PAYPAL HOLDINGS, INC. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans, or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, mergers or acquisitions, or management strategies). Additionally, our forward-looking statements include expectations related to anticipated impacts of the coronavirus pandemic. These forward-looking statements can be identified by words such as "may," "will," "would," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "strategy," "future," "opportunity," "plan," "project," "forecast," and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results and financial condition to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"), as supplemented in the risk factors set forth below in Part II, Item 1A, Risk Factors, of this Form 10-Q, as well as in our unaudited condensed consolidated financial statements, related notes, and the other information appearing in this report and our other filings with theSecurities and Exchange Commission . We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. You should read the following "Management's Discussion and Analysis of Financial Condition and Results of Operations" in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear in this report. Unless otherwise expressly stated or the context otherwise requires, references to "we," "our," "us," "the Company," and "PayPal" refer toPayPal Holdings, Inc. and its consolidated subsidiaries. BUSINESS ENVIRONMENT THE COMPANY We are a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide.PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses of all sizes around the world. Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person payments.
Regulatory environment
We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection. The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, are continuing to evolve through legislative and regulatory action and judicial interpretation. New or changing laws and regulations, including changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition. We monitor these areas closely and are focused on designing compliant solutions for our customers.
Information security
Information security risks for global payments and technology companies like us have increased significantly in recent years. Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we remain subject to these risks and there can be no assurance that our security measures will provide sufficient security or prevent breaches or attacks. For additional information regarding our information security risks, see Part I, Item 1A, Risk Factors in our 2021 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form 10-Q. [[Image Removed: pypl-20220630_g2.jpg]] 48
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Table of ContentsRUSSIA ANDUKRAINE CONFLICT With respect to the military hostilities commenced byRussia inUkraine inFebruary 2022 , our priority is the safety and well-being of ourPayPal employee community impacted by these events. We continue to take actions to comply with all applicable restrictions and sanctions that may impact our operations. InMarch 2022 , we suspended our transactional services inRussia . We are unable to reasonably estimate the total potential financial impact that may ultimately result from this situation. In the three and six months endedJune 30, 2022 and the year endedDecember 31, 2021 , our total net revenues related toRussia andUkraine were not material. For additional information regarding the risks related to theRussia andUkraine conflict and its potential negative impacts on our business, see Part II, Item 1A, Risk Factors of this Form 10-Q.
COVID-19
The coronavirus ("COVID-19") pandemic has resulted in government authorities and
businesses throughout the world implementing numerous measures intended to
contain and limit the spread of COVID-19, including travel restrictions, border
closures, quarantines, shelter-in-place and lock-down orders, mask and social
distancing requirements, and business limitations and shutdowns. The spread of
COVID-19 and increased variants caused, and may continue to cause us to make
significant modifications to our business practices, including enabling most of
our workforce to work from home, establishing strict health and safety protocols
for our offices, restricting physical participation in meetings, events, and
conferences, and imposing restrictions on employee travel. During the first half
of 2022, we reopened many of our physical offices in locations where permitted
by the government authorities. We will continue to actively monitor the
situation and may take further actions that alter our business practices as may
be required by federal, state, or local authorities or that we determine are in
the best interests of our employees, customers, or business partners.
The spread of COVID-19 accelerated the shift from in-store shopping and
traditional in-store payment methods (e.g., cash) towards e-commerce and digital
payments and resulted in increased customer demand for safer payment and
delivery solutions (e.g. contactless payment methods, buy online and pick up in
store) and a significant increase in online spending in certain verticals that
have historically had a strong in-store presence. While our business had
experienced some benefits from these behavioral shifts, as pandemic-related
restrictions have decreased and consumers have largely reverted to pre-COVID-19
behaviors, the growth in our results of operations has been, and may continue to
be, adversely impacted.
The rapidly changing global market and economic conditions as a result of the
COVID-19 pandemic have impacted, and are expected to continue to impact, our
operations and business. The broader implications of the COVID-19 pandemic and
related global economic unpredictability on our business, financial condition,
and results of operations remain uncertain. For additional information on how
the COVID-19 pandemic has impacted and could continue to negatively impact our
business, see below for specific discussion in the respective areas, and also
refer to Part II, Item 1A, Risk Factors of this Form 10-Q.
BREXIT
TheUnited Kingdom ("U.K.") formally exited theEuropean Union ("EU") and the European Economic Area ("EEA") onJanuary 31, 2020 (commonly referred to as "Brexit") with the expiration of the transition period onDecember 31, 2020 .PayPal (Europe ) S.à.r.l. et Cie, SCA ("PayPal (Europe )") operates in theU.K. within the scope of its passport permissions (as they stood at the end of the transition period) under the Temporary Permissions Regime pending the grant of newU.K. authorizations by theU.K. financial regulators. We are currently unable to determine the longer-term impact that Brexit will have on our business, which will depend, in part, on the implications of new tariff, trade, and regulatory frameworks that now govern the provision of cross-border goods and services between theU.K. and the EEA, as well as the financial and operational consequences of the requirement forPayPal (Europe ) to obtain newU.K. authorizations to operate its business longer-term within theU.K. market. For additional information on how Brexit could affect our business, see Part I, Item 1A, Risk Factors in our 2021 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form 10-Q. [[Image Removed: pypl-20220630_g2.jpg]] 49
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Brexit may contribute to instability in financial, stock, and foreign currency exchange markets, including volatility in the value of the British Pound and Euro. We have foreign currency exchange exposure management programs designed to help reduce the impact from foreign currency exchange rate movements. The tables below provide the percentage of our total net revenues and gross loans and interest receivable from theU.K. and EU (excluding theU.K. ) for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net revenues generated from the U.K. 8 % 9 % 8 % 10 % Net revenues generated from the EU (excluding the U.K.) 17 % 20 % 18 % 20 % June 30, December 31, 2022 2021
Gross loans and interest receivable due from customers in the
33 % 40 %
Gross loans and interest receivable due from customers in the EU
(excluding the U.K.) 29 % 21 %
The change in the percentage of gross loans and interest receivable due from
customers in the U.K. and EU as of June 30, 2022 compared to December 31, 2021
was primarily attributable to expansion of our installment credit products in
the EU, particularly in Germany where we have increased our product offerings.
MACROECONOMIC ENVIRONMENT
The impacts of the macroeconomic environment, including uncertainty around the duration and severity of the COVID-19 pandemic, theRussia andUkraine conflict, supply chain shortages, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown. A deterioration in macroeconomic conditions could increase the risk of lower consumer spending, consumer and merchant bankruptcy, insolvency, business failure, higher credit losses, foreign currency fluctuations, or other business interruption, which may adversely impact our business. If these conditions continue or worsen, they could adversely impact our future operating results.
OVERVIEW OF RESULTS OF OPERATIONS
The following table provides a summary of our condensed consolidated financial
results for the three and six months ended
Three Months Ended June 30, Percent Six Months Ended June 30, Percent
2022 2021 Increase/(Decrease) 2022 2021 Increase/(Decrease)
(In millions, except percentages and per share data)
Net revenues $ 6,806 $ 6,238 9 % $ 13,289 $ 12,271 8 %
Operating expenses 6,042 5,111 18 % 11,814 10,102 17 %
Operating income $ 764 $ 1,127 (32) % $ 1,475 $ 2,169 (32) %
Operating margin 11 % 18 % ** 11 % 18 % **
Other income (expense), net $ (715) $ 229 (412) % $ (797) $ 59 **
Income tax expense (benefit) 390 172 127 % 510 (53) **
Effective tax rate 796 % 13 % ** 75 % (2) % **
Net income (loss) $ (341) $ 1,184 (129) % $ 168 $ 2,281 (93) %
Net income (loss) per
diluted share $ (0.29) $ 1.00 (129) % $ 0.14 $ 1.92 (92) %
Net cash provided by
operating activities $ 1,466 $ 1,306 12 % $ 2,708 $ 3,064 (12) %
All amounts in tables are rounded to the nearest million, except as otherwise
noted. As a result, certain amounts may not recalculate using the rounded
amounts provided.
** Not meaningful.
THREE MONTHS ENDED
Net revenues increased$568 million , or 9%, in the three months endedJune 30, 2022 compared to the same period of the prior year driven primarily by growth in total payment volume ("TPV", as defined below under "Key Metrics") of 9%. [[Image Removed: pypl-20220630_g2.jpg]] 50
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Total operating expenses increased$931 million , or 18%, in the three months endedJune 30, 2022 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in transaction and credit losses. Operating income decreased by$363 million , or 32%, in the three months endedJune 30, 2022 compared to the same period of the prior year due to growth of operating expenses outpacing growth in net revenues. Our operating margin was 11% and 18% in the three months endedJune 30, 2022 and 2021, respectively. Operating margin for the three months endedJune 30, 2022 was negatively impacted primarily by increases in transaction expense and transaction and credit losses, as described below under "Operating Expenses". Net loss of$341 million in the three months endedJune 30, 2022 reflects a$1.5 billion , or 129%, decrease from net income of$1.2 billion in the three months endedJune 30, 2021 due primarily to the decrease in operating income of$363 million as discussed above, a decline in other income (expense), net of$944 million driven primarily by higher losses on strategic investments, and an increase in income tax expense of$218 million driven primarily by higher tax expense related to the intra-group transfer of intellectual property, partially offset by an increase in discrete tax benefits associated with net losses on strategic investments.
SIX MONTHS ENDED
Net revenues increased$1.0 billion , or 8%, in the six months endedJune 30, 2022 compared to the same period of the prior year driven primarily by growth in TPV of 11%. Total operating expenses increased$1.7 billion , or 17%, in the six months endedJune 30, 2022 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in transaction and credit losses and technology and development expenses. Operating income decreased by$694 million , or 32%, in the six months endedJune 30, 2022 compared to the same period of the prior year due to growth of operating expenses outpacing growth in net revenues. Our operating margin was 11% and 18% in the six months endedJune 30, 2022 and 2021, respectively. Operating margin for the six months endedJune 30, 2022 was negatively impacted primarily by increases in transaction expense and transaction and credit losses. Net income decreased by$2.1 billion , or 93%, in the six months endedJune 30, 2022 compared to the same period of the prior year due to the previously discussed decrease in operating income of$694 million , a decrease of$856 million in other income (expense), net driven primarily by higher losses on strategic investments, and an increase in income tax expense of$563 million , driven primarily by higher tax expense related to the intra-group transfer of intellectual property and a decrease in discrete tax benefits associated with stock-based compensation deductions, partially offset by an increase in discrete tax benefits associated with net losses on strategic investments.
IMPACT OF FOREIGN CURRENCY EXCHANGE RATES
We have significant international operations that are denominated in foreign currencies, primarily the British pound, Euro, Australian dollar, and Canadian dollar, subjecting us to foreign currency exchange risk which may adversely impact our financial results. The strengthening or weakening ofthe United States ("U.S.") dollar versus the British pound, Euro, Australian dollar, and Canadian dollar, as well as other currencies in which we conduct our international operations, impacts the translation of our net revenues and expenses generated in these foreign currencies into theU.S. dollar. We generated approximately 43% of our net revenues from customers domiciled outside of theU.S. in both the three and six months endedJune 30, 2022 as compared to 48% in both the three and six months endedJune 30, 2021 . Because we generate substantial net revenues internationally, we are subject to the risks of doing business outside of theU.S. See Part I, Item 1A, Risk Factors in our 2021 Form 10-K, as supplemented and, to the extent inconsistent, superseded (if applicable) below in Part II, Item 1A, Risk Factors of this Form 10-Q. We calculate the year-over-year impact of foreign currency exchange movements on our business using prior period foreign currency exchange rates applied to current period transactional currency amounts. While changes in foreign currency exchange rates affect our reported results, we have a foreign currency exchange exposure management program in which we designate certain foreign currency exchange contracts as cash flow hedges intended to reduce the impact on earnings from foreign currency exchange rate movements. Gains and losses from these foreign currency exchange contracts are recognized as a component of transaction revenues in the same period the forecasted transactions impact earnings. [[Image Removed: pypl-20220630_g2.jpg]] 51
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In the three and six months endedJune 30, 2022 , year-over-year foreign currency movements relative to theU.S. dollar had the following impact on our reported results: Three Months Ended Six Months EndedJune 30, 2022 June 30, 2022
(In millions) Unfavorable impact to net revenues (exclusive of hedging impact)
$ (242) $ (365)
Hedging impact 107 154
Unfavorable impact to net revenues (135) (211)
Favorable impact to operating expense 131 188
Net unfavorable impact to operating income $ (4) $ (23)
While we enter into foreign currency exchange contracts to help reduce the impact on earnings from foreign currency exchange rate movements, it is impossible to predict or eliminate the total effects of this exposure.
We also use foreign currency exchange contracts designated as net investment hedges to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries. Gains and losses associated with these instruments will remain in accumulated other comprehensive income (loss) until the underlying foreign subsidiaries are sold or substantially liquidated. Additionally, in connection with transactions occurring in multiple currencies on our payments platform, we generally set our foreign currency exchange rates daily, and may face financial exposure if we incorrectly set our foreign currency exchange rates or as a result of fluctuations in foreign currency exchange rates between the times that we set our foreign currency exchange rates and when transactions occur. Given that we also have foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries, we have an additional foreign currency exchange exposure management program in which we use foreign currency exchange contracts to offset the impact of foreign currency exchange rate movements on our assets and liabilities. The foreign currency exchange gains and losses on our assets and liabilities are recorded in other income (expense), net, and are offset by the gains and losses on the foreign currency exchange contracts. These foreign currency exchange contracts reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities.
KEY METRICS AND FINANCIAL RESULTS
KEY METRICS
Active accounts, number of payment transactions, number of payment transactions
per active account, and TPV are key non-financial performance metrics ("key
metrics") that management uses to measure the performance of our business, and
are defined as follows:
•An active account is an account registered directly with PayPal or a platform
access partner that has completed a transaction on our platform, not including
gateway-exclusive transactions, within the past 12 months. A platform access
partner is a third party whose customers are provided access to PayPal 's
platform or services through such third party's login credentials, including
entities that utilize Hyperwallet's payout capabilities. A user may register on
our platform to access different products and may register more than one account
to access a product. Accordingly, a user may have more than one active account.
The number of active accounts provides management with additional perspective on
the overall scale of our platform, but may not have a direct relationship to our
operating results.
•Number of payment transactions are the total number of payments, net of payment
reversals, successfully completed on our payments platform or enabled by PayPal
via a partner payment solution, not including gateway-exclusive transactions.
•Number of payment transactions per active account reflects the total number of
payment transactions within the previous 12-month period, divided by active
accounts at the end of the period. The number of payment transactions per active
account provides management with insight into the average number of times an
account engages in payments activity on our payments platform in a given period.
•TPV is the value of payments, net of payment reversals, successfully completed
on our payments platform, or enabled by PayPal via a partner payment solution,
not including gateway-exclusive transactions.
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As our transaction revenue is typically correlated with TPV growth and the number of payment transactions completed on our payments platform, management uses these metrics to gain insights into the scale and strength of our payments platform, the engagement level of our customers, and underlying activity and trends which are indicators of current and future performance. We present these key metrics to enhance investors' evaluation of the performance of our business and operating results. Our key metrics are calculated using internal company data based on the activity we measure on our platform and may be compiled from multiple systems, including systems that are organically developed or acquired through business combinations. While the measurement of our key metrics is based on what we believe to be reasonable methodologies and estimates, there are inherent challenges and limitations in measuring our key metrics globally at our scale. The methodologies used to calculate our key metrics require judgment. We regularly review our processes for calculating these key metrics, and from time to time we may make adjustments to improve their accuracy or relevance. For example, we continuously apply models, processes, and practices designed to detect and prevent fraudulent account creation on our platforms, and work to improve and enhance those capabilities. When we detect a significant volume of illegitimate activity, we generally remove the activity identified from our key metrics. Although such adjustments may impact key metrics reported in prior periods, we generally do not update previously reported key metrics to reflect these subsequent adjustments unless the retrospective impact of process improvements or enhancements is determined by management to be material.
NET REVENUES
Our revenues are classified into the following two categories:
•Transaction revenues: Net transaction fees charged to merchants and consumers on a transaction basis based on the TPV completed on our payments platform. Growth in TPV is directly impacted by the number of payment transactions that we enable on our payments platform. We earn additional fees from merchants and consumers on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from theirPayPal or Venmo account to their debit card or bank account, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from accounts that violate our user agreement, and other miscellaneous fees. •Revenues from other value added services: Net revenues derived primarily from revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services we provide to our merchants and consumers. We also earn revenues from interest and fees earned on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances. [[Image Removed: pypl-20220630_g2.jpg]] 53
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Table of Contents Net revenue analysis
The components of our net revenues for the three and six months ended
[[Image Removed: pypl-20220630_g3.jpg]][[Image Removed: pypl-20220630_g4.jpg]] Transaction revenues
Transaction revenues grew by$475 million , or 8%, and$852 million , or 7%, in the three and six months endedJune 30, 2022 compared to the same periods of the prior year driven primarily by growth in our unbranded card processing volume, which consists primarily of ourBraintree products and services, and to a lesser extent, Venmo products and services, in each case driven by growth in TPV and the number of payment transactions on our payments platform. Additionally, during the three and six months endedJune 30, 2022 transaction revenues benefited from an increase in contractual compensation from accounts that violate our user agreement. This growth in transaction revenues in the three and six months endedJune 30, 2022 was partially offset by declines in TPV and revenue generated from our corePayPal products and services, including foreign exchange fees revenue, due primarily to a decrease in revenue earned on eBay's marketplace platform. We expect the decline in revenue earned on eBay's marketplace platform to continue to negatively impact revenue growth trends to a lesser extent in the second half of 2022.
The graphs below present the respective key metrics (in millions) for the three
and six months ended
[[Image Removed: pypl-20220630_g5.jpg]]
*Reflects active accounts at the end of the applicable period. Active accounts
as of June 30, 2022 include 3.2 million active accounts contributed by Paidy,
Inc. ("Paidy") on the date of acquisition in October 2021 .
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Number of payment transactions[[Image Removed: pypl-20220630_g6.jpg]][[Image Removed: pypl-20220630_g7.jpg]]
TPV[[Image Removed: pypl-20220630_g8.jpg]][[Image Removed: pypl-20220630_g9.jpg]]
The following table provides a summary of related metrics:
Percent Six Months Ended Percent
Three Months Ended June 30, Increase/(Decrease) June 30, Increase/(Decrease)
2022 2021 2022 2021
Number of payment transactions per
active account 48.7 43.5 12 % 48.7 43.5 12 %
Percent of cross-border TPV 13 % 16 % ** 14 % 17 % **
** Not meaningful
We had active accounts of 429 million and 403 million as of June 30, 2022 and
2021, respectively, an increase of 6%. Our total number of payment transactions
was 5.5 billion and 4.7 billion for the three months ended June 30, 2022 and
2021, respectively, an increase of 16%. Our total number of payment transactions
was 10.7 billion for the six months ended June 30, 2022 , compared to 9.1 billion
in the six months ended June 30, 2021 , an increase of 17%. TPV was $340 billion
and $311 billion for the three months ended June 30, 2022 and 2021,
respectively, an increase of 9%. TPV was $663 billion for the six months ended
June 30, 2022 compared to $596 billion in the six months ended June 30, 2021 , an
increase of 11%.
Transaction revenues grew more slowly than TPV and the number of payment
transactions in the three and six months ended June 30, 2022 compared to the
same periods in the prior year due primarily to a decline in foreign currency
exchange fees and a decline in TPV attributable to eBay's marketplace platform,
where we had historically earned higher rates, substantially offset by an
increase in revenue from our Venmo products and services and a favorable impact
from hedging.
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Revenues from other value added services
Revenues from other value added services increased$93 million , or 21%, and$166 million , or 19%, in the three and six months endedJune 30, 2022 , respectively, compared to the same periods in the prior year primarily attributable to increases in our revenue share withSynchrony Bank and, to a lesser extent, increases in interest and fee revenue on our merchant loans receivable portfolio and interest earned on certain assets underlying customer account balances resulting from higher interest rates. Growth in revenues from other value added services in the current period was partially offset by the impact of fee revenue from the servicing of loans facilitated under theU.S. Government's Paycheck Protection Program in the three and six months endedJune 30, 2021 , for which revenue was de minimis in the current period.
OPERATING EXPENSES
The following table summarizes our operating expenses and related metrics we use to assess the trends in each:
Three Months Ended June 30, Percent Six Months Ended June 30, Percent
2022 2021 Increase/(Decrease) 2022 2021 Increase/(Decrease)
(In millions, except percentages)
Transaction expense $ 3,044 $ 2,524 21 % $ 5,861 $ 4,799 22 %
Transaction and credit losses 448 169 165 % 817 442 85 %
Customer support and operations 536 521 3 % 1,070 1,039 3 %
Sales and marketing 595 628 (5) % 1,189 1,230 (3) %
Technology and development 815 746 9 % 1,630 1,487 10 %
General and administrative 514 522 (2) % 1,121 1,046 7 %
Restructuring and other charges 90 1 ** 126 59 114 %
Total operating expenses $ 6,042 $ 5,111 18 % $ 11,814 $ 10,102 17 %
Transaction expense rate(1) 0.90 % 0.81 % ** 0.88 % 0.80 % **
Transaction and credit loss
rate(2) 0.13 % 0.05 % ** 0.12 % 0.07 % **
(1) Transaction expense rate is calculated by dividing transaction expense by
TPV.
(2) Transaction and credit loss rate is calculated by dividing transaction and
credit losses by TPV.
** Not meaningful.
Transaction expense
Transaction expense for the three and six months ended
[[Image Removed: pypl-20220630_g10.jpg]][[Image Removed: pypl-20220630_g11.jpg]] Transaction expense increased by$520 million , or 21%, and$1.1 billion , or 22%, in the three and six months endedJune 30, 2022 , respectively, compared to the same periods of the prior year due primarily to the increase in TPV of 9% and 11% for the three and six months endedJune 30, 2022 , respectively, and a higher proportion of TPV from unbranded card processing volume, which generally has higher expense rates than other products and services and unfavorable changes in funding mix. The increase in TPV from unbranded card processing volume also increased the transaction expense rate for the three and six months endedJune 30, 2022 compared to the same periods of the prior year. For the three and six months endedJune 30, 2022 , approximately 35% and 36% of TPV, respectively, was generated outside of theU.S. For the three and six months endedJune 30, 2021 , approximately 39% and 40% of TPV, respectively, was generated outside of theU.S. [[Image Removed: pypl-20220630_g2.jpg]] 56
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Our transaction expense rate is impacted by changes in product mix, merchant mix, regional mix, funding mix, and fees paid to payment processors and other financial institutions. The cost of funding a transaction with a credit or debit card is generally higher than the cost of funding a transaction from a bank or through internal sources such as aPayPal or Venmo account balance or our consumer credit products. As we expand the availability and presentation of alternative funding sources to our customers, our funding mix may change, which could increase or decrease our transaction expense rate. Macroeconomic environment changes may also result in behavioral shifts in consumer spending patterns affecting the type of funding source they use, which would also impact the funding mix.
Transaction and credit losses
The components of our transaction and credit losses for the three and six months
ended
[[Image Removed: pypl-20220630_g12.jpg]][[Image Removed: pypl-20220630_g13.jpg]]
Transaction and credit losses increased by
Transaction losses were$380 million in the three months endedJune 30, 2022 compared to$273 million in the three months endedJune 30, 2021 , an increase of$107 million , or 39%. Transaction losses were$702 million in the six months endedJune 30, 2022 compared to$554 million in the six months endedJune 30, 2021 , an increase of$148 million , or 27%. Transaction loss rate (transaction losses divided by TPV) was 0.11% for both the three and six months endedJune 30, 2022 and 0.09% for both the three and six months endedJune 30, 2021 . The increase in transaction losses in the three and six months endedJune 30, 2022 was primarily attributable to a$114 million loss related to an ongoing merchant insolvency proceeding. This increase was partially offset by recoveries attributable to enhancements in our fraud recoupment capabilities. The increase in transaction losses in the six months endedJune 30, 2022 was also attributable to an increase in losses related to our Venmo products and services resulting from fraud schemes and an increase in goods and services transactions, which are now eligible for coverage by our protection programs. [[Image Removed: pypl-20220630_g2.jpg]] 57
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Credit losses increased by$172 million , or 165%, and$227 million , or 203%, in the three and six months endedJune 30, 2022 , respectively, compared to the same periods of the prior year. The components of credit losses for the three and six months endedJune 30, 2022 and 2021 were as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net charge-offs(1) $ 60$ 52 $ 112$ 128 Reserve build (release)(2) 8 (156) 3 (240) Credit losses $ 68$ (104) $ 115$ (112)
(1) Net charge-offs includes the principal charge-offs partially offset by recoveries for consumer and merchant receivables. (2) Reserve build (release) represents change in allowance for principal receivables excluding foreign currency remeasurement.
The provision in the three and six months endedJune 30, 2022 was attributable to originations during the period, partially offset by improvements in the credit quality of loans outstanding. The benefit in the three and six months endedJune 30, 2021 was attributable to the reduction of our allowance for loans and interest receivable due to improvements in both current and projected macroeconomic conditions at that point in time and the credit quality of loans outstanding, partially offset by an increase in the provision due to new originations. During the periods presented, allowances for our merchant and consumer portfolios included qualitative adjustments which took into account uncertainty with respect to macroeconomic conditions, historical loss rates when applicable, and uncertainty around the financial health of our borrowers and effectiveness of loan modification programs made available to merchants. The consumer loans and interest receivable balance as ofJune 30, 2022 and 2021 was$4.5 billion and$2.5 billion , respectively, representing a year-over-year increase of 77% driven by the expansion of our installment credit products, including additional offerings inGermany as well as the entry into new international markets in the fourth quarter of 2021. Approximately 43% and 68% of our consumer loans receivable outstanding as ofJune 30, 2022 and 2021, respectively, were due from consumers in theU.K. The decline in the percentage of consumer loans receivable outstanding in theU.K. atJune 30, 2022 compared toJune 30, 2021 was due to overall growth in the consumer loan receivables portfolio, particularly from installment credit products in other markets includingGermany ,Japan , and theU.S.
The following table provides information regarding the credit quality of our consumer loans and interest receivable balance:
2022 2021
Percent of consumer loans and interest receivable current 96.5 % 97.1 %
Percent of consumer loans and interest receivable > 90 days
outstanding(1) 1.6 % 1.4 %
Net charge-off rate(2) 4.2 % 3.8 %
(1) Represents percentage of balances which are 90 days past the billing date or
contractual repayment date, as applicable.
(2) Net charge-off rate is the annual ratio of net credit losses, excluding
fraud losses, on consumer loans as a percentage of the average daily amount of
consumer loans and interest receivable balance during the period.
We offer access to merchant finance products for certain small and medium-sized
businesses, which we refer to as our merchant finance offerings. Total merchant
loans, advances, and interest and fees receivable outstanding, net of
participation interest sold, as of June 30, 2022 were $1.7 billion , compared to
$1.3 billion as of June 30, 2021 , representing a year-over-year increase of 33%.
The increase in merchant loans, advances, and interest and fees receivable
outstanding was due primarily to growth in our PayPal Business Loan products in
the U.S. Approximately 84% and 6% of our merchant receivables outstanding as of
June 30, 2022 were due from merchants in the U.S. and U.K. , respectively, as
compared to 80% and 10%, respectively, as of June 30, 2021 .
The following table provides information regarding the credit quality of our merchant loans, advances, and interest and fees receivable balance:
2022 2021
Percent of merchant loans, advances, and interest and fees receivable current
93.2 % 87.7 %
Percent of merchant loans, advances, and interest and fees receivable > 90 days outstanding(1)
2.6 % 5.3 % Net charge-off rate(2) 3.4 % 8.7 %
(1) Represents percentage of balances which are 90 days past the original expected or contractual repayment period, as applicable.
(2) Net charge-off rate is the annual ratio of net credit losses, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees receivable balance during the period. [[Image Removed: pypl-20220630_g2.jpg]]
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The increase in the percent of current merchant receivables, decrease in percent of merchant receivables greater than 90 days outstanding, and decrease in the net charge-off rate for merchant receivables atJune 30, 2022 as compared toJune 30, 2021 were primarily due to the charge-off of accounts, in the prior period, that experienced financial difficulties as a result of the COVID-19 pandemic as well as improved credit quality of our merchant loan portfolio due to modifications to the acceptable risk parameters, including stricter eligibility requirements, as discussed below. Modifications to the acceptable risk parameters of our credit products in 2020 in response to the impacts of the COVID-19 pandemic resulted in the implementation of a number of risk mitigation strategies, including a reduction in maximum loan size, stricter eligibility terms, and a shift from automated to manual underwriting of loans and advances, all of which resulted in a decrease in originations as compared to pre-pandemic levels. We continue to evaluate and modify our acceptable risk parameters in response to the changing macroeconomic environment, and changes to our acceptable risk parameters in 2021 resulted in a gradual increase in originations, and thus a higher merchant receivable balance as ofJune 30, 2022 as compared toJune 30, 2021 . While the impact of the COVID-19 pandemic on the economic environment remains uncertain, the longer and more severe the pandemic, the more likely it may have a material adverse impact on our borrowing base, which is primarily comprised of small and medium-sized merchants. For additional information, see "Note 11-Loans and Interest Receivable" in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.
Customer support and operations
Customer support and operations expenses for the three and six months ended
Customer support and operations expenses increased by$15 million , or 3%, and$31 million , or 3%, in the three and six months endedJune 30, 2022 , respectively, compared to the same periods of the prior year due primarily to increases in expenses related to software that supports our consumer loan products, other operating charges, and employee-related expenses, partially offset by a decline in contractors and consulting costs. The increase in the six months endedJune 30, 2022 was also attributable to increases in third-party credit processing fees and customer onboarding and compliance costs. [[Image Removed: pypl-20220630_g2.jpg]] 59
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Table of Contents Sales and marketing Sales and marketing expenses for the three and six months endedJune 30, 2022 and 2021 were as follows (in millions): [[Image Removed: pypl-20220630_g16.jpg]][[Image Removed: pypl-20220630_g17.jpg]] Sales and marketing expenses decreased by$33 million , or 5%, and$41 million , or 3%, in the three and six months endedJune 30, 2022 , respectively, compared to the same periods of the prior year due primarily to lower spending on marketing campaigns, partially offset by an increase in amortization of acquired intangible assets. Technology and development
Technology and development expenses for the three and six months ended
[[Image Removed: pypl-20220630_g18.jpg]][[Image Removed: pypl-20220630_g19.jpg]] Technology and development expenses increased by$69 million , or 9%,$143 million , or 10%, in the three and six months endedJune 30, 2022 , respectively, compared to the same periods of the prior year due primarily to increases in cloud computing services utilized in delivering our products and services and employee-related expenses. To a lesser extent, the increase in the six months endedJune 30, 2022 was also driven by an increase in costs related to contractors and consultants and amortization expense associated with internally developed software. [[Image Removed: pypl-20220630_g2.jpg]] 60
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Table of Contents General and administrative
General and administrative expenses for the three and six months ended
[[Image Removed: pypl-20220630_g20.jpg]][[Image Removed: pypl-20220630_g21.jpg]] General and administrative expenses decreased by$8 million , or 2%, and increased by$75 million , or 7%, in the three and six months endedJune 30, 2022 , respectively, compared to the same periods of the prior year. The decrease in the three months endedJune 30, 2022 was attributable to a decline in employee-related expenses. The increase in the six months endedJune 30, 2022 was primarily attributable to an increase in employee-related expenses driven mainly by growth in stock-based compensation.
Restructuring and other charges
Restructuring and other charges for the three and six months ended
[[Image Removed: pypl-20220630_g22.jpg]][[Image Removed: pypl-20220630_g23.jpg]] Restructuring and other charges increased by$89 million and$67 million in the three and six months endedJune 30, 2022 compared to the same periods of the prior year. During the first quarter of 2022, management initiated a strategic reduction of the existing global workforce intended to streamline and optimize our global operations to enhance operating efficiency. As part of this effort, we are focusing on reducing redundant operations and simplifying our organizational structure. The associated restructuring charges during the three and six months endedJune 30, 2022 were$71 million and$91 million , respectively. We primarily incurred employee severance and benefits costs, as well as associated consulting costs. This strategic action and cash payments associated with this plan are expected to be substantially completed by the fourth quarter of 2022. Management estimates that an additional$15 million in restructuring charges will be incurred over the remainder of 2022. The estimated reduction in annualized employee-related costs associated with the impacted workforce is approximately$260 million , including approximately$100 million in stock-based compensation. A portion of the reduction in annual costs associated with the impacted workforce is expected to be reinvested in the business to drive additional growth. During the first quarter of 2020, management approved a strategic reduction of the existing global workforce as part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters. The associated restructuring charges for the three months endedJune 30, 2021 were de minimis and for the six months endedJune 30, 2021 were$27 million . We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021. [[Image Removed: pypl-20220630_g2.jpg]] 61
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For information on the associated restructuring liability, see "Note 17-Restructuring and Other Charges" in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.
Additionally, we are continuing to review our facility needs due to our new and evolving work models. We incurred asset impairment charges of$19 million and$35 million in the three and six months endedJune 30, 2022 , respectively, and nil and$26 million in the three and six months endedJune 30, 2021 , respectively, due to exiting certain leased properties which resulted in a reduction of right of use lease assets and related leasehold improvements.
Other income (expense), net
Other income (expense), net decreased$944 million and$856 million in the three and six months endedJune 30, 2022 , respectively, compared to the same periods of the prior year due primarily to net losses on strategic investments in the current periods compared to net gains in the prior periods. Additionally, the six months endedJune 30, 2022 was impacted, to a lesser extent, by an increase in foreign currency exchange losses, resulting primarily from actions taken in connection with our decision to suspend transactional services inRussia .
Income tax expense (benefit)
Our effective income tax rate was 796% and 13% for the three months endedJune 30, 2022 and 2021, respectively, and 75% and (2)% for the six months endedJune 30, 2022 and 2021, respectively. The increase in our effective income tax rate for the three and six months endedJune 30, 2022 compared to the same periods of the prior year was primarily due to tax expense related to the intra-group transfer of intellectual property with no comparable activity in the three and six months endedJune 30, 2021 .
LIQUIDITY AND CAPITAL RESOURCES
We require liquidity and access to capital to fund our global operations, including our customer protection programs, credit products, capital expenditures, investments in our business, potential acquisitions and strategic investments, working capital, and other cash needs. We believe that our existing cash, cash equivalents, and investments, cash expected to be generated from operations, and our expected access to capital markets, together with potential external funding through third-party sources, will be sufficient to meet our cash requirements within the next 12 months and beyond.
SOURCES OF LIQUIDITY
Cash, cash equivalents, investments, and restricted cash
The following table summarizes our cash, cash equivalents, and investments as of
June 30, 2022 December 31, 2021
(In millions)
Cash, cash equivalents, and investments(1),(2) $ 12,950 $ 12,981
(1) Excludes assets related to funds receivable and customer accounts of $37.2
billion and $36.1 billion at June 30, 2022 and December 31, 2021 , respectively.
(2) Excludes total restricted cash of $22 million and $109 million at June 30,
2022 and December 31, 2021 , respectively, and strategic investments of
$2.6 billion and $3.2 billion as of June 30, 2022 and December 31, 2021 ,
respectively.
Cash, cash equivalents, and investments held by our foreign subsidiaries were
$9.2 billion at June 30, 2022 and $7.4 billion at December 31, 2021 , or 71% and
57% of our total cash, cash equivalents, and investments as of those respective
dates. At December 31, 2021 , all of our cash, cash equivalents, and investments
held by foreign subsidiaries were subject to U.S. taxation under Subpart F,
Global Intangible Low Taxed Income or the one-time transition tax under the Tax
Cuts and Jobs Act of 2017. Subsequent repatriations to the U.S. will not be
taxable from a U.S. federal tax perspective, but may be subject to state income
or foreign withholding tax.
A significant aspect of our global cash management activities involves meeting
our customers' requirements to access their cash while simultaneously meeting
our regulatory financial ratio commitments in various jurisdictions. Our global
cash balances are required not only to provide operational liquidity to our
businesses, but also to support our global regulatory requirements across our
regulated subsidiaries. Accordingly, not all of our cash is available for
general corporate purposes.
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Cash flows
The following table summarizes our condensed consolidated statements of cash
flows:
Six Months Ended June 30,
2022 2021
(In millions)
Net cash provided by (used in):
Operating activities $ 2,708 $ 3,064
Investing activities (4,667) (2,682)
Financing activities 750 630Effect of exchange rates on cash, cash equivalents, and restricted cash
(136) (34)
Net (decrease) increase in cash, cash equivalents, and restricted
cash $ (1,345) $ 978
Operating activities
We generated cash from operating activities of $2.7 billion in the six months
ended June 30, 2022 due primarily to operating income of $1.5 billion , as well
as adjustments for non-cash expenses including provision for transaction and
credit losses of $817 million , stock-based compensation of $741 million , and
depreciation and amortization of $661 million . Net income was also adjusted for
net losses on our strategic investments of $658 million , changes in deferred
income taxes of $457 million , and changes in other assets and liabilities of
$194 million , primarily related to actual cash transaction losses incurred
during the period partially offset by an increase in other liabilities.
We generated cash from operating activities of $3.1 billion in the six months
ended June 30, 2021 due primarily to operating income of $2.2 billion , as well
as adjustments for non-cash expenses including stock-based compensation of
$758 million , depreciation and amortization of $616 million , and provision for
transaction and credit losses of $442 million . Net income was also adjusted for
net gains on our strategic investments of $163 million , changes in accounts
receivable of $112 million , changes in deferred income taxes of $103 million ,
and changes in other assets and liabilities of $793 million , primarily related
to actual cash transaction losses during the period.
In the six months ended
Investing activities
The net cash used in investing activities of$4.7 billion in the six months endedJune 30, 2022 was due primarily to purchases of investments of$13.2 billion , purchases and originations of loans receivable of$12.3 billion , changes in funds receivable from customers of$882 million , and purchases of property and equipment of$366 million . These cash outflows were partially offset by maturities and sales of investments of$11.1 billion and principal repayment of loans receivable of$10.9 billion . The net cash used in investing activities of$2.7 billion in the six months endedJune 30, 2021 was due primarily to purchases of investments of$20.2 billion , purchases and originations of loans receivable of$4.9 billion , acquisitions (net of cash acquired) of$469 million , and purchases of property and equipment of$468 million . These cash outflows were partially offset by maturities and sales of investments of$18.7 billion , principal repayment of loans receivable of$4.6 billion , and changes in funds receivable from customers of$127 million . Financing activities The net cash generated from financing activities of$750 million in the six months endedJune 30, 2022 was due primarily to borrowings under financing arrangements of$3.3 billion (including proceeds from the issuance of fixed rate debt inMay 2022 and borrowing under our Paidy credit agreements) and changes in funds payable and amounts due to customers of$1.6 billion . These cash inflows were partially offset by the repurchase of$2.3 billion of our common stock under ourJuly 2018 stock repurchase program, repayment of borrowings under financing arrangements of$1.7 billion (including the repurchase and redemption of certain fixed rate notes and repayment of borrowings under a prior credit agreement, both described further below under "Available credit and debt"), and tax withholdings related to net share settlement of equity awards of$275 million . [[Image Removed: pypl-20220630_g2.jpg]] 63
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We generated cash from financing activities of$630 million in the six months endedJune 30, 2021 due primarily to changes in funds payable and amounts due to customers of$3.0 billion , partially offset by the repurchase of$1.5 billion of our common stock under ourJuly 2018 stock repurchase program, and tax withholdings related to net share settlement of equity awards of$940 million .
Effect of exchange rates on cash, cash equivalents, and restricted cash
Foreign currency exchange rates for the six months endedJune 30, 2022 and 2021 had a negative impact of$136 million and$34 million , respectively, on cash, cash equivalents, and restricted cash. The negative impact on cash, cash equivalents, and restricted cash in the six months endedJune 30, 2022 and 2021 was due primarily to the unfavorable impact of fluctuations in the exchange rate of theU.S. dollar to the Australian dollar and, to a lesser extent, the Euro and Swedish krona. The negative impact on cash, cash equivalents, and restricted cash in the six months endedJune 30, 2022 was also attributable to unfavorable fluctuations in the exchange rate of theU.S. dollar to the Japanese yen.
Available credit and debt
InMay 2022 , we issued fixed rate notes with varying maturity dates for an aggregate principal amount of$3.0 billion . Proceeds from the issuance of these notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses or assets or strategic investments. We used a portion of the proceeds to repurchase and redeem$1.6 billion in notes from our prior debt issuances inSeptember 2019 andMay 2020 . As ofJune 30, 2022 , we had$10.4 billion in fixed rate debt outstanding with varying maturity dates. InFebruary 2022 , we entered into a credit agreement (the "Paidy Credit Agreement") with Paidy as co-borrower, which provides for an unsecured revolving credit facility of ¥60.0 billion (approximately$439 million as ofJune 30, 2022 ). In the six months endedJune 30, 2022 , ¥37.8 billion (approximately$277 million ) was drawn down under the Paidy Credit Agreement. Accordingly, atJune 30, 2022 , ¥22.2 billion (approximately$162 million ) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing. InOctober 2021 , we assumed a credit agreement through our acquisition of Paidy (the "Prior Credit Agreement"). The Prior Credit Agreement provided for a secured revolving credit facility of approximately ¥22.8 billion (approximately$198 million at the time of acquisition). In the first quarter of 2022, we terminated the Prior Credit Agreement and repaid outstanding borrowings. Other than as described above, there are no significant changes to the available credit and debt disclosed in our 2021 Form 10K. For additional information, see "Note 12-Debt" in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.
Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to fund our operating activities, finance acquisitions, make strategic investments, repurchase shares under our stock repurchase program, or reduce our cost of capital.
We have a cash pooling arrangement with a financial institution for cash
management purposes. The arrangement allows for cash withdrawals from the
financial institution based upon our aggregate operating cash balances held
within the financial institution ("Aggregate Cash Deposits"). The arrangement
also allows us to withdraw amounts exceeding the Aggregate Cash Deposits up to
an agreed-upon limit. The net balance of the withdrawals and the Aggregate Cash
Deposits are used by the financial institution as a basis for calculating our
net interest expense or income under the arrangement. As of June 30, 2022 , we
had a total of $4.2 billion in cash withdrawals offsetting our $4.2 billion in
Aggregate Cash Deposits held within the financial institution under the cash
pooling arrangement.
Credit ratings
As of June 30, 2022 , we continue to be rated investment grade by Standard and
Poor's Financial Services, LLC , Fitch Ratings, Inc. , and Moody's Investors
Services, Inc. We expect that these credit rating agencies will continue to
monitor our performance, including our capital structure and results of
operations. Our goal is to be rated investment grade, but as circumstances
change, there are factors that could result in our credit ratings being
downgraded or put on a watch list for possible downgrading. If that were to
occur, it could increase our borrowing rates, including the interest rate on
borrowings under our credit agreements.
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CURRENT AND FUTURE CASH REQUIREMENTS
Our material cash requirements include funds to support current and potential: operating activities, credit products, customer protection programs, stock repurchases, strategic investments, acquisitions, other commitments, and capital expenditures and other future obligations.
Credit products
Growth in our portfolio of loan receivables increases our liquidity needs and any inability to meet those liquidity needs could adversely affect our business. We are currently evaluating partnerships and third-party sources of funding for our credit products. InJune 2018 , theLuxembourg Commission de Surveillance du Secteur Financier (the "CSSF") agreed thatPayPal 's management may designate up to 35% of European customer balances held in our Luxembourg banking subsidiary to be used for European andU.S. credit activities. During the second quarter of 2022, an additional$300 million was approved to fund such credit activities. As ofJune 30, 2022 , the cumulative amount approved by management to be designated for credit activities aggregated to$3.0 billion and represented approximately 28% of European customer balances that have been made available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF. We may periodically seek to designate additional amounts of European customer balances for our credit activities, as we deem necessary, based on utilization of the approved funds and anticipated credit funding requirements. Under certain exceptional circumstances, corporate liquidity could be called upon to meet our obligations related to our European customer balances.
While our objective is to expand the availability of our credit products with capital from external sources, there can be no assurance that we will be successful in achieving that goal.
Customer protection programs
The risk of losses from our buyer and seller protection programs are specific to individual customers, merchants, and transactions, and may also be impacted by regional variations in, and changes or modifications to, the programs, including as a result of changes in regulatory requirements. For the periods presented in these condensed consolidated financial statements included in this report, our transaction loss rate ranged between 0.09% and 0.11% of TPV. Historical loss rates may not be indicative of future results.
Stock repurchases
During the six months endedJune 30, 2022 , we repurchased approximately$2.3 billion of our common stock in the open market under our stock repurchase program authorized inJuly 2018 . InJune 2022 , our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to$15.0 billion of our common stock, with no expiration from the date of authorization. As ofJune 30, 2022 , a total of approximately$2.8 billion and$15.0 billion remained available for future repurchases of our common stock under ourJuly 2018 andJune 2022 stock repurchase programs, respectively.
Other considerations
Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating, our financial performance, and global credit market conditions, as well as a broad range of other factors including those related to the COVID-19 pandemic discussed in this Form 10-Q. In addition, our liquidity, access to capital, and borrowing costs could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to which we are a party. See Part I, Item 1A, Risk Factors of our 2021 Form 10-K, as supplemented and, to the extent inconsistent, superseded below in Part II, Item 1A, Risk Factors of this Form 10-Q, as well as "Note 13-Commitments and Contingencies" in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional discussion of these and other risks that our business faces.
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