SNAPCHAT INC filed this 10-Q on 08/11/17
SNAP INC - 10-Q - 20170811 - PART_I

PART I - F INANC IAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Snap Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

June 30,

2017

 

 

December 31,

2016

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

501,677

 

 

$

150,121

 

Marketable securities

 

2,295,919

 

 

 

837,247

 

Accounts receivable, net of allowance

 

171,525

 

 

 

162,659

 

Prepaid expenses and other current assets

 

77,777

 

 

 

29,958

 

Total current assets

 

3,046,898

 

 

 

1,179,985

 

Property and equipment, net

 

128,031

 

 

 

100,585

 

Intangible assets, net

 

136,005

 

 

 

75,982

 

Goodwill

 

502,825

 

 

 

319,137

 

Other assets

 

61,715

 

 

 

47,103

 

Total assets

$

3,875,474

 

 

$

1,722,792

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

17,770

 

 

$

8,419

 

Accrued expenses and other current liabilities

 

240,539

 

 

 

148,325

 

Total current liabilities

 

258,309

 

 

 

156,744

 

Other liabilities

 

76,258

 

 

 

47,134

 

Total liabilities

 

334,567

 

 

 

203,878

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Convertible voting preferred stock, Series A, A-1, and B, $0.00001 par value. No shares and 146,962 shares authorized, issued, and outstanding at June 30, 2017 and December 31, 2016, respectively. Liquidation preference of $95,175 at December 31, 2016.

 

 

 

 

1

 

Convertible non-voting preferred stock, Series C, $0.00001 par value. No shares and 16,000 shares authorized, issued, and outstanding at June 30, 2017 and December 31, 2016, respectively. Liquidation preference of $54,543 at December 31, 2016.

 

 

 

 

 

Convertible non-voting preferred stock, Series D, E, and F, $0.00001 par value. No shares and 83,851 shares authorized, issued, and outstanding at June 30, 2017 and December 31, 2016, respectively.

 

 

 

 

2

 

Series FP convertible voting preferred stock, $0.00001 par value. No shares and 260,888 shares authorized at June 30, 2017 and December 31, 2016, respectively. No shares and 215,888 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively.

 

 

 

 

2

 

Class A non-voting common stock, $0.00001 par value. 3,000,000 shares authorized, 682,588 shares issued and outstanding at June 30, 2017, and 1,500,000 shares authorized, 504,902 shares issued and outstanding at December 31, 2016.

 

7

 

 

 

5

 

Class B voting common stock, $0.00001 par value. 700,000 shares authorized, 281,526 shares issued and outstanding at June 30, 2017, and 1,500,000 shares authorized, 31,469 shares issued and outstanding at December 31, 2016.

 

3

 

 

 

 

Class C voting common stock, $0.00001 par value. 260,888 shares authorized, 215,888 shares issued and outstanding at June 30, 2017, and 260,888 shares authorized and no shares issued and outstanding at December 31, 2016.

 

2

 

 

 

 

Additional paid-in capital

 

7,400,842

 

 

 

2,728,823

 

Accumulated other comprehensive income (loss)

 

3,590

 

 

 

(2,057

)

Accumulated deficit

 

(3,863,537

)

 

 

(1,207,862

)

Total stockholders’ equity

 

3,540,907

 

 

 

1,518,914

 

Total liabilities and stockholders’ equity

$

3,875,474

 

 

$

1,722,792

 

 

See Notes to Consolidated Financial Statements.

6


Snap Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue

$

181,671

 

 

$

71,798

 

 

$

331,319

 

 

$

110,596

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

152,148

 

 

 

94,757

 

 

 

315,506

 

 

 

170,530

 

Research and development

 

255,735

 

 

 

36,052

 

 

 

1,061,583

 

 

 

64,150

 

Sales and marketing

 

90,903

 

 

 

24,587

 

 

 

310,636

 

 

 

39,324

 

General and administrative

 

131,903

 

 

 

32,261

 

 

 

1,306,379

 

 

 

56,272

 

Total costs and expenses

 

630,689

 

 

 

187,657

 

 

 

2,994,104

 

 

 

330,276

 

Loss from operations

 

(449,018

)

 

 

(115,859

)

 

 

(2,662,785

)

 

 

(219,680

)

Interest income

 

6,349

 

 

 

871

 

 

 

8,773

 

 

 

1,230

 

Interest expense

 

(998

)

 

 

 

 

 

(1,693

)

 

 

 

Other income (expense), net

 

786

 

 

 

(939

)

 

 

973

 

 

 

(1,932

)

Loss before income taxes

 

(442,881

)

 

 

(115,927

)

 

 

(2,654,732

)

 

 

(220,382

)

Income tax benefit (expense)

 

(212

)

 

 

33

 

 

 

2,802

 

 

 

(88

)

Net loss

$

(443,093

)

 

$

(115,894

)

 

$

(2,651,930

)

 

$

(220,470

)

Net loss per share attributable to Class A, Class B, and Class C common stockholders (Note 2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.36

)

 

$

(0.14

)

 

$

(2.43

)

 

$

(0.28

)

Diluted

$

(0.36

)

 

$

(0.14

)

 

$

(2.43

)

 

$

(0.28

)

 

See Notes to Consolidated Financial Statements.

7


Snap Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

$

(443,093

)

 

$

(115,894

)

 

$

(2,651,930

)

 

$

(220,470

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities, net of tax

 

(772

)

 

 

310

 

 

 

(896

)

 

 

398

 

Foreign currency translation

 

5,997

 

 

 

510

 

 

 

6,543

 

 

 

486

 

Total other comprehensive income (loss), net of tax

 

5,225

 

 

 

820

 

 

 

5,647

 

 

 

884

 

Total comprehensive income (loss)

$

(437,868

)

 

$

(115,074

)

 

$

(2,646,283

)

 

$

(219,586

)

 

See Notes to Consolidated Financial Statements.

8


Snap Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(2,651,930

)

 

$

(220,470

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

25,035

 

 

 

11,045

 

Stock-based compensation

 

2,237,149

 

 

 

10,280

 

Deferred income taxes

 

(1,765

)

 

 

(204

)

Other

 

(1,672

)

 

 

2,018

 

Change in operating assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

 

Accounts receivable, net of allowance

 

(8,209

)

 

 

(24,042

)

Prepaid expenses and other current assets

 

(47,835

)

 

 

(8,236

)

Other assets

 

(10,108

)

 

 

(1,543

)

Accounts payable

 

9,317

 

 

 

(240

)

Accrued expenses and other current liabilities

 

82,190

 

 

 

3,369

 

Other liabilities

 

3,257

 

 

 

1,372

 

Net cash used in operating activities

 

(364,571

)

 

 

(226,651

)

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

(37,358

)

 

 

(28,873

)

Purchases of intangible assets

 

(7,720

)

 

 

(562

)

Non-marketable investments

 

(7,530

)

 

 

(4,070

)

Cash paid for acquisitions, net of cash acquired

 

(224,176

)

 

 

(50,936

)

Issuance of notes receivable from officers/stockholders

 

 

 

 

(15,000

)

Purchases of marketable securities

 

(2,742,370

)

 

 

(967,402

)

Sales of marketable securities

 

237,095

 

 

 

79,075

 

Maturities of marketable securities

 

1,047,479

 

 

 

9,500

 

Change in restricted cash

 

9,899

 

 

 

(5,068

)

Net cash used in investing activities

 

(1,724,681

)

 

 

(983,336

)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

783

 

 

 

 

Stock repurchases from employees for tax withholdings

 

(208,407

)

 

 

 

Proceeds from issuance of Class A common stock in initial public offering, net of underwriting commissions

 

2,657,797

 

 

 

 

Proceeds from issuances of preferred stock, net of issuance costs

 

 

 

 

1,157,147

 

Payments of initial public offering issuance costs

 

(9,365

)

 

 

 

Net cash provided by financing activities

 

2,440,808

 

 

 

1,157,147

 

Change in cash and cash equivalents

 

351,556

 

 

 

(52,840

)

Cash and cash equivalents, beginning of period

 

150,121

 

 

 

640,810

 

Cash and cash equivalents, end of period

$

501,677

 

 

$

587,970

 

Supplemental disclosures

 

 

 

 

 

 

 

Cash paid for income taxes

$

5,490

 

 

$

4

 

Supplemental disclosures of non-cash activities

 

 

 

 

 

 

 

Issuance of Class B common stock related to acquisitions

$

 

 

$

13,097

 

Purchase consideration liabilities related to acquisitions

$

11,242

 

 

$

6,000

 

Construction in progress related to financing lease obligations

$

683

 

 

$

761

 

Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions

$

(3,743

)

 

$

(404

)

 

See Notes to Consolidated Financial Statements.

 

 

9


 

Snap Inc.

Notes to Consolidated Financial Statements

 

1. Summary of Significant Accounting Policies

Snap Inc. is a camera company.

Snap Inc. (“we,” “our,” or “us”) was formed as Future Freshman, LLC, a California limited liability company, in 2010. We changed our name to Toyopa Group, LLC in 2011, incorporated as Snapchat, Inc., a Delaware corporation, in 2012, and changed our name to Snap Inc. in 2016. Snap Inc. is headquartered in Venice, California. Our flagship product, Snapchat, is a camera application that was created to help people communicate through short videos and images called “Snaps.”

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Our consolidated financial statements include the accounts of Snap Inc. and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Our fiscal year ends on December 31. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our prospectus dated March 1, 2017, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File No. 333-215866) (“Prospectus”).

In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position, results of operations, and cash flows. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017.

Other than described below, there have been no changes to our significant accounting policies described in our Prospectus that have had a material impact on our consolidated financial statements and related notes.

Initial Public Offering

In March 2017, we completed our initial public offering (“IPO”) in which we issued and sold 160.3 million shares of Class A common stock, inclusive of the over-allotment, at a public offering price of $17.00 per share and excluding shares sold in the IPO by certain of our existing stockholders. We received net proceeds of $2.6 billion after deducting underwriting discounts and commissions of $68.1 million and other offering expenses of $14.7 million. On the closing of the IPO, all shares of our then-outstanding convertible preferred stock other than Series FP preferred stock automatically converted into an aggregate of 246.8 million shares of Class B common stock and all outstanding shares of Series FP preferred stock automatically converted into 215.9 million shares of Class C common stock. Following the IPO, we have three classes of authorized common stock – Class A common stock, Class B common stock, and Class C common stock.

Restricted stock units (“RSUs”) granted to employees before January 1, 2017 (“Pre-2017 RSUs”) included both service-based and performance conditions to vest in the underlying common stock. The performance condition related to these awards was satisfied on the effectiveness of the registration statement for our IPO, which occurred in March 2017. On the effectiveness of the registration statement for our IPO, we recognized $1.3 billion of stock-based compensation expense for Pre-2017 RSUs. To meet the related tax withholding requirements, we withheld 12.1 million of the 26.7 million shares of common stock issued. Based on the public offering price of $17.00 per share, the tax withholding obligation for these vested Pre-2017 RSUs was $206.6 million.

In addition, on the closing of the IPO, our Chief Executive Officer (“CEO”) received an RSU award (“CEO award”) for 37.4 million shares of Series FP preferred stock, which automatically converted into an equivalent number of shares of Class C common stock on the closing of the IPO. The CEO award represented 3.0% of all outstanding shares on the closing of the IPO, including shares sold by us in the IPO and vested stock options and RSUs, net of shares withheld to satisfy tax withholding obligations, on the closing of the IPO. The CEO award vested immediately on the closing of the IPO, and such shares will be delivered to the CEO in equal quarterly installments over three years beginning in the third full calendar quarter following the IPO. There is no continuing service requirement for our CEO. The stock-based compensation expense recognized related to the CEO award was $636.6 million, which is based on the vesting of 37.4 million shares of Class C common stock on the closing of the IPO, at the public offering price of $17.00 per share.

10


 

The future tax benefits on settlement of the above RSUs is not expected to be material as currently we have established valuation allowances to reduce our net deferred tax assets to the amount that is more likely than not to be realized. The majority of the future tax benefits that arise on settlement of the above RSUs are in jurisdictions for which our net deferred tax assets have a full valuation allowance.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Management’s estimates are based on historical information available as of the date of the consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates.

Key estimates relate primarily to determining the fair value of assets and liabilities assumed in business combinations, evaluation of contingencies, uncertain tax positions, and the fair value of stock-based awards. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business . The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date, with early adoption permitted. We plan to adopt ASU 2017-01 effective January 1, 2018.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. We are in the process of evaluating the impact of this accounting standards update on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory , which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We adopted ASU 2016-16 on January 1, 2017 and the adoption did not have a material impact on our consolidated financial statements due to a valuation allowance on our net deferred tax assets.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. We are in the process of evaluating the impact of this accounting standards update on our consolidated statements of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We are in the process of evaluating the impact of this accounting standards update on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09,  Revenue from Contracts with Customers (Topic 606).  Topic 606 supersedes the revenue recognition requirements in ASU Topic 605,  Revenue Recognition,  and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted for annual

11


 

reporting periods beginning after December 15, 2016. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method.

The most significant aspect of our evaluation of Topic 606 related to ASU No. 2016-08,  Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).  This implementation guidance discusses principal versus agent considerations and gross versus net revenue reporting, including specific indicators to assist in the determination of whether we control a specified good or service before it is transferred to the customer. Through our evaluation, we have concluded Snap-sold revenue will be reported on a gross basis and partner-sold revenue will be reported on a net basis, which is consistent with our current revenue recognition policies. We concluded that we control the Snap-sold advertising campaign before it is transferred to the customer because we provide the advertising campaign on Snapchat and have discretion in establishing the price of the advertisements. We concluded that the partner controls significant aspects of the partner-sold advertising campaign before it is transferred to the customer and the partner has discretion in establishing price with the advertiser.

We do not expect the new standard to have a material impact on our consolidated financial statements. We expect to adopt Topic 606 during the first quarter of 2018. We are still evaluating the use of either the retrospective or modified retrospective transition method.

2. Net Loss per Share

We compute net loss per share using the two-class method required for multiple classes of common stock and participating securities. Our participating securities include any shares issued on the early exercise of stock options subject to repurchase because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. Before the IPO, our participating securities also included Series D, E, F, and FP preferred stock and Series A, A-1, B, and C convertible preferred stock. The rights, including the liquidation and dividend rights, of the Class A common stock and Class B common stock, and the Series D, E, F, and FP preferred stock were substantially identical, other than voting rights. Accordingly, the Class A common stock, Class B common stock, and the Series D, E, F, and FP shared equally in our net losses. The holders of early exercised shares subject to repurchase and the holders of Series A, A-1, B, and C convertible preferred stock did not have a contractual obligation to share in our losses, and as a result our net losses were not allocated to these participating securities.

In connection with our IPO, our Series D, E, and F preferred stock converted on a one-to-one basis into Class B common stock, and our Series FP preferred stock converted on a one-to-one basis into Class C common stock. The liquidation and dividend rights of the aforementioned preferred series are substantially identical to the rights of the common classes into which they converted. Accordingly, we have presented the Series D, E, and F preferred stock outstanding before the IPO together with the Class B common stock, and the Series FP preferred stock outstanding before the IPO together with the Class C common stock for purposes of calculating net loss per share. The prior period presentation has been adjusted to conform to our current period presentation.

Also in connection with our IPO, our Series A, A-1, B, and C preferred stock converted on a one-to-one basis into Class B common stock. The shares of Class B common stock that resulted from the conversion of the Series A, A-1, B, and C preferred stock are weighted in the denominator of net loss per share for Class B common stock for the portion of the time outstanding subsequent to our IPO.

Basic net loss per share is computed by dividing net loss attributable to each class of stockholders by the weighted-average number of shares of stock outstanding during the period. Vested RSUs that have not been settled, including the vested CEO award, have been included in the appropriate common share class used to calculate basic net loss per share.

For the calculation of diluted net loss per share, net loss per share attributable to common stockholders for basic net loss per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. Diluted net loss per share attributable to common stockholders is computed by dividing the resulting net loss attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding. For the three and six months ended June 30, 2017 and 2016 our potential dilutive shares relating to stock options, RSUs, and common stock subject to repurchase, and, for the 2016 periods, shares of convertible Series A, A-1, B, and C preferred stock were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive.

12


 

The numerators and denominators of the basic and diluted net loss per share computations for our common stock are calculated as follows for the three and six months ended June 30, 2017 and 2016:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(in thousands, except per share data)

 

 

 

Class A Common (1)

 

 

Class B Common (2)

 

 

Class C Common (3)

 

 

Class A Common

 

 

Class B Common (2)

 

 

Class C Common (3)

 

 

Class A Common (1)

 

 

Class B Common (2)

 

 

Class C Common (3)

 

 

Class A Common

 

 

Class B Common (2)

 

 

Class C Common (3)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(248,613

)

 

$

(102,730

)

 

$

(91,750

)

 

$

(70,050

)

 

$

(14,744

)

 

$

(31,100

)

 

$

(1,524,926

)

 

$

(543,768

)

 

$

(583,236

)

 

$

(133,924

)

 

$

(25,314

)

 

$

(61,232

)

Net loss attributable to common stockholders

 

$

(248,613

)

 

$

(102,730

)

 

$

(91,750

)

 

$

(70,050

)

 

$

(14,744

)

 

$

(31,100

)

 

$

(1,524,926

)

 

$

(543,768

)

 

$

(583,236

)

 

$

(133,924

)

 

$

(25,314

)

 

$

(61,232

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares - Basic

 

 

686,456

 

 

 

283,651

 

 

 

253,336

 

 

 

487,398

 

 

 

102,591

 

 

 

216,390

 

 

 

627,209

 

 

 

223,654

 

 

 

239,888

 

 

 

474,784

 

 

 

89,742

 

 

 

217,078

 

Diluted shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares - Diluted

 

 

686,456

 

 

 

283,651

 

 

 

253,336

 

 

 

487,398

 

 

 

102,591

 

 

 

216,390

 

 

 

627,209

 

 

 

223,654

 

 

 

239,888

 

 

 

474,784

 

 

 

89,742

 

 

 

217,078

 

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.36

)

 

$

(0.36

)

 

$

(0.36

)

 

$

(0.14

)

 

$

(0.14

)

 

$

(0.14

)

 

$

(2.43

)

 

$

(2.43

)

 

$

(2.43

)

 

$

(0.28

)

 

$

(0.28

)

 

$

(0.28

)

Diluted

 

$

(0.36

)

 

$

(0.36

)

 

$

(0.36

)

 

$

(0.14

)

 

$

(0.14

)

 

$

(0.14

)

 

$

(2.43

)

 

$

(2.43

)

 

$

(2.43

)

 

$

(0.28

)

 

$

(0.28

)

 

$

(0.28

)

 

(1)

Class A common stock includes the issuance of 160.3 million shares of Class A common stock issued by us in connection with our IPO.

(2)

Included in the Class B common stock, for all periods presented, is Series D, E, and F preferred stock, which automatically converted to Class B common stock on the closing of the IPO. Series A, A-1, B, and C preferred stock are included in Class B common stock on the automatic conversion of such shares to 163.0 million shares of Class B common stock on the closing of the IPO.

(3)

Included in the Class C common stock, for all periods presented, is Series FP preferred stock which automatically converted to Class C common stock on the closing of the IPO. Additionally, 37.4 million shares of Class C common stock related to the CEO award are included in Class C common stock on the closing of the IPO.

 

The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:

 

 

 

Three and Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Convertible voting preferred stock, Series A, A-1 and B

 

 

 

 

 

146,962

 

Convertible non-voting preferred stock, Series C

 

 

 

 

 

16,000

 

Stock options

 

 

39,496

 

 

 

43,896

 

Unvested RSUs not subject to a performance condition

 

 

177,400

 

 

 

254

 

Shares subject to repurchase

 

 

 

 

 

949

 

 

3. Stockholders’ Equity

We maintain three share-based employee compensation plans: the 2017 Equity Incentive Plan (“2017 Plan”), the 2014 Equity Incentive Plan (“2014 Plan”), and the 2012 Equity Incentive Plan (“2012 Plan”, and collectively with the 2017 Plan and the 2014 Plan, the “Stock Plans”). In January 2017, our board of directors adopted the 2017 Plan, and in February 2017 our stockholders approved the 2017 Plan, effective on March 1, 2017, which serves as the successor to the 2014 Plan and

13


 

2012 Pla n and provides for the grant of incentive stock options to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, perfor mance stock awards, performance cash awards, and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our affiliates. We do not expect to grant any additional awards under the 2014 Plan or 2012 Plan a s of the effective date of the 2017 Plan, other than awards for up to 2,500,000 shares of Class A common stock to our employees and consultants in France under the 2014 Plan. Outstanding awards under the 2014 Plan and 2012 Plan continue to be subject to th e terms and conditions of the 2014 Plan and 2012 Plan, respectively. Shares available for grant under the 2014 Plan and 2012 Plan, which were reserved but not issued or subject to outstanding awards under the 2014 Plan or 2012 Plan, respectively, as of the effective date of the 2017 Plan, were added to the reserves of the 2017 Plan.

We have initially reserved 87,270,108 shares of our Class A common stock for future issuance under the 2017 Plan. An additional number of shares of Class A common stock will be added to the 2017 Plan equal to (i) 96,993,064 shares of Class A common stock reserved for future issuance pursuant to outstanding stock options and unvested RSUs under the 2014 Plan, (ii) 37,228,865 shares of Class A common stock issuable on conversion of Class B common stock underlying stock options and unvested RSUs outstanding the 2012 Plan, (iii) 17,858,235 shares of Class A common stock that were reserved for issuance under the 2014 Plan as of the date the 2017 Plan became effective, (iv) 11,004,580 shares of Class A common stock issuable on conversion Class B common stock that were reserved for issuance under the 2012 Plan as of the date the 2017 Plan became effective, and (v) a maximum of 86,737,997 shares of Class A common stock that will be added pursuant to the following sentence. With respect to each share that returns to the 2017 Plan pursuant to (i) and (ii) of the prior sentence that was associated with an award that was outstanding under the 2014 Plan and 2012 Plan as of October 31, 2016, an additional share of Class A common stock will be added to the share reserve of the 2017 Plan, up to a maximum of 86,737,997 shares . The number of shares reserved for issuance under the 2017 Plan will increase automatically on the first day of January of each of 2018 through 2027 by the lesser of (i) 5% of the total number of shares of our capital stock outstanding on December 31 st of the immediately preceding calendar year and (ii) a number determined by our board of directors. The maximum term for stock options granted under the 2017 Plan may not exceed ten years from the date of grant. The 2017 Plan will terminate ten years from the date our board of directors approved the plan, unless it is terminated earlier by our board of directors.

The following table summarizes the RSU award activity under the Stock Plans during the six months ended June 30, 2017:

 

 

 

Class A

Outstanding

RSUs

 

 

Class B

Outstanding

RSUs

 

 

Weighted-

Average

Grant Date

Fair Value

per RSU

 

 

 

(in thousands, except per share data)

 

Unvested at December 31, 2016

 

 

152,114

 

 

 

28,581

 

 

$

15.50

 

Granted

 

 

39,700

 

 

 

 

 

$

17.41

 

Vested

 

 

(25,210

)

 

 

(13,981

)

 

$

14.99

 

Forfeited

 

 

(3,536

)

 

 

(268

)

 

$

15.51

 

Unvested at June 30, 2017

 

 

163,068

 

 

 

14,332

 

 

$

16.04

 

Total unrecognized compensation cost related to Pre-2017 RSUs was $1.0 billion as of June 30, 2017 and is expected to be recognized over a weighted-average period of 2.9 years.

All RSUs granted after December 31, 2016 vest on the satisfaction of only a service-based condition (“Post-2017 RSUs”). Total unrecognized compensation cost related to Post-2017 RSUs was $597.4 million as of June 30, 2017 and is expected to be recognized over a weighted-average period of 5.3 years. The service condition is generally satisfied over four years, 10% after the first year of service, 20% over the second year, 30% over the third year, and 40% over the fourth year. In limited instances, we have issued Post-2017 RSUs with vesting periods in excess of four years.

For the six months ended June 30, 2017, for RSUs issued to employees, we withheld 12.3 million shares of common stock (“net settlement”) and remitted $208.4 million in cash to meet the related tax withholding requirements on behalf of our employees. In July 2017, we withheld an additional 7.8 million shares of common stock and remitted approximately $105.0 million in cash to satisfy the related tax withholding requirements on behalf of our employees. We will continue to evaluate the net settlement of RSUs that vest in the future.

14


 

The table below presents stock option awards that entitle the holder to an additional share of Class A common stock on exercise. The total stock options granted and underlying common stock fair value do not give effect to the addi tional Class A common stock. The following table summarizes the stock option award activity under the Stock Plans during the six months ended June 30, 2017:

 

  

 

Class A

Number

of Shares

 

 

Class B

Number

of Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value (1)

 

 

 

(in thousands, except per share data)

 

Outstanding at December 31, 2016

 

 

1,266

 

 

 

21,186

 

 

$

2.26

 

 

 

6.97

 

 

$

682,565

 

Granted

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

Exercised

 

 

(4

)

 

 

(2,700

)

 

$

0.29

 

 

 

 

 

$

 

Forfeited

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

Outstanding at June 30, 2017

 

 

1,262

 

 

 

18,486

 

 

$

2.53

 

 

 

6.47

 

 

$

651,879

 

 

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the assessed fair value of our common stock as of December 31, 2016 or the closing market price of our Class A common stock as of June 30, 2017.

 

Total unrecognized compensation cost related to stock options was $37.0 million as of June 30, 2017 and is expected to be recognized over a weighted-average period of 2.2 years.

Stock-Based Compensation Expense by Function

Total stock-based compensation expense by function is as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Cost of revenue

 

$

2,223

 

 

$

128

 

 

$

21,931

 

 

$

282

 

Research and development

 

 

163,848

 

 

 

2,700

 

 

 

881,928

 

 

 

5,348

 

Sales and marketing

 

 

20,558

 

 

 

553

 

 

 

180,284

 

 

 

1,328

 

General and administrative

 

 

58,399

 

 

 

1,361

 

 

 

1,153,006

 

 

 

3,322

 

Total

 

$

245,028

 

 

$

4,742

 

 

$

2,237,149

 

 

$

10,280

 

 

2017 Employee Stock Purchase Plan

In January 2017, our board of directors adopted the 2017 Employee Stock Purchase Plan (“2017 ESPP”). Our stockholders approved the 2017 ESPP in February 2017. The 2017 ESPP became effective in connection with the IPO. A total of 16,484,690 shares of Class A common stock were initially reserved for issuance under the 2017 ESPP. No shares of our Class A common stock have been purchased under the 2017 ESPP. The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1st of each calendar year, beginning on January 1, 2018 through January 1, 2027, by the lesser of (1) 1.0% of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (2) 15,000,000 shares; provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2).

4. Business Acquisitions

Zenly SAS

In May 2017, we acquired Zenly SAS, a company that develops a location-based social media application that allows users to see where their friends are on a map. The purpose of the acquisition was to enhance the functionality of our platform. The total consideration paid was $213.3 million in cash, of which $196.1 million represents purchase consideration and includes $186.8 million in cash paid to the sellers and $9.3 million of liabilities due to the sellers. The remaining $17.2 million of total consideration transferred represents compensation for future employment services. The allocation of purchase price is preliminary and is subject to additional information related to the liabilities that existed as of the acquisition date.

15


 

The preliminary allocation of the total purchase consideration for this acquisition is estimated as follows:

 

 

 

Total

 

 

 

(in thousands)

 

Cash

 

$

22,610

 

Technology

 

 

23,000

 

Goodwill

 

 

154,353

 

Net deferred tax liability

 

 

(2,418

)

Other assets acquired and liabilities assumed, net

 

 

(1,428

)

Total

 

$

196,117

 

 

The goodwill amount represents synergies related to our existing platform expected to be realized from this business combination and assembled workforce. The associated goodwill and intangible assets are not deductible for tax purposes.

Other Acquisitions

In June 2017, we acquired a component of a business from a social advertising software company that was integrated with our existing advertising platform and adds advertising tools and creative solutions to our advertising customers. In addition, in March 2017, we acquired all outstanding shares of a company that operates a cloud hosted platform for building content online. The company was acquired to enhance the functionality of our platform. The total purchase consideration for these acquisitions was $62.1 million, which included $60.2 million in cash and $1.9 million recorded in other liabilities on the consolidated balance sheets.

The allocation of the total purchase consideration for the above acquisitions is as follows:

 

 

 

Total

 

 

 

(in thousands)

 

Technology

 

$

39,000

 

Customer relationships

 

 

500

 

Goodwill

 

 

24,135

 

Net deferred tax liability

 

 

(1,710

)

Other assets acquired and liabilities assumed, net

 

 

200

 

Total

 

$

62,125

 

 

The goodwill amount represents synergies related to our existing platform expected to be realized from these business combinations and assembled workforce. Of the technology intangible assets and goodwill in the above table, $30.5 million and $11.5 million is deductible for tax purposes, respectively.

Additional Information on 2017 Acquisitions

For all acquisitions in 2017, we provided for a combined $122.5 million in the form of RSUs to certain continuing employees of the companies in exchange for future service.

In addition, unaudited pro forma results of operations assuming the above acquisitions had taken place at the beginning of each period are not provided because the historical operating results of the acquired entities were not material and pro forma results would not be materially different from reported results for the periods presented.

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2017 are as follows:

 

 

 

Goodwill

 

 

 

(in thousands)

 

Balance as of December 31, 2016

 

$

319,137

 

Goodwill acquired

 

 

178,488

 

Foreign currency translation

 

 

5,200

 

Balance as of June 30, 2017

 

$

502,825

 

16


 

 

Intangible assets consisted of the following:

 

 

 

June 30, 2017

 

 

 

Weighted-

Average

Remaining

Useful Life -

Years

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

 

 

(in thousands except years)

 

Domain names

 

 

2.4

 

 

$

5,031

 

 

$

2,669

 

 

$

2,362

 

Trademarks

 

 

2.1

 

 

 

3,072

 

 

 

2,086

 

 

 

986

 

Acquired developed technology

 

 

5.0

 

 

 

146,041

 

 

 

29,587

 

 

 

116,454

 

Customer relationships

 

 

0.9

 

 

 

2,136

 

 

 

1,185

 

 

 

951

 

Patents

 

 

8.3

 

 

 

17,150

 

 

 

1,898

 

 

 

15,252

 

 

 

 

 

 

 

$

173,430

 

 

$

37,425

 

 

$

136,005

 

 

 

 

December 31, 2016

 

 

 

Weighted-

Average

Remaining

Useful Life -

Years

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

 

 

(in thousands except years)

 

Domain names

 

 

3.0

 

 

$

5,000

 

 

$

2,157

 

 

$

2,843

 

Trademarks

 

 

2.6

 

 

 

3,072

 

 

 

1,829

 

 

 

1,243

 

Non-compete agreements

 

 

0.3

 

 

 

243

 

 

 

226

 

 

 

17

 

Acquired developed technology

 

 

4.1

 

 

 

83,137

 

 

 

20,569

 

 

 

62,568

 

Customer relationships

 

 

1.0

 

 

 

3,752

 

 

 

2,569

 

 

 

1,183

 

Patents

 

 

9.2

 

 

 

9,450

 

 

 

1,322

 

 

 

8,128