Twitter, Inc.
TWITTER, INC. (Form: 10-Q, Received: 05/08/2014 17:00:20)

 

 

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 March 31, 2014

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

 

20-8913779

(State or other jurisdiction of

incorporation or organization)

 

(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

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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 April 30, 2014 was 589,938,826.

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

  

Page

Item 1.

 

Financial Statements (Unaudited)

  

5

 

 

Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013

 

5

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and March 31, 2013

 

6

 

 

Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2014 and March  31, 2013

 

7

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and March 31, 2013

 

8

 

 

Notes to Consolidated Financial Statements

 

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

20

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

32

Item 4.

 

Controls and Procedures

  

33

 

 

 

PART II – OTHER INFORMATION

  

 

Item 1.

 

Legal Proceedings

  

34

Item 1A.

 

Risk Factors

  

34

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

59

Item 6.

 

Exhibits

  

59

 

 

Signatures

  

60

 

 

 

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, as 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 perf ormance. 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:

·

our ability to attract and retain users and increase the level of engagement of our users;

·

our ability to develop or acquire new products and services, improve our existing products and services and increase the value of our products and services;

·

our ability to attract advertisers to our platform and increase the amount that advertisers spend with us;

·

our expectations regarding our user growth rate and the usage of our mobile applications;

·

our ability to increase our revenue and our revenue growth rate;

·

our ability to improve user monetization, including advertising revenue per timeline view;

·

our future financial performance, including trends in cost per ad engagement, revenue, cost of revenue, operating expenses and income taxes;

·

the effects of seasonal trends on our results of operations;

·

the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements;

·

our ability to timely and effectively scale and adapt our existing technology and network infrastructure;

·

our ability to successfully acquire and integrate companies and assets; and

·

our ability to successfully enter new markets and manage our international expansion.

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 t rends that we believe may affect our business, financial condition, results of operations and 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.

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 o ccurrence 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.

 

 

 

3


NOTE REGARDING KEY METRICS

We review a number of metrics, including monthly active users, or MAUs, timeline views, timeline views per MAU and advertising revenue per timeline view, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the sect ion titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Key Metrics” for a discussion of how we calculate MAUs, timeline views, timeline views per MAU and advertising revenue per timeline view.

The numbers of active users and timeline views 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 challeng es 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. In 2013, we performed an internal review of a sample of accounts and estimated that false or spam accounts represented less than 5% of our MAUs. 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. For example, we made an improvement in our spam detection capabilities in the second quarter of 2013 and suspended 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 user 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. In the three months ended March 31, 2014, approximately twelve percent of all active users used applications that have the capability to automatically contact our servers for regular updates. This increased slightly from the prior period as a result of slightly higher user traffic from our third party clients. As such, the calculations of MAUs presented in this Quarterly Report on Form 10-Q may be affected as a result of automated 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 associated with the account when a user initially registered the account on Twitter. The IP address may not always accurately reflect a user’s actual location at the time such user engaged with our platform.

We present and discuss timeline views in 2012, but we did not track all of the timeline views on our mobile applications during the three months ended March 31, 2012. We have included in this Quarterly Report on Form 10-Q estimates for actual timeline views in the three months ended March 31, 2012 for the mobile applications we did not track. In addition, we have estimated a small percentage of the timeline views in the three months ended September  30, 2013 to account for certain timeline views that were logged incorrectly during the quarter as a result of a product update. We believe these estimates to be reasonable, but actual numbers could differ from our estimates. Further, timeline views in 2012 exclude an immaterial number of timeline views for our mobile applications, certain of which were not fully tracked until June 2012.

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.

 

 

 

4


PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

TWITTER, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2014

 

 

2013

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

960,755

 

 

$

841,010

 

Short-term investments

 

 

1,215,840

 

 

 

1,393,044

 

Accounts receivable, net of allowance for doubtful accounts of $2,633 and $2,020 as

   of March 31, 2014 and December 31, 2013, respectively

 

 

237,860

 

 

 

247,328

 

Prepaid expenses and other current assets

 

 

90,925

 

 

 

93,297

 

Total current assets

 

 

2,505,380

 

 

 

2,574,679

 

Property and equipment, net

 

 

383,272

 

 

 

332,662

 

Intangible assets

 

 

71,451

 

 

 

77,627

 

Goodwill

 

 

363,477

 

 

 

363,477

 

Other assets

 

 

32,629

 

 

 

17,795

 

Total assets

 

$

3,356,209

 

 

$

3,366,240

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

19,714

 

 

$

27,994

 

Accrued and other current liabilities

 

 

151,284

 

 

 

110,310

 

Capital leases, short-term

 

 

90,253

 

 

 

87,126

 

Total current liabilities

 

 

261,251

 

 

 

225,430

 

Capital leases, long-term

 

 

102,534

 

 

 

110,520

 

Deferred and other long-term tax liabilities, net

 

 

29,574

 

 

 

59,500

 

Other long-term liabilities

 

 

26,004

 

 

 

20,784

 

Total liabilities

 

 

419,363

 

 

 

416,234

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.000005 par value-- 5,000,000 shares authorized; 589,298 and 569,922 shares

   issued and outstanding as of March 31, 2014 and December 31, 2013, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

4,064,127

 

 

 

3,944,952

 

Accumulated other comprehensive loss

 

 

(296

)

 

 

(323

)

Accumulated deficit

 

 

(1,126,988

)

 

 

(994,626

)

Total stockholders' equity

 

 

2,936,846

 

 

 

2,950,006

 

Total liabilities and stockholders' equity

 

$

3,356,209

 

 

$

3,366,240

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 


5


 

TWITTER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

 

2013

 

Revenue

 

$

250,492

 

 

$

114,343

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of revenue

 

 

85,503

 

 

 

41,255

 

Research and development

 

 

149,391

 

 

 

47,574

 

Sales and marketing

 

 

106,235

 

 

 

32,439

 

General and administrative

 

 

38,734

 

 

 

16,982

 

Total costs and expenses

 

 

379,863

 

 

 

138,250

 

Loss from operations

 

 

(129,371

)

 

 

(23,907

)

Interest income (expense), net

 

 

(2,567

)

 

 

(1,233

)

Other income (expense), net

 

 

798

 

 

 

(1,529

)

Loss before income taxes

 

 

(131,140

)

 

 

(26,669

)

Provision for income taxes

 

 

1,222

 

 

 

357

 

Net loss

 

$

(132,362

)

 

$

(27,026

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

(0.23

)

 

$

(0.21

)

Diluted

 

$

(0.23

)

 

$

(0.21

)

Weighted-average shares used to compute net loss per share attributable

   to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

 

570,205

 

 

 

127,456

 

Diluted

 

 

570,205

 

 

 

127,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

6


TWITTER, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

 

2013

 

Net loss

 

$

(132,362

)

 

$

(27,026

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized loss on investments in available-for-sale securities, net of tax

 

 

(31

)

 

 

(13

)

Foreign currency translation adjustment

 

 

58

 

 

 

(91

)

Net change in accumulated other comprehensive loss

 

 

27

 

 

 

(104

)

Comprehensive loss

 

$

(132,335

)

 

$

(27,130

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

7


TWITTER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

 

2013

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(132,362

)

 

$

(27,026

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

39,951

 

 

 

22,730

 

Stock-based compensation expense

 

 

126,369

 

 

 

12,922

 

Provision for bad debt

 

 

778

 

 

 

226

 

Deferred income tax benefit

 

 

10

 

 

 

(436

)

Non-cash acquisition-related costs

 

 

 

 

 

566

 

Amortization of investment premium and other

 

 

2,255

 

 

 

1,649

 

Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

8,861

 

 

 

(972

)

Prepaid expenses and other assets

 

 

(30,415

)

 

 

(3,724

)

Accounts payable

 

 

(303

)

 

 

(4,420

)

Accrued and other liabilities

 

 

27,539

 

 

 

1,100

 

Net cash provided by operating activities

 

 

42,683

 

 

 

2,615

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment, net of proceeds from sales

 

 

(49,620

)

 

 

(11,622

)

Purchases of marketable securities

 

 

(470,750

)

 

 

(140,768

)

Proceeds from maturities of marketable securities

 

 

477,333

 

 

 

70,191

 

Proceeds from sales of marketable securities

 

 

168,138

 

 

 

6,000

 

Restricted cash

 

 

(12,138

)

 

 

(1,125

)

Business combinations, net of cash acquired

 

 

 

 

 

178

 

Net cash provided by (used in) investing activities

 

 

112,963

 

 

 

(77,146

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(15,140

)

 

 

 

Repayments of capital lease obligations

 

 

(21,521

)

 

 

(14,658

)

Proceeds from exercise of stock options and sales of restricted stock to employees at fair value,

   net of repurchase

 

 

1,350

 

 

 

4,739

 

Payments of offering costs

 

 

(1,162

)

 

 

-

 

Net cash used in financing activities

 

 

(36,473

)

 

 

(9,919

)

Net increase (decrease) in cash and cash equivalents

 

 

119,173

 

 

 

(84,450

)

Foreign exchange effect on cash and cash equivalents

 

 

572

 

 

 

(630

)

Cash and cash equivalents at beginning of period

 

 

841,010

 

 

 

203,328

 

Cash and cash equivalents at end of period

 

$

960,755

 

 

$

118,248

 

Supplemental disclosures of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Common and convertible preferred stock issued in connection with acquisitions

 

$

 

 

$

105,467

 

Equipment purchases under capital leases

 

$

16,957

 

 

$

29,986

 

Changes in accrued equipment purchases

 

$

11,051

 

 

$

3,889

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

8


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 is a public platform where any user can create a Tweet and any user can follow other users. Each Tweet is limited to 140 characters of text, but can also contain rich media, including photos, videos and applications.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant 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 (U.S. 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 opin ion, 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, 2013.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. 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. 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 resul ts will be affected. 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.

Recent Accounting Pronouncements

In July 2013, the FASB issued a new accounting standard update on the financial statement presentation of unrecognized tax benefits. The new guidance provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward , if such settlement is required or expected in the event the uncertain tax position is disallowed. The Company adopted this guidance prospectively for unrecognized tax benefits as of January 1, 2014. The adoption of this guidance resulted in a $15.8 million decrease in net deferred tax assets and the related liability for unrecognized tax benefits.

 

9


Note 2. Cash, Cash Equivalents and Short-term Investments

Cash, cash equivalents and short-term investments consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash

 

$

223,173

 

 

$

164,135

 

Money market funds

 

 

372,341

 

 

 

229,529

 

U.S. government and agency securities including treasury bills

 

 

220,252

 

 

 

251,593

 

Corporate notes and commercial paper

 

 

144,989

 

 

 

195,753

 

Total cash and cash equivalents

 

$

960,755

 

 

$

841,010

 

Short-term investments:

 

 

 

 

 

 

 

 

U.S. government and agency securities including treasury bills

 

$

591,668

 

 

$

785,536

 

Corporate notes, certificates of deposit and commercial paper

 

 

624,172

 

 

 

607,508

 

Total short-term investments

 

$

1,215,840

 

 

$

1,393,044

 

 

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):

 

 

 

March 31, 2014

 

 

 

Gross

 

 

Gross

 

 

Gross

 

 

Aggregated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Costs

 

 

Gains

 

 

Losses

 

 

Fair Value

 

US Government and agency securities including

   treasury bills

 

$

591,631

 

 

$

47

 

 

$

(10

)

 

$

591,668

 

Corporate notes, certificates of deposit and

   commercial paper

 

 

624,323

 

 

 

19

 

 

 

(170

)

 

 

624,172

 

Total available-for-sale securities classified as

   short-term investments

 

$

1,215,954

 

 

$

66

 

 

$

(180

)

 

$

1,215,840

 

 

 

 

December 31, 2013

 

 

 

Gross

 

 

Gross

 

 

Gross

 

 

Aggregated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Costs

 

 

Gains

 

 

Losses

 

 

Fair Value

 

US Government and agency securities including

   treasury bills

 

$

785,535

 

 

$

22

 

 

$

(21

)

 

$

785,536

 

Corporate notes, certificates of deposit and

   commercial paper

 

 

607,590

 

 

 

11

 

 

 

(93

)

 

 

607,508

 

Total available-for-sale securities classified as

   short-term investments

 

$

1,393,125

 

 

$

33

 

 

$

(114

)

 

$

1,393,044

 

The available-for-sale securities classified as cash and cash equivalents on the consolidated balance sheets are not included in the tables above as the gross unrealized gains and losses were immaterial for each period; their carrying value approximates fair value because of the short maturity period of these instruments.


10


The following tables show all short-term investments in an unrealized loss position for which other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position (in thousands):

 

 

 

March 31, 2014

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

 

 

Fair Value

 

 

Loss

 

 

Fair Value

 

 

Loss

 

 

Fair Value

 

 

Loss

 

US Government and agency securities

   including treasury bills

 

$

166,119

 

 

$

(10

)

 

$

 

 

$

 

 

$

166,119

 

 

$

(10

)

Corporate notes, certificates of deposit

   and commercial paper

 

 

205,690

 

 

 

(170

)

 

 

 

 

 

 

 

 

205,690

 

 

 

(170

)

Total short-term investments in an

   unrealized loss position

 

$

371,809

 

 

$

(180

)

 

$

 

 

$

 

 

$

371,809

 

 

$

(180

)

 

 

 

December 31, 2013

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

 

 

Fair Value

 

 

Loss

 

 

Fair Value

 

 

Loss

 

 

Fair Value

 

 

Loss

 

US Government and agency securities

   including treasury bills

 

$

230,478

 

 

$

(21

)

 

$

 

 

$

 

 

$

230,478

 

 

$

(21

)

Corporate notes, certificates of deposit

   and commercial paper

 

 

171,894

 

 

 

(93

)

 

 

 

 

 

 

 

 

171,894

 

 

 

(93

)

Total short-term investments in an

   unrealized loss position

 

$

402,372

 

 

$

(114

)

 

$

 

 

$

 

 

$

402,372

 

 

$

(114

)

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 t hese securities.

 

Note 3. Fair Value Measurements

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 March 31, 2014 and December 31, 2013 based on the three-tier fair value hierarchy (in thousands):

 

March 31, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

372,341

 

 

$

 

 

$

 

 

$

372,341

 

Treasury bills

 

215,246

 

 

 

 

 

 

 

 

 

215,246

 

Commercial paper

 

 

 

 

142,486

 

 

 

 

 

 

142,486

 

U.S. government securities

 

 

 

 

5,006

 

 

 

 

 

 

5,006

 

Corporate notes

 

 

 

 

2,503

 

 

 

 

 

 

2,503

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

100,047

 

 

 

 

 

 

 

 

 

100,047

 

Agency securities

 

 

 

 

2,000

 

 

 

 

 

 

2,000

 

Commercial paper

 

 

 

 

271,115

 

 

 

 

 

 

271,115

 

Corporate notes

 

 

 

 

277,120

 

 

 

 

 

 

277,120

 

U.S. government securities

 

 

 

 

489,621

 

 

 

 

 

 

489,621

 

Certificates of deposit

 

 

 

 

75,937

 

 

 

 

 

 

75,937

 

Total

$

687,634

 

 

$

1,265,788

 

 

$

 

 

$

1,953,422

 

11


 

 

December 31, 2013

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

229,529

 

 

$

 

 

$

 

 

$

229,529

 

Treasury bills

 

244,048

 

 

 

 

 

 

 

 

 

244,048

 

Commercial paper

 

 

 

 

194,742

 

 

 

 

 

 

194,742

 

U.S. government securities

 

 

 

 

7,545

 

 

 

 

 

 

7,545

 

Corporate notes

 

 

 

 

1,011

 

 

 

 

 

 

1,011

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

265,878

 

 

 

 

 

 

 

 

 

265,878

 

Agency securities

 

 

 

 

18,286

 

 

 

 

 

 

18,286

 

Commercial paper

 

 

 

 

272,617

 

 

 

 

 

 

272,617

 

Corporate notes

 

 

 

 

255,546

 

 

 

 

 

 

255,546

 

U.S. government securities

 

 

 

 

501,372

 

 

 

 

 

 

501,372

 

Certificates of deposit

 

 

 

 

79,345

 

 

 

 

 

 

79,345

 

Total

$

739,455

 

 

$

1,330,464

 

 

$

 

 

$

2,069,919

 

 

Note 4. Property and Equipment, Net

The following table presents the detail of property and equipment, net for the periods presented (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2014

 

 

2013

 

Property and equipment, net

 

 

 

 

 

 

 

 

Equipment

 

$

410,549

 

 

$

367,949

 

Furniture and leasehold improvements

 

 

67,418

 

 

 

54,965

 

Capitalized software

 

 

56,512

 

 

 

47,290

 

Construction in progress

 

 

48,786

 

 

 

29,523

 

Total

 

 

583,265

 

 

 

499,727

 

Less: Accumulated depreciation and amortization

 

 

(199,993

)

 

 

(167,065

)

Property and equipment, net

 

$

383,272

 

 

$

332,662

 

 

 

Note 5. Goodwill and Other Intangible Assets

The goodwill balance was $363.5 million as of March 31, 2014 and December 31, 2013. For each of the period presented, gross goodwill balance equaled the net balance since no impairment charges have been recorded.

The following table presents the detail of other intangible assets for the periods presented (in thousands):

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net

 

 

 

Value

 

 

Amortization

 

 

Carrying Value

 

March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Patents and developed technologies

 

$

100,553

 

 

$

(49,581

)

 

$

50,972

 

Publisher and advertiser relationships

 

 

21,100

 

 

 

(3,006

)

 

 

18,094

 

Assembled workforce

 

 

1,960

 

 

 

(440

)

 

 

1,520

 

Other intangible assets

 

 

1,100

 

 

 

(235

)

 

 

865

 

Total

 

$

124,713

 

 

$

(53,262

)

 

$

71,451

 

December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

Patents and developed technologies

 

$

100,553

 

 

$

(45,440

)

 

$

55,113

 

Publisher and advertiser relationships

 

 

21,100

 

 

 

(1,248

)

 

 

19,852

 

Assembled workforce

 

 

1,960

 

 

 

(300

)

 

 

1,660

 

Other intangible assets

 

 

1,100

 

 

 

(98

)

 

 

1,002

 

Total

 

$

124,713

 

 

$

(47,086

)

 

$

77,627

 

 

12


Amortization expense associated with other intangible assets for the three months ended March 31, 2014 and 2013 was $6.2  million and $3.9 million, respectively.

Estimated future amortization expense as of March 31, 2014 is as follows (in thousands):

 

Remainder of 2014

 

$

15,095

 

2015

 

 

16,726

 

2016

 

 

13,421

 

2017

 

 

3,264

 

2018

 

 

3,264

 

Thereafter

 

 

19,681

 

Total

 

$

71,451

 

 

 

Note 6. Other Balance Sheet Components

Prepaid and other current assets

The following table presents the detail of prepaid and other current assets for the periods presented (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2014

 

 

2013

 

Deferred income taxes, net

 

$

31,382

 

 

$

62,122

 

Prepaid and other

 

 

59,543

 

 

 

31,175

 

Total

 

$

90,925

 

 

$

93,297

 

 

Accrued and other current liabilities

The following table presents the detail of accrued and other current liabilities for the periods presented (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2014

 

 

2013

 

Accrued compensation

 

$

50,829

 

 

$

29,882

 

Accrued equipment and maintenance

 

 

19,468

 

 

 

2,890

 

Deferred revenue

 

 

15,405

 

 

 

14,479

 

Accrued publisher payments

 

 

13,547

 

 

 

15,370

 

Accrued professional services

 

 

10,313

 

 

 

7,089

 

Accrued tax liabilities

 

 

10,073

 

 

 

9,515

 

Accrued equipment purchases under capital lease

 

 

711

 

 

 

2,807

 

Accrued other

 

 

30,938

 

 

 

28,278

 

Total

 

$

151,284

 

 

$

110,310

 

 

 

Note 7. Net Loss per Share

The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. The Company considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. Prior to their conversion to common stock, the Company also considered all series of the Company’s redeemable convertible pre ferred stock and convertible preferred stock to be participating securities as the holders of the preferred stock were entitled to receive a noncumulative dividend on a pari passu basis in the event that a dividend was paid on common stock. The holders of all series of convertible preferred stock and the holders of early exercised shares subject to repurchase do not have a contractual obligation to share in the losses of the Company. As such, the Company’s net losses for the three months ended March 31, 2014 and 2013 were not allocated to these participating securities.

13


Basic net loss per share is computed by dividing total net loss attributable to common stockholders by the weighted-average common shares outstanding. The weighted-average common shares outstanding is adjusted for shares subject to repurchase such as unvested restricted stock granted to employees in connection with acquisitions, contingently returnable shares and escrowed shares supporting indemnification obligations that are issued in connec tion with acquisitions and unvested stock options exercised. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding including potential dilutive common stock instruments. In the three months ended March 31, 2014 and 2013, the Company’s potential common stock instruments such as stock options, RSUs, ESPP, shares subject to repurchases and the warrant were not included in the computation of diluted loss per share as the effect of including these shares in the calculation would have been anti-dilutive.

The following table presents the calculation of basic and diluted net loss per share for periods presented (in thousands, except per share data).

 

 

Three Months Ended March 31,

 

 

 

2014

 

 

2013

 

Net