# Bumble Inc. (BMBL) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Bumble Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1830043/000095017022003960/bmbl-20211231.htm
Accession: 0000950170-22-003960
Filing date: 2022-03-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BMBL/
All MD&A years: /company/BMBL/mda/
Next year: /company/BMBL/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of the financial condition and results of operations of Bumble Inc. (the “Successor”) and Worldwide Vision Limited (the “Predecessor”), in conjunction with our consolidated financial statements and the related notes included in Part II, “Item 8—Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include without limitation those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and those identified in Part I, “Item 1A—Risk Factors."

Overview

In 2021, Bumble operated two apps, Bumble and Badoo and we are a leader in the online dating space. We launched Bumble app in 2014 to address antiquated gender norms and a lack of kindness and accountability on the internet. By placing women at the center – where women make the first move – we are building a platform that is designed to be safe and empowering for women, and in turn, provide a better environment for everyone. Badoo app, launched in 2006, was one of the pioneers of web and mobile free-to-use dating products.

In January 2022, we acquired Fruitz, a fast-growing dating app with a Gen Z focus, which is a growing segment of online dating consumers. Fruitz encourages open and honest communication of dating intentions through playful fruit metaphors.

How We Generate Revenue

We monetize both the Bumble and Badoo apps via a freemium model where the use of our service is free and a subset of our users pay for subscriptions or in-app purchases to access premium features. These features maximize the probability of developing meaningful connections, improving their experience and saving them valuable time.

On Bumble app, our subscription offerings are called Bumble Boost and Bumble Premium. These subscription plan offerings currently include 1-day, 7-day, 1-month, 3-month, 6-month, or lifetime packages. Bumble users, both subscribers and non-subscribing users, can also access additional features through in-app purchases. On Badoo app, our subscription offerings are called Badoo Premium and Badoo Premium Plus. Badoo premium subscription plan offerings currently include 1-day, 7-day, 1-month, 3-month, 6-month, or lifetime packages. In addition, Badoo users, both subscribers and non-subscribing users, can also purchase Badoo Credits which they can use to acquire in-app features such as one-off popularity boosts. We also selectively monetize through video and banner advertising.

Overview of Financial Results

For the year ended December 31, 2021, the period from January 29, 2020 to December 31, 2020 and the period from January 1, 2020 to January 28, 2020, we generated:

•
Total Revenue of $765.7 million, $542.2 million and $40.0 million, respectively;

•
Bumble App Revenue of $532.9 million, $337.2 million and $23.3 million, respectively;

•
Badoo App and Other Revenue of $232.8 million, $205.0 million and $16.7 million, respectively;

•
Net Earnings (Loss) of $286.9 million, $(110.2) million and $(32.6) million, respectively, representing Net Earnings (Loss) Margins of 37.5%, (20.3)% and (81.4)% respectively;

•
Adjusted EBITDA of $207.2 million, $143.1 million and $9.4 million respectively, representing Adjusted EBITDA Margins of 27.1%, 26.4% and 23.4%, respectively;

•
Net cash provided by (used in) operating activities of $104.8 million, $56.3 million and $(3.3) million, respectively, and Operating Cash Flow Conversion of 36.5%, (51.1)% and 10.2%, respectively; and

•
Free Cash Flow of $91.2 million, $45.6 million and $(4.4) million, respectively, representing Free Cash Flow Conversion of 44.0%, 31.9% and (46.4)%, respectively.

For a reconciliation of Adjusted EBITDA, Adjusted EBITDA margin, free cash flow and free cash flow conversion, which are all non-GAAP measures, to the most directly comparable GAAP financial measures, information about why we consider Adjusted EBITDA, Adjusted EBITDA margin, free cash flow and free cash flow conversion useful and a discussion of the material risks and limitations of these measures, please see “—Non-GAAP Financial Measures.”

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Key Operating Metrics

We regularly review a number of metrics, including the following key operating metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe these operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP. Refer to the section “Certain Definitions” at the beginning of this Annual Report for the definitions of our Key Operating Metrics.

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[[/GREPCENT_TABLE]]

Key Factors Affecting our Performance

Our results of operations and financial condition have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, “Item 1A—Risk Factors”.

Growth in Monetization

Our apps monetize via a freemium model where the use of our service is free and a subset of our users pay for subscriptions or in-app purchases to access premium features. We acquire new users through investments in marketing and brand as well as through word of mouth from existing users and others. We convert these users to Paying Users by introducing premium features which maximize the probability of developing meaningful connections and improving their experience.

Our revenue growth primarily depends on Paying Users and ARPPU. We continually develop new monetization features and improve existing features in order to increase adoption of in-app purchases and our subscription programs striking a balance between the number of Paying Users and ARPPU. We also test new pricing strategies, including different pricing tiers and user segmentation and share those insights across our apps to optimize monetization.

While we see opportunity for growth in our core online dating market driven by the steady growth of the global singles population, increasing adoption of online dating both in the United States and globally and increasing propensity to pay for online dating, we may also face challenges increasing our Paying Users. These challenges may include competition from alternative products, lack of appealing product features, enforcement of restrictive payment policies from in-app payment systems provided by Apple and Google, and saturation of the online dating market.

Many variables will impact our ARPPU, including the number of Paying Users and mix of monetization offerings on our platform, as well as the effect of demographic shifts and geographic differences on all of these variables. Our pricing is in local currency and may vary between markets. As foreign currency exchange rates change, translation of the statements of operations into U.S. dollars could negatively impact revenue and distort year-over-year comparability of operating results.

To the extent our ARPPU growth slows, our revenue growth will become increasingly dependent on our ability to increase our Paying Users.

Expansion into New Geographic Markets

We are focused on growing our platform globally, including through entering new markets and investing in under-penetrated markets. As we introduce Bumble app to new markets throughout Europe, Asia, and Latin America we can leverage the local insights, scale, and infrastructure of Badoo app’s existing global footprint to efficiently enter new markets. Badoo app can also leverage Bumble’s marketing expertise and strength in North America to support growth in that market.

Expanding into new geographies will require increased costs related to marketing, as well as localization of product features and services. Potential risks to our expansion into new geographies will include competition and compliance with foreign laws and regulations.

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As we expand into certain new geographies, we may see an increase in users who prefer to access premium features through our in-app purchase options rather than through our subscription packages which could impact our ARPPU. We may also see a lower propensity to pay as we enter certain new markets.

Investing in Growth While Driving Long-Term Profitability

Our mission-driven strategy ensures that values guide our business decisions and our business performance enables us to drive impact through investment in technology, marketing and product innovation, balancing growth with long-term margins.

We expect to continue to invest in technology, marketing and product innovation to drive growth while improving margins over the long term. Key investment areas for our platform include machine learning capabilities, including improving our matching and content moderation technologies; features that enhance trust and safety on our platform; new offerings that enhance user engagement and retention; marketing, data analytics, and personalization capabilities; and new subscription and consumable offerings to drive incremental value to Paying Users.

Attracting and Retaining Talent

Our business relies on our ability to attract and retain our talent, including engineers, data scientists, product designers and product developers. We believe that people want to work at a company that has purpose and aligns with their personal values, and therefore our ability to recruit talent is aided by our mission and brand reputation. We compete for talent within the technology industry.

Seasonality

We experience seasonality in user growth, user engagement, Paying User growth, and monetization on our platform. Historically, we see an increase in all of these metrics in the first quarter and during the Northern Hemisphere summer of the calendar year, and a slowdown in the rest of the calendar year. Our activity is also elevated in key seasonal calendar highs such as the January and February lead up to Valentine’s Day and the lead up to major holidays.

Impact of Russia-Ukraine Conflict

In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial institutions, by countries around the world, including the U.S. and the European Union.

On March 8, 2022, we announced that we will discontinue our operations in Russia and remove all of our apps from the Apple App Store and Google Play Store in Russia and Belarus. While it is difficult to estimate with certainty the effect of the current invasion of Ukraine by Russia, current or further economic sanctions, our decision to discontinue our operations in Russia and remove all of our apps from the Apple App Store and Google Play Store in Russia and Belarus will lead to reduced revenues and Paying Users from these countries, increased costs, or other adverse effects on our operations and results.

As of December 31, 2021, the net assets of our subsidiary in Russia comprised 0.1% of total assets and revenue from Russia, Belarus and Ukraine combined were approximately 2.8% of our total revenue. Operating costs related to our Russian operations were approximately 1.7% of our total operating costs for the year ended December 31, 2021.

For additional information, see Item 1A―Risk Factors—Risks Related to Our Brand, Products and Operations―Our operations may be adversely affected by ongoing developments in Russia, Ukraine and surrounding countries. Our operations may be adversely affected by ongoing developments in Russia, Ukraine and surrounding countries, including due to the impact of our decision to discontinue our operations in Russia and remove our apps from the Apple App Store and Google Play Store in Russia and Belarus.

Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. Since that time, COVID-19 has impacted market and economic conditions globally, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans intended to control the spread of the virus, as well as changes in consumer behavior as some individuals have become reluctant to engage in social activities with people outside their households. While many jurisdictions are relaxing restrictions, others have remained in place with some areas continuing to experience renewed outbreaks and surges in infection rates despite more widespread availability of vaccines. The extent to which such measures are removed or new measures are put in place will depend upon how the pandemic evolves, as well as the distribution, efficacy and acceptance of available

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vaccines and the rates at which they are administered. Future prevention and mitigation measures, as well as the potential for some of these measures to be reinstituted in the event of repeat waves or the emergence of new variants of the virus, have had and are likely to continue to have an adverse impact on global economic conditions and consumer confidence and spending in many parts of the world for some time, and could materially adversely affect demand, or users’ ability to pay, for our products and services, particularly in the geographic and demographic markets in which Badoo app operates.

In response to the COVID-19 outbreak, we have taken several precautions that may adversely impact employee productivity, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing office locations. We continue to follow the situation closely as it evolves and monitor guidance from international and domestic authorities, including federal, state and local public health authorities, and there may be developments outside our control requiring us to adjust our operating plan. As such, given the unprecedented uncertainty around the duration and severity of the impact on market conditions and the business environment, we cannot reasonably estimate the full impacts of the COVID-19 pandemic on our business, financial condition and results of operations in the future.

For additional information, see “Item 1A―Risk Factors—General Risk Factors—Our business and results of operations may be materially adversely affected by the recent COVID-19 outbreak or other similar outbreaks.”

Factors Affecting the Comparability of Our Results of Operations

As a result of a number of factors, our historical results of operations may not be comparable from period to period or going forward. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.

The Sponsor Acquisition

On January 29, 2020, we completed the Sponsor Acquisition, pursuant to which, among other things, Bumble Holdings acquired Worldwide Vision Limited and its consolidated subsidiaries. For additional information, see Note 1, Organization and Basis of Preparation, within the audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

The Sponsor Acquisition was accounted for as a business combination under Accounting Standards Codification 805, Business Combinations. The purchase consideration was allocated to the identifiable assets and liabilities of Worldwide Vision Limited measured at their fair value as of the effective date of the Sponsor Acquisition. Any excess of the purchase consideration over the fair value of the identifiable assets and liabilities of Worldwide Vision Limited was recognized as goodwill in our consolidated financial statements. In addition, we have recorded an increase in depreciation and amortization.

In connection with the Sponsor Acquisition, in January 2020, we entered into a 7-year senior secured term loan facility in an original aggregate principal amount of $575.0 million (the “Initial Term Loan Facility”) and a 5-year senior secured revolving credit facility in an aggregate principal amount of up to $50.0 million (the “Revolving Credit Facility”). The borrower under the Initial Term Loan Facility and the Revolving Credit Facility is a wholly owned subsidiary of Bumble Holdings, Buzz Finco L.L.C. Accordingly, in periods after the Sponsor Acquisition, we have recorded an increase in interest expense.

Concurrent with the Sponsor Acquisition, the Company also decided to no longer actively maintain and market certain platforms, including Chappy, Lumen and Huggle (“Inactive Platforms”). The decision to do so was based on the Company’s greater focus on, and decision to use its resources for strengthening, its brands Bumble and Badoo. During the period from January 29, 2020 to December 31, 2020, the period from January 1, 2020 to January 28, 2020 and the years ended December 31, 2019 and 2018, the revenue associated with the Inactive Platforms is deemed immaterial.

As a result of the Sponsor Acquisition, the Company incurred significant transaction costs such as legal, accounting, consulting, shadow equity and other expenses. These were incurred both in the period from January 1, 2020 to January 28, 2020 and the period from January 29, 2020 to December 31, 2020 and resulted primarily in an increase in general and administrative expense.

The Distribution Financing Transaction

In October 2020, we entered into an incremental senior secured term loan facility (the “Incremental Term Loan Facility” and, together with the Initial Term Loan Facility, the “Term Loan Facility”; the Term Loan Facility, together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”) with the same maturity as the Initial Term Loan Facility in an original aggregate principal amount of $275.0 million. The Incremental Term Loan provides for additional senior secured term loans with substantially identical terms as the Initial Term Loan Facility (other than the applicable margin). The borrower under the Incremental Term Loan Facility is a wholly owned subsidiary of Bumble Holdings, Buzz Finco L.L.C.

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Bumble Holdings used the proceeds from the incremental borrowings under the Incremental Term Loan Facility, together with available cash, to declare a distribution of $360.0 million, of which approximately $334.3 million was paid to our pre-IPO owners on October 28, 2020 and $25.6 million was used to partially repay the loan to our Founder, and to pay related fees and expenses in connection therewith.

Initial Public Offering and Offering Transactions

On February 10, 2021, our registration statement on Form S-1 relating to our initial public offering (“IPO”) was declared effective by the SEC, and our Class A common stock began trading on the NASDAQ on February 11, 2021. Our IPO closed on February 16, 2021. For additional information, see Note 1, Organization and Basis of Preparation, to our consolidated financial statements included in Part II, "Item 8—Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

Bumble Inc. issued and sold 57.5 million shares of its Class A common stock in the IPO, including 7.5 million shares sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares. Bumble Inc. used the proceeds (net of underwriting discounts) from the issuance of 9 million shares ($369.6 million) to acquire an equivalent number of newly-issued Common Units from Buzz Holdings L.P, which Buzz Holdings L.P. used to repay outstanding indebtedness under our Term Loan Facility totaling approximately $200.0 million in aggregate principal amount and approximately $148.3 million for general corporate purposes, and to bear all of the expenses of the IPO. Bumble Inc. used the proceeds (net of underwriting discounts) from the issuance of 48.5 million shares ($1,991.6 million) to purchase or redeem an equivalent aggregate number of shares of Class A common stock and Common Units from our pre-IPO owners. We refer to the foregoing transactions as the “Offering Transactions”.

Secondary Offering

On September 15, 2021, the Company completed a secondary offering of 20.7 million shares of Class A common stock on behalf of certain selling stockholders affiliated with Blackstone Inc. (the "Selling Stockholders") at a price of $54.00 per share. This transaction resulted in the issuance of 9.2 million Class A shares for the period ending September 30, 2021.

Bumble did not sell any shares of Class A common stock in the offering and did not receive any of the proceeds from the sale. Bumble paid the costs associated with the sale of shares by the Selling Stockholders, net of the underwriting discounts.

Reorganization Transactions

Prior to the completion of the IPO, we undertook certain reorganization transactions (the “Reorganization Transactions”) such that Bumble Inc. is now a holding company, and its sole material asset is a controlling equity interest in Bumble Holdings. As the general partner of Bumble Holdings, Bumble Inc. now operates and controls all of the business and affairs of Bumble Holdings, has the obligation to absorb losses and receive benefits from Bumble Holdings and, through Bumble Holdings and its subsidiaries, conduct our business. The Reorganization Transactions were accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Bumble Inc. will recognize the assets and liabilities received in the Reorganization Transactions at their historical carrying amounts, as reflected in the historical financial statements of Bumble Holdings, the accounting predecessor. Bumble Inc. will consolidate Bumble Holdings on its consolidated financial statements and record a non-controlling interest, related to the Common Units and the Incentive Units held by our pre-IPO owners, on its consolidated balance sheet and statement of operations.

Bumble Inc. is a corporation for U.S. federal and state income tax purposes. Each of Bumble Inc.’s accounting predecessor, Bumble Holdings, and Bumble Holdings’ accounting predecessor, Worldwide Vision Limited, is, and has been since the Sponsor Acquisition, treated as a flow-through entity for U.S. federal income tax purposes, and as such, has generally not been subject to U.S. federal income tax at the entity level. Accordingly, the historical results of operations and other financial information set forth in this Annual Report do not include any material provisions for U.S. federal income tax. Following our initial public offering, Bumble Inc. pays U.S. federal and state income taxes as a corporation on its share of Bumble Holdings’ taxable income.

In addition, in connection with the Reorganizations Transactions and our IPO, we entered into the tax receivable agreement as described below under “Tax Receivable Agreement”.

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Public Company Costs

In preparation for our IPO, we incurred significant one-off costs such as legal, accounting, consulting, investor relations and other expenses. Accordingly, in the period from January 29, 2020 to December 31, 2020, we have recorded an increase in general and administrative expense.

As a result of becoming a public company, we continue to incur additional costs such as personnel, legal, regulatory, insurance, accounting, investor relations and other expenses that we did not incur as a private company.

Tax Receivable Agreement

In connection with the Reorganization Transactions and our IPO, we entered into a tax receivable agreement with certain of our pre-IPO owners that provides for the payment by the Company to such pre-IPO owners of 85% of the benefits that the Company realizes, or is deemed to realize, as a result of the Company’s allocable share of existing tax basis acquired in our IPO, increases in our share of existing tax basis and adjustments to the tax basis of the assets of Bumble Holdings as a result of sales or exchanges of Common Units (including Common Units issued upon conversion of vested Incentive Units), and our utilization of certain tax attributes of the Blocker Companies (including the Blocker Companies’ allocable share of existing tax basis) and certain other tax benefits related to entering into the tax receivable agreement.

We estimate the amount of existing tax basis with respect to which our pre-IPO owners will be entitled to receive payments under the tax receivable agreement (assuming all Pre-IPO Common Unitholders exchanged their Common Units for shares of Class A common stock on the date of the IPO, and assuming all vested Incentive Units were converted to Common Units and immediately exchanged for shares of Class A common stock at the IPO prices of $43.00 per share of Class A common stock) is approximately $2,603.7 million, which includes the Company’s allocable share of existing tax basis acquired in the IPO, which we have determined to be approximately $1,728.1 million. In determining the Company’s allocable share of existing tax basis acquired in the IPO, we have given retrospective effect to certain exchanges of Common Units for Class A shares that occurred after the IPO that were contemplated to have occurred pursuant to the Blocker Restructuring. The payments under the tax receivable agreement are not conditioned upon continued ownership of the Company by the pre-IPO owners.

We have determined that it is more likely than not that we will be unable to realize certain tax benefits that were received in connection with the Reorganization Transactions and our IPO. As a result of this determination, we have not recorded the benefit of these deferred tax assets as of December 31, 2021. The Company is entitled to certain depreciation and amortization deductions as a result of its allocable share of existing tax basis acquired in the IPO and increases in its allocable share of existing basis and adjustments to the tax basis of the assets of Bumble Holdings as a result of sales or exchanges in connection with the IPO. There is significant existing tax basis in the assets of Bumble Holdings as a result of the Sponsor Acquisition. Based on current projections, we anticipate having sufficient taxable income to be able to realize these tax benefits and have recorded a liability of $388.8 million associated with the tax receivable agreement related to these benefits. The ability of the deferred tax assets to be realized is evaluated based on all positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. We will assess the ability of the deferred tax assets to be realized at each reporting period, and a change in our estimate of our liability associated with the tax receivable agreement may result as additional information becomes available, including results of operations in future periods.

Employee Equity Plans

In connection with the Reorganization Transactions and our IPO, we undertook a number of modifications to existing employee equity plans such that awards under the Founder Plan, U.S. Plan, and Non-U.S. Plan were reclassified as follows:

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The Time-Vesting and Exit-Vesting Class B Units in Bumble Holdings under the Founder Plan and granted to Senior Management under the U.S. Plan were reclassified to vested Incentive Units (in the case of Vested Class B Units) and unvested Incentive Units (in the case of unvested Class B Units) in Bumble Holdings.

•
The Time-Vesting and Exit-Vesting Class B Units in Bumble Holdings (other than those granted to senior management) were reclassified to Class A common stock (in the case of vested Class B Units) and Restricted Shares of Class A common stock (in the case of unvested Class B Units) in Bumble Inc.

•
The Time-Vesting and Exit-Vesting Phantom Class B Units in Bumble Holdings were reclassified into vested RSUs (in the case of vested Class B Phantom Units) and unvested RSUs (in the case of unvested Class B Phantom Units) in Bumble Inc. As the modification resulted in a change from liability-settled to equity-settled, the RSUs were fair valued at the date of the IPO.

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In all cases of respective reclassifications, the Post-IPO awards retained the same terms and conditions (including applicable vesting requirement). Each Post-IPO award was converted to reflect the $43.00 share price contemplated in the Company’s IPO while retaining the same economic value in the Company.

In connection with the IPO, we adopted the 2021 Omnibus Incentive Plan (the "2021 Omnibus Plan"), which became effective on the date immediately prior to the effective date of the IPO. Under the 2021 Omnibus Plan, we granted equity awards as follows:

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Stock options with the underlying equity being shares of the Company’s Class A common stock. These stock options are inclusive of both Time-Vesting stock options and Exit-Vesting stock options.

•
Time-Vesting Restricted Stock Units with the underlying equity being shares of the Company’s Class A common stock.

•
Time-Vesting and Exit-Vesting Incentive Units in Bumble Holdings.

At the IPO date, we concluded that our public offering represented a qualifying liquidity event that would cause the Exit-Vesting awards’ performance conditions to be probable. As such, we started to recognize stock-based compensation expense for the Exit-Vesting awards. During the year ended December 31, 2021, we recognized compensation cost related to the reclassified Exit-Vesting awards of $26.3 million.

For additional information, see Note 14, Stock-based Compensation, to our consolidated financial statements included in Part II, “Item 8 – Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Components of Results of Operations

Our business is organized into a single reportable segment.

Revenue

We monetize both the Bumble and Badoo apps via a freemium model where the use of our service is free and a subset of our users pay for subscriptions or in-app purchases to access premium features. Subscription revenue is presented net of taxes, refunds and credit card chargebacks. This revenue is initially deferred and is recognized using the straight-line method over the term of the applicable subscription period. Revenue from lifetime subscriptions is deferred over the average estimated expected period of the subscriber relationship, which is currently estimated to be twelve months. Revenue from the purchase of in-app features is recognized based on usage.

We also earn revenue from online advertising and partnerships, which are not a significant part of our business. Online advertising revenue is recognized when an advertisement is displayed. Revenue from partnerships is recognized according to the contractual terms of the partnership.

Cost of revenue

Cost of revenue consists primarily of in-app purchase fees due on payments processed through the Apple App Store and Google Play Store. Purchases on Android, mobile web and desktop have additional payment methods, such as credit card or via telecom providers. These purchases incur fees which vary depending on payment method. Purchase fees are deferred and expensed over the same period as revenue.

Cost of revenue also includes data center expenses such as rent, power and bandwidth for running servers, employee compensation (including stock-based compensation) and other employee-related costs. Expenses relating to customer care functions such as customer service, moderators and other auxiliary costs associated with providing services to customers such as fraud prevention are also included within cost of revenue.

Selling and marketing expense

Selling and marketing expense consists primarily of brand marketing, digital and social media spend, field marketing and compensation expense (including stock-based compensation) and other employee-related costs for personnel engaged in sales and marketing functions.

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General and administrative expense

General and administrative expense consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources. General and administrative expense also consists of transaction costs, changes in fair value of contingent earn-out liability, expenses associated with facilities, information technology, external professional services, legal costs and settlement of legal claims, impairment charges on intangible assets and other administrative expenses.

Product development expense

Product development expense consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in the design, development, testing and enhancement of product offerings and related technology.

Depreciation and amortization expense

Depreciation and amortization expense is primarily related to computer equipment, leasehold improvements, furniture and fixtures, developed technology, user base, white label contracts, trademarks and other definite-lived intangible assets.

Interest income (expense)

Interest income (expense) consists of interest income received on related party loans receivables and interest expense incurred in connection with our long-term debt.

Other income (expense), net

Other income (expense), net consists of insurance reimbursement proceeds, impacts from foreign exchange transactions, tax receivable agreement liability remeasurement (benefit) expense and fair value changes in derivatives and investments.

Income tax provision

Income tax provision represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which we operate. These foreign jurisdictions have different statutory tax rates than the United States. Our effective tax rates will vary depending on the relative proportion of foreign to domestic income, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

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Results of Operations

The following table sets forth our consolidated statement of operations information for the periods presented:

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020","","","Year Ended December 31, 2019"],["Revenue","","$","765,660","","","$","542,192","","","","$","39,990","","","$","488,940"],["Operating costs and expenses:"],["Cost of revenue","","","209,921","","","","146,629","","","","","10,790","","","","139,767"],["Selling and marketing expense","","","211,711","","","","152,588","","","","","11,157","","","","142,902"],["General and administrative expense","","","265,738","","","","178,615","","","","","44,907","","","","67,079"],["Product development expense","","","105,917","","","","46,994","","","","","4,087","","","","39,205"],["Depreciation and amortization expense","","","107,056","","","","91,767","","","","","408","","","","6,734"],["Total operating costs and expenses","","","900,343","","","","616,593","","","","","71,349","","","","395,687"],["Operating earnings (loss)","","","(134,683",")","","","(74,401",")","","","","(31,359",")","","","93,253"],["Interest income (expense)","","","(25,609",")","","","(22,134",")","","","","50","","","","202"],["Other income (expense), net","","","11,166","","","","(5,525",")","","","","(882",")","","","(1,473",")"],["Income (loss) before income tax","","","(149,126",")","","","(102,060",")","","","","(32,191",")","","","91,982"],["Income tax benefit (provision)","","","436,071","","","","(8,126",")","","","","(365",")","","","(6,138",")"],["Net earnings (loss)","","","286,945","","","","(110,186",")","","","","(32,556",")","","","85,844"],["Net earnings (loss) attributable to noncontrolling interests","","","(30,834",")","","","808","","","","","1,917","","","","19,698"],["Net earnings (loss) attributable to Bumble Inc. shareholders / Buzz Holdings L.P. owners / Worldwide Vision Limited shareholders","","$","317,779","","","$","(110,994",")","","","$","(34,473",")","","$","66,146"]]
[[/GREPCENT_TABLE]]

The following table sets forth our consolidated statement of operations information as a percentage of revenue for the periods presented:

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020","","","Year Ended December 31, 2019"],["Revenue","","","100.0","%","","","100.0","%","","","","100.0","%","","","100.0","%"],["Operating costs and expenses:"],["Cost of revenue","","","27.4","%","","","27.0","%","","","","27.0","%","","","28.6","%"],["Selling and marketing expense","","","27.7","%","","","28.1","%","","","","27.9","%","","","29.2","%"],["General and administrative expense","","","34.7","%","","","32.9","%","","","","112.3","%","","","13.7","%"],["Product development expense","","","13.8","%","","","8.7","%","","","","10.2","%","","","8.0","%"],["Depreciation and amortization expense","","","14.0","%","","","16.9","%","","","","1.0","%","","","1.4","%"],["Total operating costs and expenses","","","117.6","%","","","113.7","%","","","","178.4","%","","","80.9","%"],["Operating earnings (loss)","","","(17.6",")%","","","(13.7",")%","","","","(78.4",")%","","","19.1","%"],["Interest income (expense)","","","(3.3",")%","","","(4.1",")%","","","","0.1","%","","","0.0","%"],["Other income (expense), net","","","1.5","%","","","(1.0",")%","","","","(2.2",")%","","","(0.3",")%"],["Income (loss) before income tax","","","(19.5",")%","","","(18.8",")%","","","","(80.5",")%","","","18.8","%"],["Income tax benefit (provision)","","","57.0","%","","","(1.5",")%","","","","(0.9",")%","","","(1.3",")%"],["Net earnings (loss)","","","37.5","%","","","(20.3",")%","","","","(81.4",")%","","","17.6","%"],["Net earnings (loss) attributable to noncontrolling interests","","","(4.0",")%","","","0.1","%","","","","4.8","%","","","4.0","%"],["Net earnings (loss) attributable to Bumble Inc. shareholders / Buzz Holdings L.P. owners / Worldwide Vision Limited shareholders","","","41.5","%","","","(20.5",")%","","","","(86.2",")%","","","13.5","%"]]
[[/GREPCENT_TABLE]]

63

The following table sets forth the stock-based compensation expense included in operating costs and expenses:

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020","","","Year Ended December 31, 2019"],["Cost of revenue","","$","3,749","","","$","615","","","","$","\u2014","","","$","\u2014"],["Selling and marketing expense","","","12,925","","","","2,055","","","","","75","","","","421"],["General and administrative expense","","","62,284","","","","17,318","","","","","3,997","","","","1,229"],["Product development expense","","","44,952","","","","7,480","","","","","84","","","","510"],["Total stock-based compensation expense","","$","123,910","","","$","27,468","","","","$","4,156","","","$","2,160"]]
[[/GREPCENT_TABLE]]

Comparison of the Year Ended December 31, 2021 (Successor), the Period from January 29, 2020 to December 31, 2020 (Successor) and the Period from January 1, 2020 to January 28, 2020 (Predecessor)

Revenue

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Bumble App","","$","532,916","","","$","337,237","","","","$","23,256"],["Badoo App and Other","","","232,744","","","","204,955","","","","","16,734"],["Total Revenue","","$","765,660","","","$","542,192","","","","$","39,990"]]
[[/GREPCENT_TABLE]]

Revenue was $765.7 million for the year ended December 31, 2021, $542.2 million for the period from January 29, 2020 to December 31, 2020, and $40.0 million for the period from January 1, 2020 to January 28, 2020. Revenue in the period from January 29, 2020 to December 31, 2020 was impacted by a reduction in deferred revenue of $15.0 million recorded in purchase accounting.

Bumble App Revenue was $532.9 million for the year ended December 31, 2021, $337.2 million for the period from January 29, 2020 to December 31, 2020 and $23.3 million for the period from January 1, 2020 to January 28, 2020. This change was primarily driven by a 31% increase in the number of Bumble App Paying Users to 1.5 million and a 13% increase in Bumble App ARPPU to $29.61.

Badoo App and Other Revenue was $232.8 million for the year ended December 31, 2021, $205.0 million for the period from January 29, 2020 to December 31, 2020 and $16.7 million for the period from January 1, 2020 to January 28, 2020. This change was primarily driven by a 2% increase in the number of Badoo App and Other Paying Users to 1.4 million for the year ended December 31, 2021 and a 4% increase in Badoo and Other ARPPU to $13.16.

In addition, Badoo App and Other Revenue includes advertising and partnership revenue of $12.6 million, $13.0 million and $1.2 million for the year ended December 31, 2021 for the period from January 29, 2020 to December 31, 2020 and for the period from January 1, 2020 to January 28, 2020, respectively.

Cost of revenue

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Cost of revenue","","$","209,921","","","$","146,629","","","","$","10,790"],["Percentage of revenue","","","27.4","%","","","27.0","%","","","","27.0","%"]]
[[/GREPCENT_TABLE]]

Cost of revenue was $209.9 million for the year ended December 31, 2021, $146.6 million for the period from January 29, 2020 to December 31, 2020 and $10.8 million for the period from January 1, 2020 to January 28, 2020. This change was primarily driven by growth in in-app purchase fees due to increasing revenue.

64

Selling and marketing expense

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Selling and marketing expense","","$","211,711","","","$","152,588","","","","$","11,157"],["Percentage of revenue","","","27.7","%","","","28.1","%","","","","27.9","%"]]
[[/GREPCENT_TABLE]]

Selling and marketing expense was $211.7 million for the year ended December 31, 2021, $152.6 million for the period from January 29, 2020 to December 31, 2020 and $11.2 million for the period from January 1, 2020 to January 28, 2020. This change was primarily due to an increase in digital and brand marketing costs. In addition, selling and marketing expense also increased due to stock-based compensation which was $12.9 million in the year ended December 31, 2021 compared to $2.1 million in the period from January 29, 2020 to December 31, 2020 and $0.1 million in the period from January 1, 2020 to January 28, 2020.

General and administrative expense

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["General and administrative expense","","$","265,738","","","$","178,615","","","","$","44,907"],["Percentage of revenue","","","34.7","%","","","32.9","%","","","","112.3","%"]]
[[/GREPCENT_TABLE]]

General and administrative expense was $265.7 million for the year ended December 31, 2021, $178.6 million for the period from January 29, 2020 to December 31, 2020 and $44.9 million for the period from January 1, 2020 to January 28, 2020. The change was primarily due to transaction and other costs of $19.1 million, $66.3 million and $40.3 million in the year ended December 31, 2021, the period from January 29, 2020 to December 31, 2020 and the period from January 1, 2020 to January 28, 2020, respectively, and impairment losses on the white label contracts of $26.4 million in the year ended December 31, 2021. In addition, the Company recorded an expense in relation to the change in the fair value of the contingent earn-out liability which was $55.9 million and $27.8 million in the year ended December 31, 2021 and the period from January 29, 2020 to December 31, 2020, respectively. The increase was also driven by additional personnel-related expenses due to increased headcount and stock-based compensation, which was $62.3 million in the year ended December 31, 2021, $17.3 million in the period from January 29, 2020 to December 31, 2020, and $4.0 million (of which $3.8 million were in relation to the Sponsor Acquisition) in the period from January 1, 2020 to January 28, 2020.

Product development expense

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Product development expense","","$","105,917","","","$","46,994","","","","$","4,087"],["Percentage of revenue","","","13.8","%","","","8.7","%","","","","10.2","%"]]
[[/GREPCENT_TABLE]]

Product development expense was $105.9 million for the year ended December 31, 2021, $47.0 million for the period from January 29, 2020 to December 31, 2020 and $4.1 million for the period from January 1, 2020 to January 28, 2020. The change was primarily due to increased personnel-related expense as a result of higher employee headcount in product development functions and stock-based compensation, which was $45.0 million for the year ended December 31, 2021, $7.5 million in the period from January 29, 2020 to December 31, 2020 and $0.1 million in the period from January 1, 2020 to January 28, 2020.

65

Depreciation and amortization expense

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Depreciation and amortization expense","","$","107,056","","","$","91,767","","","","$","408"],["Percentage of revenue","","","14.0","%","","","16.9","%","","","","1.0","%"]]
[[/GREPCENT_TABLE]]

Depreciation and amortization expense was $107.1 million for the year ended December 31, 2021, $91.8 million for the period from January 29, 2020 to December 31, 2020 and $0.4 million for the period from January 1, 2020 to January 28, 2020. The increase was primarily due to increased expense related to the amortization of finite-lived intangible assets recognized in connection with the Sponsor Acquisition in the year ended December 31, 2021, compared to the period from January 29, 2020 to December 31, 2020,

Interest income (expense)

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Interest income (expense)","","$","(25,609",")","","$","(22,134",")","","","$","50"],["Percentage of revenue","","","(3.3",")%","","","(4.1",")%","","","","0.1","%"]]
[[/GREPCENT_TABLE]]

Interest income (expense) was $(25.6) million for the year ended December 31, 2021, $(22.1) million for the period from January 29, 2020 to December 31, 2020 and $0.1 million for the period from January 1, 2020 to January 28, 2020. The increase in interest expense was primarily due to increased interest expense associated with raising $575 million of debt on January 29, 2020 and raising an additional $275 million of debt in October 2020, of which $200 million was repaid in March 2021.

Other income (expense), net

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Other income (expense), net","","$","11,166","","","$","(5,525",")","","","$","(882",")"],["Percentage of revenue","","","1.5","%","","","(1.0",")%","","","","(2.2",")%"]]
[[/GREPCENT_TABLE]]

Other income (expense), net was $11.2 million for the year ended December 31, 2021, $(5.5) million for the period from January 29, 2020 to December 31, 2020 and $(0.9) million for the period from January 1, 2020 to January 28, 2020. The change was primarily due to net foreign exchange gains (losses), which were $4.5 million in the year ended December 31, 2021, $(14.1) million in the period from January 29, 2020 to December 31, 2020 and $(0.5) million in the period from January 1, 2020 to January 28, 2020. The Company also recorded gains (losses) on the fair value change in interest rate swaps of $6.6 million and $(1.6) million in the year ended December 31, 2021 and the period from January 1, 2020 to January 28, 2020. In addition, a $9.3 million insurance reimbursement related to the putative class action lawsuit was received and recorded as other income in the period from January 29, 2020 to December 31, 2020.

66

Income tax provision

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020"],["Income tax benefit (provision)","","$","436,071","","","$","(8,126",")","","","$","(365",")"],["Effective income tax rate","","","292.4","%","","","(8.0",")%","","","","(1.1",")%"]]
[[/GREPCENT_TABLE]]

For further detail of income tax matters, see Note 4, Income Taxes, within the audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Income tax benefit (provision) was $436.1 million for the year ended December 31, 2021, $(8.1) million for the period from January 29, 2020 to December 31, 2020 and $(0.4) million for the period from January 1, 2020 to January 28, 2020. The tax benefit of $436.1 million recorded in the year ended December 31, 2021 includes a $441.5 million tax benefit related to the reversal of a net deferred tax liability due to a restructuring of our international operations and a $1.3 million tax provision associated with prior period items. In addition, the tax benefit for the year ended December 31, 2021 reflects the impact of our assessment that we will not be able to record the benefit of certain current year deferred tax assets for which a valuation allowance is expected.

For a comparative discussion of our results of operations for the years ended December 31, 2020 and December 31, 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations―Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 15, 2021.

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP, however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain expenses, including income tax (benefit) provision, interest (income) expense, depreciation and amortization, stock-based compensation expenses, employer costs related to stock-based compensation, foreign exchange (gain) loss, changes in fair value of contingent earn-out liability, interest rate swaps and investments, transaction and other costs, litigation costs net of insurance reimbursements that arise outside of the ordinary course of business, tax receivable agreement liability remeasurement expense and impairment loss, as management does not believe these expenses are representative of our core earnings. We also provide Adjusted EBITDA margin, which is calculated as Adjusted EBITDA divided by revenue. In addition to Adjusted EBITDA and Adjusted EBITDA margin, we believe free cash flow and free cash flow conversion provide useful information regarding how cash provided by (used in) operating activities compares to the capital expenditures required to maintain and grow our business, and our available liquidity, after funding such capital expenditures, to service our debt, fund strategic initiatives and strengthen our balance sheet, as well as our ability to convert our earnings to cash. Additionally, we believe such metrics are widely used by investors, securities analysis, ratings agencies and other parties in evaluating liquidity and debt-service capabilities. We calculate free cash flow and free cash flow conversion using methodologies that we believe can provide useful supplemental information to help investors better understand underlying trends in our business.

Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are:

•
Adjusted EBITDA and Adjusted EBITDA margin exclude the recurring, non-cash expenses of depreciation and amortization of property and equipment and definite-lived intangible assets and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;

•
Adjusted EBITDA and Adjusted EBITDA margin do not reflect changes in, or cash requirements for, our working capital needs;

•
Adjusted EBITDA and Adjusted EBITDA margin exclude stock-based compensation expense and employer costs related to stock-based compensation, which has been, and will continue to be for the foreseeable future, an important part of how we attract and retain our employees and a significant recurring expense in our business;

67

•
Adjusted EBITDA and Adjusted EBITDA margin do not reflect the interest (income) expense or the cash requirements to service interest or principal payments on our indebtedness, and free cash flow does not reflect the cash requirements to service principal payments on our indebtedness;

•
Adjusted EBITDA and Adjusted EBITDA margin do not reflect income tax (benefit) provision we are required to make; and

•
Free cash flow and free cash flow conversion do not represent our residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.

Adjusted EBITDA is not a liquidity measure and should not be considered as discretionary cash available to us to reinvest in the growth of our business or to distribute to stockholders or as a measure of cash that will be available to us to meet our obligations.

To properly and prudently evaluate our business, we encourage you to review the financial statements included elsewhere in this Annual Report, and not rely on a single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of net earnings (loss) to Adjusted EBITDA, the computation of Adjusted EBITDA margin as compared to net earnings (loss) margin which is net earnings (loss) as a percentage of revenue, the reconciliation of net cash provided by (used in) operating activities to free cash flow, and the computation of free cash flow conversion as compared to operating cash flow conversion, which is net cash provided by (used in) operating activities as a percentage of net earnings (loss) in each case set forth below.

We define Adjusted EBITDA as net earnings (loss) excluding income tax (benefit) provision, interest (income) expense, depreciation and amortization, stock-based compensation expense, employer costs related to stock-based compensation, foreign exchange loss (gain), changes in fair value of contingent earn-out liability, interest rate swaps and investments, transaction and other costs, litigation costs net of insurance reimbursements that arise outside of the ordinary course of business, tax receivable agreement liability remeasurement expense and impairment loss. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue.

We define free cash flow as net cash provided by (used in) operating activities less capital expenditures. Free cash flow conversion represents free cash flow as a percentage of Adjusted EBITDA. Operating cash flow conversion represents net cash provided by (used in) operating activities as a percentage of net earnings (loss).

68

The following table reconciles our non-GAAP financial measures to the most comparable GAAP financial measures for the periods presented:

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands, except percentages)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020","","","Years Ended December 31, 2019"],["Net earnings (loss)","","$","286,945","","","$","(110,186",")","","","$","(32,556",")","","$","85,844"],["Add back:"],["Income tax (benefit) provision","","","(436,071",")","","","8,126","","","","","365","","","","6,138"],["Interest (income) expense","","","25,609","","","","22,134","","","","","(50",")","","","(202",")"],["Depreciation and amortization","","","107,056","","","","91,767","","","","","408","","","","6,734"],["Stock-based compensation expense","","","123,910","","","","27,468","","","","","336","","","","2,160"],["Employer costs related to stock-based compensation(1)","","","2,438","","","","\u2014","","","","","\u2014","","","","\u2014"],["Litigation costs, net of insurance reimbursements(2)","","","6,943","","","","(6,008",")","","","","\u2014","","","","\u2014"],["Foreign exchange (gain) loss (3)","","","(4,476",")","","","14,133","","","","","523","","","","1,160"],["Changes in fair value of interest rate swaps(4)","","","(6,593",")","","","1,586","","","","","\u2014","","","","\u2014"],["Transaction and other costs(5)","","","19,093","","","","66,251","","","","","40,345","","","","\u2014"],["Changes in fair value of contingent earn-out liability","","","55,900","","","","27,800","","","","","\u2014","","","","\u2014"],["Changes in fair value of investments","","","(1,100",")","","","\u2014","","","","","\u2014","","","","\u2014"],["Tax receivable agreement liability remeasurement expense(6)","","","1,112","","","","\u2014","","","","","\u2014","","","","\u2014"],["Impairment loss(7)","","","26,431","","","","\u2014","","","","","\u2014","","","","\u2014"],["Adjusted EBITDA","","$","207,197","","","$","143,071","","","","$","9,371","","","$","101,834"],["Net earnings (loss) margin(8)","","","37.5","%","","","(20.3",")%","","","","(81.4",")%","","","17.6","%"],["Adjusted EBITDA margin","","","27.1","%","","","26.4","%","","","","23.4","%","","","20.8","%"],["Net cash provided by (used in) operating activities","","$","104,837","","","$","56,261","","","","$","(3,306",")","","$","101,392"],["Less:"],["Capital expenditures","","","(13,653",")","","","(10,632",")","","","","(1,045",")","","","(9,674",")"],["Free Cash Flow","","$","91,184","","","$","45,629","","","","$","(4,351",")","","$","91,718"],["Operating cash flow conversion","","","36.5","%","","","(51.1",")%","","","","10.2","%","","","118.1","%"],["Free cash flow conversion","","","44.0","%","","","31.9","%","","","","(46.4",")%","","","90.1","%"]]
[[/GREPCENT_TABLE]]

(1)
Represents employer portion of Social Security and Medicare payroll taxes domestically, National Insurance contributions in the United Kingdom and comparable costs internationally related to the settlement of equity awards.

(2)
Represents certain litigation costs and insurance proceeds associated with pending litigations or settlements of litigation.

(3)
Represents foreign exchange (gain) loss due to foreign currency transactions.

(4)
Represents fair value loss (gain) on interest rate swaps.

(5)
Represents legal, accounting, advisory fees and certain other costs related to our offerings, including the Sponsor Acquisition, our IPO and the Reorganization, and the secondary offering.

(6)
Represents changes in tax receivable agreement liability due to tax rate changes and unrelated to exchanges of Common Units for Class A shares.

(7)
Represents impairment loss incurred on white label contracts.

(8)
Net earnings margin for the year ended December 31, 2021 includes a $441.5 million tax benefit related to the reversal of a deferred tax liability due to a restructuring of the Company’s international operations.

Liquidity and Capital Resources

Overview

The Company’s principal sources of liquidity are our cash and cash equivalents and cash generated from operations. Our primary uses of liquidity are operating expenses and capital expenditures. As of December 31, 2021, we had $369.2 million of cash and cash equivalents, an increase of $241.1 million from December 31, 2020.

69

In connection with our IPO, we used the proceeds (net of underwriting discounts) from the issuance of 9 million shares of Class A common stock ($369.6 million) in the IPO to purchase an equivalent number of newly issued Common Units from Bumble Holdings, which Bumble Holdings used to repay outstanding indebtedness under our Term Loan Facility totaling approximately $200.0 million in aggregate principal amount and approximately $148.3 million for general corporate purposes, and to bear all of the expenses of the IPO. We expect that our future principal uses of cash will also include funding our debt service obligations, paying income taxes and obligations under our tax receivable agreement. Based on current conditions, we believe that we have sufficient financial resources to fund our activities and execute our business plans during the next twelve months.

Cash Flow Information

The following table summarizes our consolidated cash flow information for the periods presented:

[[GREPCENT_TABLE]]
[["","","Successor","","","","Predecessor"],["(in thousands)","","Year Ended December 31, 2021","","","Period from January 29, through December 31, 2020","","","","Period from January 1, through January 28, 2020","","","Year Ended December 31, 2019"],["Net cash provided by (used in):"],["Operating activities","","$","104,837","","","$","56,261","","","","$","(3,306",")","","$","101,392"],["Investing activities","","","(12,484",")","","","(2,850,651",")","","","","(1,029",")","","","(11,396",")"],["Financing activities","","","151,486","","","","2,866,236","","","","","\u2014","","","","(65,196",")"]]
[[/GREPCENT_TABLE]]

Operating activities

Net cash provided by (used in) operating activities was $104.8 million for the year ended December 31, 2021, $56.3 million for the period from January 29, 2020 to December 31, 2020, and $(3.3) million for the period from January 1, 2020 to January 28, 2020.

The increase in the year ended December 31, 2021 compared to the period from January 29, 2020 to December 31, 2020 and the period from January 1, 2020 to January 28, 2020 was primarily due to net earnings of $286.9 million compared to net losses of $(110.2) million and $(32.6) million for the period from January 29, 2020 to December 31, 2020 and from January 1, 2020 to January 28, 2020, respectively

Net earnings in the year ended December 31, 2021 is primarily driven by $441.5 million tax benefit related to the reversal of a deferred tax liability due to a restructuring of the Company’s international operations, partly offset by stock-based compensation of $123.9 million, depreciation and amortization of $107.1 million, changes in the fair value of the contingent earn-out liability of $55.9 million and impairment loss of $26.4 million in relation to the white label contracts. Net loss in the period from January 29, 2020 to December 31, 2020 were impacted by depreciation and amortization of $91.8 million, transaction costs of $66.3 million, stock-based compensation expense of $27.5 million and changes in the fair value of the contingent earn-out liability of $27.8 million. Net loss in the period from January 1, 2020 to January 28, 2020 was impacted mostly by transaction costs of $40.3 million.

The increase in cash provided by (used in) operating activities for the year ended December 31, 2021 was partly offset by changes in assets and liabilities, which were $(56.5) million, $9.4 million and $25.1 million in the year ended December 31, 2021, the period from January 29, 2020 to December 31, 2020 and the period from January 1, 2020 to January 28, 2020, respectively.

Investing activities

Net cash used in investing activities was $12.5 million for the year ended December 31, 2021, $2,850.7 million for the period from January 29, 2020 to December 31, 2020, and $1.0 million for the period from January 1, 2020 to January 28, 2020. The change was primarily due to the acquisition of the business (net of cash acquired) of $2,837.7 million in the period from January 29, 2020 to December 31, 2020. The Company had capital expenditures of $13.7 million, $10.6 million and $1.0 million in the year ended December 31, 2021, the period from January 29, 2020 to December 31, 2021 and the period from January 1, 2020 to January 28, 2020, respectively.

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Financing activities

Net cash provided by (used in) financing activities was $151.5 million for the year ended December 31, 2021, $2,866.2 million for the period from January 29, 2020 to December 31, 2020, and nil for the period from January 1, 2020 to January 28, 2020. For the year ended December 31, 2021, the Company received net proceeds of $2,361.2 million after deducting underwriting discounts and commissions, of which $1,991.6 million was used to redeem shares of Class A common stock and purchase Common Units from our Sponsor and $200 million was used to repay a portion of the outstanding indebtedness under our Incremental Term Loan Facility. The Company received cash of $2,360.4 million in relation to limited partners’ interest, net proceeds from external debt of $828.9 million, proceeds from the repayment of loan from the Founder of $25.6 million and proceeds from the repayment of loans to related companies of $41.9 million in the period from January 29, 2020 to December 31, 2020, offset by cash payments of $360.0 million in dividends and repayment of long-term debt principal of $5.0 million in the period from January 29, 2020 to December 31, 2020.

Indebtedness

Senior Secured Credit Facilities

In connection with the Sponsor Acquisition, in January 2020, we entered into the Initial Term Loan Facility in an original aggregate principal amount of $575.0 million and the Revolving Credit Facility in an aggregate principal amount of up to $50.0 million. In connection with the Distribution Financing Transaction, in October 2020, we entered into the Incremental Term Loan Facility in an original aggregate principal amount of $275.0 million. The borrower under the Senior Secured Credit Facilities is a wholly owned subsidiary of Bumble Holdings, Buzz Finco L.L.C. (the “Borrower”).

Borrowings under the Senior Secured Credit Facilities bear interest at a rate equal to, at the Borrower’s option, either (i) LIBOR for the relevant interest period, adjusted for statutory reserve requirements (subject to a floor of 0.0% on the Initial Term Loan and 0.50% on the Incremental Term Loan), plus an applicable margin or (ii) a base rate equal to the highest of (a) the rate of interest in effect as last quoted by the Wall Street Journal as the “Prime Rate” in the United States, (b) the federal funds effective rate plus 0.50% and (c) adjusted LIBOR for an interest period of one month plus 1.00% (subject to a floor of 0.00% per annum), in each case, plus an applicable margin. The applicable margin for loans under the Revolving Credit Facility is subject to adjustment based upon the consolidated first lien net leverage ratio of the Borrower and its restricted subsidiaries and is subject to reduction after the consummation of our initial public offering.

In addition to paying interest on the outstanding principal under the Senior Secured Credit Facilities, the Borrower is required to pay a commitment fee of 0.50% per annum (which is subject to a decrease to 0.375% per annum based upon the consolidated first lien net leverage ratio of the Borrower and its restricted subsidiaries) to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The Borrower must also pay customary letter of credit fees and an annual administrative agency fee.

The Initial Term Loan Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the principal amount of the Initial Term Loan Facility outstanding as of the date of the closing of the Initial Term Loan Facility, with the balance being payable at maturity on January 29, 2027. The Incremental Term Loan Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the principal amount of the Incremental Term Loan Facility outstanding as of the date of the closing of the Incremental Term Loan Facility, with the balance being payable at maturity on January 29, 2027. Principal amounts outstanding under the Revolving Credit Facility are due and payable in full at maturity on January 29, 2025.

In October 2020, we entered into an incremental Senior Secured Term Loan Facility (the “Incremental Term Loan Facility”) in an original aggregate principal amount of $275.0 million. The Incremental Term Loan provides for additional senior secured term loans with substantially identical terms as the Initial Term Loan Facility (other than the applicable margin). A portion of the net proceeds from the initial public offering was used to repay $200 million aggregate principal amount of our outstanding indebtedness under our Term Loan Facility in the three months ended March 31, 2021. The Senior Secured Credit Facilities contain affirmative and negative covenants and customary events of default.

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Tax Receivable Agreement

In connection with the IPO, in February 2021, we entered into a tax receivable agreement with certain of our pre-IPO owners that provides for the payment by the Company to such pre-IPO owners of 85% of the benefits that the Company realizes, or is deemed to realize, as a result of the Company’s allocable share of existing tax basis acquired in our initial public offering and other tax benefits related to entering into the tax receivable agreement.

We estimate the amount of existing tax basis with respect to which our pre-IPO owners will be entitled to receive payments under the tax receivable agreement (assuming all Pre-IPO Common Unitholders exchanged their Common Units for shares of Class A common stock on the date of the initial public offering, and assuming all vested Incentive Units were converted to Common Units and subsequently exchanged for shares of Class A common stock at the initial public offering price of $43.00 per share of Class A common stock) is approximately $2,603.7 million, which includes the Company’s allocable share of existing tax basis acquired in this IPO, which we have determined to be approximately $1,728.1 million. In determining the Company’s allocable share of existing tax basis acquired in the IPO, we have given retrospective effect to certain exchanges of Common Units for Class A shares that occurred following the IPO that were contemplated to have occurred pursuant to the Blocker Restructuring. The payments under the tax receivable agreement are not conditioned upon continued ownership of the Company by the pre-IPO owners.

Contractual Obligations and Contingencies

The following table summarizes our contractual obligations as of December 31, 2021:

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[[/GREPCENT_TABLE]]

The payments that we may be required to make under the Tax Receivable Agreement to the pre-IPO owners may be significant and are not reflected in the contractual obligations table set forth above as they are dependent upon future taxable income. Assuming no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, we expect future payments under the tax receivable agreement related to the Offering Transactions to aggregate $660.3 million and to range over the next 15 years from approximately $10.9 million to $58.5 million per year and decline thereafter. In determining these estimated future payments, we have given retrospective effect to certain exchanges of Common Units for Class A shares that occurred following the IPO that were contemplated to have occurred pursuant to the Blocker Restructuring. The foregoing numbers are merely estimates, and the actual payments could differ materially. See “― Tax Receivable Agreement” in this section.

In connection with the Sponsor Acquisition in January 2020, we entered into a contingent consideration arrangement, consisting of an earn-out payment to the former shareholders of Worldwide Vision Limited of up to $150 million. The timing and amount of such payment, that we may be required to make, is not reflected in the contractual obligations table set forth above as it is dependent upon our Sponsor achieving a specified return on invested capital. See Note 6, Business Combination, for additional information.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP, which often require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Our estimates are based on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. We evaluate our critical estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are described below. This discussion is provided to supplement the descriptions of our accounting policies contained in Note 2, Summary of Selected Significant Accounting Policies, within the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Business Combination

We estimate the fair value of assets acquired and liabilities assumed in a business combination. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates.

Goodwill is tested for impairment at a minimum on an annual basis, as well as upon an indicator of impairment. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then quantitative assessment is performed to compare the reporting unit’s carrying value to its fair value. Alternatively, we are permitted to bypass the qualitative assessment and proceed directly to performing the quantitative assessment. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The fair value of the reporting unit is based on a discounted cash flow model involving several assumptions.

Contingent consideration arrangements are recognized at their acquisition date fair value and included as part of purchase price at the acquisition date. These contingent consideration arrangements are classified as liabilities and are remeasured to fair value at each reporting period, with any change in fair value being recognized in “general and administrative expense” in the consolidated statement of operations. The estimated fair value of the contingent consideration is based primarily on estimates of meeting the applicable contingency conditions as per the terms of the applicable agreements.

Recoverability of Intangible Assets with Definite Lives and Other Long-Lived Assets

We evaluate definite-lived intangible assets and other long-lived assets whenever events or changes of circumstance indicate that the carrying amounts may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated. We group assets for purposes of such review at the lowest level for which identifiable cash flows of the asset group are largely independent of the cash flows of the other groups of assets and liabilities. If this comparison indicates impairment, the amount of impairment to be recognized is calculated as the difference between the carrying value and the fair value of the asset group.

Unforeseen events, changes in circumstances and market conditions and material differences in estimates of future cash flows could adversely affect the fair value of our assets and could result in an impairment charge. Fair value can be estimated utilizing a number of techniques including quoted market prices, prices for comparable assets, or other valuation processes involving estimates of cash flows, multiples of earnings or revenues, and we may make various assumptions and estimates when performing our impairment assessments, particularly as it relates to cash flow projections. Cash flow estimates are by their nature subjective and include assumptions regarding factors such as recent and forecasted operating performance, revenue trends and operating margins. These estimates could also be adversely impacted by changes in federal, state, or local regulations, economic downturns or developments, or other market conditions affecting our industry.

During the fourth quarter of the year ended December 31, 2021, the Company determined that an individual definite long-lived asset was impaired and recognized an impairment charge of $26.4 million in "general and administrative expense" within the accompanying consolidated statement of operations. For additional information, refer to Note 8, Goodwill and Intangible Assets, within the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Internally Developed Software

We incur costs to develop software to be used solely to meet internal needs and applications used to deliver our services. These software development costs meet the criteria for capitalization once the preliminary project stage is complete and it is probable that the project will be completed, and the software will be used to perform the function intended.

Stock-based Compensation

Prior to the Sponsor Acquisition

Prior to the Sponsor Acquisition, Worldwide Vision Limited granted stock-based awards consisting primarily of share options and restricted stock units (“WVL RSUs”) to employees and certain non-employee advisors. Outstanding share options generally vested over four years or upon the achievement of certain performance conditions, such as revenue growth. Outstanding WVL RSUs generally vested over four years and participated in dividends once gross dividend payments to ordinary shareholders exceeded $150

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million and in an exit event. No WVL RSUs were granted in 2018 and 2019, and the expense arising from WVL RSUs was not material for the periods presented.

Between 2015 and 2018, Bumble Holdings Limited issued shadow equity to employees and non-employees to provide a bonus to be paid upon an exit event of Bumble Holdings Limited, with the bonus amount to vary based on the exit value. Certain of the awards were payable in the event of an exit of Bumble Holdings Limited only, while one award was payable in the event of an exit event within the group. As the payment was contingent upon the achievement of a liquidity event, no compensation expense was recognized in connection with these awards during the year ended December 31, 2019. These awards issued by Bumble Holdings Limited were settled in connection with the Acquisition, including $3.8 million that was recognized as stock-based compensation expense in “General and administrative expense” in the period from January 1, 2020 to January 28, 2020.

We measured share options based on their estimated grant date fair values and recognized stock-based compensation expense over the requisite service period (the “vesting period”). Stock-based compensation expense reflected our best estimate of the number of equity instruments that will ultimately vest, including the impact of estimated forfeitures.

The fair value of each share option was estimated on the date of grant using a Monte Carlo model, which is impacted by a number of variables, including the fair value of our underlying shares, our expected share price volatility over the term of the share option, the expected life of the option, risk-free interest rates, and the expected dividend yield of our shares.

•
Dividend yield. The expected annual dividend per share was based on the Company’s expected dividend rate.

•
Expected Volatility. The expected volatility was calculated based on the historical volatility of the Company’s shares and measures for a set of peer companies of the Company.

•
Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant.

•
Expected life of options. The average expected life is based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior.

The predecessor stock-based compensation plans were terminated in connection with the Sponsor Acquisition.

Subsequent to the Sponsor Acquisition

From the time of the Sponsor Acquisition until our IPO, we had three active plans under which awards were granted to various employees and other service providers of the Company, including key management personnel, based on their management grade. For the Successor Period, total stock-based compensation expense recognized was $27.5 million. The three active plans include the Employee Incentive Plan (“Non-U.S. Plan”), the Equity Incentive Plan (“U.S. Plan”), and the incentive plan adopted for Whitney Wolfe Herd (the “Founder Plan”). Awards granted under the Founder Plan and U.S. Plan were in the form of Class B Units in Buzz Holdings L.P. and Class B Units held by Buzz Management Aggregator L.P., respectively (collectively, the “Class B Units”). Under the Non-U.S. Plan, participants received phantom awards of Class B Units in Buzz Management Aggregator L.P. (the “Phantom Class B Units”) that were liability-classified and settled in cash equal to the notional value of the Buzz Management Aggregator Class B Units at the settlement date.

Awards under all three plans were comprised of Time-Vesting and Exit-Vesting awards. Time-Vesting awards were based upon service-based conditions and generally vested over a period of five years, while Exit-Vesting awards were based on certain performance conditions in which affiliates of Blackstone Inc. receive cash proceeds in respect of its Class A units in the Company prior to the termination of the participant. The performance conditions were not considered probable as of December 31, 2020 and therefore no expense has been recognized for the Exit-Vesting awards. In connection with the IPO, these awards were all converted into awards under our 2021 Omnibus Incentive Plan as described under “Item 11―Executive Compensation―Conversion of Class B Units and Phantom Class B Units”.

Time-Vesting Class B Units and Exit-Vesting Class B Units

Expense for the Time-Vesting Class B Units and Exit-Vesting Class B Units was based on the grant date fair value of the Class B Units. The grant date fair value was measured using a Monte Carlo model, which incorporates various assumptions noted in the following table. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the observed equity volatility for comparable companies. The expected time to liquidity event was based on management’s estimate of time to an expected liquidity event. The dividend yield was based on the Company’s expected dividend rate. The risk-free interest rate was based on U.S. Treasury zero-coupon issues. Forfeitures were accounted for as they occurred.

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

The valuations for awards granted in January 2020 and June 2020 were based on the purchase price from the Sponsor Acquisition of $2.9 billion as the estimated equity value as of these dates and, therefore, did not rely on establishing an estimated equity value based on an income or market multiple approach. The implied multiple based on the purchase price was 19.2x.

Time-Vesting Phantom Class B Units and Exit-Vesting Phantom Class B Units

For additional information around the Company’s stock-based compensation plans, refer to Note 14, Stock-based Compensation, within the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Income Taxes

We are subject to income tax in most of the jurisdictions in which we operate. Management is required to exercise significant judgment in determining our provision for income taxes. The provision for income taxes is determined by taking into account guidance related to uncertain tax positions. Judgment is required in assessing the timing and amounts of deductible and taxable items. Deferred tax assets are amounts available to reduce income taxes payable on taxable income in future years and are initially recognized at enacted tax rates. To the extent deferred tax assets are not expected to be realized, we record a valuation allowance. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.

Accounting Pronouncements Not Yet Adopted

Recently-issued accounting pronouncements that may be relevant to our operations but have not yet been adopted are outlined in Note 2, Summary of Selected Significant Accounting Policies, within the audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

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