UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-36164
Twitter, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
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20-8913779 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
1355 Market Street, Suite 900
San Francisco, California 94103
(Address of principal executive offices and Zip Code)
(415) 222-9670
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The number of shares of the registrant’s common stock outstanding as of July 26, 2016 was 707,726,943.
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Page |
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Item 1. |
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6 |
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Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 |
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6 |
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7 |
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8 |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and June 30, 2015 |
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9 |
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10 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
Item 3. |
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36 |
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Item 4. |
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37 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 2. |
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64 |
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Item 6. |
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64 |
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65 |
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
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our ability to attract and retain users and increase the level of engagement, including ad engagement, of our users; |
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· |
our ability to develop or acquire new products, product features and services, improve our existing products and services, including with respect to video and performance advertising, and increase the value of our products and services; |
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our business strategies, plans and priorities, including our plans for growth, investment and refinement of our core service; |
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our ability to attract advertisers to our platforms, products and services and increase the amount that advertisers spend with us; |
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our expectations regarding our user growth rate and the continued usage of our mobile applications; |
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our ability to increase our revenue and our revenue growth rate; |
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our ability to improve user monetization, including of our logged out and syndicated audiences; |
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our future financial performance, including trends in cost per ad engagement, revenue, cost of revenue, operating expenses and income taxes; |
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our expectations regarding outstanding litigation; |
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the effects of seasonal trends on our results of operations; |
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the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements; |
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our ability to timely and effectively scale and adapt our existing technology and network infrastructure; |
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our ability to successfully acquire and integrate companies and assets; and |
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our ability to successfully enter new markets and manage our international expansion, including our ability to operate in those countries. |
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, cash flows or prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
3
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
4
NOTE REGARDING KEY METRICS
We review a number of metrics, including monthly active users, or MAUs, changes in ad engagements and changes in cost per ad engagement, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics” for a discussion of how we calculate MAUs, changes in ad engagements and changes in cost per ad engagement.
The numbers of active users presented in this Quarterly Report on Form 10-Q are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our large user base around the world. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that false or spam accounts represented less than 5% of our MAUs as of December 31, 2015. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our active users, and in the past have made improvements in our spam detection capabilities that have resulted in the suspension of a large number of accounts. Spam accounts that we have identified are not included in the active user numbers presented in this Quarterly Report on Form 10-Q. We treat multiple accounts held by a single person or organization as multiple users for purposes of calculating our active users because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our active users may not accurately reflect the actual number of people or organizations using our platform.
Our metrics are also affected by applications that automatically contact our servers for regular updates with no discernible user-initiated action involved, and this activity can cause our system to count the users associated with such applications as active users on the day or days such contact occurs. As of December 31, 2015, less than 8.5% of users used third-party applications that may have automatically contacted our servers for regular updates without any discernible additional user-initiated action. As such, the calculations of MAUs presented in this Quarterly Report on Form 10-Q may be affected as a result of this activity.
In addition, our data regarding user geographic location for purposes of reporting the geographic location of our MAUs is based on the IP address or phone number associated with the account when a user initially registered the account on Twitter. The IP address or phone number may not always accurately reflect a user’s actual location at the time such user engaged with our platform. For example, a mobile user may appear to be accessing Twitter from the location of the proxy server that the user connects to rather than from a user’s actual location.
We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology.
We present and discuss our total audience based on both internal metrics and relying on data from Google Analytics, which measures logged out visitors to our properties.
5
PART I — FINANCIAL INFORMATION
TWITTER, INC.
(In thousands, except par value)
(Unaudited)
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June 30, |
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December 31, |
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2016 |
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2015 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
947,710 |
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$ |
911,471 |
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Short-term investments |
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2,640,448 |
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2,583,877 |
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Accounts receivable, net of allowance for doubtful accounts of $8,894 and $8,121 as of June 30, 2016 and December 31, 2015, respectively |
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556,781 |
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638,694 |
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Prepaid expenses and other current assets |
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237,100 |
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247,750 |
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Total current assets |
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4,382,039 |
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4,381,792 |
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Property and equipment, net |
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758,837 |
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735,299 |
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Intangible assets |
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127,770 |
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141,015 |
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Goodwill |
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1,186,303 |
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1,122,728 |
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Other assets |
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161,865 |
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61,605 |
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Total assets |
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$ |
6,616,814 |
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$ |
6,442,439 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
91,415 |
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$ |
134,081 |
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Accrued and other current liabilities |
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277,188 |
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283,792 |
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Capital leases, short-term |
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81,035 |
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88,166 |
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Total current liabilities |
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449,638 |
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506,039 |
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Convertible notes |
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1,496,440 |
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1,455,095 |
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Capital leases, long-term |
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43,253 |
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59,695 |
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Deferred and other long-term tax liabilities, net |
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7,769 |
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2,978 |
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Other long-term liabilities |
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62,861 |
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50,585 |
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Total liabilities |
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2,059,961 |
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2,074,392 |
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Commitments and contingencies (Note 12) |
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Stockholders' equity: |
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Preferred stock, $0.000005 par value-- 200,000 shares authorized; none issued and outstanding |
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— |
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— |
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Common stock, $0.000005 par value-- 5,000,000 shares authorized; 706,300 and 694,132 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively |
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3 |
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3 |
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Additional paid-in capital |
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6,881,778 |
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6,507,087 |
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Accumulated other comprehensive loss |
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(44,503 |
) |
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(45,566 |
) |
Accumulated deficit |
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(2,280,425 |
) |
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(2,093,477 |
) |
Total stockholders' equity |
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4,556,853 |
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4,368,047 |
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Total liabilities and stockholders' equity |
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$ |
6,616,814 |
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$ |
6,442,439 |
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The accompanying notes are an integral part of these consolidated financial statements.
6
TWITTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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Revenue |
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$ |
601,958 |
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$ |
502,383 |
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$ |
1,196,479 |
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$ |
938,322 |
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Costs and expenses |
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Cost of revenue |
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202,966 |
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167,623 |
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401,371 |
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311,098 |
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Research and development |
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178,511 |
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198,907 |
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334,305 |
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388,653 |
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Sales and marketing |
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236,619 |
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201,948 |
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472,790 |
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385,505 |
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General and administrative |
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70,238 |
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64,909 |
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133,505 |
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130,686 |
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Total costs and expenses |
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688,334 |
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633,387 |
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1,341,971 |
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1,215,942 |
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Loss from operations |
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(86,376 |
) |
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(131,004 |
) |
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(145,492 |
) |
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(277,620 |
) |
Interest expense |
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(24,934 |
) |
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(24,437 |
) |
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(49,827 |
) |
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(48,756 |
) |
Other income (expense), net |
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6,734 |
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(695 |
) |
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13,040 |
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8,430 |
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Loss before income taxes |
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(104,576 |
) |
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(156,136 |
) |
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(182,279 |
) |
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(317,946 |
) |
Provision (benefit) for income taxes |
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2,641 |
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(19,473 |
) |
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4,669 |
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(18,841 |
) |
Net loss |
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$ |
(107,217 |
) |
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$ |
(136,663 |
) |
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$ |
(186,948 |
) |
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$ |
(299,105 |
) |
Net loss per share attributable to common stockholders: |
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Basic |
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$ |
(0.15 |
) |
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$ |
(0.21 |
) |
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$ |
(0.27 |
) |
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$ |
(0.46 |
) |
Diluted |
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$ |
(0.15 |
) |
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$ |
(0.21 |
) |
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$ |
(0.27 |
) |
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$ |
(0.46 |
) |
Weighted-average shares used to compute net loss per share attributable to common stockholders: |
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Basic |
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|
698,326 |
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|
655,721 |
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|
|
694,959 |
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|
|
648,143 |
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Diluted |
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|
698,326 |
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|
655,721 |
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|
|
694,959 |
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|
|
648,143 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
TWITTER, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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Net loss |
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$ |
(107,217 |
) |
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$ |
(136,663 |
) |
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$ |
(186,948 |
) |
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$ |
(299,105 |
) |
Other comprehensive income (loss): |
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Change in unrealized gain (loss) on investments in available-for-sale securities, net of tax |
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(961 |
) |
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(515 |
) |
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3,481 |
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55 |
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Change in foreign currency translation adjustment |
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(13,052 |
) |
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10,637 |
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(2,418 |
) |
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(22,865 |
) |
Net change in accumulated other comprehensive loss |
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(14,013 |
) |
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10,122 |
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1,063 |
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(22,810 |
) |
Comprehensive loss |
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$ |
(121,230 |
) |
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$ |
(126,541 |
) |
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$ |
(185,885 |
) |
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$ |
(321,915 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
8
TWITTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended June 30, |
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2016 |
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2015 |
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Cash flows from operating activities |
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Net loss |
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$ |
(186,948 |
) |
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$ |
(299,105 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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181,904 |
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143,913 |
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Stock-based compensation expense |
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318,611 |
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357,948 |
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Amortization of discount on convertible notes |
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36,940 |
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33,644 |
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Changes in bad debt provision |
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2,573 |
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|
3,345 |
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Deferred income tax |
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45 |
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(24,306 |
) |
Other adjustments |
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5,268 |
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(5,197 |
) |
Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions: |
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Accounts receivable |
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86,213 |
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|
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(43,944 |
) |
Prepaid expenses and other assets |
|
|
(16,985 |
) |
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|
(7,861 |
) |
Accounts payable |
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|
(37,085 |
) |
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|
(11,437 |
) |
Accrued and other liabilities |
|
|
(13,216 |
) |
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|
35,160 |
|
Net cash provided by operating activities |
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|
377,320 |
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|
182,160 |
|
Cash flows from investing activities |
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|
|
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Purchases of property and equipment |
|
|
(98,235 |
) |
|
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(160,340 |
) |
Purchases of marketable securities |
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|
(1,330,946 |
) |
|
|
(2,235,497 |
) |
Proceeds from maturities of marketable securities |
|
|
1,232,249 |
|
|
|
1,342,137 |
|
Proceeds from sales of marketable securities |
|
|
42,416 |
|
|
|
335,261 |
|
Changes in restricted cash |
|
|
(590 |
) |
|
|
(3,797 |
) |
Purchases of investments in privately-held companies |
|
|
(78,002 |
) |
|
|
(5,500 |
) |
Business combinations, net of cash acquired |
|
|
(80,142 |
) |
|
|
(26,300 |
) |
Other investing activities |
|
|
(81 |
) |
|
|
(1,500 |
) |
Net cash used in investing activities |
|
|
(313,331 |
) |
|
|
(755,536 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Taxes paid related to net share settlement of equity awards |
|
|
(6,994 |
) |
|
|
(6,480 |
) |
Repayments of capital lease obligations |
|
|
(48,740 |
) |
|
|
(62,934 |
) |
Proceeds from exercise of stock options |
|
|
6,208 |
|
|
|
6,962 |
|
Proceeds from issuances of common stock under employee stock purchase plan |
|
|
15,821 |
|
|
|
21,600 |
|
Other financing activities |
|
|
22 |
|
|
|
— |
|
Net cash used in financing activities |
|
|
(33,683 |
) |
|
|
(40,852 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
30,306 |
|
|
|
(614,228 |
) |
Foreign exchange effect on cash and cash equivalents |
|
|
5,933 |
|
|
|
(13,189 |
) |
Cash and cash equivalents at beginning of period |
|
|
911,471 |
|
|
|
1,510,724 |
|
Cash and cash equivalents at end of period |
|
$ |
947,710 |
|
|
$ |
883,307 |
|
Supplemental disclosures of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Common stock issued in connection with acquisitions |
|
$ |
644 |
|
|
$ |
516,538 |
|
Equipment purchases under capital leases |
|
$ |
25,922 |
|
|
$ |
10,544 |
|
Changes in accrued property and equipment purchases |
|
$ |
10,938 |
|
|
$ |
9,087 |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
TWITTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies
Twitter, Inc. (“Twitter” or the “Company”) was incorporated in Delaware in April 2007, and is headquartered in San Francisco, California. Twitter offers products and services for users, advertisers, developers and platform and data partners.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in management’s opinion, all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results expected for the full fiscal year or any other period.
The accompanying interim consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis. Actual results could differ materially from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update on revenue recognition from contracts with customers. The new guidance will replace all current GAAP guidance on this topic and eliminate industry-specific guidance. According to the new guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. In July 2015, the FASB decided to delay the effective date of the guidance by one year and permit early adoption for annual and interim periods beginning after December 15, 2016. As a result of the revision, the guidance will be effective for fiscal years, and interim periods with those fiscal years, beginning after December 15, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In March 2016, April 2016 and May 2016, the FASB further amended the guidance to clarify the implementation on principal versus agent considerations, the identification of performance obligation and the licensing implementation guidance, and to provide narrow-scope improvements and practical expedients. The Company has not yet selected a transition method and is evaluating the impact of adopting these new accounting standard updates on the financial statements and related disclosures.
In June 2014, the FASB issued a new accounting standard update on stock-based compensation when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The Company adopted this guidance prospectively during the three months ended March 31, 2016, and the adoption had no impact to the Company’s financial statements.
10
In February 2015, the FASB issued a new accounting standard update on consolidation analysis. The new guidance amends the current consolidation guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance became effective for reporting periods beginning after December 15, 2015. The Company adopted this guidance retrospectively during the three months ended March 31, 2016, and the adoption had no impact on the Company’s financial statements.
In April 2015, the FASB issued a new accounting standard update on the presentation of debt issuance costs. The new guidance requires the debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The Company adopted this guidance retrospectively during the three months ended March 31, 2016 and the adoption had an immaterial impact on the Company’s financial statements.
In September 2015, the FASB issued a new accounting standard update on simplifying the accounting for measurement-period adjustments in business combinations. The new guidance requires that the adjustments to provisional amounts that are identified during the measurement period be recognized in the reporting period when the adjustments are determined. In addition, the effect on earnings of changes as a result of the change to the provisional amounts is required to be recorded in the same period’s financial statements. The Company adopted this guidance prospectively on January 1, 2016, and the adoption had no impact on the Company’s financial statements.
In January 2016, the FASB issued a new accounting standard update on the classification and measurement of financial instruments. The new guidance principally affects accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard update on the financial statements and related disclosures.
In February 2016, the FASB issued a new accounting standard update on leases. The new guidance requires lessees to recognize right-of-use assets and lease liabilities for operating leases, initially measured at the present value of the lease payments, on the balance sheet. In addition, it requires lessees to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard update on the financial statements and related disclosures and anticipates this new guidance will materially impact the Company’s financial statements given the Company has a significant number of operating leases.
In March 2016, the FASB issued a new accounting standard update on simplifying the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance also allows an entity to account for forfeitures when they occur. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard update on the financial statements and related disclosures.
In June 2016, the FASB issued a new accounting standard update on measurement of credit losses on financial instruments. The new guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected and available-for-sale debt securities to record credit losses through an allowance for credit losses. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as early as of the fiscal years beginning after December 15, 2018. The Company is evaluating the impact of adopting this new accounting standard update on the financial statements and related disclosures.
11
Note 2. Cash, Cash Equivalents and Short-term Investments
Cash, cash equivalents and short-term investments consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2016 |
|
|
2015 |
|
||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
247,449 |
|
|
$ |
300,363 |
|
Money market funds |
|
|
288,807 |
|
|
|
141,700 |
|
Commercial paper and certificates of deposit |
|
|
411,454 |
|
|
|
469,408 |
|
Total cash and cash equivalents |
|
$ |
947,710 |
|
|
$ |
911,471 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
U.S. government and agency securities including treasury bills |
|
$ |
1,122,988 |
|
|
$ |
1,156,418 |
|
Corporate notes, commercial paper and certificates of deposit |
|
|
1,517,460 |
|
|
|
1,427,459 |
|
Total short-term investments |
|
$ |
2,640,448 |
|
|
$ |
2,583,877 |
|
The contractual maturities of securities classified as available-for-sale as of June 30, 2016 were as follows (in thousands):
|
|
June 30, |
|
|
|
|
2016 |
|
|
Due within one year |
|
$ |
2,228,799 |
|
Due after one year through two years |
|
|
411,649 |
|
Total |
|
$ |
2,640,448 |
|
The following tables summarize unrealized gains and losses related to available-for-sale securities classified as short-term investments on the Company’s consolidated balance sheets (in thousands):
|
|
June 30, 2016 |
|
|||||||||||||
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
Aggregated |
|
||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
||||
|
|
Costs |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
||||
U.S. government and agency securities including treasury bills |
|
$ |
1,122,272 |
|
|
$ |
759 |
|
|
$ |
(43 |
) |
|
$ |
1,122,988 |
|
Corporate notes, commercial paper and certificates of deposit |
|
|
1,516,626 |
|
|
|
943 |
|
|
|
(109 |
) |
|
|
1,517,460 |
|
Total available-for-sale securities classified as short-term investments |
|
$ |
2,638,898 |
|
|
$ |
1,702 |
|
|
$ |
(152 |
) |
|
$ |
2,640,448 |
|
|
|
December 31, 2015 |
|
|||||||||||||
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
Aggregated |
|
||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
||||
|
|
Costs |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
||||
U.S. government and agency securities including treasury bills |
|
$ |
1,158,479 |
|
|
$ |
6 |
|
|
$ |
(2,067 |
) |
|
$ |
1,156,418 |
|
Corporate notes, commercial paper and certificates of deposit |
|
|
1,429,374 |
|
|
|
21 |
|
|
|
(1,936 |
) |
|
|
1,427,459 |
|
Total available-for-sale securities classified as short-term investments |
|
$ |
2,587,853 |
|
|
$ |
27 |
|
|
$ |
(4,003 |
) |
|
$ |
2,583,877 |
|
There were immaterial securities in a continuous loss position for 12 months or longer as of June 30, 2016 and no securities in a continuous loss position for 12 months or longer as of December 31, 2015.
Investments are reviewed periodically to identify possible other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables above as the Company believes that the decrease in fair value of these securities is temporary and expects to recover up to (or beyond) the initial cost of investment for these securities.
12
Note 3. Fair Value Measurements
The Company measures its cash equivalents, short-term investments and derivative financial instruments at fair value. The Company classifies its cash equivalents, short-term investments and derivative financial instruments within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company’s Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of the Company’s Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily-available pricing sources for the identical underlying security that may not be actively traded.
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 based on the three-tier fair value hierarchy (in thousands):
|
June 30, 2016 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
288,807 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
288,807 |
|
Commercial paper |
|
— |
|
|
|
408,536 |
|
|
|
— |
|
|
|
408,536 |
|
Certificates of deposit |
|
— |
|
|
|
2,918 |
|
|
|
— |
|
|
|
2,918 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
|
— |
|
|
|
517,536 |
|
|
|
— |
|
|
|
517,536 |
|
Agency securities |
|
— |
|
|
|
605,452 |
|
|
|
— |
|
|
|
605,452 |
|
Corporate notes |
|
— |
|
|
|
688,720 |
|
|
|
— |
|
|
|
688,720 |
|
Commercial paper |
|
— |
|
|
|
248,663 |
|
|
|
— |
|
|
|
248,663 |
|
Certificates of deposit |
|
— |
|
|
|
580,077 |
|
|
|
— |
|
|
|
580,077 |
|
Other current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
— |
|
|
|
1,592 |
|
|
|
— |
|
|
|
1,592 |
|
Total |
$ |
288,807 |
|
|
$ |
3,053,494 |
|
|
$ |
— |
|
|
$ |
3,342,301 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
— |
|
|
|
5,306 |
|
|
|
— |
|
|
|
5,306 |
|
Total |
$ |
— |
|
|
$ |
5,306 |
|
|
$ |
— |
|
|
$ |
5,306 |
|
|
December 31, 2015 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
141,700 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
141,700 |
|
Commercial paper |
|
— |
|
|
|
419,110 |
|
|
|
— |
|
|
|
419,110 |
|
Certificates of deposit |
|
— |
|
|
|
50,298 |
|
|
|
— |
|
|
|
50,298 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury bills |
|
29,953 |
|
|
|
— |
|
|
|
— |
|
|
|
29,953 |
|
U.S. government securities |
|
— |
|
|
|
537,168 |
|
|
|
— |
|
|
|
537,168 |
|
Agency securities |
|
— |
|
|
|
589,297 |
|
|
|
— |
|
|
|
589,297 |
|
Corporate notes |
|
— |
|
|
|
693,593 |
|
|
|
— |
|
|
|
693,593 |
|
Commercial paper |
|
— |
|
|
|
229,965 |
|
|
|
— |
|
|
|
229,965 |
|
Certificates of deposit |
|
— |
|
|
|
503,901 |
|
|
|
— |
|
|
|
503,901 |
|
Other current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
— |
|
|
|
6,804 |
|
|
|
— |
|
|
|
6,804 |
|
Total |
$ |
171,653 |
|
|
$ |
3,030,136 |
|
|
$ |
— |
|
|
$ |
3,201,789 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
— |
|
|
|
3,005 |
|
|
|
— |
|
|
|
3,005 |
|
Total |
$ |
— |
|
|
$ |
3,005 |
|
|
$ |
— |
|
|
$ |
3,005 |
|
13
In 2014, the Company issued $935.0 million principal amount of 0.25% convertible senior notes due in 2019 (the “2019 Notes”) and $954.0 million principal amount of 1.00% convertible senior notes due in 2021 (the “2021 Notes” and together with the 2019 Notes, the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Refer to Note 8 – Convertible Senior Notes for further details on the Notes. The estimated fair value of the 2019 Notes and 2021 Notes based on a market approach as of June 30, 2016 was approximately $857.4 million and $852.8 million respectively, which represents a Level 2 valuation. The estimated fair value was determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on June 30, 2016.
Derivative Financial Instruments
The Company enters into foreign currency forward contracts with financial institutions to reduce the risk that its earnings may be adversely affected by the impact of exchange rate fluctuations on monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. These contracts do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the hedged foreign currency denominated assets and liabilities. These foreign currency forward contracts are not designated as hedging instruments.
The Company recognizes these derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value based on a Level 2 valuation. The Company records changes in the fair value (i.e., gains or losses) of the derivatives as other income (expense), net in the consolidated statements of operations. The notional principal of foreign currency forward contracts outstanding was equivalent to $324.3 million and $425.2 million at June 30, 2016 and December 31, 2015, respectively.
The fair values of outstanding derivative instruments for the periods presented on a gross basis are as follows (in thousands):
|
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
Balance Sheet Location |
|
2016 |
|
|
2015 |
|
||
Assets |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as hedging instruments |
|
Other current assets |
|
$ |
1,592 |
|
|
|
6,804 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as hedging instruments |
|
Other current liabilities |
|
|
5,306 |
|
|
|
3,005 |
|
Total fair value of derivative instruments |
|
|
|
$ |
(3,714 |
) |
|
$ |
3,799 |
|
The Company recognized $6.5 million and $4.7 million of losses on the foreign currency contracts in the three and six months ended June 30, 2016, respectively. The recognized gains and losses on the foreign currency forward contracts were not material in the three and six months ended June 30, 2015.
Note 4. Property and Equipment, Net
The following table presents the detail of property and equipment, net for the periods presented (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2016 |
|
|
2015 |
|
||
Property and equipment, net |
|
|
|
|
|
|
|
|
Equipment |
|
$ |
803,247 |
|
|
$ |
720,421 |
|
Furniture and leasehold improvements |
|
|
323,088 |
|
|
|
297,274 |
|
Capitalized software |
|
|
257,667 |
|
|
|
211,241 |
|
Construction in progress |
|
|
95,674 |
|
|
|
85,073 |
|
Total |
|
|
1,479,676 |
|
|
|
1,314,009 |
|
Less: Accumulated depreciation and amortization |
|
|
(720,839 |
) |
|
|
(578,710 |
) |
Property and equipment, net |
|
$ |
758,837 |
|
|
$ |
735,299 |
|
14
Note 5. Goodwill and Intangible Assets
The following table presents the goodwill activities for the periods presented (in thousands):
Goodwill |
|
|
|
|
Balance as of December 31, 2015 |
|
$ |
1,122,728 |
|
Acquisitions |
|
|
69,744 |
|
Foreign currency translation adjustment |
|
|
(6,169 |
) |
Balance as of June 30, 2016 |
|
$ |
1,186,303 |
|
For the periods presented, the gross goodwill balance equaled the net balance since no impairment charges have been recorded.
The following table presents the detail of intangible assets for the periods presented (in thousands):
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
|
|
Value |
|
|
Amortization |
|
|
Value |
|
|||
June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
Patents and developed technologies |
|
$ |
144,708 |
|
|
$ |
(60,160 |
) |
|
$ |
84,548 |
|
Publisher and advertiser relationships |
|
|
75,300 |
|
|
|
(32,195 |
) |
|
|
43,105 |
|
Assembled workforce |
|
|
1,960 |
|
|
|
(1,843 |
) |
|
|
117 |
|
Other intangible assets |
|
|
2,100 |
|
|
|
(2,100 |
) |
|
|
— |
|
Total |
|
$ |
224,068 |
|
|
$ |
(96,298 |
) |
|
$ |
127,770 |
|
December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
Patents and developed technologies |
|
$ |
132,444 |
|
|
$ |
(43,991 |
) |
|
$ |
88,453 |
|
Publisher and advertiser relationships |
|
|
75,300 |
|
|
|
(23,803 |
) |
|
|
51,497 |
|
Assembled workforce |
|
|
1,960 |
|
|
|
(1,714 |
) |
|
|
246 |
|
Other intangible assets |
|
|
2,100 |
|
|
|
(1,281 |
) |
|
|
819 |
|
Total |
|
$ |
211,804 |
|
|
$ |
(70,789 |
) |
|
$ |