Maplebear Inc. (CART) FY 2023 MD&A

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward looking statements that are based on current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward looking statements as a result of various factors, including, but not limited to, those identified below and those discussed in the section titled “Risk Factors” and other sections, including the “Special Note Regarding Forward-Looking Statements,” of this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Overview

Instacart is powering the future of grocery through technology. We partner with retailers to help them successfully navigate the digital transformation of their businesses.

Instacart was founded in 2012 to bring the grocery industry online and help make grocery shopping effortless. We started by understanding what consumers want and then built enterprise-grade technologies that allow retailers to meet those needs. Instacart invented a new model for online grocery shopping by offering consumers on-demand delivery from the stores they know and trust. Retailers reach customers through both Instacart Marketplace, where customers can shop from their favorite retailers through our app or website, and retailers’ owned and operated online storefronts that are powered by Instacart Enterprise Platform, our end-to-end technology solution encompassing eCommerce, fulfillment, Connected Stores, ads and marketing, and insights.

Instacart started as a way for households to conveniently manage their weekly grocery shopping, a recurring and high order value consumer use case. Today, customers can place orders for delivery or pickup across a variety of use cases including the weekly shop, bulk stock-up, convenience, and special occasions. Customers can select the fulfillment option and speed that best serve their needs. Each order can be shopped for and delivered with care by one of the hundreds of thousands of shoppers who value the flexible earnings opportunities that Instacart provides.

In addition, brands can use Instacart Ads as a new way to reach customers at the point of purchase and within minutes of delivery and consumption. Instacart Ads offers brands a highly measurable ads offering that leverages first-party transaction data to move products off store shelves more efficiently.

Initial Public Offering and Private Placement

On September 21, 2023, we completed our IPO in which we issued and sold 14,100,000 shares of our common stock at an IPO price of $30.00 per share. We received net proceeds from the IPO of $392 million after deducting underwriting discounts and offering costs. Immediately subsequent to the closing of the IPO, we issued and sold 5,833,333 shares of our Series A Preferred Stock in a private placement at $30.00 per share and received $175 million in proceeds.

We recognized $2.6 billion of stock-based compensation expense associated with the vested RSUs and certain shares of vested restricted stock, as a result of the satisfaction of the liquidity event-based vesting condition upon the effective date of the registration statement on Form S-1 filed under the Securities Act in connection with our IPO. To meet the related tax withholding requirements for the net settlement, net exercise, and cancellation and repurchase, as applicable, of the vested RSUs, for certain vested stock options, and shares of vested restricted stock, we withheld or cancelled, as applicable, 20,810,882 of the 43,052,572 shares underlying such equity awards, resulting in the net issuance of 22,241,690 shares of common stock. Based on our IPO price of $30.00 per share, our tax withholding obligation was $570 million, which we paid in the third quarter of 2023.

Macroeconomic Impacts

Our business and financial condition have been, and are expected to continue to be impacted by recent macroeconomic trends affecting our markets and industry such as higher inflation, rising interest rates, the effects of supply chain challenges, cessation of government aid programs, geopolitical conflicts, and uncertainty regarding an economic recession and associated decreases in consumer discretionary income. For example, decreases in consumer discretionary income due to inflationary or recessionary economic pressures and rising interest rates, as well as cessation of government aid, have

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adversely impacted and continue to adversely impact order volumes, customer acquisition and retention, changing consumer preferences, and demand for premium or discretionary grocery purchases. These macroeconomic trends have caused advertisers, including our brand partners, to decrease spending and reduce their budgets and have heightened our brand partners’ focus on profitability. As a result, we expect the growth of our advertising and other revenue to be negatively impacted over the near term. In addition, inflationary pressures in 2022 and 2023 have resulted in higher GTV and average order values. However, customers have also been purchasing fewer items on average per order on Instacart, partially offsetting the effects of inflation on average order values. These factors and the magnitude of their effects are expected to cause our average order value to continue fluctuating. As inflation wanes, we expect growth in average order value to be a less significant driver of GTV growth.

Restructuring Plan

On February 9, 2024, we announced restructuring actions with respect to our workforce (the “Restructuring Plan”) to improve operational efficiencies and better align our organizational structure with current business needs, top strategic priorities, and key growth opportunities. The Restructuring Plan includes a reduction of approximately 250 employees, representing approximately 7% of our global workforce as of January 31, 2024, with most of these reductions expected to occur by March 31, 2024.

We estimate we will incur approximately $19 million to $24 million in non-recurring charges in connection with the Restructuring Plan, predominantly related to cash expenditures for employee transition and severance payments and employee benefits. Of the total restructuring expenses, $17 million to $22 million is expected to result in future cash outlays. We expect the majority of the charges to be recognized in the first quarter of 2024.

Key Financial and Operational Highlights

We use the following financial and key business metrics to help us evaluate the health of our business, identify trends affecting our performance, formulate business plans, and make strategic decisions:

___________

“NM” - not meaningful

(1) Net loss for the year ended December, 31 2023, includes $2.6 billion of stock-based compensation associated with the cumulative vesting of certain equity awards in connection with our IPO in the third quarter of 2023.

(2) Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin are non-GAAP financial measures. For more information regarding our use of these measures and reconciliation to the most directly comparable financial measures calculated in accordance with GAAP, see the section titled “—Non-GAAP Financial Measures.”

Orders

We define an order as a completed customer transaction to purchase goods for delivery or pickup from a single retailer on Instacart during the period indicated, including those completed through Instacart Marketplace or retailers’ owned and operated online storefronts that are powered by Instacart Enterprise Platform. We believe that orders are an indicator of the scale and growth of our business as well as the value we bring to our constituents.

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In 2023, orders increased to 269.2 million, or 3% growth compared to 2022. The increase in orders was driven primarily by increased engagement from new and existing customers.

Gross Transaction Value

We define GTV as the value of the products sold based on prices shown on Instacart, in addition to applicable taxes, deposits and other local fees, customer tips, which go directly to shoppers, customer fees, which include flat subscription fees related to Instacart+ that are charged monthly or annually, and other fees. GTV consists of orders completed through Instacart Marketplace or services that are part of the Instacart Enterprise Platform. We believe that GTV indicates the health of our business, including our ability to drive revenue and profits, and the value we provide to our constituents.

In 2023, GTV increased to $30,322 million, or 5% growth compared to 2022, driven primarily by the increase in orders and, to a lesser extent, higher average order value. During 2023, the rate of year-over-year declines in GTV from customers acquired prior to 2022 continued to improve. These declines were more than offset by GTV generated by newly acquired customers in 2022 and 2023. As inflation wanes, we expect GTV growth to continue to be driven more by growth in orders than growth in average order value. We experienced slower GTV growth in 2023 when compared to prior periods, and we expect to continue to experience fluctuations in GTV growth over the near term, primarily due to the macroeconomic trends described above, the subsiding effects of the COVID-19 pandemic on demand for online grocery, the declining effectiveness of historical growth initiatives as we continue to scale, and the effects of our initiatives to drive profitable growth.

Gross Profit, Gross Margin, and Gross Profit as a Percent of GTV

Gross profit is defined as revenue less cost of revenue, and gross margin is defined as gross profit as a percent of revenue. We believe that gross profit, gross margin, gross profit as a percent of GTV are important indicators of the growth and efficiencies of our business.

In 2023, gross profit increased to $2,278 million, or 24% growth compared to 2022, and gross margin increased by 4% compared to 2022 primarily due to an increase in transaction revenue, various cost efficiencies, and growth in our advertising and other investment rate.

Adjusted EBITDA, Adjusted EBITDA as a Percent of GTV, and Adjusted EBITDA Margin

We define Adjusted EBITDA as net income (loss), adjusted to exclude (i) provision for (benefit from) income taxes, (ii) interest income, (iii) other income (expense), net, (iv) depreciation and amortization expense, (v) stock-based compensation expense, (vi) payroll taxes related to stock-based compensation expense, (vii) certain legal and regulatory accruals and settlements, net, (viii) reserves for sales and other indirect taxes, (ix) COVID-19 response initiatives, (x) acquisition-related expenses, and (xi) non-capitalizable expenses related to the public listing of our common stock and issuance costs related to the issuance of our Series A Preferred Stock. We define Adjusted EBITDA margin as Adjusted EBITDA as a percent of revenue. For more information about how we use these non-GAAP financial measures in our business, the limitations of these measures, and reconciliations of these measures to the most directly comparable GAAP financial measures, see the section titled “—Non-GAAP Financial Measures.”

In 2023, Adjusted EBITDA increased to $641 million, or 243% growth compared to 2022, primarily driven by revenue growth and efficiencies within adjusted total operating expenses and adjusted cost of revenue which grew slower than GTV. Our Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin can vary significantly as we continue to make substantial investments to fuel our growth and scale our business.

Components of Results of Operations

Revenue

Our revenue consists of transaction revenue and advertising and other revenue.

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Transaction Revenue

We generate transaction revenue primarily from:

•end users, whom we refer to as customers, (i) through service and delivery fees paid for arranging fulfillment services from shoppers and (ii) for monthly or annual Instacart+ memberships, our membership program, which offers unlimited free delivery on orders over a certain size, a reduced service fee, credit back on eligible pickup orders, and exclusive benefits;

•retailers (i) through service fees in exchange for connecting retailers with customers to facilitate transactions on Instacart Marketplace and (ii) for orders placed through retailers’ owned and operated online storefronts powered by Instacart Enterprise Platform; and

•a revenue share agreement with a third party that supplies payment cards to Instacart shoppers for in-store use.

Transaction revenue is recognized upon transfer of control of services, net of the purchase value of the goods remitted to retailers and payments to shoppers for their services (including any shopper incentives), coupons, consumer incentives, and refunds. We expect transaction revenue from customer and retailer fees to fluctuate from time to time as a result of customer and retailer fee optimizations and changes in the mix of customer use cases and fulfillment options. Over time, we expect year-over-year growth in transaction revenue to align more closely with growth in GTV relative to prior periods. We also expect the amounts of payments to shoppers, coupons, customer and shopper incentives, and refunds to fluctuate over time depending on a number of factors. For example, implementation of additional fulfillment options or shifts in our ability to use full-service shoppers, as well as fulfillment efficiencies, such as changes in our batch rate, average time spent per order, shopper tenure, and shopper pay optimization, could result in fluctuations in our transaction revenue. In addition, periods of elevated customer demand have resulted in and can in the future result in increased shopper incentives and degradation of order quality due to higher rates of out of stock items and other delays, which in turn generally lead to more appeasement credits and refunds. Furthermore, our overall marketing strategy will impact the spend mix between promotions and consumer incentives, as well as referrer credits, which are recorded as reductions of revenue and sales and marketing expense, respectively. In certain cases, these reductions of revenue can be more than fees received from retailers and customers.

Advertising and Other Revenue

We generate advertising and other revenue primarily from:

•the sale of advertising services to brands that are interested in reaching customers on Instacart; and

•certain retailers for use of our software-as-a-service solution through Instacart Enterprise Platform that enhances the online shopping experience, with revenue recognized ratably over the subscription period.

Advertising revenue is recognized upon delivery of clicks for Sponsored Product ads, upon delivery of impressions or over the contract term on a fixed fee basis for display ads, or upon redemptions of coupons. Advertising and other revenue has historically been, and is expected to continue to be, seasonally high in the fourth quarter and seasonally low in the first quarter in a given year as a result of how advertisers deploy their budgets. In addition, our advertising and other investment rate may fluctuate, particularly during periods of acceleration or decreases in our GTV growth as well as periods in which we generate more GTV growth from sources where we historically do not provide advertising, such as retailers’ owned and operated online storefronts utilizing Instacart API that do not partner with Carrot Ads. We expect our advertising and other revenue growth to fluctuate in the near term due to the macroeconomic factors described above, changes in brand partner spend in response to our GTV growth trends, and as we lap the full ramp up of shoppable display and shoppable video launches in 2022, which helped drive advertising and other revenue growth in subsequent quarters.

Cost of Revenue

Cost of revenue primarily consists of third-party payment processing fees, expenses related to payment chargebacks, compensation costs of our employees primarily involved in fulfillment, hosting fees, insurance costs attributed to fulfillment, depreciation expense, and amortization expense of technology-related intangible assets and capitalized internal-use software. Compensation costs include salaries, taxes, benefits, bonuses, and stock-based compensation expense. We recognized additional cost of revenue during the third quarter of 2023, the period in which we completed our IPO, due to the stock-based compensation expense associated with the vesting of RSUs, as a result of the satisfaction of the liquidity event-based performance vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO, as described in the section titled “—Critical Accounting Policies and

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Estimates—Stock-Based Compensation,” and expect to recognize additional stock-based compensation expense in future periods and additional amortization expense related to capitalized internal-use software.

Excluding the impact from stock-based compensation expense incurred in connection with our IPO as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” we expect cost of revenue will increase on an absolute dollar basis for the foreseeable future as we continue to grow our operations and vary from period to period as a percent of revenue.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percent of total revenue. Our gross margin has varied and will continue to vary from period to period based on a number of factors, including (1) changes in revenue mix, changes in the mix of order type due to changes in mix of use cases and fulfillment options, consumer shopping behaviors (including from external drivers such as public health concerns), average order values, customer fee optimization, and levels of consumer incentives, (2) operational efficiencies, (3) negotiations with our retail partners, third-party payment processors, and hosting providers, and (4) macroeconomic factors, such as supply chain issues, rising interest rates, cessation of government aid and inflation, which have impacted and may continue to negatively impact growth in GTV and orders as well as spending by our brand partners. As we continue to expand across fulfillment options and consumer use cases, we also expect to incur additional types of costs, such as certain labor costs, that can impact both our cost of revenue and profitability trends in the future. Additionally, we expect the pace of gross margin expansion to slow relative to prior periods due to transaction revenue growth beginning to align more closely with GTV growth and fluctuations in transaction revenue and advertising and other revenue as described above.

Operations and Support Expense

Operations and support expense primarily consists of compensation costs for employees who support our operations, costs of customer and shopper support, costs to attract and onboard new shoppers, allocations of various overhead and occupancy costs, and depreciation and amortization expense. Compensation costs include salaries, taxes, benefits, bonuses, and stock-based compensation expense. We recognized additional operations and support expense during the third quarter of 2023, the period in which we completed our IPO, due to the stock-based compensation expense associated with the vesting of RSUs, as a result of the satisfaction of the liquidity event-based performance vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO, as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” and expect to recognize additional stock-based compensation expense in future periods.

While we intend to invest in our operations and hire additional employees, third-party consultants, and contractors to support our operations, our investments in operations and support headcount may fluctuate from time to time as we focus on driving more efficiencies across our teams. Excluding the impact from stock-based compensation expense incurred in connection with our IPO as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” operations and support expense may increase on an absolute dollar basis for the foreseeable future and vary from period to period as a percent of revenue and as a percent of GTV.

Research and Development Expense

Research and development expense primarily consists of compensation costs for our engineering employees, third-party consulting fees, allocations of various overhead and occupancy costs, and depreciation and amortization expense. Compensation costs include salaries, taxes, benefits, bonuses, and stock-based compensation expense. We recognized additional research and development expense during the third quarter of 2023, the period in which we completed our IPO, due to the stock-based compensation expense associated with the vesting of RSUs, as a result of the satisfaction of the liquidity event-based performance vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO, as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” and expect to recognize additional stock-based compensation expense in future periods.

Excluding the impact of stock-based compensation incurred in connection with our IPO as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” research and development expense may increase on an absolute dollar basis and vary from period to period as a percent of revenue and as a percent of GTV for the foreseeable future as we continue to invest in research and development activities relating to ongoing improvements to, and maintenance of, our offerings, including the hiring of engineering, product development, and design employees to

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support these efforts. While we intend to hire additional employees, our investments in research and development headcount may fluctuate from time to time as we focus on driving more efficiencies across our teams.

Sales and Marketing Expense

Sales and marketing expense primarily consists of advertising expenses, compensation costs for sales and marketing employees, third-party consulting fees, allocations of various overhead and occupancy costs, depreciation expense, and amortization expense of customer relationship intangible assets. Compensation costs include salaries, taxes, benefits, bonuses, and stock-based compensation expense. We recognized additional sales and marketing expense during the third quarter of 2023, the period in which we completed our IPO, due to the stock-based compensation expense associated with the vesting of RSUs, as a result of the satisfaction of the liquidity event-based performance vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO, as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” and expect to recognize additional stock-based compensation expense in future periods.

We plan to continue to invest in sales and marketing to attract and increase the engagement of constituents on Instacart and increase our brand awareness. Excluding the impact from stock-based compensation expense incurred in connection with our IPO as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” sales and marketing expense may increase on an absolute dollar basis and vary as a percent of revenue, and as a percent of GTV for the foreseeable future. While we expect sales and marketing expense to be one of our largest operating expenses for the foreseeable future, the trend and timing of our sales and marketing expense will depend in large part on the timing and magnitude of our marketing campaigns. While we intend to increase our headcount from time to time, particularly over the near term as we pursue attractive growth opportunities, our investments in sales and marketing headcount may also fluctuate from time to time as we focus on driving more efficiencies across our teams.

General and Administrative Expense

General and administrative expense primarily consists of compensation costs for administrative employees, including finance and accounting, human resources, policy, and legal; third-party consulting fees; allocations of various overhead and occupancy costs; depreciation expense; and amortization expense of patents and trademarks. Compensation costs include salaries, taxes, benefits, bonuses, and stock-based compensation expense. We recognized additional general and administrative expense during the third quarter of 2023, the period in which we completed our IPO, due to the stock-based compensation expense associated with the vesting of RSUs and restricted stock, as a result of the satisfaction of the liquidity event-based performance vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO, as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” and expect to recognize additional stock-based compensation expense in future periods.

Excluding the impact from stock-based compensation expense incurred in connection with our IPO as described in the section titled “—Critical Accounting Policies and Estimates—Stock-Based Compensation,” general and administrative expense may increase on an absolute dollar basis and vary from period to period as a percent of revenue and as a percent of GTV for the foreseeable future as we continue to invest in processes, systems, and controls to enable our internal support functions to scale with the growth of our business and to operate as a public company. While we intend to increase our headcount from time to time, our investments in general and administrative headcount may fluctuate from time to time as we focus on driving more efficiencies across our teams.

In addition, in April 2023, certain employees elected to receive cash in lieu of a portion of certain future equity awards to be granted by our board of directors. As a result, for employee elections to receive cash, we will recognize additional cash compensation primarily within operating expenses associated with such cash elections through the second quarter of 2024.

Other Income (Expense), Net

Other income (expense), net primarily consists of income related to legal settlements and gains and losses from transactions denominated in a currency other than the functional currency.

Interest Income

Interest income consists primarily of interest earned on our cash and cash equivalents, restricted cash and cash equivalents, and marketable securities.

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Provision for (Benefit from) Income Taxes

The provision for (benefit from) income taxes consists primarily of income taxes in certain federal, state, local, and foreign jurisdictions in which we conduct business with the exception of the fourth quarter of 2022 when we released our valuation allowance on our deferred tax assets in the United States, and the third quarter of 2023 when we recognized a tax benefit related to the recognition of stock-based compensation expense associated with the vested RSUs and certain shares of vested restricted stock, as a result of the satisfaction of the liquidity event-based vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO. Foreign jurisdictions have different statutory tax rates from those in the United States. Additionally, certain of our foreign earnings may also be taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, generation of tax credits, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

On January 31, 2024, the 2024 Tax Extenders Bill (“the Extenders”) legislation was passed by the U.S. House of Representatives and advanced to the U.S. Senate. The Extenders could retroactively reinstate Section 174 expensing for certain research and experimental expenditures, and extend 100% bonus depreciation, among other changes. We are monitoring these developments and evaluating the potential impact on our results of operations.

Results of Operations

The following table summarizes our results of operations for the periods indicated:

___________

(1) Amounts include depreciation and amortization expense as follows:

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(2) Amounts include stock-based compensation expense as follows:

The following table summarizes the components of our consolidated statements of operations data, for each of the periods presented, as a percent of revenue.

___________

(1) Totals of percent of revenue may not foot due to rounding.

Comparison of the Years Ended December 31, 2021, 2022, and 2023

Revenue

2023 Compared to 2022

The increase in transaction revenue during fiscal year 2023 compared to fiscal year 2022 was primarily driven by growth in GTV, which grew 5%, and orders, which grew 3%. In addition, the increase was driven by fulfillment efficiencies and reduced appeasements and refunds, partially offset by an increase in incentives and promotions and lower payment revenue.

The combination of these factors contributed to transaction revenue increasing at a faster rate than GTV in fiscal year 2023 compared to fiscal year 2022. However, the growth of transaction revenue has begun to align more closely with GTV

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growth as we lapped prior fulfillment efficiencies and customer fee optimizations and increased investments in consumer incentives.

The increase in advertising and other revenue during fiscal year 2023 compared to fiscal year 2022 was primarily driven by interrelated factors, including an increase in GTV and advertising volume and increased adoption of our new advertising features and products, such as shoppable display ads and shoppable video, which we launched in the second half of 2022. This increase was impacted by changes in spend by certain of our brand partners in fiscal year 2023 compared to fiscal year 2022 in response to macroeconomic uncertainty and changes in our brand partners’ businesses and performance.

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2022 Compared to 2021

The increase in transaction revenue during fiscal year 2022, compared to fiscal year 2021, was driven primarily by an 18% increase in number of orders and a related 16% increase in overall GTV as we attracted and engaged more customers. The increase in transaction revenue was also driven by customer fee optimizations and efficiencies in shopper earnings due to healthy shopper supply and improvements to our routing, matching, and batching systems, which also helped cause transaction revenue to increase at a faster rate than orders and GTV.

The increase in advertising and other revenue during fiscal year 2022, compared to fiscal year 2021, was primarily driven by interrelated factors including an increase in advertising volume from 2021 to 2022, increased adoption of our new advertising features and products, such as shoppable display ads and shoppable video in 2022, the 18% increase in number of orders, and the related 16% increase in overall GTV. Advertising and other revenue increased at a faster rate than GTV due in part to increased engagement of brand partners, as demonstrated by growth in advertising and other investment rate of 27 basis points and continued utilization of our Sponsored Product ads offering. Macroeconomic uncertainty has adversely affected the demand for advertising and caused brands to reduce their spending, which had a negative impact on our advertising and other revenue in 2022.

Cost of Revenue, Gross Profit, and Gross Margin

2023 Compared to 2022

The increase in cost of revenue during fiscal year 2023 compared to fiscal year 2022 was primarily due to an increase of $28 million in customer success and professional services compensation costs, primarily driven by an increase in stock-based compensation expense resulting from RSUs with a liquidity event-based vesting condition that was satisfied in connection with our IPO, an increase of $14 million in credit card processing fees, and an increase of $12 million in other cost of revenue, partially offset by a decrease of $16 million in compensation costs for in-store shoppers.

The increase in gross profit and gross margin during fiscal year 2023 compared to fiscal year 2022 was primarily driven by the increase in transaction revenue and advertising and other revenue, partially offset by the increase in cost of revenue, due to the factors described above.

2022 Compared to 2021

The increase in cost of revenue during fiscal year 2022, compared to fiscal year 2021, was driven by the growth of activity on Instacart, including an increase in credit card processing fees of $55 million; an increase in chargeback, cancellation, and redelivery costs of $34 million due to increased GTV and order volume; an increase of $16 million due to delivery-related insurance; and an increase of $10 million due to the amortization of developed technology from acquired companies. The increase was partially offset by a decrease of $21 million in headcount costs as a result of a decrease in in-store shoppers.

The increase in gross profit and gross margin during fiscal year 2022, compared to fiscal year 2021, was driven by the increase in revenue due to customer fee optimization and fulfillment efficiencies and the effects of increased efficiencies in our cost of revenue as we benefited from economies of scale.

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Operations and Support

2023 Compared to 2022

The increase in operations and support expense during fiscal year 2023 compared to fiscal year 2022 was primarily due to an increase of $95 million in compensation costs, primarily driven by an increase in stock-based compensation expense resulting from RSUs with a liquidity event-based vesting condition that was satisfied in connection with our IPO.

2022 Compared to 2021

The decrease in operations and support expense during fiscal year 2022, compared to fiscal year 2021, was driven by a decrease of $34 million in referral costs and background checks related to shopper acquisition and a decrease of $8 million in staging supplies primarily due to a decreased need for personal protective equipment for shoppers, partially offset by a $20 million increase in compensation costs, and a $10 million increase in costs related to outsourced customer experience agents who provide phone, email, and chat support to customers and shoppers.

Research and Development

2023 Compared to 2022

The increase in research and development expense during fiscal year 2023 compared to fiscal year 2022 was primarily due to an increase of $1,894 million in compensation costs, primarily driven by stock-based compensation expense resulting from RSUs with a liquidity event-based vesting condition that was satisfied in connection with our IPO, employee elections to receive cash in lieu of a portion of their equity awards, and bonus expense. This increase was partially offset by an increase of $96 million in capitalized software development costs.

2022 Compared to 2021

The increase in research and development expense during fiscal year 2022, compared to fiscal year 2021, was primarily due to an increase of $109 million in compensation costs as a result of additional headcount to support our growth, and a $29 million increase in fees for engineering tools, subscriptions, and hosting to support continued innovation in product development and technology infrastructure.

Sales and Marketing

2023 Compared to 2022

The increase in sales and marketing expense during fiscal year 2023 compared to fiscal year 2022 was primarily due to an increase of $346 million in compensation costs, primarily driven by stock-based compensation expense resulting from

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RSUs with a liquidity event-based vesting condition that was satisfied in connection with our IPO, employee elections to receive cash in lieu of a portion of their equity awards, and bonus expense, partially offset by a decrease of $36 million related to consumer marketing, including campaigns targeted towards increased customer engagement and brand development and a decrease of $19 million in consulting costs.

2022 Compared to 2021

The increase in sales and marketing expense during fiscal year 2022, compared to fiscal year 2021, was primarily due to increases of $164 million in costs related to marketing programs intended to drive revenue growth, which was magnified by a reduction in our marketing spend in the first three quarters of 2021 as we re-assessed our investment goals, $60 million in compensation costs as a result of additional headcount in our sales and marketing organization to support our growth, and $33 million in consulting costs related to marketing projects and campaigns.

General and Administrative

2023 Compared to 2022

The increase in general and administrative expense during fiscal year 2023 compared to fiscal year 2022 was primarily due to an increase of $538 million in compensation costs, primarily driven by stock-based compensation expense resulting from RSUs and restricted stock with a liquidity event-based vesting condition that was satisfied in connection with our IPO, employee elections to receive cash in lieu of a portion of their equity awards, and bonus expense, an increase of $13 million in bad debt expense, and an increase of $13 million in business taxes and insurance costs, partially offset by a decrease of $81 million in our accruals for sales and indirect taxes and legal matters and settlements.

2022 Compared to 2021

The increase in general and administrative expense during fiscal year 2022, compared to fiscal year 2021, was primarily due to increases of $33 million in compensation costs as a result of additional headcount, $17 million in business taxes and insurance costs related to the overall increase in business volume, $9 million in policy spend, $7 million in consulting fees, as well as $6 million in software costs and other expenses related to the overall growth in our business. These expenditures were partially offset by decreases of $23 million in our accruals for sales and indirect taxes, and legal matters and settlements.

Other Income (Expense), Net

2023 Compared to 2022

The increase in other income (expense), net during fiscal year 2023 compared to fiscal year 2022 was primarily due to a decrease in unrealized currency losses.

2022 Compared to 2021

The decrease in other income (expense), net during fiscal year 2022, compared to fiscal year 2021, was primarily due to other income in 2021 related to legal settlements of $11 million that did not reoccur in 2022 and a foreign exchange loss during 2022 due to the strengthening of the U.S. dollar against the Canadian dollar and Australian dollar.

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Interest Income

2023 Compared to 2022

The increase in interest income during fiscal year 2023 compared to fiscal year 2022 was primarily due to higher average interest rates earned on our cash and cash equivalents, restricted cash and cash equivalents, and short-term investments.

2022 Compared to 2021

The increase in interest income during fiscal year 2022 compared to fiscal year 2021 was primarily due to higher average interest rates earned on our cash and cash equivalents and short-term investments in 2022 as compared to 2021.

Provision for (Benefit from) Income Taxes

___________

“NM” - not meaningful

2023 Compared to 2022

The increase in the benefit from income taxes during fiscal year 2023 compared to fiscal year 2022 was primarily driven by the tax benefit related to the recognition of stock-based compensation expense, including certain restructurings, associated with the vested RSUs as a result of the satisfaction of the liquidity event-based vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO in the third quarter of 2023, as well as the generation of an increased amount of research and development tax credits. The benefit from income taxes in 2022 was primarily related to the release of a valuation allowance in the United States.

2022 Compared to 2021

The increase in the provision for (benefit from) income taxes during fiscal year 2022, compared to fiscal year 2021, was primarily driven by a $358 million release of our valuation allowance recorded against our deferred tax assets in the United States.

Non-GAAP Financial Measures

To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes.

We use Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, Adjusted EBITDA margin, adjusted cost of revenue, adjusted cost of revenue as a percent of GTV, adjusted operations and support expense, adjusted operations and support expense as a percent of GTV, adjusted research and development expense, adjusted research and development expense as a percent of GTV, adjusted sales and marketing expense, adjusted sales and marketing expense as a percent of GTV, adjusted general and administrative expense, adjusted general and administrative expense as a percent of GTV, adjusted total operating expenses, and adjusted total operating expenses as a percent of GTV in conjunction with GAAP measures to assess performance, to inform the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to discuss our business and financial performance with our board of directors. We believe that these non-GAAP financial measures provide useful information to investors about our

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

Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statements of operations. Thus, our Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, Adjusted EBITDA margin, adjusted cost of revenue, adjusted cost of revenue as a percent of GTV, adjusted operations and support expense, adjusted operations and support expense as a percent of GTV, adjusted research and development expense, adjusted research and development expense as a percent of GTV, adjusted sales and marketing expense, adjusted sales and marketing expense as a percent of GTV, adjusted general and administrative expense, adjusted general and administrative expense as a percent of GTV, adjusted total operating expenses, and adjusted total operating expenses as a percent of GTV should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.

We encourage investors and others to review our business, results of operations, and financial information in their entirety, not to rely on any single financial measure, and to view Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, Adjusted EBITDA margin, adjusted cost of revenue, adjusted cost of revenue as a percent of GTV, adjusted operations and support expense, adjusted operations and support expense as a percent of GTV, adjusted research and development expense, adjusted research and development expense as a percent of GTV, adjusted sales and marketing expense, adjusted sales and marketing expense as a percent of GTV, adjusted general and administrative expense, adjusted general and administrative expense as a percent of GTV, adjusted total operating expenses, and adjusted total operating expenses as a percent of GTV in conjunction with their respective most directly comparable financial measure calculated in accordance with GAAP.

Adjusted EBITDA, Adjusted EBITDA as a Percent of GTV, and Adjusted EBITDA Margin

We define Adjusted EBITDA as net income (loss), adjusted to exclude (i) provision for (benefit from) income taxes, (ii) interest income, (iii) other income (expense), net, (iv) depreciation and amortization expense, (v) stock-based compensation expense, (vi) payroll taxes expense related to the vesting and settlement of certain equity awards, (vii) certain legal and regulatory accruals and settlements, net, (viii) reserves for sales and other indirect taxes, (ix) COVID-19 response initiatives, (x) acquisition-related expenses, and (xi) non-capitalizable expenses related to the public listing of our common stock and issuance costs related to the issuance of our Series A Preferred Stock. We define Adjusted EBITDA margin as Adjusted EBITDA as a percent of revenue.

We include Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin in this Annual Report on Form 10-K because they are important measures upon which our management assesses our operating performance and the operating leverage in our business. Because Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin facilitate internal comparisons of our historical operating performance, including as an indication of our revenue growth and operating efficiencies when compared to GTV and revenue over time, we use them to evaluate the effectiveness of our strategic initiatives and for business planning purposes. We also believe that Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin, when taken collectively, may be useful to investors because they provide consistency and comparability with past financial performance, so that investors can evaluate our operating efficiencies by excluding certain items that may not be indicative of our business, results of operations, or outlook. In addition, we believe Adjusted EBITDA is widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of operational performance.

Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin should not be considered as alternatives to net income (loss), net income (loss) as a percent of GTV, net income (loss) as a percent of revenue, or any other measure of financial performance calculated and presented in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin rather than net income (loss), net income (loss) as a percent of GTV, and net income (loss) as a percent of revenue, which

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are the most directly comparable GAAP measures. Some of these limitations are that each of Adjusted EBITDA, Adjusted EBITDA as a percent of GTV, and Adjusted EBITDA margin:

•excludes stock-based compensation expense;

•excludes payroll taxes related to stock-based compensation expense;

•excludes depreciation and amortization expense, and although these are non-cash expenses, the assets being depreciated may have to be replaced in the future, increasing our cash requirements;

•does not reflect the positive or adverse adjustments related to the reserve for sales and other indirect taxes or certain legal regulatory accruals and settlements;

•does not reflect interest income which increases cash available to us;

•does not reflect other income that may increase cash available to us;

•does not reflect other income and expense that includes unrealized and realized gains and losses on foreign currency exchange; and

•does not reflect provision for or benefit from income taxes that reduces or increases cash available to us.

In the third quarter of 2023, employer payroll taxes related to the vesting and settlement of certain equity awards in connection with our IPO were excluded from our calculation of Adjusted EBITDA. Starting in the fourth quarter of 2023 and going forward, we will continue to exclude employer payroll taxes related to the vesting and settlement of equity awards from our calculation of Adjusted EBITDA. We have historically excluded stock-based compensation expense from Adjusted EBITDA, and management believes that excluding the related payroll tax expense is important and consistent, as such payroll tax expense is directly impacted by unpredictable fluctuations in our stock price and therefore may not be indicative of our core operating performance. Prior period comparative amounts were not material and were not recast to conform to this new presentation.

Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. Because of these limitations, we consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP.

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The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:

___________

(1) Represents employer payroll taxes related to the vesting and settlement of certain equity awards.

(2) Represents certain legal, regulatory, and policy expenses related to worker classification matters.

(3) Represents sales and other indirect tax reserves, net of abatements, for periods in which we were unable to collect such taxes from customers. We believe this adjustment is useful for investors in understanding our operating performance because in these cases, the taxes were not intended to be a cost to us but rather are to be borne by the customers.

(4) Represents the cost of all personal protective equipment distributed to shoppers during the COVID-19 pandemic. We ceased excluding this cost following the first quarter of 2022 as the impact of the COVID-19 pandemic and its variant outbreaks on our business subsided.

(5) Represents non-capitalizable expenses related to the public listing of our common stock and issuance costs related to the issuance of our Series A Preferred Stock.

Adjusted Cost of Revenue and Adjusted Cost of Revenue as a Percent of GTV

We define adjusted cost of revenue as cost of revenue excluding depreciation and amortization expense and stock-based compensation expense. We exclude depreciation and amortization expense and stock-based compensation expense as they are non-cash in nature.

The following table provides a reconciliation of cost of revenue to adjusted cost of revenue:

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Adjusted Operations and Support and Adjusted Operations and Support as a Percent of GTV

We define adjusted operations and support expense as operations and support expense excluding depreciation and amortization expense, stock-based compensation expense, payroll taxes related to stock-based compensation, and COVID-19 response initiatives. We exclude depreciation and amortization expense and stock-based compensation expense as they are non-cash in nature. We exclude payroll taxes related to the vesting and settlement of certain equity awards and COVID-19 response initiatives as they are not indicative of our operating performance.

The following table provides a reconciliation of operations and support expense to adjusted operations and support expense:

___________

(1) Represents employer payroll taxes related to the vesting and settlement of certain equity awards.

(2) Represents the cost of personal protective equipment distributed to shoppers during the COVID-19 pandemic. We ceased excluding this cost following the first quarter of 2022 as the impact of the COVID-19 pandemic and its variant outbreaks on our business subsided.

Adjusted Research and Development and Adjusted Research and Development as a Percent of GTV

We define adjusted research and development expense as research and development expense excluding depreciation and amortization expense, stock-based compensation expense, payroll taxes related to stock-based compensation, and acquisition-related expenses. We exclude depreciation and amortization expense and stock-based compensation expense as they are non-cash in nature and we exclude payroll taxes related to the vesting and settlement of certain equity awards and acquisition-related expenses as they are not indicative of our operating performance.

The following table provides a reconciliation of research and development expense to adjusted research and development expense:

___________

(1) Represents employer payroll taxes related to the vesting and settlement of certain equity awards.

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Adjusted Sales and Marketing and Adjusted Sales and Marketing as a Percent of GTV

We define adjusted sales and marketing expense as sales and marketing expense excluding depreciation and amortization expense, stock-based compensation expense, payroll taxes related to stock-based compensation, and acquisition-related expenses. We exclude depreciation and amortization expense and stock-based compensation expense as they are non-cash in nature and we exclude payroll taxes related to the vesting and settlement of certain equity awards and acquisition-related expenses as they are not indicative of our operating performance.

The following table provides a reconciliation of sales and marketing expense to adjusted sales and marketing expense:

___________

(1) Represents employer payroll taxes related to the vesting and settlement of certain equity awards.

Adjusted General and Administrative and Adjusted General and Administrative as a Percent of GTV

We define adjusted general and administrative expense as general and administrative expense excluding depreciation and amortization expense, stock-based compensation expense, payroll taxes related to stock-based compensation, certain legal and regulatory accruals and settlements, net, reserves for sales and other indirect taxes, acquisition-related expenses, non-capitalizable expenses related to the public listing of our common stock, and issuance costs related to the issuance of the Series A Preferred Stock. We exclude depreciation and amortization expense and stock-based compensation expense as these are non-cash in nature. We exclude payroll taxes related to the vesting and settlement of certain equity awards, certain legal and regulatory accruals and settlements, net, reserves for sales and other indirect taxes, acquisition-related expenses, non-capitalizable expenses related to the public listing of our common stock, and issuance costs related to the issuance of our Series A Preferred Stock as these are not indicative of our operating performance.

The following table provides a reconciliation of general and administrative expense to adjusted general and administrative expense:

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___________

(1) Represents employer payroll taxes related to the vesting and settlement of certain equity awards.

(2) Represents certain legal, regulatory, and policy expenses related to worker classification matters.

(3) Represents sales and other indirect tax reserves, net of abatements, for periods in which we were unable to collect such taxes from customers. We believe this adjustment is useful for investors in understanding our operating performance because in these cases, the taxes were not intended to be a cost to us but rather are to be borne by the customers.

(4) Represents non-capitalizable expenses related to the public listing of our common stock and issuance costs related to the issuance of our Series A Preferred Stock.

Adjusted Total Operating Expenses and Adjusted Total Operating Expenses as a Percent of GTV

We define adjusted total operating expenses as the sum of adjusted operations and support expense, adjusted research and development expense, adjusted sales and marketing expense, and adjusted general and administrative expense. We exclude depreciation and amortization expense and stock-based compensation expense as these are non-cash in nature. We exclude payroll taxes related to the vesting and settlement of certain equity awards, certain legal and regulatory accruals and settlements, net, reserves for sales and other indirect taxes, COVID-19 response initiatives, acquisition-related expenses, non-capitalizable expenses related to the public listing of our common stock, and issuance costs related to the issuance of our Series A Preferred Stock as these are not indicative of our operating performance.

The following table provides a reconciliation of operating expenses to adjusted total operating expenses:

___________

(1) Represents employer payroll taxes related to the vesting and settlement of certain equity awards.

(2) Represents certain legal, regulatory, and policy expenses related to worker classification matters.

(3) Represents sales and other indirect tax reserves, net of abatements, for periods in which we were unable to collect such taxes from customers. We believe this adjustment is useful for investors in understanding our operating performance because in these cases, the taxes were not intended to be a cost to us but rather are to be borne by the customers.

(4) Represents the cost of personal protective equipment distributed to shoppers during the COVID-19 pandemic. We ceased excluding this cost following the first quarter of 2022 as the impact of the COVID-19 pandemic and its variant outbreaks on our business subsided.

(5) Represents non-capitalizable expenses related to the public listing of our common stock and issuance costs related to the issuance of our Series A Preferred Stock.

Liquidity and Capital Resources

In September 2023, we completed our IPO which resulted in aggregate net proceeds of $392 million, net of underwriting discounts and deferred offering costs. We also received proceeds of $175 million for the issuance and sale of 5,833,333 shares of our Series A Preferred Stock in a private placement immediately subsequent to our IPO. We recognized $2.6 billion of stock-based compensation expense associated with the vested RSUs and certain shares of vested restricted stock, as a result of the satisfaction of the liquidity event-based vesting condition upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO. To meet the related tax withholding requirements, for the net settlement, net exercise, and cancellation and repurchase, as applicable, of the vested RSUs, certain vested stock options, and the shares of vested restricted stock, we withheld or cancelled, as applicable, 20,810,882 of the 43,052,572 shares underlying such equity awards, resulting in the net issuance of 22,241,690 shares of common stock. Based on an IPO price of $30.00 per share, our tax withholding obligation was $570 million, which we paid during the three months ended September 30, 2023.

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Since our founding, we have financed our operations primarily through the net proceeds we have received from the issuance of equity securities and through fees received from retailers, customers, and brands. As of December 31, 2023, we had cash and cash equivalents of $2.1 billion and marketable securities of $49 million which were primarily held for working capital purposes.

Since our founding, we have primarily generated losses from our operations as reflected in our accumulated deficit of $2.6 billion as of December 31, 2023. While we generated positive cash flows from operating activities during the year ended December 31, 2022 and 2023, our future cash flows from operating activities may fluctuate as a result of investments we continue to make across our organization. As a result, we may require additional capital resources to execute strategic initiatives to grow our business.

Our working capital and operating cash flows have in the past fluctuated and may in the future fluctuate significantly from period to period as a result of new initiatives and the timing of payments made to and/or received from retailers, shoppers, and vendors. In particular, certain transaction types, such as those involving EBT SNAP and alcohol sales, may result in longer collection cycles. Additionally, we make substantial weekly payments to shoppers on Tuesdays and Sundays for services delivered on Instacart. As a result, we expect our reported cash and cash flows from operating activities to be impacted based on the day of the week of each reporting period. Furthermore, due to the timing of funding to a certain payment card issuer, we may experience an increase in short-term liabilities based on the day of the week of each reporting period.

In November 2023, our board of directors approved a share repurchase program with authorization to purchase up to an aggregate of $500 million of our common stock and in February 2024, our board of directors approved the repurchase of an additional $500 million of our common stock. The timing and actual number of shares repurchased may depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. The program does not obligate us to acquire any particular amount of common stock and may be suspended or discontinued at any time at our discretion. During the year ended December 31, 2023, we repurchased and subsequently retired 1.4 million shares of our common stock for an aggregate purchase price of $36 million under the share repurchase program. As of December 31, 2023, we had $464 million available to repurchase shares pursuant to the share repurchase program. In February 2024, the Company entered into privately negotiated transactions with three shareholders to repurchase 14.4 million shares for an aggregate amount of $390 million. The shares were retired immediately upon repurchase.

We believe that our existing cash, cash equivalents, and marketable securities will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months and beyond. However, our future cash requirements will depend on many factors, including our growth rate, the timing and the amount of cash received from retailers, customers, and brands, the timing and extent of spending to support our research and development efforts as well as sales and marketing activities, the introduction of enhancements, the continuing market adoption of Instacart, and the volume and timing of our share repurchases. In addition, we may enter into additional or expanded customer, retailer, brand, or other relationships, as well as agreements to acquire or invest in complementary businesses, products, teams, and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may be required to seek additional financing sooner than we currently anticipate. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. In particular, recent volatility in the global financial markets, including due to heightened inflation and rising interest rates and other macroeconomic conditions, geopolitical conflicts, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures could reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.

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Cash Flows

The following table summarizes our cash flows for the periods presented:

Cash Flows from Operating Activities

For the year ended December 31, 2023, net cash provided by operating activities was $586 million, which consisted of net loss of $1,622 million, adjusted for certain non-cash items of $2,373 million, and net cash outflows from changes in operating assets and liabilities of $165 million. The non-cash items primarily consisted of stock-based compensation expense of $2,756 million, deferred income taxes of $459 million, depreciation and amortization expense of $43 million, bad debt expense of $23 million, and amortization of operating lease right-of-use assets of $14 million. The net cash outflows from changes in our operating assets and liabilities were primarily due to an $62 million decrease in accrued and other current liabilities, a $35 million decrease in other long-term liabilities, a $33 million increase in accounts receivable, a $22 million increase in prepaid expenses and other assets, a $16 million decrease in accounts payable, and a $15 million decrease in operating lease liabilities, partially offset by an $18 million increase in deferred revenue. These cash outflows were primarily due to timing of customer and vendor payments.

For the year ended December 31, 2022, net cash provided by operating activities was $277 million, which consisted of net income of $428 million, adjusted for certain non-cash items of $275 million, and net cash inflows from changes in operating assets and liabilities of $124 million. The non-cash items primarily consisted of deferred income taxes of $373 million, depreciation and amortization expense of $34 million, stock-based compensation expense of $33 million, amortization of operating lease right-of-use assets of $13 million, and bad debt expense of $10 million. The net cash inflows from changes in our operating assets and liabilities were primarily due to a $141 million increase in accrued and other current liabilities, a $25 million increase in accounts payable, and a $24 million increase in deferred revenue, partially offset by a $31 million increase in prepaid expenses and other assets, a $21 million increase in accounts receivable, and a $13 million decrease in operating lease liabilities. These cash inflows were primarily due to timing of collection of accounts receivable.

For the year ended December 31, 2021, net cash used in operating activities was $204 million, which consisted of net loss of $73 million, adjusted by non-cash charges of $61 million, and net cash outflows from changes in operating assets and liabilities of $192 million. The non-cash charges primarily consisted of stock-based compensation expense of $22 million, depreciation and amortization of $16 million, amortization of operating lease right-of-use assets of $11 million, and bad debt expense of $7 million. The net cash outflows from changes in our operating assets and liabilities were primarily comprised of a $318 million increase in accounts receivable, a $60 million increase in prepaid expenses and other assets, and a $13 million decrease in operating lease liabilities, partially offset by a $138 million increase in accounts payable and accrued and other current liabilities, a $47 million increase in deferred revenue, and a $14 million increase in long-term liabilities. These cash outflows were primarily due to increased operating expenses and vendor spend in connection with the growth of our business, partially offset by an increase in sales and indirect tax reserves.

Cash Flows from Investing Activities

For the year ended December 31, 2023, net cash provided by investing activities was $135 million, comprised primarily of maturities of marketable securities of $301 million, partially offset by purchases of marketable securities of $110 million, and purchases of property and equipment, including capitalized internal-use software of $54 million.

For the year ended December 31, 2022, net cash provided by investing activities was $117 million, comprised primarily of maturities of marketable securities of $394 million, partially offset by purchases of marketable securities of $158 million, acquisitions of businesses, net of cash acquired of $93 million, and purchases of property and equipment, including capitalized internal-use software of $24 million.

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For the year ended December 31, 2021, net cash used in investing activities was $330 million, comprised primarily of purchases of marketable securities of $623 million, acquisitions of businesses of $54 million, and purchases of property and equipment to support our office facilities of $13 million, partially offset by maturities of marketable securities of $369 million.

Cash Flows from Financing Activities

For the year ended December 31, 2023, net cash used in financing activities was $30 million, comprised primarily of $570 million of tax withholding paid related to the net share settlement of equity awards and $36 million of repurchases of common stock, partially offset by $401 million of proceeds from the issuance of common stock upon IPO, net of underwriting discounts and $175 million of proceeds from the issuance of our Series A Preferred Stock.

For the year ended December 31, 2022, net cash provided by financing activities was $46 million, comprised primarily of proceeds of $34 million from the exercise of non-voting common stock warrants and $14 million proceeds from modification of common stock warrants.

For the year ended December 31, 2021, net cash provided by financing activities was $464 million, comprised primarily of net proceeds of $265 million from the issuance of redeemable convertible preferred stock, proceeds of $125 million from the issuance of non-voting common stock, and proceeds of $68 million from the exercise of non-voting common stock warrants.

Contractual Obligations and Commitments

Operating Leases

Our operating lease commitments primarily include corporate offices and warehouse space. As of December 31, 2023, we had fixed lease payment obligations of $43 million, with $15 million to be paid within 12 months and the remainder thereafter. For additional discussion on our operating leases, see Note 10 — Commitments and Contingencies to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Non-Cancellable Purchases

Our non-cancellable purchase commitments are primarily related to infrastructure service contracts for technology platforms. As of December 31, 2023, we had non-cancellable purchase obligations of $73 million, with $36 million to be paid within 12 months and the remainder thereafter.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material. We believe that of our significant accounting policies, which are described in Note 2 — Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition, results of operations, and cash flows.

Revenue Recognition

Instacart connects multiple parties to facilitate transactions. Our revenue consists of transaction revenue and advertising and other revenue and is recognized in accordance with ASC 606, Revenue from Contracts with Customers.

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Transaction Revenue

We generate revenue primarily from fees received from end users and amounts paid by retailers for our transaction service, net of any coupons, incentives, and refunds, as well as payments to shoppers. Our sole performance obligation to the retailer is to connect retailers with end users for the provision of goods by the retailer to the end user. Our sole performance obligation to the end user is to arrange for a shopper to provide fulfillment services to the end user. Each performance obligation is satisfied at a point in time, upon the transfer of control of the services.

Advertising and Other Revenue

We generate revenue from the sale of advertising to companies that are interested in reaching end users on Instacart. Advertising products include Sponsored Product ads, display ads, coupons, and a variety of other online advertising services. Our performance obligation is to continually promote a brand over the duration of the contractual term. We recognize revenue in the amount that we have the right to invoice as advertising services are rendered, which occurs upon delivery of clicks for Sponsored Product ads, upon delivery of impressions or over the contract term on a fixed fee basis for display ads, or upon redemptions of coupons. We also offer software subscription services that enhance the online shopping experience to certain retailers and generate an immaterial amount of other revenue from software subscriptions. Revenue from our software subscription services is recognized ratably over the subscription period.

Principal versus Agent Considerations

As multiple parties are involved in a transaction between end users, retailers, and shoppers, judgment is required in determining whether we are the principal or agent for the goods and services provided to the end user or retailer in a transaction. We present revenue on a gross or net basis based on whether we control the goods or services provided to the end user or retailer and are the principal (gross), or we arrange for other parties to provide the goods or service to the end user or retailer and are an agent (net).

Goods: We have determined that we are an agent for the retailer in the sale of goods to the end user as we do not control the goods at any time before they are transferred to the end user. We do not pre-purchase or otherwise obtain control of the goods and only benefit from our fee for arranging for the sale of goods by the retailer to the end user. We also do not take inventory risk and do not generally have discretion over pricing of the goods.

Fulfillment services: We have determined that we are an agent for the end user in the procurement of fulfillment services from shoppers who are independent contractors. We do not control the fulfillment services provided as we do not pre-purchase services or otherwise direct shoppers to perform fulfillment services on our behalf. We do not promise fulfillment services to end users at any time. In addition, we are not primarily responsible for and do not have inventory risk for the fulfillment services. Although we have discretion in establishing the fees paid for the services, we believe this indicator does not alone provide persuasive evidence that we control the fulfillment services.

We recognize as revenue the net amount we retain from both the retailer and the end user from a transaction after remitting the purchase value of the goods to the retailer and amounts owed to the shopper for their services.

In limited situations, we utilize our own employees to provide certain fulfillment activities for end users with the related costs of employees recorded within cost of revenue in the consolidated statements of operations.

Revenue Share

We generate revenue from a partnership with payment card issuers whereby shoppers use cards issued by the payment card issuers to pay for goods at the retailers’ point-of-sale. We earn a revenue share from the payment card issuers for transactions processed through these payment cards and record these amounts in the same period the underlying transaction takes place.

Coupons, Refunds, and Incentives

We offer several types of coupons and incentives to encourage use of our services, including customer appeasement credits, promotional coupons, and referral bonus coupons. In certain cases, we also provide refunds to retailers primarily in the form of price concessions. Refunds are accounted for as variable consideration and there is limited uncertainty in estimation given the short duration. In certain cases, end user fees received may be less than the amount of refunds,

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coupons, incentives, and shopper payments applicable to a particular transaction. This shortfall is recorded within revenue in the consolidated statements of operations.

Stock-Based Compensation

Stock-based compensation expense for RSUs and certain restricted stock with service-based, market-based, and/or liquidity event-based vesting conditions, as applicable, is recognized on an accelerated attribution method over the requisite service period, which is generally four years, and only if the liquidity event-based vesting conditions are considered probable to be satisfied. The market based vesting conditions are satisfied upon our achievement of specified future market capitalization goals. The liquidity event-based vesting condition was satisfied upon the effective date of our registration statement on Form S-1 filed under the Securities Act in connection with our IPO. On that date, we recorded cumulative stock-based compensation expense using the accelerated attribution method for RSUs and certain restricted stock subject to the liquidity event-based vesting condition for which the service-based vesting condition had been fully or partially satisfied. The remaining unrecognized stock-based compensation expense related to the RSUs will be recorded over their remaining requisite service periods. For awards granted with only service-based vesting conditions, stock-based compensation expense will be recognized equal to the grant date fair value on a straight-line basis over the requisite service period of the awards.

Common Stock Valuations

Prior to our IPO, the fair value of the shares of common stock underlying stock options, RSUs, and restricted stock issued in connection with business acquisitions has historically been determined by our board of directors, with input from management and corroboration from contemporaneous third-party valuations, as there was no public market for the common stock. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each option grant date, including:

•independent third-party valuations of our common stock;

•the rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

•the prices of common or redeemable convertible preferred stock sold to third-party investors by us and in secondary transactions;

•our actual operating and financial performance;

•current business conditions and projections;

•hiring of key personnel and the experience of our management;

•our history and the introduction of new services;

•our stage of development;

•likelihood of achieving a liquidity event, such as an initial public offering, direct listing, or a merger or acquisition given prevailing market conditions;

•the market performance of comparable publicly traded companies; and

•the U.S. and global capital market conditions.

In valuing our common stock, the board of directors determined the value using both the market approach and the income approach valuation methods. The market approach measures the value of a business through an analysis of recent sales or offerings of comparable investments or assets. In applying this method, valuation multiples are derived from historical operating data of a peer company group. We then apply multiples to our operating data to arrive at a range of indicated values of the company. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in our cash flows. In 2020 through February 2021, the enterprise value was estimated by back-solving for the enterprise value implied by recent sales of common and/or preferred

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equity. Starting in May 2021, the enterprise value was estimated using a probability-weighted expected return method (“PWERM”).

For each valuation, the enterprise value determined by the income and/or market approaches was then allocated to the common stock using the option pricing method (“OPM”), or a hybrid of the PWERM and OPM, which estimates the probability weighted value across multiple scenarios but uses OPM to estimate the allocation of value within one or more of those scenarios.

The OPM method allows for the allocation of a company’s equity value among the various equity capital owners. The OPM uses the preferred stockholders’ liquidation preferences, participation rights, dividend policy, and conversion rights to determine how proceeds from a liquidity event shall be distributed among the various ownership classes at a future date. The PWERM method involves the estimation of future potential outcomes for the company, as well as values and probabilities associated with each respective potential outcome. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include a liquidity event, as well as non-liquidity event market-based outcomes. Determining the fair value of the enterprise using the PWERM requires the development of assumptions and estimates for both the probability of a liquidity event and stay private outcomes, as well as the values those outcomes could yield.

In addition, we also considered any secondary transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange and assigned the transactions an appropriate weighting in the valuation of our common stock. Factors considered include the number of different buyers and sellers, transaction volume, timing relative to the valuation date, whether the transactions occurred between willing and unrelated parties, and whether the transactions involved investors with access to our financial information.

Application of these approaches involves the use of estimates, judgments, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and future cash flows, discount rates, discount for lack of marketability, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.

For valuations after the completion of our IPO, the board of directors has determined the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant. Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.

Sales and Indirect Taxes

In the United States, we are under audit by various state tax authorities with regard to sales and indirect tax matters. The subject matter of these audits primarily relates to the reporting of sales on behalf of our third-party sellers or tax treatment applied to the sale of our services in these jurisdictions. We believe that we properly accrue and pay taxes according to our understanding of tax requirements in each taxing jurisdiction; however, it is possible that tax authorities may question our interpretation of taxability. As such, there is a high degree of complexity involved in the interpretation and application of states and local sales and indirect tax rules to our activities. As a result, we maintain a reserve for potential sales and indirect taxes that may result from examinations or settlement agreements with these tax authorities when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. These reserves are recorded within long-term liabilities on the consolidated balance sheets and within general and administrative expense in the consolidated statements of operations.

Loss Contingencies

We are involved in various legal proceedings, claims and regulatory, non-income tax audits, or government inquiries and investigations that arise in the ordinary course of business. Certain of these matters include claims for substantial or indeterminate amounts of damages. We record liabilities to address potential exposures related to tax positions we have taken that have been or could be challenged by taxing authorities. In addition, we record liabilities associated with legal proceedings and lawsuits. These liabilities are recorded when we believe that it is both probable that a loss has been incurred and the amount can be estimated.

We review the developments of each individual legal proceeding that could affect the amount of liabilities that have been previously recorded and the range of possible losses disclosed. We make adjustments to our liabilities and disclosures

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accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount of loss. These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based on new information and future events.

The outcomes of these legal proceedings are inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.

Income Taxes

We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

We did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates.

Recent Accounting Pronouncements

See Note 2 — Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.