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

    Three Months Ended   Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Revenue $ 207,937 $ 128,204 $ 539,256 $ 238,800 Costs and expenses: Cost of revenue 210,710 127,780 526,216 298,310 Research and development 239,442 54,562 1,301,025 118,712 Sales and marketing 101,511 34,658 412,147 73,982 General and administrative   118,101     42,172     1,424,480     98,444   Total costs and expenses   669,764     259,172     3,663,868     589,448   Loss from operations (461,827 ) (130,968 ) (3,124,612 ) (350,648 ) Interest income 6,253 1,938 15,026 3,168 Interest expense (887 ) (648 ) (2,580 ) (648 ) Other income (expense), net   1,002     (1,421 )   1,975     (3,353 ) Loss before income taxes (455,459 ) (131,099 ) (3,110,191 ) (351,481 ) Income tax benefit (expense)   12,300     6,871     15,102     6,783   Net loss $ (443,159 ) $ (124,228 ) $ (3,095,089 ) $ (344,698 ) Net loss per share attributable to Class A, Class B, and Class C common stockholders: Basic $ (0.36 ) $ (0.15 ) $ (2.71 ) $ (0.43 ) Diluted $ (0.36 ) $ (0.15 ) $ (2.71 ) $ (0.43 )     SNAP INC. CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

    September 30,   December 31, 2017 2016 (Unaudited) Assets Current assets Cash and cash equivalents $ 317,554 $ 150,121 Marketable securities 1,980,514 837,247 Accounts receivable, net of allowance 194,971 162,659 Prepaid expenses and other current assets   54,692     29,958   Total current assets 2,547,731 1,179,985 Property and equipment, net 143,112 100,585 Intangible assets, net 164,612 75,982 Goodwill 612,823 319,137 Other assets   74,102     47,103   Total assets $ 3,542,380   $ 1,722,792   Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 15,207 $ 8,419 Accrued expenses and other current liabilities   280,957     148,325   Total current liabilities 296,164 156,744 Other liabilities   70,946     47,134   Total liabilities   367,110     203,878   Commitments and contingencies Stockholders’ equity Convertible voting preferred stock, Series A, A-1, and B, $0.00001 par value. No shares and 146,962 shares authorized, issued, and outstanding at September 30, 2017 and December 31, 2016, respectively. Liquidation preference of $95,175 at December 31, 2016. — 1 Convertible non-voting preferred stock, Series C, $0.00001 par value. No shares and 16,000 shares authorized, issued, and outstanding at September 30, 2017 and December 31, 2016, respectively. Liquidation preference of $54,543 at December 31, 2016. — — Convertible non-voting preferred stock, Series D, E, and F, $0.00001 par value. No shares and 83,851 shares authorized, issued, and outstanding at September 30, 2017 and December 31, 2016, respectively. — 2 Series FP convertible voting preferred stock, $0.00001 par value. No shares and 260,888 shares authorized at September 30, 2017 and December 31, 2016, respectively. No shares and 215,888 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively. — 2 Class A non-voting common stock, $0.00001 par value. 3,000,000 shares authorized, 858,546 shares issued and outstanding at September 30, 2017, and 1,500,000 shares authorized, 504,902 shares issued and outstanding at December 31, 2016. 9 5 Class B voting common stock, $0.00001 par value. 700,000 shares authorized, 127,302 shares issued and outstanding at September 30, 2017, and 1,500,000 shares authorized, 31,469 shares issued and outstanding at December 31, 2016. 1 — Class C voting common stock, $0.00001 par value. 260,888 shares authorized, 215,888 shares issued and outstanding at September 30, 2017, and 260,888 shares authorized and no shares issued and outstanding at December 31, 2016. 2 — Additional paid-in capital 7,470,272 2,728,823 Accumulated other comprehensive income (loss) 11,682 (2,057 ) Accumulated deficit  

(4,306,696

)

  (1,207,862 ) Total stockholders’ equity   3,175,270     1,518,914   Total liabilities and stockholders’ equity $ 3,542,380   $ 1,722,792       SNAP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

    Nine Months Ended September 30, 2017   2016 Cash flows from operating activities Net loss $ (3,095,089 ) $ (344,698 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 42,502 18,482 Stock-based compensation 2,458,851 25,075 Deferred income taxes (14,397 ) (7,231 ) Excess inventory reserve and related asset impairment 21,997 — Other (3,714 ) (360 ) Change in operating assets and liabilities, net of effect of acquisitions: Accounts receivable, net of allowance (24,513 ) (78,488 ) Prepaid expenses and other current assets (48,965 ) (14,926 ) Other assets (8,545 ) 450 Accounts payable 4,103 1,656 Accrued expenses and other current liabilities 103,449 (45,475 ) Other liabilities   5,737     1,998   Net cash used in operating activities   (558,584 )   (443,517 ) Cash flows from investing activities Purchases of property and equipment (63,306 ) (46,065 ) Purchases of intangible assets (8,025 ) (572 ) Non-marketable investments (7,530 ) (5,703 ) Cash paid for acquisitions, net of cash acquired (352,407 ) (68,096 ) Issuance of notes receivable from officers/stockholders — (15,000 ) Repayment of notes receivables from officers/stockholders — 15,000 Purchases of marketable securities (3,412,776 ) (1,358,295 ) Sales of marketable securities 441,089 164,003 Maturities of marketable securities 1,831,327 180,805 Change in restricted cash   9,899     (7,048 ) Net cash used in investing activities   (1,561,729 )   (1,140,971 ) Cash flows from financing activities Proceeds from the exercise of stock options 6,855 576 Stock repurchases from employees for tax withholdings (367,234 ) — Proceeds from issuance of Class A common stock in initial public offering, net of underwriting commissions 2,657,797 — Repurchase of Class B voting common stock and Series FP voting preferred stock — (10,593 ) Proceeds from issuances of preferred stock, net of issuance costs — 1,157,147 Borrowings from revolving credit facility — 5,000 Principal payments on revolving credit facility — (5,000 ) Payments of initial public offering issuance costs   (9,672 )   —   Net cash provided by financing activities   2,287,746     1,147,130   Change in cash and cash equivalents 167,433 (437,358 ) Cash and cash equivalents, beginning of period   150,121     640,810   Cash and cash equivalents, end of period $ 317,554   $ 203,452   Supplemental disclosures Cash paid for income taxes $ 5,437 $ 4 Supplemental disclosures of non-cash activities Issuance of Class B common stock related to acquisitions $ — $ 96,145 Assumed equity awards in acquisitions $ 3,911 $ — Purchase consideration liabilities related to acquisitions $ 11,772 $ 17,042 Repurchase of Class B voting common stock and Series FP voting preferred stock in exchange for notes receivable from officers/stockholders $ — $ 13,500 Construction in progress related to financing lease obligations $ 1,107 $ 1,024 Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions $ (4,155 ) $ 2,395     SNAP INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, unaudited)

    Three Months Ended   Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Adjusted EBITDA reconciliation: Net loss $ (443,159 ) $ (124,228 ) $ (3,095,089 ) $ (344,698 ) Add (deduct): Interest income (6,253 ) (1,938 ) (15,026 ) (3,168 ) Interest expense 887 648 2,580 648 Other (income) expense, net (1,002 ) 1,421 (1,975 ) 3,353 Income tax (benefit) expense (12,300 ) (6,871 ) (15,102 ) (6,783 ) Depreciation and amortization(1) 17,467 7,437 42,502 18,482 Stock-based compensation expense(2) 221,702 14,795 2,458,851 25,075 Payroll tax expense related to stock-based compensation 3,890 132 22,258 132 Spectacles inventory-related charges(3)   39,867     —     39,867     —   Adjusted EBITDA $ (178,901 ) $ (108,604 ) $ (561,134 ) $ (306,959 )  

(1) Total depreciation and amortization expense by function:

    Three Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Depreciation and amortization expense: Cost of revenue $ 5,404 $ 778 $ 10,043 $ 947 Research and development 6,401 4,623 18,139 12,398 Sales and marketing 2,820 394 7,009 780 General and administrative   2,842   1,642   7,311   4,357 Total $ 17,467 $ 7,437 $ 42,502 $ 18,482  

(2) Total stock-based compensation and related payroll tax expense by function:

    Three Months Ended   Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Stock-based compensation and related payroll tax expense: Cost of revenue $ 2,039 $ 128 $ 24,288 $ 410 Research and development 146,531 12,143 1,032,508 17,491 Sales and marketing 27,968 1,262 209,468 2,590 General and administrative   49,054   1,394   1,214,845   4,716 Total $ 225,592 $ 14,927 $ 2,481,109 $ 25,207  

(3) Spectacles inventory-related charges were primarily related to excess inventory reserves and inventory purchase commitment cancellation charges. These charges are non-recurring and not reflective of underlying trends in our business.

  SNAP INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (continued)

(In thousands, except per share amounts, unaudited)

    Three Months Ended   Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Free Cash Flow reconciliation: Net cash used in operating activities $ (194,013 ) $ (216,866 ) $ (558,584 ) $ (443,517 ) Less: Purchases of property and equipment   (25,948 )   (17,192 )   (63,306 )   (46,065 ) Free Cash Flow $ (219,961 ) $ (234,058 ) $ (621,890 ) $ (489,582 )       Three Months Ended   Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Non-GAAP Net Loss reconciliation: Net loss $ (443,159 ) $ (124,228 ) $ (3,095,089 ) $ (344,698 ) Amortization of intangible assets 9,743 4,467 20,947 11,379 Stock-based compensation expense 221,702 14,795 2,458,851 25,075 Payroll tax expense related to stock-based compensation 3,890 132 22,258 132 Spectacles inventory-related charges 39,867 — 39,867 — Income tax adjustments   (123 )   —     (2,313 )   —   Non-GAAP net loss $ (168,080 )   (104,834 )   (555,479 )   (308,112 )   Weighted-average common shares - Diluted 1,232,993 832,401 1,140,004 798,660   Non-GAAP Diluted Net Loss Per Share reconciliation: Diluted net loss per share $ (0.36 ) $ (0.15 ) $ (2.71 ) $ (0.43 ) Non-GAAP adjustment to net loss   0.22     0.02     2.22     0.04   Non-GAAP diluted net loss per share $ (0.14 ) $ (0.13 ) $ (0.49 ) $ (0.39 )  

View source version on businesswire.com: http://www.businesswire.com/news/home/20171107006708/en/

Snap Inc.Investors and Analysts:ir@snap.comorPress:press@snap.com