10-Q 1 a20140630-10qdocument.htm FORM 10-Q 2014.06.30 - 10Q Document
 
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, 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: 001-35168
 
 
 
LinkedIn Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
47-0912023
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2029 Stierlin Court
Mountain View, CA 94043
(Address of principal executive offices and zip code)
(650) 687-3600
(Registrant’s telephone number, including area code)
 
 
 
 
Indicate by checkmark 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 Website, 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨  (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
As of July 24, 2014, there were 106,716,636 shares of the Registrant’s Class A common stock outstanding and 16,193,250 shares of the Registrant’s Class B common stock outstanding.
 




LINKEDIN CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
  
 
Page No.
 
 
 
 
 
 
 
 
 

2


Part I. Financial Information
Item 1. Financial Statements
LINKEDIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
June 30,
2014
 
December 31,
2013
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
645,092

 
$
803,089

Marketable securities
1,721,847

 
1,526,212

Accounts receivable (net of allowance for doubtful accounts of $9,843 and $6,138 at June 30, 2014 and December 31, 2013, respectively)
347,152

 
302,168

Deferred commissions
45,941

 
47,496

Prepaid expenses
49,503

 
32,114

Other current assets
61,042

 
44,391

Total current assets
2,870,577

 
2,755,470

Property and equipment, net
476,058

 
361,741

Goodwill
228,943

 
150,871

Intangible assets, net
99,175

 
43,046

Other assets
46,133

 
41,665

TOTAL ASSETS
$
3,720,886

 
$
3,352,793

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
90,728

 
$
66,744

Accrued liabilities
164,051

 
183,004

Deferred revenue
481,450

 
392,243

Total current liabilities
736,229

 
641,991

DEFERRED TAX LIABILITIES
24,088

 
14,879

OTHER LONG TERM LIABILITIES
80,298

 
61,529

Total liabilities
840,615

 
718,399

COMMITMENTS AND CONTINGENCIES (Note 10)

 

REDEEMABLE NONCONTROLLING INTEREST
5,226

 
5,000

STOCKHOLDERS’ EQUITY (Note 11):
 
 
 
Class A and Class B common stock
12

 
12

Additional paid-in capital
2,833,030

 
2,573,449

Accumulated other comprehensive income
863

 
314

Accumulated earnings
41,140

 
55,619

Total stockholders’ equity
2,875,045

 
2,629,394

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
$
3,720,886

 
$
3,352,793

See Notes to Condensed Consolidated Financial Statements

3


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Net revenue
$
533,877

 
$
363,661

 
$
1,007,070

 
$
688,366

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below)
69,536

 
49,264

 
131,991

 
91,648

Sales and marketing
184,494

 
122,276

 
351,016

 
231,693

Product development
128,731

 
95,608

 
249,353

 
176,280

General and administrative
80,688

 
56,225

 
155,306

 
99,009

Depreciation and amortization
56,306

 
32,193

 
106,046

 
57,999

Total costs and expenses
519,755

 
355,566

 
993,712

 
656,629

Income from operations
14,122

 
8,095

 
13,358

 
31,737

Other income (expense), net
1,197

 
(252
)
 
2,223

 
(560
)
Income before income taxes
15,319

 
7,843

 
15,581

 
31,177

Provision for income taxes
16,253

 
4,109

 
29,834

 
4,827

Net income (loss)
(934
)
 
3,734

 
(14,253
)
 
26,350

Accretion of redeemable noncontrolling interest
(100
)
 

 
(226
)
 

Net income (loss) attributable to common stockholders
$
(1,034
)
 
$
3,734

 
$
(14,479
)
 
$
26,350

 
 
 
 
 
 
 
 
Net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
(0.01
)
 
$
0.03

 
$
(0.12
)
 
$
0.24

Diluted
$
(0.01
)
 
$
0.03

 
$
(0.12
)
 
$
0.23

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
122,170

 
111,214

 
121,571

 
110,334

Diluted
122,170

 
116,627

 
121,571

 
116,017

See Notes to Condensed Consolidated Financial Statements

4


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
(934
)
 
$
3,734

 
$
(14,253
)
 
$
26,350

Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on investments, net of tax
136

 
(327
)
 
494

 
(308
)
Less: reclassification adjustment for net investment (gains) losses included in net income (loss), net of tax
45

 
2

 
55

 
(16
)
Total other comprehensive income (loss)
181

 
(325
)
 
549

 
(324
)
Comprehensive income (loss)
(753
)
 
3,409

 
(13,704
)
 
26,026

       Accretion of redeemable noncontrolling interest
(100
)
 

 
(226
)
 

Comprehensive income (loss) attributable to common stockholders
$
(853
)
 
$
3,409

 
$
(13,930
)
 
$
26,026

See Notes to Condensed Consolidated Financial Statements

5


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Six Months Ended
June 30,
 
2014
 
2013
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(14,253
)
 
$
26,350

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
106,046

 
57,999

Provision for doubtful accounts and sales returns
5,325

 
2,953

Stock-based compensation
142,597

 
82,293

Excess income tax benefit from stock-based compensation
(34,621
)
 
(17,559
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(50,226
)
 
(272
)
Deferred commissions
1,828

 
543

Prepaid expenses and other assets
(16,197
)
 
(17,846
)
Accounts payable and other liabilities
6,298

 
20,815

Income taxes, net
21,290

 
(726
)
Deferred revenue
89,207

 
73,444

Net cash provided by operating activities
257,294

 
227,994

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(185,301
)
 
(137,467
)
Purchases of investments
(1,387,542
)
 
(256,925
)
Sales of investments
189,598

 
76,420

Maturities of investments
997,275

 
45,127

Payments for intangible assets and acquisitions, net of cash acquired
(89,861
)
 
(6,547
)
Changes in deposits and restricted cash
(4,761
)
 
(3,543
)
Net cash used in investing activities
(480,592
)
 
(282,935
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of common stock from employee stock options
12,906

 
19,738

Proceeds from issuance of common stock from employee stock purchase plan
16,324

 
11,500

Excess income tax benefit from stock-based compensation
34,621

 
17,559

Other financing activities
24

 
813

Net cash provided by financing activities
63,875

 
49,610

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
1,426

 
(2,407
)
CHANGE IN CASH AND CASH EQUIVALENTS
(157,997
)
 
(7,738
)
CASH AND CASH EQUIVALENTS—Beginning of period
803,089

 
270,408

CASH AND CASH EQUIVALENTS—End of period
$
645,092

 
$
262,670

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Purchases of property and equipment recorded in accounts payable and accrued liabilities
$
40,123

 
$
36,103

Issuance of Class A common stock and stock options for business combinations
$
50,168

 
$
40,927

See Notes to Condensed Consolidated Financial Statements

6


LINKEDIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
Description of Business and Basis of Presentation
LinkedIn Corporation and its subsidiaries, (the “Company”), a Delaware corporation, was incorporated on March 6, 2003. The Company operates an online professional network on the Internet through which the Company’s members are able to create, manage and share their professional identities online, build and engage with their professional networks, access shared knowledge and insights, and find business opportunities, enabling them to be more productive and successful. The Company is the world’s largest professional network on the Internet and believes it is the most extensive, accurate and accessible network focused on professionals.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 13, 2014.
The condensed consolidated balance sheet as of December 31, 2013, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP on an annual reporting basis.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive income (loss) and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2014 or any future period.
 
Principles of Consolidation
The condensed consolidated financial statements include the Company, its wholly-owned subsidiaries, and variable interest entities in which LinkedIn is the primary beneficiary in accordance with the consolidation accounting guidance. All intercompany balances and transactions have been eliminated.
Redeemable noncontrolling interest is considered to be temporary equity and is therefore reported outside of permanent equity equal to its redemption value.
 Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates. 
 Recently Issued Accounting Guidance
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The guidance also requires significantly expanded disclosures about revenue recognition. This standard will be effective for the Company in the first quarter of 2017 and will be applied using either the full or modified retrospective adoption methods. Early adoption of this guidance is not permitted. The Company is currently evaluating adoption methods and whether this standard will have a material impact on its financial results.


7



2.
Fair Value Measurements
The Company measures its cash equivalents, marketable securities and foreign currency derivative contracts at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis, whereby, inputs used in valuation techniques are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of June 30, 2014 and December 31, 2013, are summarized as follows (in thousands): 
 
June 30, 2014
 
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
245,746

 
$

 
$

 
$
245,746

 
$
242,712

 
$

 
$

 
$
242,712

Commercial paper

 
42,647

 

 
42,647

 

 
15,698

 

 
15,698

U.S. treasury securities
141,198

 

 

 
141,198

 
318,495

 

 

 
318,495

U.S. agency securities

 

 

 

 

 
50,000

 

 
50,000

Repurchase agreements

 

 

 

 

 
1,400

 

 
1,400

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper

 
49,506

 

 
49,506

 

 
85,947

 

 
85,947

Certificates of deposit

 
20,430

 

 
20,430

 

 
20,025

 

 
20,025

U.S. treasury securities
499,664

 

 

 
499,664

 
149,908

 

 

 
149,908

U.S. agency securities

 
591,620

 

 
591,620

 

 
928,473

 

 
928,473

Corporate debt securities

 
539,536

 

 
539,536

 

 
326,345

 

 
326,345

Municipal securities

 
21,091

 

 
21,091

 

 
15,514

 

 
15,514

Other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivative contracts

 
627

 

 
627

 

 
453

 

 
453

Total assets
$
886,608

 
$
1,265,457

 
$

 
$
2,152,065

 
$
711,115

 
$
1,443,855

 
$

 
$
2,154,970

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Foreign currency derivative contracts
$

 
$
1,603

 
$

 
$
1,603

 
$

 
$
1,129

 
$

 
$
1,129

Total liabilities
$

 
$
1,603

 
$

 
$
1,603

 
$

 
$
1,129

 
$

 
$
1,129

 
The fair value of the Company's Level 1 financial instruments, which are traded in active markets, are based on quoted market prices for identical instruments. The fair value of the Company's Level 2 fixed income securities are obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market data or inputs corroborated by observable market data. The Company's procedures include controls to ensure that appropriate fair values are recorded, including comparing the fair values obtained from the Company's

8


pricing service against fair values obtained from another independent source. The Company's derivative instruments are valued using pricing models that use observable market inputs and, therefore, are classified as Level 2.

As of June 30, 2014 and December 31, 2013, the Company had outstanding foreign currency derivative contracts with a total notional amount of $160.9 million and $94.8 million, respectively.

3.
Acquisitions
Bright
On February 28, 2014, LinkedIn completed its acquisition of Bright Media Corporation ("Bright"), a San Francisco, California-based privately held online job board with candidate matching capabilities. LinkedIn's purchase price of $101.8 million for all the outstanding shares of capital stock of Bright consisted of $51.6 million in cash and 241,875 shares of LinkedIn Class A common stock. LinkedIn also issued 11,702 stock options related to assumed Bright equity awards. The fair value of the earned portion of assumed stock options of $0.8 million is included in the purchase price, with the remaining fair value of $1.4 million representing post-acquisition compensation expense that will be recognized over the requisite service period of approximately three years from the date of acquisition. The total consideration in connection with the acquisition is subject to adjustment based on (i) purchase price adjustment provisions and (ii) indemnification obligations of Bright stockholders after the closing of the acquisition.
The acquisition has been accounted for as a business combination under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition date. The purchase price allocation is pending the finalization of deferred tax calculations and residual goodwill. Bright's results of operations have been included in the condensed consolidated financial statements from the date of acquisition. To retain the services of certain former Bright employees, LinkedIn offered $2.6 million in cash and 55,186 shares of non-vested Class A common stock with a total fair value of $11.3 million that will be earned over three years from the date of acquisition. As the cash and equity awards are subject to post-acquisition employment, the Company is accounting for them as post-acquisition compensation expense.

The following table presents the purchase price allocation initially recorded in the Company's condensed consolidated balance sheets on the acquisition date (in thousands):
 
 
Total
Net tangible assets
 
$
905

Goodwill (1)
 
75,072

Identified developed technology (2)
 
32,200

Net deferred tax liability
 
(6,370
)
Total purchase price (3) 
 
$
101,807

 _______________________
(1)
The goodwill represents the excess value over both tangible and intangible assets acquired. The goodwill in this transaction is primarily attributable to expected operational synergies, the assembled workforce, and the future development initiatives of the assembled workforce. None of the goodwill is expected to be deductible for tax purposes.
(2)
The identified developed technology has an estimated useful life of 3.0 years, which will be amortized on a straight-line basis.
(3)
Subject to adjustment based on (i) purchase price adjustment provisions and (ii) indemnification obligations of the acquired company stockholders.

Supplemental information on an unaudited pro forma basis, as if the Bright acquisition had been consummated on January 1, 2013, is presented as follows (in thousands, except per share amounts):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
533,877

 
$
365,638

 
$
1,008,193

 
$
692,141

Net income (loss) per share attributable to common stockholders
(3,513
)
 
(164
)
 
(20,776
)
 
18,849

Net income (loss) per share attributable to common stockholders - diluted
$
(0.03
)
 
$

 
$
(0.17
)
 
$
0.16



9


These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. They are not necessarily indicative of the Company's consolidated results of operations in future periods or the results that actually would have been realized had it been a combined company during the periods presented. The pro forma results include adjustments primarily related to amortization of developed technology, benefit arrangements in connection with the acquisition, and stock-based compensation expenses for assumed unearned stock options and restricted stock units ("RSUs").

Other acquisition

The Company completed one other acquisition for total cash consideration of $4.0 million, which resulted in goodwill of $3.0 million and developed technology of $1.0 million. The developed technology has an estimated useful life of 2.0 years, which will be amortized on a straight-line basis.


10


4.
Cash and Investments
The following table presents cash, cash equivalents and available-for-sale investments for the periods presented (in thousands): 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Market
Value
June 30, 2014:
 
 
 
 
 
 
 
Cash
$
215,501

 
$

 
$

 
$
215,501

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
245,746

 

 

 
245,746

Commercial paper
42,642

 
5

 

 
42,647

U.S. treasury securities
141,204

 

 
(6
)
 
141,198

Marketable securities:
 
 
 
 
 
 
 
Commercial paper
49,482

 
25

 
(1
)
 
49,506

Certificates of deposit
20,425

 
5

 

 
20,430

U.S. treasury securities
499,509

 
164

 
(9
)
 
499,664

U.S. agency securities
591,033

 
606

 
(19
)
 
591,620

Corporate debt securities
539,059

 
615

 
(138
)
 
539,536

Municipal securities
21,076

 
16

 
(1
)
 
21,091

Total cash, cash equivalents, and marketable securities
$
2,365,677

 
$
1,436

 
$
(174
)
 
$
2,366,939

December 31, 2013:
 
 
 
 
 
 
 
Cash
$
174,784

 
$

 
$

 
$
174,784

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
242,712

 

 

 
242,712

Commercial paper
15,696

 
2

 

 
15,698

U.S. treasury securities
318,500

 

 
(5
)
 
318,495

U.S. agency securities
50,000

 

 

 
50,000

Repurchase agreements
1,400

 

 

 
1,400

Marketable securities:
 
 
 
 
 
 
 
Commercial paper
85,930

 
18

 
(1
)
 
85,947

Certificates of deposit
20,025

 
2

 
(2
)
 
20,025

U.S. treasury securities
149,845

 
67

 
(4
)
 
149,908

U.S. agency securities
928,371

 
410

 
(308
)
 
928,473

Corporate debt securities
326,027

 
399

 
(81
)
 
326,345

Municipal securities
15,504

 
14

 
(4
)
 
15,514

Total cash, cash equivalents, and marketable securities
$
2,328,794

 
$
912

 
$
(405
)
 
$
2,329,301


The following table presents available-for-sale investments by contractual maturity date (in thousands) as of June 30, 2014: 
 
Amortized
Cost
 
Estimated
Fair Market
Value
Due in one year or less
$
862,869

 
$
863,295

Due after one year through two years
857,715

 
858,552

Total
$
1,720,584

 
$
1,721,847






5.
Property and Equipment
The following table presents the detail of property and equipment, net, for the periods presented (in thousands): 
 
June 30,
2014
 
December 31,
2013
Computer equipment
$
428,114

 
$
347,545

Software
43,120

 
32,103

Capitalized website and internal-use software
104,120

 
80,074

Furniture and fixtures
47,602

 
28,786

Leasehold improvements
173,269

 
116,887

Total
796,225

 
605,395

Less accumulated depreciation
(320,167
)
 
(243,654
)
Property and equipment, net
$
476,058

 
$
361,741

 
6.
Goodwill and Other Intangible Assets

Goodwill
Goodwill is generally not deductible for tax purposes. The following table presents the goodwill activity for the periods presented (in thousands):
Goodwill—December 31, 2013
$
150,871

2014 acquisitions
78,072

Goodwill—June 30, 2014
$
228,943


Other Intangible Assets
The following table presents the detail of other intangible assets for the periods presented (dollars in thousands):
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Weighted-
Average
Remaining
Life
June 30, 2014:
 
 
 
 
 
 
 
Developed technology
$
68,703

 
$
(23,305
)
 
$
45,398

 
2.3 years
Trade name
7,000

 
(4,036
)
 
2,964

 
1.4 years
Patents
51,359

 
(2,712
)
 
48,647

 
10.9 years
Customer relationships
1,200

 
(500
)
 
700

 
2.9 years
Other intangible assets
3,452

 
(1,986
)
 
1,466

 
1.6 years
Total
$
131,714

 
$
(32,539
)
 
$
99,175

 
6.5 years
December 31, 2013:
 
 
 
 
 
 
 
Developed technology
$
37,452

 
$
(16,340
)
 
$
21,112

 
2.2 years
Trade name
7,000

 
(2,869
)
 
4,131

 
1.9 years
Patents
16,398

 
(1,261
)
 
15,137

 
11.1 years
Customer relationships
1,200

 
(380
)
 
820

 
3.4 years
Other intangible assets
6,705

 
(4,859
)
 
1,846

 
2.0 years
Total
$
68,755

 
$
(25,709
)
 
$
43,046

 
5.4 years




Amortization expense was $7.2 million and $5.7 million for the three months ended June 30, 2014 and 2013, respectively, and $12.0 million and $8.5 million for the six months ended June 30, 2014 and 2013, respectively. Estimated amortization expense of purchased intangible assets for future periods as of June 30, 2014 is as follows (in thousands):
Year Ending December 31,
Amortization expense
Remainder of 2014
$
14,594

2015
26,415

2016
18,859

2017
6,549

2018
4,660

Thereafter
27,677

Total
$
98,754

 
7.
Accrued Liabilities
The following table presents the detail of accrued liabilities for the periods presented (in thousands):
 
June 30,
2014
 
December 31,
2013
Accrued vacation and employee-related expenses
$
74,980

 
$
64,757

Accrued incentives
30,304

 
60,081

Accrued commissions
25,635

 
32,218

Accrued sales tax and value-added taxes
12,510

 
10,851

Other accrued expenses
20,622

 
15,097

Total
$
164,051

 
$
183,004


8.
Other Income (Expense), Net
The following table presents the detail of other income (expense), net, for the periods presented (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Interest income
$
1,329

 
$
578

 
$
2,334

 
$
1,048

Net loss on foreign exchange and foreign currency derivative contracts
(220
)
 
(819
)
 
(195
)
 
(1,752
)
Net realized gain on sales of marketable securities
56

 
3

 
70

 
6

Other non-operating income (expense), net
32

 
(14
)
 
14

 
138

Total other income (expense), net
$
1,197

 
$
(252
)
 
$
2,223

 
$
(560
)

9.
Income (Loss) Per Share
Basic and diluted net income (loss) per common share is presented in conformity with the two-class method required for participating securities.
Immediately prior to the consummation of the Company’s initial public offering ("IPO") of its Class A common stock in May 2011, all outstanding shares of preferred stock and common stock were converted to Class B common stock. As a result, Class A and Class B common stock are the only outstanding equity in the Company. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder, and are automatically converted upon sale or transfer to Class A common stock, subject to certain limited exceptions.
Basic net income (loss) per share attributable to common stockholders is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share attributable to common stockholders is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. The Company’s potential common shares consist of the incremental common shares issuable upon the exercise of

13


stock options, and to a lesser extent, shares issuable upon the release of RSUs and purchases related to the 2011 Employee Stock Purchase Plan. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income (loss) per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income (loss) per share of Class B common stock does not assume the conversion of Class A common stock as Class A common stock is not convertible into Class B common stock.
The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B common stock is assumed in the computation of the diluted net income (loss) per share of Class A common stock, the undistributed earnings are equal to net income for that computation.



14


The following table presents the calculation of basic and diluted net income (loss) per share per share attributable to common stockholders (in thousands, except per share data):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Basic net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of undistributed earnings
$
(894
)
 
$
(140
)
 
$
3,108

 
$
626

 
$
(12,494
)
 
$
(1,985
)
 
$
21,810

 
$
4,540

Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
105,698

 
16,472

 
92,560

 
18,654

 
104,903

 
16,668

 
91,325

 
19,009

Basic net income (loss) per share attributable to common stockholders
$
(0.01
)
 
$
(0.01
)
 
$
0.03

 
$
0.03

 
$
(0.12
)
 
$
(0.12
)
 
$
0.24

 
$
0.24

Diluted net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of undistributed earnings for basic computation
$
(894
)
 
$
(140
)
 
$
3,108

 
$
626

 
$
(12,494
)
 
$
(1,985
)
 
$
21,810

 
$
4,540

Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares
(140
)
 

 
626

 

 
(1,985
)
 

 
4,540

 

Reallocation of undistributed earnings to Class B shares

 

 

 
103

 

 

 

 
791

Allocation of undistributed earnings
$
(1,034
)
 
$
(140
)
 
$
3,734

 
$
729

 
$
(14,479
)
 
$
(1,985
)
 
$
26,350

 
$
5,331

Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares used in basic calculation
105,698

 
16,472

 
92,560

 
18,654

 
104,903

 
16,668

 
91,325

 
19,009

Weighted-average effect of dilutive securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of Class B to Class A common shares outstanding
16,472

 

 
18,654

 

 
16,668

 

 
19,009

 

Employee stock options

 

 
4,294

 
4,109

 

 

 
4,645

 
4,464

RSUs and other dilutive securities

 

 
1,119

 

 

 

 
1,038

 

Number of shares used in diluted calculation
122,170

 
16,472

 
116,627

 
22,763

 
121,571

 
16,668

 
116,017

 
23,473

Diluted net income (loss) per share attributable to common stockholders
$
(0.01
)
 
$
(0.01
)
 
$
0.03

 
$
0.03

 
$
(0.12
)
 
$
(0.12
)
 
$
0.23

 
$
0.23



15


The following weighted-average employee equity awards were excluded from the calculation of diluted net income (loss) per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Employee stock options
4,446

 
703

 
4,664

 
480

RSUs and other
4,669

 
197

 
4,359

 
324

Total
9,115

 
900

 
9,023

 
804

 
10.
Commitments and Contingencies
Aggregate Future Lease Commitments
The Company leases its office facilities and data centers under operating lease agreements, the longest of which is expected to expire in 2027. The Company’s future minimum payments, which exclude operating expenses, under non-cancelable operating leases for office facilities and data centers having initial terms in excess of one year as of June 30, 2014 are as follows (in thousands):
 
Year Ending December 31,
Operating  Leases
Remainder of 2014
$
40,219

2015
104,895

2016
120,294

2017
122,627

2018
121,059

Thereafter
828,653

Total minimum lease payments
$
1,337,747

Legal Proceedings
The Company is subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, certain pending patent and privacy matters, including class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings. Although occasional adverse decisions or settlements may occur, the Company does not believe that the final disposition of any of these matters will have a material adverse effect on the business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages, and include claims for injunctive relief. Additionally, the Company's litigation costs are significant. Other regulatory matters could result in fines and penalties being assessed against the Company, and it may become subject to mandatory periodic audits, which would likely increase its regulatory compliance costs. Adverse results of litigation or regulatory matters could also result in the Company being required to change its business practices, which could negatively impact its membership and revenue growth.
The Company records a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company’s judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, it may be exposed to loss in excess of the amount accrued, and such amounts could be material.

16


Indemnifications
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, it may have recourse against third parties for certain payments. In addition, the Company has indemnification agreements with certain of its directors and executive officers that require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers with the Company. The terms of such obligations may vary.
 
11.
Stockholders’ Equity
Common Stock
As of June 30, 2014, the Company had 106,358,908 shares and 16,243,457 shares of Class A common stock and Class B common stock outstanding, respectively. As of December 31, 2013, the Company had 103,194,534 and 17,157,215 shares of Class A common stock and Class B common stock outstanding, respectively.

Stock Option Activity
A summary of stock option activity for the six months ended June 30, 2014 is as follows: 
 
Stock Option Activity
 
Weighted-Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic
Value
(in thousands)
 
Number of
Shares
 
Weighted-Average
Exercise Price
 
 
 
 
Outstanding—December 31, 2013
5,130,636

 
$
34.54

 
 
 
 
Assumed options from acquisition
11,702

 
12.11

 
 
 
 
Granted
265,761

 
203.70

 
 
 
 
Exercised
(1,037,155
)
 
12.47

 
 
 
 
Canceled or expired
(94,651
)
 
37.37

 
 
 
 
Outstanding—June 30, 2014
4,276,293

 
$
50.28

 
6.34
 
$
528,183

Options vested and expected to vest as of June 30, 2014
4,133,337

 
$
46.55

 
6.26
 
$
524,890

Options vested and exercisable as of June 30, 2014
2,804,010

 
$
18.45

 
5.50
 
$
429,757

Aggregate intrinsic value represents the difference between the Company's closing stock price of its common stock and the exercise price of outstanding, in-the-money options. The Company’s closing stock price as reported on the New York Stock Exchange (“NYSE”) as of June 30, 2014 was $171.47. The total intrinsic value of options exercised was approximately $54.1 million and $147.6 million for the three months ended June 30, 2014 and 2013, respectively, and $182.1 million and $329.9 million for the six months ended June 30, 2014 and 2013, respectively.

17


RSU Activity
A summary of RSU activity for the six months ended June 30, 2014 is as follows: 
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
Unvested—December 31, 2013
4,048,089

 
$
144.53

Granted
1,753,149

 
188.26

Released
(788,080
)
 
137.80

Canceled or expired
(271,244
)
 
134.10

Unvested—June 30, 2014
4,741,914

 
$
162.41

Stock-Based Compensation
Beginning in the first quarter of 2014, the Company transitioned from using the simplified method for calculating the expected term of options as described in the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment, because it believes there is sufficient historical information to derive a reasonable estimate. The calculation considers a combination of historical and estimated future exercise behavior.
The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented, excluding assumed acquisition-related stock options:  
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Volatility
n/a
 
56%
 
46%
 
54%
Expected dividend yield
n/a
 
 
 
Risk-free rate
n/a
 
1.08%
 
1.12%
 
1.13%
Expected term (in years)
n/a
 
5.72
 
4.00
 
6.27
The weighted-average grant date fair value of options granted, excluding assumed acquisition-related stock options was $89.45 per share for the three months ended June 30, 2013 and $75.15 and $88.18 for the six months ended June 30, 2014 and 2013, respectively. There were no options granted in the three months ended June 30, 2014. The weighted-average grant date fair value of assumed acquisition-related stock options granted was $192.20 for the six months ended June 30, 2014. The weighted-average grant date fair value of assumed acquisition-related stock options granted was $166.08 for the three and six months ended June 30, 2013, respectively.
The following table presents the amount of stock-based compensation related to stock-based awards to employees and nonemployees on the Company’s condensed consolidated statements of operations during the periods presented (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Cost of revenue
$
6,831

 
$
3,913

 
$
12,667

 
$
6,719

Sales and marketing
13,926

 
8,843

 
26,107

 
15,704

Product development
37,582

 
24,885

 
70,708

 
42,523

General and administrative
16,489

 
10,713

 
33,115

 
17,347

Total stock-based compensation
74,828

 
48,354

 
142,597

 
82,293

Tax benefit from stock-based compensation
(21,161
)
 
(13,465
)
 
(39,939
)
 
(22,754
)
Total stock-based compensation, net of tax effect
$
53,667

 
$
34,889

 
$
102,658

 
$
59,539


The Company capitalized $3.6 million and $2.6 million for the three months ended June 30, 2014 and 2013, respectively, and $6.3 million and $4.1 million for the six months ended June 30, 2014 and 2013, respectively, of stock-based compensation as website development costs.

12.
Income Taxes

18


The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries; as such, earnings are to be reinvested indefinitely offshore. The determination of the interim period income tax provision utilizes the effective rate method, which requires the estimation of certain annualized components of the computation of income tax provision, including the estimate of the annual effective tax rate by legal entity and by jurisdiction.
On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012 (the "2012 Act"). Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 Act extends the research credit for two years to December 31, 2013. As a result of the retroactive extension, the Company recognized a tax benefit of $14.0 million in the six months ended June 30, 2013 for qualifying amounts incurred in 2012. However, the federal research credit has not been extended for new research activities incurred after December 31, 2013 and as such, the Company will not have a similar tax benefit in 2014 unless there is a legislation change.
The Company recorded income tax expense of $16.3 million and $4.1 million for the three months ended June 30, 2014 and 2013, respectively, and $29.8 million and $4.8 million for the six months ended June 30, 2014 and 2013, respectively. The tax provision increased in the three and six months ended June 30, 2014 compared to the same periods last year primarily due to the expiration of the research tax credit for activities incurred after December 31, 2013, foreign tax losses which derive no benefit, acquisition costs, and non-deductible stock-based compensation. The Company's foreign losses increased during the three and six months ended June 30, 2014 compared to the same period last year primarily due to international research and development expenses, which had a higher growth rate than international revenues. International research and development expenses include costs charged by LinkedIn Corporation.

13.
Information About Revenue and Geographic Areas
In the second quarter of 2014, recruitment media products have been reclassified from Marketing Solutions to Talent Solutions as they are generally sold to Talent Solutions customers. Accordingly, prior period amounts have been recast to conform to the current year presentation. Recruitment media revenue was $18.2 million and $11.8 million in the three months ended June 30, 2014 and 2013, respectively, and $33.9 million and $21.9 million in the six months ended June 30, 2014 and 2013, respectively.
Revenue by geography is generally based on the shipping address of the customer.
The following tables present the Company’s revenue by product and geographic region for the periods presented (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Net revenue by product:
 
 
 
 
 
 
 
Talent Solutions
$
322,227

 
$
216,938

 
$
613,821

 
$
411,230

Marketing Solutions
106,476

 
73,747

 
192,540

 
138,535

Premium Subscriptions
105,174

 
72,976

 
200,709

 
138,601

Total
$
533,877

 
$
363,661

 
$
1,007,070

 
$
688,366


19


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Net revenue by geographic region:
 
 
 
 
 
 
 
United States
$
317,774

 
$
224,277

 
$
602,652

 
$
425,680

Other Americas (1)
35,527

 
26,857

 
67,431

 
51,033

Total Americas
353,301

 
251,134

 
670,083

 
476,713

EMEA(2)
134,930

 
84,691

 
252,801

 
159,848

APAC (3)
45,646

 
27,836

 
84,186

 
51,805

Total
$
533,877

 
$
363,661

 
$
1,007,070

 
$
688,366

 __________________
(1)
Canada, Latin America and South America
(2)
Europe, the Middle East and Africa (“EMEA”)
(3)
Asia-Pacific (“APAC”)
No individual customer accounted for 10% or more of consolidated net revenue or accounts receivable for any of the periods presented.
 
14.
Subsequent Events

In July 2014, the Company entered into a definitive agreement to acquire Bizo, a leader in business audience marketing with technology that enables measurable display and social advertising, and acquired another company, for total consideration of approximately $207.1 million in cash and shares of LinkedIn Class A common stock. The total consideration to be issued in connection with the acquisitions is subject to adjustment based on (i) purchase price adjustment provisions, (ii) continuing service obligations to the Company of certain employees, and (iii) indemnification obligations of certain stockholders after the closing of the acquisition.

The acquisitions will be accounted for as business combinations, accordingly, the total purchase price will be allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition dates. The Company is currently working on the preliminary purchase price allocations and expects them to be completed by the end of the third quarter of 2014.


20


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Risk Factors” below, which are incorporated herein by reference.
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 13, 2014.

Overview
We are the world’s largest professional network on the Internet and currently have more than 300 million members in over 200 countries and territories. Through our proprietary platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities, enabling them to be more productive and successful. We believe we are the most extensive, accurate and accessible network focused on professionals.
In the three and six months ended June 30, 2014, we continued to grow as compared to the same periods in 2013 as our network of registered members and member engagement continued to increase and we continue to benefit from expanded product offerings and international expansion. Our net revenue was $533.9 million and $1,007.1 million for the three and six months ended June 30, 2014, respectively, which represented an increase of 47% and 46%, respectively, compared to the same periods in 2013. Our future growth will depend, in part, on our ability to continue to increase our member base and member engagement on both mobile and desktop devices, as well as continuing to expand our product offerings and international expansion, which we believe will result in increased sales of our Talent Solutions, Marketing Solutions and Premium Subscriptions to new and existing customers. As our net revenue increases, we expect our growth rate related to net revenue will decrease over time. Also, we believe the rate at which we are able to increase our member base and member engagement, as measured by our key metrics, will decelerate over time because of the large scale of our network, and that this may impact portions of our business.
In 2014, our philosophy is to continue to invest for long-term growth and we expect to continue to invest heavily in the following:
Talent. We expect to increase our workforce, which will result in an increase in headcount-related expenses, including stock-based compensation expense. As of June 30, 2014, we had 5,758 employees, which represented an increase of 36% compared to the same period last year.
Technology. We expect to continue to make significant capital expenditures to upgrade our technology and network infrastructure to improve the ability of our website to handle expected increases in usage, to enable the release of new features and solutions, and to scale for future growth.
Product. We expect to continue to invest heavily in our product development efforts, specifically around mobile, to enable our members and customers to derive more value from our platform. Mobile continues to be the fastest growing channel for member engagement, growing more than three times the rate of our internally measured unique visiting members, which we internally track and define as the monthly average number of members who have visited LinkedIn.com on either mobile or desktop environments at least once during a month. Mobile unique visiting members represent 45% of unique visiting members in the six months ended June 30, 2014.
Monetization. We expect to continue to aggressively expand our field sales organization to market our solutions both in the United States and internationally.
As a result of our investment philosophy, we may not be profitable on a U.S. generally accepted accounting principles (“GAAP”) basis in 2014.
 Recently Issued Accounting Guidance
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue

21


arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The guidance also requires significantly expanded disclosures about revenue recognition. This standard will be effective for us in the first quarter of 2017 and will be applied using either the full or modified retrospective adoption methods. Early adoption of this guidance is not permitted. We are currently evaluating adoption methods and whether this standard will have a material impact on our financial results.

Key Business Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Number of Registered Members. We define the number of registered members in our network as the number of individual users who have created a member profile on LinkedIn.com as of the date of measurement. We believe the number of registered members is a key indicator of the growth of our network and our ability to receive the benefits of the network effects resulting from such growth. Growth in our member base depends, in part, on our ability to successfully develop and market our solutions to professionals who have not yet become members of our network. Member growth will also be contingent on our ability to translate our offerings into additional languages, create more localized products in certain key markets, and more broadly expand our member base internationally.
We believe that a higher number of registered members will result in increased sales of our Talent Solutions, Marketing Solutions and Premium Subscriptions, as customers will have access to a larger pool of professional talent. However, a higher number of registered members will not immediately increase sales, nor will a higher number of registered members in a given region immediately increase sales in that region.
The following table presents the number of registered members as of the periods presented by geographic region (certain items may not total due to rounding):
 
 
June 30,
 
 
 
2014
 
2013
 
% Change
 
(in thousands)
 
 
Members by geographic region:
 
 
 
 
 
 
 
 
 
United States
103,818

 
33
%
 
83,260

 
35
%
 
25
%
Other Americas (1)
54,121

 
17
%
 
40,815

 
17
%
 
33
%
Total Americas
157,939

 
50
%
 
124,075

 
52
%
 
27
%
EMEA (2)
98,866

 
32
%
 
72,074

 
30
%
 
37
%
APAC (3)
56,623

 
18
%
 
41,923

 
18
%
 
35
%
Total number of registered members (4)
313,428

 
100
%
 
238,072

 
100
%
 
32
%
 ______________________
(1)
Canada, Latin America and South America
(2)
Europe, the Middle East and Africa (“EMEA”)
(3)
Asia-Pacific (“APAC”)
(4)
The number of registered members is higher than the number of actual members due to various factors. For more information, see “Risk Factors—The number of our registered members is higher than the number of actual members and a substantial majority of our page views are generated by a minority of our members. Our business may be adversely impacted if we are unable to attract and retain additional members who actively use our services. In addition, the tracking of certain of our performance metrics is done with internal tools and is not independently verified.
Unique Visiting Members. In the second quarter of 2014, we transitioned to disclosing our internal measure of unique visiting members, which we internally track and define as the total number of members who have visited LinkedIn.com on desktop and mobile at least once during the month. Historically, we disclosed unique visitors based on data provided by comScore, a leading provider of digital marketing intelligence. comScore defines unique visitors as users who have visited our desktop website (which excludes mobile visitors) at least once during a month, regardless of whether they are members. We will no longer be disclosing unique visitors from comScore and prior period comparisons reflect our internal measure of unique visiting members. We believe our internal measure of unique visiting members is a more relevant measure of engagement on our

22


website, particularly with the increase in engagement on mobile devices. We view unique visiting members as a key indicator of growth in our brand awareness among members and whether we are providing our members with useful products and features, thereby increasing member engagement. We believe that a higher level of member engagement will result in increased sales of our Talent Solutions, Marketing Solutions and Premium Subscriptions, as customers will have access to a larger pool of professional talent. Growth in unique visiting members will be driven by growth in the number of registered members, improvements to features and products that drive traffic to our website, and international expansion.

The following table presents the average monthly number of unique visiting members during the periods presented:
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
Unique visiting members (1), (3)
84,222

 
74,534

 
13
%
 
83,160

 
69,735

 
19
%
Mobile unique visiting members (2), (3)
37,514

 
25,645

 
46
%
 
36,348

 
23,006

 
58
%
 ______________________
(1)
Members who have visited LinkedIn.com on their desktops and/or mobile devices.
(2)
Members who have visited LinkedIn.com on their mobile devices.
(3)
We track unique visiting members using internal tools, which are subject to various risks. For more information, see “Risk Factors—The tracking of certain of our performance metrics is done with internal tools and is not independently verified. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

Member Page Views. In the second quarter of 2014, we transitioned to disclosing our internal measure of page views, which we internally track and define as the total number of page views on LinkedIn.com for desktop and mobile that members view during the measurement period. Historically, we disclosed page views based on data provided by comScore, which defines page views as the number of pages on our desktop website (which excludes mobile page views) that users view during the measurement period, regardless of whether they are members. We believe our internal measure of page views is a more relevant measure of engagement on our website, particularly with the increase in engagement on mobile devices. We will no longer be disclosing page views from comScore and prior period comparisons reflect our internal measure of member page views. Similar to unique visitors, we believe page views is a key indicator for gaining insight into whether we are increasing member engagement and whether our members are deriving value from our solutions. We expect growth in page views will be driven, in part, by growth in the number of registered members, improvements in products and features that drive member traffic to our website, and international expansion. However, page views may not capture all of the value that our members and other users derive from our solutions because part of the benefit of certain products and features is that the member does not need to visit our website to receive value from our platform. For example, members can respond to InMails they receive from other members without accessing their LinkedIn account or our website. In addition, mobile page views may be lower than they would otherwise be on desktop because a well-designed mobile app reduces the number of clicks and pages a user touches in order to create a high quality mobile experience.


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The following table presents the number of page views during the periods presented:
 
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
     Total page views (1), (2)
25,427

 
20,818

 
22
%
 
51,358

 
38,927

 
32
%
 ______________________
(1)
These metrics include member page views on LinkedIn.com for desktop and mobile.
(2)
We track page views using internal tools, which are subject to various risks. For more information, see “Risk Factors—The tracking of certain of our performance metrics is done with internal tools and is not independently verified. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

Number of LinkedIn Corporate Solutions Customers. We define the number of LinkedIn Corporate Solutions customers as the number of enterprises and professional organizations that we have under active contracts for this product as of the date of measurement. Our LinkedIn Corporate Solutions include LinkedIn Recruiter, Job Slots, LinkedIn Recruitment Media and LinkedIn Career Pages, which are all part of Talent Solutions. LinkedIn Corporate Solutions does not include LinkedIn Jobs or Subscriptions. We believe the number of LinkedIn Corporate Solutions customers is an indicator of our market penetration in the online recruiting market and the value that our products bring to both large and small enterprises and professional organizations.

The following table presents the number of LinkedIn Corporate Solutions customers as of the periods presented: 
 
June 30,
 
 
 
2014
 
2013
 
% Change
 
 
 
 
LinkedIn Corporate Solutions customers
28,080

 
20,256

 
39
%
 
Sales Channel Mix. Depending on the specific product, we sell our Talent Solutions and Marketing Solutions offline through our field sales organization or online on our website. The vast majority of our Premium Subscriptions are sold online on our website. Our field sales organization uses a direct sales force to solicit customers and agencies. This offline channel is characterized by a longer sales cycle where price can be negotiated, higher relative average selling prices, longer contract terms, higher selling expenses and a longer cash collection cycle compared to our online channel.
Our online, or self-service, sales channel allows members to purchase solutions directly on our website. Members can purchase Premium Subscriptions as well as certain lower priced products in our Talent Solutions and Marketing Solutions, such as job postings and self-service advertising. This channel is characterized by lower average selling prices and higher cancellations compared to our offline channel, lower selling costs due to our automated payments platform and a highly liquid collection cycle.


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The following table presents our net revenue by field sales and online sales:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
($ in thousands)
Field sales
$
318,984

 
60
%
 
$
209,227

 
58
%
 
$
594,246

 
59
%
 
$
393,198

 
57
%
Online sales
214,893

 
40
%
 
154,434

 
42
%
 
412,824

 
41
%
 
295,168

 
43
%
     Net revenue
$
533,877

 
100
%
 
$
363,661

 
100
%
 
$
1,007,070

 
100
%
 
$
688,366

 
100
%
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed adjusted EBITDA, a non-GAAP financial measure. The table below presents a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.
We have included adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Reconciliation of Adjusted EBITDA:
 
 
 
 
 
 
 
     Net income (loss)
$
(934
)
 
$
3,734

 
$
(14,253
)
 
$
26,350

     Provision for income taxes
16,253

 
4,109

 
29,834

 
4,827

     Other (income) expense, net
(1,197
)
 
252

 
(2,223
)
 
560

     Depreciation and amortization
56,306

 
32,193

 
106,046

 
57,999

     Stock-based compensation
74,828

 
48,354

 
142,597

 
82,293

     Adjusted EBITDA
$
145,256

 
$
88,642

 
$
262,001

 
$
172,029



Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, the valuation of goodwill and intangible assets, website and internal-use software development costs, leases, income taxes and legal contingencies have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
There have been no material changes to the our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 13, 2014.


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Results of Operations
The following table sets forth our results of operations for the periods presented as a percentage of net revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
(As a percentage of revenue)
Condensed Consolidated Statements of Operations Data: (1)
 
 
 
 
 
 
 
Net revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below)
13

 
14

 
13

 
13

Sales and marketing
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