CONTEXTLOGIC INC. The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"). Unless otherwise indicated, all results presented are prepared in a manner that complies, in all material respects, withU.S. GAAP. Additionally, unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period. Our discussion and analysis may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" in Item 1A of our 2021 Form 10-K, as updated and supplemented by our Quarterly Reports on Form 10-Q, including in Part 2, Item 1A, the Special Note Regarding Forward-Looking Statements in this Quarterly Report on Form 10-Q, and elsewhere in this Quarterly Report on Form 10-Q.
Financial Results for the Three Months Ended
•
Total revenue was
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Total cost of revenue and operating expenses were
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Loss from operations was
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Net loss was
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Adjusted EBITDA was a loss of
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Cash and cash equivalents and marketable securities were
As ofJune 30, 2022 , we had an accumulated deficit of$2.7 billion . We expect losses from operations to continue for the foreseeable future as we incur costs and expenses related to brand development, expansion of market share, and continued development of our mobile shopping marketplace infrastructure. During the first half of 2022, we continued to face headwinds from the rise in digital advertising costs which has among other things impacted new customer acquisition and conversion. In response to rising digital advertising costs, starting in the third quarter of 2021, we decided to significantly reduce our digital advertising expenditures as we focused our resources on other strategic initiatives. As discussed below under "Key Financial and Performance Metrics," our monthly active users ("MAUs") and last twelve months ("LTM") active buyers have been negatively impacted by our decision to significantly reduce our digital advertising expenditures over the past twelve months.
Beginning late June of 2022, the Company began to ramp up digital advertising spend and initiated a number of programs which we believe could enhance the consumer experience, encourage customer acquisition, increase consumer retention, and position the Company for long-term sustainable growth.
COVID-19
As of the date of filing of this Quarterly Report, the outbreak of COVID-19,
including recent and any future variants, has affected businesses worldwide, and
continues to impact the major markets in which we operate. Our business,
operations and financial condition and results have been and may continue to be
impacted by the COVID-19 pandemic and a range of external factors related to the
COVID-19 pandemic that are not within our control. The COVID-19 pandemic has
resulted in significant governmental measures being implemented at various times
and in various geographic areas over the course of the pandemic to control the
spread of the virus. Our operations as well as the operations of our third-party
merchants have been, and we expect will continue to be, disrupted by varying
individual and governmental responses to COVID-19 around the world and could be
disrupted by future pandemics.
In addition, the COVID-19 pandemic has also disrupted the global supply chain,
which may interfere with the delivery of our merchants' products to our users.
Our MAUs, LTM Active Buyers and revenue may be negatively impacted due to a
combination of reasons including: (i) macroeconomic factors such as worldwide
retail businesses reopening; (ii) the disruption of the global supply chain; and
(iii) change in consumer spending trends.
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--------------------------------------------------------------------------------InFebruary 2022 , our Board of Directors approved the Restructuring Plan to refocus our operations to support sustainable long-term growth, better align resources, and improve operational efficiencies. We expect the Restructuring Plan to be substantially implemented by the end of fiscal year 2022. The Restructuring Plan includes i) reducing our headcount by approximately 15% (or approximately 190 positions), ii) exiting various office leases, and iii) reducing and realigning vendor expenditures. During the three months endedJune 30, 2022 , we recorded charges of approximately$2 million in impairments of lease assets and property. During the six months endedJune 30, 2022 , we recorded charges of$3 million in severance and other personnel reductions costs for terminated employees and$6 million in impairments of lease assets and property and equipment.
Our Financial Model
Our business benefits from powerful network effects, fueled by our data advantage and massive scale. As more users join Wish, attracted by our affordable value proposition and personalized shopping experiences, we are able to increase revenue potential for our merchants. The successes of our merchants attract more merchants and broaden the product selection on Wish's platform, which further improves user experiences. The growth in users and merchants generates more data, which, in turn, refines our algorithm and strengthens our data advantage. By focusing on users and merchants, we align their success with our own. The economics of the Wish platform rely on cost-effectively adding new users, converting those users into buyers, and improving engagement and monetization of those buyers over time as well as acquiring new merchants and monetizing the end-to-end services that we provide to them.
Key Financial and Performance Metrics
In addition to the measures presented in our condensed consolidated financial
statements, we monitor the following key metrics and other financial information
to measure our performance, identify trends affecting our business, and make
strategic decisions.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
MAU 23 90 25 95
LTM Active Buyers 20 52 20 52
Adjusted EBITDA $ (58 ) $ (67 ) $ (98 ) $ (146 )
Adjusted EBITDA Margin (43 )% (10 )% (30 )% (10 )%
Free Cash Flow $ (67 ) $ (205 ) $ (215 ) $ (559 )
Monthly Active Users
We define MAUs as the number of unique users that visited the Wish platform,
either on our mobile app, mobile web, or on a desktop, during the month. MAUs
for a given reporting period equal the average of the MAUs for that period. An
active user is identified by a unique email-address; a single person can have
multiple user accounts via multiple email addresses. The change in MAUs in a
reported period captures both the inflow of new users as well as the outflow of
existing users who did not visit the platform in a given month. We view the
number of MAUs as key driver of revenue growth as well as a key indicator of
user engagement and brand awareness.
MAUs decreased approximately 74% for the three and six months ended June 30,
2022 compared to the three and six months ended June 30, 2021 , respectively. We
believe this decline was primarily driven by our decision to significantly
reduce our digital advertising expenditures.
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--------------------------------------------------------------------------------LTM Active Buyers
As of the last date of each reported period, we determine our number of unique LTM active buyers by counting the total number of individual users who have placed at least one order on the Wish platform, either on our mobile app, mobile web, or on a desktop, during the preceding 12 months. We, however, exclude from the computation those buyers whose order is canceled before the item is shipped and the purchase price is refunded. The number of Active Buyers is an indicator of our ability to attract and monetize a large user base to our platform and of our ability to convert visits into purchases. We believe that increasing our Active Buyers will be a significant driver to our future revenue growth.
LTM Active Buyers decreased approximately 62% for the three and six months ended
A Note About Metrics
The numbers for some of our metrics, including MAUs, are calculated and tracked with internal tools, which are not independently verified by any third party. We use these metrics to assess the growth and health of our overall business. While these numbers are based on what we believe to be reasonable estimates of our user or merchant base for the applicable period of measurement, there are inherent challenges in measurement as the methodologies used require significant judgment and may be susceptible to algorithm or other technical errors. In addition, we regularly review and adjust our processes for calculating metrics to improve their accuracy, and our estimates may change due to improvements or changes in technology or our methodology.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
We provide Adjusted EBITDA, a non-U.S. GAAP financial measure that represents our net loss before interest and other income, net (which includes foreign exchange gain or loss and gain or loss on one-time transactions recognized), income tax expense, and depreciation and amortization, adjusted to eliminate stock-based compensation expense and related payroll taxes, lease termination and impairment related expenses, and to add back certain recurring other items. Additionally, we provide Adjusted EBITDA Margin, a non-U.S. GAAP financial measure that represents Adjusted EBITDA divided by revenue. Below is a reconciliation of Adjusted EBITDA to net loss, the most directly comparableU.S. GAAP financial measure. We have included Adjusted EBITDA and Adjusted EBITDA Margin in this report because they are key measures used by our management and Board of Directors to understand and evaluate our operating performance and trends and how we are allocating internal resources, to prepare and approve our annual budget and to develop short- and long-term operating plans. We also believe that the exclusion of certain items in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business as it removes the impact of non-cash items, certain non-recurring cash items, and certain variable charges.
Adjusted EBITDA has limitations as an analytical measure, and you should not
consider it in isolation or as a substitute for analysis of our results as
reported under
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
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Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
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Adjusted EBITDA does not consider the impact of stock-based compensation and related payroll taxes;
•
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
•
other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA Margin alongside other financial performance measures, including various cash flow metrics, net loss and our otherU.S. GAAP results. 24 -------------------------------------------------------------------------------- The following table reflects the reconciliation of net loss to Adjusted EBITDA and net loss as a percentage of revenue to Adjusted EBITDA margin for each of the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in millions) Revenue$ 134 $ 656 $ 323 $ 1,428 Net loss (90 ) (111 ) (150 ) (239 ) Net loss as a percentage of revenue (67 )% (17 )% (46 )% (17 )% Excluding: Interest and other income, net (2 ) (8 ) (4 ) (8 ) Provision for income taxes 1 5 1 7 Depreciation and amortization 2 3 4 5 Stock-based compensation expense and related employer payroll taxes(1)(2) 30 37 28 81 Lease impairment related expenses - 6 - 6 Restructuring and other discrete items(3) 2 - 24 - Recurring other items (1 ) 1 (1 ) 2 Adjusted EBITDA (58 ) (67 ) (98 ) (146 ) Adjusted EBITDA margin (43 )% (10 )% (30 )% (10 )% (1) Total amount for the three months endedJune 30, 2022 consists of$29 million of stock-based compensation expense and$1 million of related employer payroll taxes. Total amount for the three months endedJune 30, 2021 consists of$37 million of stock-based compensation expense. Total amount for the six months endedJune 30, 2022 consists of$27 million of stock-based compensation expense and$1 million of related employer payroll taxes. Total amount for six months endedJune 30, 2021 consists of$74 million of stock-based compensation expense and$7 million of related employer payroll taxes.
(2)
Total stock-based compensation for the six months endedJune 30, 2022 decreased by$47 million compared to the six months endedJune 30, 2021 primarily due to forfeitures originating from the resignation of the Company's former CEO, reductions to the Company's workforce as part of the Company'sFebruary 2022 Restructuring Plan, and modifications to the Company's former Executive Chair's equity awards.
(3)
Total amount for the three months endedJune 30, 2022 includes restructuring charges consisting of$2 million in impairment of lease assets and property and equipment. Total amount for the six months endedJune 30, 2022 includes a$15 million one-time discretionary cash bonus paid to select employees to cover their respective tax obligations triggered by the settlement of their RSUs that vested upon the Company's IPO as well as restructuring charges consisting of$3 million of employee severance and$6 million in impairment of lease assets and property and equipment. Free Cash Flow We also provide Free Cash Flow, a non-U.S. GAAP financial measure that represents net cash used in operating activities less purchases of property and equipment. We believe that Free Cash Flow is an important measure since we use third parties to host our services and therefore we do not incur significant capital expenditures to support revenue generating activities.
Free Cash Flow has limitations as an analytical measure, and you should not
consider it in isolation or as a substitute for analysis of our results as
reported under
•
it is not a substitute for net cash used in operating activities;
•
other companies may calculate Free Cash Flow or similarly titled non-U.S. GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a tool for comparison; and
•
the utility of free cash flow is further limited as it does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for any given period.
Because of these limitations, you should consider Free Cash Flow alongside other financial performance measures, such as net cash used in operating activities, net loss and our otherU.S. GAAP results. 25 --------------------------------------------------------------------------------
The following table reflects the reconciliation of net cash used in operating activities to Free Cash Flow for each of the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Net cash used in operating
activities $ (67 ) $ (204 ) $ (213 ) $ (558 )
Less:
Purchases of property and
equipment and development of
internal-use software - 1 2 1
Free Cash Flow $ (67 ) $ (205 ) $ (215 ) $ (559 )
Results of Operations
The following table shows our results of operations for the periods presented
and express the relationship of certain line items as a percentage of revenue
for those periods. The period-to-period comparison of financial results is not
necessarily indicative of future results.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Revenue $ 134 $ 656 $ 323 $ 1,428
Cost of revenue(1) 92 272 217 607
Gross profit 42 384 106 821
Operating expenses:
Sales and marketing(1) 56 396 101 866
Product development(1) 46 52 112 103
General and administrative(1) 31 50 46 92
Total operating expenses 133 498 259 1,061
Loss from operations (91 ) (114 ) (153 ) (240 )
Other income, net
Interest and other income, net 2 8 4 8
Loss before provision for income taxes (89 ) (106 ) (149 ) (232 )
Provision for income taxes 1 5 1 7
Net loss $ (90 ) $ (111 ) $ (150 ) $ (239 )
(1)Includes stock-based compensation expense as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Cost of revenue $ 3 $ 5 $ 2 $ 10
Sales and marketing 2 3 3 6
Product development 14 14 28 29
General and administrative 10 15 (6 ) 29
Total stock-based compensation
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--------------------------------------------------------------------------------The following table presents the components of our condensed consolidated statements of operations as a percentage of revenue:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 69 % 41 % 67 % 43 %
Gross profit 31 % 59 % 33 % 57 %
Operating expenses:
Sales and marketing 42 % 60 % 31 % 61 %
Product development 34 % 8 % 35 % 7 %
General and administrative 23 % 8 % 14 % 6 %
Total operating expenses 99 % 76 % 80 % 74 %
Loss from operations (68 )% (17 )% (47 )% (17 )%
Other income, net:
Interest and other income, net 2 % 1 % 1 % 1 %
Loss before provision for income taxes (66 )% (16 )% (46 )% (16 )%
Provision for income taxes 1 % 1 % 1 % 1 %
Net loss (67 )% (17 )% (47 )% (17 )%
Comparison of Three and Six Months Ended
Revenue
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in millions)
Core marketplace
revenue(1) $ 54 $ 378 $ (324 ) (86 )% $ 144 $ 855 $ (711 ) (83 )%
ProductBoost
revenue 11 50 (39 ) (78 )% 25 100 (75 ) (75 )%
Marketplace
revenue 65 428 (363 ) (85 )% 169 955 (786 ) (82 )%
Logistics
revenue 69 228 (159 ) (70 )% 154 473 (319 ) (67 )%
Revenue $ 134 $ 656 $ (522 ) (80 )% $ 323 $ 1,428 $ (1,105 ) (77 )%
(1)
Wish Cash liability breakage recognized within core marketplace revenue was
insignificant for the three and six months ended June 30, 2022 , respectively,
and $21 million for the three and six months ended June 30, 2021 . Refer to Note
4 to our condensed consolidated financial statements in Item 1 of Part I,
"Financial Information" for additional details. In addition, Core marketplace
revenue for the three and six months ended June 30, 2022 included approximately
a $2 million and zero net loss, respectively and $8 million and $17 million net
gains for the three and six months ended June 30, 2021 , respectively, from our
cash flow hedging program.
Revenue decreased $522 million , or 80%, to $134 million for the three months
ended June 30, 2022 as compared to $656 million for the three months ended June
30, 2021 . Revenue decreased $1.1 billion , or 77%, to $323 million for the six
months ended June 30, 2022 as compared to $1.4 billion for the six months ended
June 30, 2021 . This decrease was attributable to decreased marketplace and
logistics revenue, as noted below.
Marketplace revenue for the three and six months ended June 30, 2022 decreased
$363 million , or 85%, and $786 million , or 82%, respectively, compared to the
same period in 2021. This decrease was primarily driven by lower order volumes
associated with reduced MAUs and LTM Active Buyers, as well as revisions to our
pricing strategy, which resulted in lower marketplace revenue per order. While
we expect pricing adjustments across most geographies to have an unfavorable
effect on revenues over the short term, we expect to see corresponding increases
in order volume over time.
Logistics revenue for the three and six months ended June 30, 2022 decreased
$159 million , or 70%, and $319 million , or 67%, respectively, compared to the
same period in 2021. Like marketplace revenue, the decrease was primarily driven
by lower order volumes.
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--------------------------------------------------------------------------------Cost of Revenue and Gross Margin
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in millions)
Cost of revenue $ 92 $ 272 $ (180 ) (66 )% $ 217 $ 607 $ (390 ) (64 )%
Percentage of revenue 69 % 41 % 67 % 43 %
Gross Margin 31 % 59 % 33 % 57 %
Cost of revenue for the three and six months ended June 30, 2022 decreased $180
million , or 66%, and $390 million , or 64%, respectively, compared to the same
period in 2021. This decrease was primarily due to lower marketplace and
logistics related costs as a result of lower order volumes.
Gross margin decreased to 31% and 33% for the three and six months ended June
30, 2022 , respectively, from 59% and 57% for the three and six months ended June
31, 2021 , respectively, primarily driven by a greater percentage of lower margin
logistics services making up overall revenue during the first half of 2022
compared to the same period in 2021 and revisions to our pricing strategy, which
resulted in lower marketplace revenue per order.
Sales and Marketing
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in millions)
Sales and marketing $ 56 $ 396 $ (340 ) (86 )% $ 101 $ 866 $ (765 ) (88 )%
Percentage of revenue 42 % 60 % 31 % 61 %
Sales and marketing expense for the three and six months ended June 30, 2022
decreased $340 million , or 86%, and $765 million , or 88%, respectively, compared
to the same period in 2021 primarily due to reduced digital advertising
expenditures in order to focus our resources on other strategic initiatives.
Product Development
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in millions)
Product development $ 46 $ 52 $ (6 ) (12 )% $ 112 $ 103 $ 9 9 %
Percentage of revenue 34 % 8 % 35 % 7 %
Product development expense for the three months ended
Product development expense for the six months endedJune 30, 2022 increased by$9 million or 9%, compared to the same period in 2021. The increase was primarily driven by a one-time discretionary bonus paid to select employees to cover their respective tax obligations triggered by the settlement of their RSUs that vested upon the Company's IPO. 28 --------------------------------------------------------------------------------
General and Administrative
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in millions)
General and
administrative $ 31 $ 50 $ (19 ) (38 )% $ 46 $ 92 $ (46 ) (50 )%
Percentage of
revenue 23 % 8 % 14 % 6 %
General and administrative expense for the three months ended June 30, 2022
decreased $19 million , or 38%, compared to the same period in 2021. The decrease
was primarily due to a decrease in employee-related costs, including stock-based
compensation, driven by a reduced headcount from the Restructuring Plan and to a
lesser extent, decreases in legal, audit, tax, and lease related expenses.
General and administrative expense for the six months ended June 30, 2022
decreased $46 million , or 50%, compared to the same period in 2021. The decrease
was primarily related to a reversal of stock-based compensation in connection
with the resignation of both our CEO and executive chair, a reduction in
employee-related costs, including stock-based compensation, driven by a reduced
headcount from the Restructuring Plan, and to a lesser extent, decreases in
legal, audit, tax, and lease related expenses.
Provision for Income Taxes
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(in millions)
Provision for
income taxes $ 1 $ 5 $ (4 ) (80 )% $ 1 $ 7 $ (6 ) (86 )%
Percentage of
revenue 1 % 1 % 1 % 1 %
Provision for income taxes for the three and six months ended June 30, 2022
decreased $4 million , or 80%, and $6 million , or 86%, respectively, compared to
the same periods in 2021. The change in provision for income taxes was primarily
due to a decrease in pre-tax earnings of our international operations.
Liquidity and Capital Resources
As ofJune 30, 2022 , we had cash, cash equivalents and marketable securities of$947 million , a majority of which were held in cash deposits and money market funds and were held for working capital purposes. We believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months, though we may require additional financing or capital resources in the future. Our material cash requirements include$185 million in accounts and merchants payable,$1 million remaining on a colocation and cloud services purchase commitment, and$23 million of facility lease obligations, of which$9 million is due within the next 12 months.
InNovember 2020 , we entered into the Revolving Credit Facility which enables us to borrow up to$280 million . The Revolving Credit Facility contains an accordion option which, if exercised and provided we are able to secure additional lender commitments and satisfy certain other conditions, would allow us to increase the aggregate commitments by up to$100 million . As ofJune 30, 2022 , we had not made any borrowings under the Revolving Credit Facility. Refer to Note 7 to our condensed consolidated financial statements in Item 1 of Part I, "Financial Information" for additional details related to the Revolving Credit Facility. 29 --------------------------------------------------------------------------------
Cash Flows
Six Months Ended June 30,
2022 2021
(in millions)
Net cash used in:
Operating activities $ (213 ) $ (558 )
Investing activities (91 ) (2 )
Financing activities (4 ) -
Net cash used in our operating activities for the six months endedJune 30, 2022 was$213 million . This was driven by our net loss of$150 million and$105 million unfavorable changes in our operating assets and liabilities, which was partially offset by non-cash expenses of$42 million . Unfavorable working capital movement was mainly driven by reductions in accounts payable, merchants payable and accrued and refund liabilities. Accounts payable, merchants payable, and accrued and refund liabilities decreased by$106 million primarily due to lower order volumes and reduced digital advertising expenditures. Net cash used in our operating activities for the six months endedJune 30, 2021 was$558 million . This was primarily driven by our net loss of$239 million and$410 million unfavorable net working capital changes, which was partially offset by non-cash expenses, such as stock-based compensation expense of$74 million . Unfavorable working capital movement was mainly driven by accounts payable, merchants payable and accrued and refund liabilities. Accounts payable decreased by$179 million primarily due to timing of payments and shorter vendor payment terms. Earlier during the COVID-19 pandemic, we were able to negotiate favorable payment terms with certain key digital advertising partners (45 days and 60 days). The payment terms with these key digital advertising partners reverted back to 30 days when the favorable terms expired onDecember 31, 2020 . Merchants payable decreased by$141 million primarily driven by lower volumes in the first half of 2021 compared to the fourth quarter of 2020 due to seasonality and higher percentage of shipments through our A+ program which accelerated the payment of merchants payable due to higher delivery confirmation rates.
Our primary investing activities have consisted of investing excess cash balances in marketable securities.
Net cash used in investing activities was$91 million for the six months endedJune 30, 2022 . This was primarily due to$226 million in purchases of marketable securities and$2 million in capital expenditures, partially offset by$137 million of maturities in marketable securities. Net cash used in investing activities was$2 million for the six months endedJune 30, 2021 . This was primarily due to$124 million purchases of marketable securities, partially offset by$123 million of maturities of marketable securities.
Net cash used in our financing activities was
Net cash used in our financing activities was insignificant during the six months ended 2021.
Off Balance Sheet Arrangements
For the three and six months endedJune 30, 2022 and 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contingencies
We are involved in claims, lawsuits, government investigations, and proceedings
arising from the ordinary course of our business. We record a provision for a
liability when we believe that it is both probable that a liability has been
incurred, and the amount can be reasonably estimated. Significant judgment is
required to determine both probability and the estimated amount. Such legal
proceedings are inherently unpredictable and subject to significant
uncertainties, some of which are beyond our control. Should any of these
estimates and assumptions change or prove to be incorrect, it could have a
material impact on our results of operations, financial position, and cash
flows.
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--------------------------------------------------------------------------------Critical Accounting Policies
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates, including those listed below on an ongoing basis. We base our estimates on historical facts and various other assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those estimates.
Our critical accounting policies are as follows:
• Revenue recognition; • Operating lease obligations; •
Impairment of long-lived assets, including intangibles and lease assets;
• Stock-based compensation; and • Income taxes.
Our critical accounting policies are important to the portrayal of our financial condition and results of operations, and require us to make judgments and estimates about matters that are inherently uncertain.
There have been no material changes to our critical accounting policies and
estimates as compared to those described in our 2021 Form 10-K, filed with the
Recent Accounting Pronouncements
See Note 1 of Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements.
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