Three Months Ended March 31,

Percent

2017

2016

Change

(dollars in thousands)

(Unaudited)

(NM = Not Meaningful)

Revenue

$

149,648

$

38,798

286

%

Net loss⁽¹⁾

$

(2,208,837

)

$

(104,576

)

NM

Adjusted EBITDA⁽²⁾

$

(188,243

)

$

(93,234

)

102

%

Other Financial Highlights

Cash, cash equivalents, and marketable securities

$

3,242,556

$

987,368

Cash used in operating activities

$

(154,997

)

$

(92,541

)

Free Cash Flow⁽³⁾

$

(172,990

)

$

(104,993

)

Capital expenditures

$

(17,993

)

$

(12,452

)

(1)

Net loss for Q1 2017 includes $2.0 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; and stock-based compensation expense and related payroll tax expense.

(3)

Free Cash Flow is defined as net cash used in operating activities, reduced by purchases of property and equipment.

•

Daily active users (DAU)⁽¹⁾ – DAUs grew from 122 million in Q1 2016 to 166 million in Q1 2017, an increase of 36% year-over-year. DAUs increased 5% quarter-over-quarter, from 158 million in Q4 2016.

•

Average revenue per user (ARPU)⁽²⁾ – ARPU was $0.90 in Q1 2017, an increase of 181% over Q1 2016 when ARPU was $0.32. ARPU decreased 14% over Q4 2016 when ARPU was $1.05.

•

Hosting costs per DAU – Hosting costs per DAU were $0.60 in Q1 2017, as compared to $0.52 in Q1 2016 and $0.72 in Q4 2016.

•

Capital expenditures – Capital expenditures were $18.0 million in Q1 2017, as compared to $12.5 million in Q1 2016 and $20.4 million in Q4 2016.

(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.

Three Months Ended March 31,

2017

2016

Revenue

$

149,648

$

38,798

Costs and expenses:

Cost of revenue

163,358

75,773

Research and development

805,848

28,098

Sales and marketing

219,733

14,737

General and administrative

1,174,476

24,011

Total costs and expenses

2,363,415

142,619

Loss from operations

(2,213,767

)

(103,821

)

Interest income

2,424

359

Interest expense

(695

)

—

Other income (expense), net

187

(993

)

Loss before income taxes

(2,211,851

)

(104,455

)

Income tax benefit (expense)

3,014

(121

)

Net loss

$

(2,208,837

)

$

(104,576

)

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

Basic

$

(2.31

)

$

(0.14

)

Diluted

$

(2.31

)

$

(0.14

)

March 31,

2017

December 31,

2016

(Unaudited)

Assets

Current assets

Cash and cash equivalents

$

1,427,114

$

150,121

Marketable securities

1,815,442

837,247

Accounts receivable, net of allowance

147,677

162,659

Prepaid expenses and other current assets

72,973

29,958

Total current assets

3,463,206

1,179,985

Property and equipment, net

116,132

100,585

Intangible assets, net

79,781

75,982

Goodwill

332,205

319,137

Other assets

50,453

47,103

Total assets

$

4,041,777

$

1,722,792

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable

$

13,849

$

8,419

Accrued expenses and other current liabilities

228,436

148,325

Total current liabilities

242,285

156,744

Other liabilities

63,974

47,134

Total liabilities

306,259

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 March 31, 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 March 31, 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 March 31, 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 March 31, 2017 and December 31, 2016, respectively. No shares and 215,888 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively.

—

2

Class A non-voting common stock, $0.00001 par value. 3,000,000 shares authorized, 681,994 shares issued and outstanding at March 31, 2017, and 1,500,000 shares authorized, 504,902 shares issued and outstanding at December 31, 2016.

7

5

Class B voting common stock, $0.00001 par value. 700,000 shares authorized, 280,968 shares issued and outstanding at March 31, 2017, and 1,500,000 shares authorized, 31,469 shares issued and outstanding at December 31, 2016.

3

—

Class C voting common stock, $0.00001 par value. 260,888 shares authorized, 215,888 shares issued and outstanding at March 31, 2017, and 260,888 shares authorized and no shares issued and outstanding at December 31, 2016.

2

—

Additional paid-in capital

7,157,585

2,728,823

Accumulated other comprehensive income (loss)

(1,635

)

(2,057

)

Accumulated deficit

(3,420,444

)

(1,207,862

)

Total stockholders’ equity

3,735,518

1,518,914

Total liabilities and stockholders’ equity

$

4,041,777

$

1,722,792

Three Months Ended March 31,

2017

2016

Cash flows from operating activities

Net loss

$

(2,208,837

)

$

(104,576

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

12,450

5,049

Stock-based compensation

1,992,121

5,538

Deferred income taxes

(1,488

)

—

Other

1,892

961

Change in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable, net of allowance

13,444

(7,161

)

Prepaid expenses and other current assets

(43,436

)

(5,848

)

Other assets

2,715

(1,572

)

Accounts payable

5,619

47

Accrued expenses and other current liabilities

69,204

13,997

Other liabilities

1,319

1,024

Net cash used in operating activities

(154,997

)

(92,541

)

Cash flows from investing activities

Purchases of property and equipment

(17,993

)

(12,452

)

Purchases of intangible assets

—

(562

)

Non-marketable investments

(625

)

(2,173

)

Cash paid for acquisitions, net of cash acquired

(18,013

)

(50,936

)

Issuance of notes receivable from officers/stockholders

—

(15,000

)

Purchases of marketable securities

(1,423,214

)

(140,045

)

Maturities of marketable securities

445,047

—

Change in restricted cash

—

(4,300

)

Net cash used in investing activities

(1,014,798

)

(225,468

)

Cash flows from financing activities

Proceeds from the exercise of stock options

594

—

Stock repurchases from employees for minimum tax withholdings

(206,579

)

—

Proceeds from issuance of Class A common stock in initial public offering, net of underwriting commissions

2,657,797

—

Proceeds from issuances of preferred stock, net of issuance costs

—

192,186

Payments of initial public offering issuance costs

(5,024

)

—

Net cash provided by financing activities

2,446,788

192,186

Change in cash and cash equivalents

1,276,993

(125,823

)

Cash and cash equivalents, beginning of period

150,121

640,810

Cash and cash equivalents, end of period

$

1,427,114

$

514,987

Supplemental disclosures

Cash paid for income taxes

$

3,545

$

4

Supplemental disclosures of non-cash activities

Issuance of Class B common stock related to acquisitions

$

—

$

13,097

Purchase consideration liabilities related to acquisitions

$

1,901

$

6,028

Construction in progress related to financing lease obligations

$

257

$

404

Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions

$

(4,355

)

$

1,921

Three Months Ended March 31,

2017

2016

Adjusted EBITDA reconciliation:

Net loss

$

(2,208,837

)

$

(104,576

)

Add (deduct):

Interest income

(2,424

)

(359

)

Interest expense

695

—

Other (income) expense, net

(187

)

993

Income tax (benefit) expense

(3,014

)

121

Depreciation and amortization⁽¹⁾

12,450

5,049

Stock-based compensation expense⁽²⁾

1,992,121

5,538

Payroll tax expense related to stock-based compensation

20,953

—

Adjusted EBITDA

$

(188,243

)

$

(93,234

)

(1) Total depreciation and amortization expense by function:

Three Months Ended March 31,

2017

2016

Depreciation and amortization expense:

Cost of revenue

$

1,669

$

71

Research and development

5,755

3,611

Sales and marketing

2,600

150

General and administrative

2,426

1,217

Total

$

12,450

$

5,049

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

Three Months Ended March 31,

2017

2016

Stock-based compensation and related payroll tax expense:

Cost of revenue

$

20,026

$

154

Research and development

722,129

2,648

Sales and marketing

160,942

775

General and administrative

1,109,977

1,961

Total

$

2,013,074

$

5,538

Three Months Ended March 31,

2017

2016

Free Cash Flow reconciliation:

Net cash used in operating activities

$

(154,997

)

$

(92,541

)

Less:

Purchases of property and equipment

(17,993

)

(12,452

)

Free Cash Flow

$

(172,990

)

$

(104,993

)