10-Q 1 a20150331-10qdocument.htm FORM 10-Q 2015.03.31 - 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 March 31, 2015
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  T    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  T    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
T
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 April 23, 2015, there were 110,277,802 shares of the Registrant’s Class A common stock outstanding and 15,686,722 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)
 
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
1,017,287

 
$
460,887

Marketable securities
2,512,588

 
2,982,422

Accounts receivable (net of allowance for doubtful accounts of $12,443 and $11,944 at March 31, 2015 and December 31, 2014, respectively)
424,787

 
449,048

Deferred commissions
60,259

 
66,561

Prepaid expenses
62,800

 
52,978

Other current assets
141,798

 
110,204

Total current assets
4,219,519

 
4,122,100

Property and equipment, net
755,396

 
740,909

Goodwill
359,739

 
356,718

Intangible assets, net
122,826

 
131,275

Other assets
80,684

 
76,255

TOTAL ASSETS
$
5,538,164

 
$
5,427,257

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
85,104

 
$
100,297

Accrued liabilities
206,826

 
260,189

Deferred revenue
585,812

 
522,299

Total current liabilities
877,742

 
882,785

CONVERTIBLE SENIOR NOTES, NET
1,092,715

 
1,081,553

OTHER LONG TERM LIABILITIES
143,704

 
132,100

Total liabilities
2,114,161

 
2,096,438

COMMITMENTS AND CONTINGENCIES (Note 11)

 

REDEEMABLE NONCONTROLLING INTEREST
5,536

 
5,427

STOCKHOLDERS’ EQUITY (Note 12):
 
 
 
Class A and Class B common stock
13

 
13

Additional paid-in capital
3,420,045

 
3,285,705

Accumulated other comprehensive income (loss)
1,085

 
(198
)
Accumulated earnings (deficit)
(2,676
)
 
39,872

Total stockholders’ equity
3,418,467

 
3,325,392

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
$
5,538,164

 
$
5,427,257

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
March 31,
 
2015
 
2014
Net revenue
$
637,687

 
$
473,193

Costs and expenses:
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below)
88,406

 
62,455

Sales and marketing
229,636

 
166,522

Product development
165,580

 
120,622

General and administrative
97,313

 
74,618

Depreciation and amortization
73,972

 
49,740

Total costs and expenses
654,907

 
473,957

Loss from operations
(17,220
)
 
(764
)
Other income (expense), net:
 
 
 
Interest income
1,985

 
1,006

Interest expense
(12,597
)
 

Other, net
(4,035
)
 
20

Other income (expense), net
(14,647
)
 
1,026

Income (loss) before income taxes
(31,867
)
 
262

Provision for income taxes
10,572

 
13,581

Net loss
(42,439
)
 
(13,319
)
Accretion of redeemable noncontrolling interest
(109
)
 
(126
)
Net loss attributable to common stockholders
$
(42,548
)
 
$
(13,445
)
 
 
 
 
Net loss per share attributable to common stockholders:
 
 
 
Basic
$
(0.34
)
 
$
(0.11
)
Diluted
$
(0.34
)
 
$
(0.11
)
Weighted-average shares used to compute net loss per share attributable to common stockholders:
 
 
 
Basic
125,471

 
120,967

Diluted
125,471

 
120,967

See Notes to Condensed Consolidated Financial Statements

4


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2015
 
2014
Net loss
$
(42,439
)
 
$
(13,319
)
Other comprehensive income:
 
 
 
Change in unrealized gains on investments, net of tax
403

 
368

Change in unrealized gains on cash flow hedges, net of tax
883

 

Change in foreign currency translation adjustment
(3
)
 

Total other comprehensive income
1,283

 
368

Comprehensive loss
(41,156
)
 
(12,951
)
       Accretion of redeemable noncontrolling interest
(109
)
 
(126
)
Comprehensive loss attributable to common stockholders
$
(41,265
)
 
$
(13,077
)
See Notes to Condensed Consolidated Financial Statements

5


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Three Months Ended
March 31,
 
2015
 
2014
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(42,439
)
 
$
(13,319
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
73,972

 
49,740

Provision for doubtful accounts and sales returns
1,795

 
1,207

Amortization of investment premiums, net
5,514

 
2,774

Amortization of debt discount and transaction costs
11,189

 

Stock-based compensation
103,109

 
67,769

Excess income tax benefit from stock-based compensation
(18,198
)
 
(15,982
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
29,489

 
(26,764
)
Deferred commissions
7,067

 
1,116

Prepaid expenses and other assets
(34,629
)
 
(14,516
)
Accounts payable and other liabilities
(40,725
)
 
(18,428
)
Income taxes, net
5,629

 
7,928

Deferred revenue
63,359

 
87,333

Net cash provided by operating activities
165,132

 
128,858

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(90,121
)
 
(88,871
)
Purchases of investments
(454,281
)
 
(737,739
)
Sales of investments
438,409

 
72,239

Maturities of investments
482,840

 
393,044

Payments for intangible assets and acquisitions, net of cash acquired
(4,161
)
 
(85,061
)
Changes in deposits and restricted cash
(1,382
)
 
(1,404
)
Net cash provided by (used in) investing activities
371,304

 
(447,792
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of common stock from employee stock options
8,708

 
8,147

Excess income tax benefit from stock-based compensation
18,198

 
15,982

Other financing activities
(167
)
 
(7
)
Net cash provided by financing activities
26,739

 
24,122

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(6,775
)
 
573

CHANGE IN CASH AND CASH EQUIVALENTS
556,400

 
(294,239
)
CASH AND CASH EQUIVALENTS—Beginning of period
460,887

 
803,089

CASH AND CASH EQUIVALENTS—End of period
$
1,017,287

 
$
508,850

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Purchases of property and equipment recorded in accounts payable and accrued liabilities
$
24,880

 
$
21,242

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

 
$
50,168

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 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 (“U.S. 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, 2014, filed on February 12, 2015.
The condensed consolidated balance sheet as of December 31, 2014, 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 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 2015 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 included in the condensed consolidated balance sheets. Redeemable noncontrolling interest is considered to be temporary equity and is therefore reported outside of permanent equity equal to its redemption value as of the balance sheet date.

 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
Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance on simplifying the presentation of debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This standard requires retrospective adoption and will be effective for the Company beginning in its first quarter of 2016; however, the Company plans to elect to early adopt in the fourth quarter of 2015. The Company does not expect this standard to have a material impact on its financial statements.

7


Derivatives and Hedging
In November 2014, the FASB issued new authoritative guidance on determining whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. The guidance applies to hybrid financial instruments that include embedded derivative features, which must be evaluated to determine whether the nature of the host contract is more akin to debt or to equity and whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to the host contract. If the host contract is akin to equity, then equity-like features (for example, a conversion option) are considered clearly and closely related to the host contract and, thus, would not be separated from the host contract. If the host contract is akin to debt, then equity-like features are not considered clearly and closely related to the host contract. In the latter case, an entity may be required to separate the equity-like embedded derivative feature from the debt host contract if certain other criteria are met. Similarly, debt-like embedded derivative features may require separate accounting from an equity-like host contract. The standard will be effective for the Company in the first quarter of 2016; however, the Company may elect to early adopt. The Company is currently evaluating whether this standard will have a material impact on its financial statements.
Revenue Recognition
In May 2014, the 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 is currently effective for the Company in the first quarter of 2017; however in April 2015, the FASB voted to issue a proposal that would defer the effective date for the Company to the first quarter of 2018. This standard 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.


2.
Fair Value Measurements

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 the periods presented, are summarized as follows (in thousands): 

8


 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2015:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
221,544

 
$

 
$

 
$
221,544

Commercial paper

 
56,294

 

 
56,294

U.S. treasury securities
134,300

 

 

 
134,300

U.S. agency securities

 
381,770

 

 
381,770

Marketable securities:
 
 
 
 
 
 
 
Commercial paper

 
131,587

 

 
131,587

Certificates of deposit

 
6,176

 

 
6,176

U.S. treasury securities
945,791

 

 

 
945,791

U.S. agency securities

 
705,366

 

 
705,366

Corporate debt securities

 
709,311

 

 
709,311

Municipal securities

 
14,357

 

 
14,357

Other current assets:
 
 
 
 
 
 
 
Foreign currency derivative contracts

 
14,370

 

 
14,370

Total assets
$
1,301,635

 
$
2,019,231

 
$

 
$
3,320,866

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Foreign currency derivative contracts
$

 
$
2,205

 
$

 
$
2,205

Total liabilities
$

 
$
2,205

 
$

 
$
2,205

December 31, 2014:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
95,470

 
$

 
$

 
$
95,470

Commercial paper

 
54,344

 

 
54,344

U.S. treasury securities
54,349

 

 

 
54,349

U.S. agency securities

 
43,000

 

 
43,000

Marketable securities:
 
 
 
 
 
 
 
Commercial paper

 
122,371

 

 
122,371

Certificates of deposit

 
5,927

 

 
5,927

U.S. treasury securities
1,234,568

 

 

 
1,234,568

U.S. agency securities

 
881,962

 

 
881,962

Corporate debt securities

 
722,705

 

 
722,705

Municipal securities

 
14,889

 

 
14,889

Other current assets:
 
 
 
 
 
 
 
Foreign currency derivative contracts

 
5,591

 

 
5,591

Total assets
$
1,384,387

 
$
1,850,789

 
$

 
$
3,235,176

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Foreign currency derivative contracts
$

 
$
149

 
$

 
$
149

Total liabilities
$

 
$
149

 
$

 
$
149

 
The fair value of the Company's Level 1 financial instruments is based on quoted market prices in active markets for identical instruments. The fair value of the Company's Level 2 fixed income securities is 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

9


Company's procedures include controls to ensure that appropriate fair values are recorded, including comparing the fair values obtained from the Company's pricing service against fair values obtained from another independent source. The fair value of the Company's Level 2 foreign currency derivative contracts is obtained from pricing models that use observable market inputs.

See Note 8, Convertible Senior Notes, for the carrying amount and estimated fair value of the Company's convertible senior notes, which are not recorded at fair value as of March 31, 2015.    


3.
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
March 31, 2015:
 
 
 
 
 
 
 
Cash
$
223,379

 
$

 
$

 
$
223,379

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
221,544

 

 

 
221,544

Commercial paper
56,290

 
5

 
(1
)
 
56,294

U.S. treasury securities
134,303

 

 
(3
)
 
134,300

U.S. agency securities
381,769

 
1

 

 
381,770

Marketable securities:
 
 
 
 
 
 
 
Commercial paper
131,576

 
35

 
(24
)
 
131,587

Certificates of deposit
6,175

 
1

 

 
6,176

U.S. treasury securities
945,855

 
79

 
(143
)
 
945,791

U.S. agency securities
705,101

 
309

 
(44
)
 
705,366

Corporate debt securities
709,132

 
363

 
(184
)
 
709,311

Municipal securities
14,349

 
9

 
(1
)
 
14,357

Total cash, cash equivalents, and marketable securities
$
3,529,473

 
$
802

 
$
(400
)
 
$
3,529,875

December 31, 2014:
 
 
 
 
 
 
 
Cash
$
213,724

 
$

 
$

 
$
213,724

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
95,470

 

 

 
95,470

Commercial paper
54,340

 
4

 

 
54,344

U.S. treasury securities
54,349

 

 

 
54,349

U.S. agency securities
42,999

 
1

 

 
43,000

Marketable securities:
 
 
 
 
 
 
 
Commercial paper
122,345

 
33

 
(7
)
 
122,371

Certificates of deposit
5,925

 
2

 

 
5,927

U.S. treasury securities
1,234,870

 
64

 
(366
)
 
1,234,568

U.S. agency securities
881,843

 
393

 
(274
)
 
881,962

Corporate debt securities
723,412

 
225

 
(932
)
 
722,705

Municipal securities
14,893

 
4

 
(8
)
 
14,889

Total cash, cash equivalents, and marketable securities
$
3,444,170

 
$
726

 
$
(1,587
)
 
$
3,443,309



10


The following table presents available-for-sale investments by contractual maturity date (in thousands) as of March 31, 2015:
 
Amortized
Cost
 
Estimated Fair Market Value
Due in one year or less
$
1,822,861

 
$
1,823,178

Due after one year through three years
689,327

 
689,410

Total
$
2,512,188

 
$
2,512,588



4.
Derivative Instruments
The Company has operations in the United States and internationally and transacts business in multiple currencies, which exposes it to foreign currency exchange rate risk. The Company enters into foreign currency derivative contracts with financial institutions to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company’s program is not designated for trading or speculative purposes.

These derivative instruments expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. The Company seeks to mitigate this credit risk by transacting with major financial institutions with high credit ratings. In addition, the Company generally enters into master netting arrangements, which mitigate credit risk by permitting net settlement of transactions with the same counterparty. The Company is not required to pledge, and is not entitled to receive, cash collateral related to these derivative instruments.

Cash Flow Hedges
Beginning in the first quarter of 2015, the Company uses foreign currency derivative contracts designated as cash flow hedges to hedge forecasted revenue transactions denominated in currencies other than the U.S. dollar. The Company's cash flow hedges consist of forward and option contracts with maturities of 12 months or less.

The Company evaluates the effectiveness of its cash flow hedges on a quarterly basis. Effectiveness represents a derivative instrument's ability to generate offsetting changes in cash flows related to the hedged risk. The Company records the gains or losses, net of tax, related to the effective portion of its cash flow hedges as a component of accumulated other comprehensive income (loss) ("AOCI") in stockholders' equity and subsequently reclassifies the gains or losses into revenue when the underlying hedged revenue is recognized. The Company records the gains or losses related to the ineffective portion of the cash flow hedges, if any, immediately in other income (expense), net. The change in time value related to the Company's cash flow hedges is excluded from the assessment of hedge effectiveness and is recorded immediately in other income (expense), net. If the hedged transaction becomes probable of not occurring, the corresponding amounts in AOCI would immediately be reclassified as ineffectiveness to other income (expense), net. Cash flows related to the Company's cash flow hedging program are recognized as cash flows from operating activities in its statements of cash flows.

As of March 31, 2015, the Company had outstanding cash flow hedges with a total notional amount of $234.8 million.

Balance Sheet Hedges
The Company uses foreign currency derivative contracts not designated as hedging instruments (“balance sheet hedges”) to reduce the exchange rate risk associated with its foreign currency denominated monetary assets and liabilities. These balance sheet hedges are marked-to-market at the end of each reporting period and the related gains and losses are recognized in other income (expense), net.

As of March 31, 2015 and December 31, 2014, the Company had outstanding balance sheet hedges with a total notional amount of $224.9 million and $190.1 million, respectively.




Fair Value of Foreign Currency Derivatives
The foreign currency derivative contracts that were not settled at the end of the period are recorded at fair value, on a gross basis, in the condensed consolidated balance sheets. The following table presents the fair value of the Company’s foreign currency derivative contracts as of the periods presented:
 
March 31,
2015
 
December 31,
2014
Derivative assets:
 
 
 
Cash flow hedges
$
4,144

 
$

Balance sheet hedges
10,226

 
5,591

     Total derivative assets
14,370

 
5,591

Derivative liabilities:
 
 
 
Cash flow hedges
581

 

Balance sheet hedges
1,624

 
149

     Total derivative liabilities
2,205

 
149

Total fair value of derivative instruments
$
12,165

 
$
5,442


See Note 2, Fair Value Measurements, for additional information related to the fair value of the Company’s foreign currency derivative contracts.    

Financial Statement Effect of Foreign Currency Derivative Contracts

The following table presents the activity of the Company’s cash flow hedges in AOCI in stockholders' equity for the period presented (1):
 
December 31,
2014
 
Amount of gain recognized in other comprehensive income before tax effect (effective portion)
 
Amount of gain reclassified from AOCI to net revenue (effective portion)
 
March 31,
2015
Cash flow hedges

 
1,009

 

 
$
1,009

__________
(1)    The Company did not have any cash flow hedges in the first quarter of 2014.

The amount recognized in earnings related to the ineffective portion of the Company's cash flow hedges was insignificant for the quarter. The Company excluded $0.4 million in changes in fair value related to its cash flow hedges from its assessment of hedge effectiveness.

As of March 31, 2015, the Company estimates approximately $1.0 million of net derivative gains related to our cash flow hedges will be reclassified from AOCI into earnings within the next 12 months.

The following table presents the impact of the Company’s foreign currency derivative contracts on the condensed consolidated statement of operations for the periods presented:
 
 
 
Three Months Ended
March 31,
 
Location
 
2015
 
2014
Cash flow hedges
Net revenue
 
$

 
$

Balance sheet hedges
Other income (expense), net
 
11,210

 
(404
)
Total gain (loss) from foreign currency derivative contracts
 
 
$
11,210

 
$
(404
)





5.
Property and Equipment
The following table presents the detail of property and equipment, net, for the periods presented (in thousands): 
 
March 31,
2015
 
December 31,
2014
Land
$
179,465

 
$
179,232

Computer equipment
524,361

 
489,763

Software
49,809

 
47,157

Capitalized website and internal-use software
147,344

 
131,182

Furniture and fixtures
69,522

 
64,180

Leasehold improvements
252,432

 
235,845

Total
1,222,933

 
1,147,359

Less accumulated depreciation and amortization
(467,537
)
 
(406,450
)
Property and equipment, net
$
755,396

 
$
740,909


 
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, 2014
$
356,718

2015 acquisitions
3,021

Goodwill—March 31, 2015
$
359,739





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 (1)
March 31, 2015:
 
 
 
 
 
 
 
Developed technology
$
114,784

 
$
(47,071
)
 
$
67,713

 
2.0 years
Trade name
7,000

 
(5,786
)
 
1,214

 
0.9 years
Patents
55,266

 
(6,281
)
 
48,985

 
10.1 years
Customer relationships
5,100

 
(1,547
)
 
3,553

 
2.3 years
Other intangible assets
4,152

 
(2,791
)
 
1,361

 
0.7 years
Total
$
186,302

 
$
(63,476
)
 
$
122,826

 
5.2 years
December 31, 2014:
 
 
 
 
 
 
 
Developed technology
$
113,466

 
$
(37,936
)
 
$
75,530

 
2.2 years
Trade name
7,000

 
(5,203
)
 
1,797

 
1.0 year
Patents
53,256

 
(5,046
)
 
48,210

 
10.3 years
Customer relationships
5,100

 
(1,161
)
 
3,939

 
2.6 years
Other intangible assets
4,152

 
(2,353
)
 
1,799

 
0.9 years
Total
$
182,974

 
$
(51,699
)
 
$
131,275

 
5.2 years
 __________________
(1)
The weighted-average remaining life of other intangible assets excludes the impact of $0.4 million in indefinite-lived intangible assets as of March 31, 2015 and December 31, 2014.

Amortization expense for the three months ended March 31, 2015 and 2014 was $11.8 million and $4.8 million, respectively. Estimated amortization expense of purchased intangible assets for future periods as of March 31, 2015 is as follows (in thousands):
Year Ending December 31,
Amortization expense
Remainder of 2015
$
33,174

2016
37,223

2017
17,053

2018
5,105

2019
4,957

Thereafter
24,893

Total
$
122,405

 
7.
Accrued Liabilities
The following table presents the detail of accrued liabilities as of the periods presented (in thousands):
 
March 31,
2015
 
December 31,
2014
Accrued vacation and employee-related expenses
$
124,687

 
$
88,100

Accrued incentives
11,781

 
69,583

Accrued commissions
19,457

 
59,357

Accrued sales tax and value-added taxes
12,714

 
11,249

Other accrued expenses
38,187

 
31,900

Total
$
206,826

 
$
260,189



14


8.
Convertible Senior Notes
On November 12, 2014, the Company issued $1,322.5 million aggregate principal amount of convertible senior notes (the “Notes”). The total net proceeds from this offering were $1,305.3 million, after deducting the initial purchasers’ discount and debt issuance costs.
The Notes are governed by an indenture between the Company, as the issuer, and U.S. Bank National Association, as Trustee. The Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company. The Notes mature on November 1, 2019, unless converted, and bear interest at a rate of 0.50% payable semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2015.
The Notes are convertible at an initial conversion rate of 3.3951 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $294.54 per share of common stock.
Holders may convert their notes under the following circumstances:

during any calendar quarter beginning after the calendar quarter ending on March 31, 2015 (and only during such calendar quarter), if, for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter the last reported sale price of the Company’s Class A common stock is greater than or equal to 130% of the conversion price;
during the five business day period after any five consecutive trading day period when the trading price per $1,000 principal amount of notes for each trading day is less than 98% of the product of the last reported sales price of the Company’s Class A common stock and the conversion rate; or
upon the occurrence of specified corporate events.
On or after May 1, 2019, up until the close of business on the second trading day immediately preceding the maturity date, a holder may convert all or any portion of its notes regardless of the foregoing conditions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock, or a combination of cash and shares of its Class A common stock, at the Company’s election. The Company intends to settle the principal and interest due on the Notes in cash.
The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest. A holder who converts its notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the Notes are, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its notes at a repurchase price equal to 100% of the principal amount of the repurchased notes, plus accrued and unpaid interest.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the proceeds received upon issuance of the Notes. The difference between the principal amount of the Notes and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred transaction costs of approximately $0.7 million related to the issuance of the Notes. In accounting for the transaction costs, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Notes. Transaction costs attributable to the liability component were recorded in other assets in the condensed consolidated balance sheet and are being amortized to interest expense over the term of the Notes, and transaction costs attributable to the equity component were netted with the equity component in stockholders’ equity.

15


The Notes consisted of the following (in thousands):
 
March 31,
2015
Liability:
 
Principal
$
1,322,500

Less: debt discount, net of amortization
(229,785
)
Net carrying amount
$
1,092,715

 
 
Equity
$
230,191

The Company recognized interest expense on the Notes as follows (in thousands, except for percentage):
 
Three Months Ended
March 31,
 
2015
Contractual interest expense based on 0.50% per annum
$
1,653

Amortization of debt issuance costs
27

Amortization of debt discount
11,162

Total
$
12,842

Effective interest rate of the liability component
4.7
%
The total estimated fair value of the Notes as of March 31, 2015 was $1,464.4 million. The fair value was determined based on the closing trading price of the Notes as of the last day of trading for the period. The Company considers the fair value of the Notes to be a Level 2 measurement due to the limited trading activity of the Notes.
Based on the closing price of our Class A common stock of $249.86 on March 31, 2015, the if-converted value of the Notes was less than the principal amount.
Note Hedges and Warrants
Concurrently with the issuance of the Notes, the Company purchased options (“Note Hedges”) with respect to its Class A common stock for $248.0 million with certain bank counterparties. The Note Hedges cover up to 4,490,020 shares of the Company's Class A common stock at a strike price of $294.54 per share, which corresponds to the initial conversion price of the Notes, and are exercisable by the Company upon conversion of the Notes. The Note Hedges are intended to reduce the potential economic dilution upon conversion of the Notes. The Note Hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Note Hedges.
Concurrently with the issuance of the Notes, the Company sold warrants to bank counterparties for total proceeds of $167.3 million that provides the counterparties with the right to buy up to 4,490,020 shares of our Class A common stock at a strike price of $381.82 per share. The warrants are separate transactions and are not part of the Notes or Note Hedges. Holders of the Notes and Note Hedges will not have any rights with respect to the Warrants.
The amounts paid and received for the Note Hedges and warrants have been recorded in additional paid-in capital in the condensed consolidated balance sheets. The fair value of the Note Hedges and warrants are not remeasured through earnings each reporting period. The amounts paid for the Note Hedges are tax deductible expenses, while the proceeds received from the warrants are not taxable.

Impact to Earnings per Share

The Notes will have no impact to diluted earnings per share until the average price of our Class A common stock during the reporting period exceeds the conversion price of $294.54 per share because the principal amount of the Notes is intended to be settled in cash upon conversion. Under the treasury stock method, in periods the Company reports net income, the Company is required to include the effect of additional shares that may be issued under the Notes when the price of the Company’s Class A common stock exceeds the conversion price. Under this method, the cumulative dilutive effect of the Notes would be approximately 1,026,000 shares if the average price of the Company’s Class A common stock is $381.82. However, upon conversion, there will be no economic dilution

16


from the Notes, as exercise of the Note Hedges eliminate any dilution from the Notes that would have otherwise occurred when the price of the Company’s Class A common stock exceeds the conversion price. The Note Hedges are required to be excluded from the calculation of diluted earnings per share, as they would be anti-dilutive under the treasury stock method.

The warrants will have a dilutive effect when the average share price exceeds the warrant’s strike price of $381.82 per share. As the price of the Company’s Class A common stock continues to increase above the warrant strike price, additional dilution would occur at a declining rate so that a $10 increase from the warrant strike price would yield cumulative dilution of approximately 1,229,000 diluted shares for EPS purposes. However, upon conversion, the Note Hedges would neutralize the dilution from the Notes so that there would only be dilution from the warrants, which would result in actual dilution of approximately 115,000 shares at a common stock price of $391.82.

9.
Other Income (Expense), Net
The following table presents the detail of other income (expense), net, for the periods presented (in thousands):
 
Three Months Ended
March 31,
 
2015
 
2014
Interest income
$
1,985

 
$
1,006

Interest expense (1)
(12,597
)
 

Net gain (loss) on foreign exchange and foreign currency derivative contracts
(4,436
)
 
25

Net realized gain on sales of marketable securities
95

 
14

Other non-operating income (expense), net
306

 
(19
)
Total other income (expense), net
$
(14,647
)
 
$
1,026

 __________________
(1)
In the three months ended March 31, 2015, the Company capitalized $0.2 million of interest expense.


10.
Loss Per Share
Basic and diluted net loss per common share is presented in conformity with the two-class method required for participating securities.
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 to Class A common stock upon sale or transfer, subject to certain limited exceptions.
Basic net loss per share attributable to common stockholders is computed using the weighted-average number of common shares outstanding during the period. Diluted net 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 shares issuable upon the release of RSUs, and to a lesser extent, the incremental common shares issuable upon the exercise of stock options 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 loss per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net 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 had 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 loss per share of Class A common stock, the undistributed earnings are equal to net loss for that computation.


17


The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):
 
Three Months Ended
March 31,
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
Basic net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Allocation of undistributed earnings
$
(37,217
)
 
$
(5,331
)
 
$
(11,570
)
 
$
(1,875
)
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
109,750

 
15,721

 
104,100

 
16,867

Basic net loss per share attributable to common stockholders
$
(0.34
)
 
$
(0.34
)
 
$
(0.11
)
 
$
(0.11
)
Diluted net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Allocation of undistributed earnings for basic computation
$
(37,217
)
 
$
(5,331
)
 
$
(11,570
)
 
$
(1,875
)
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares
(5,331
)
 

 
(1,875
)
 

Allocation of undistributed earnings
$
(42,548
)
 
$
(5,331
)
 
$
(13,445
)
 
$
(1,875
)
Denominator:
 
 
 
 
 
 
 
Number of shares used in basic calculation
109,750

 
15,721

 
104,100

 
16,867

Weighted-average effect of dilutive securities
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
Conversion of Class B to Class A common shares outstanding
15,721

 

 
16,867

 

Number of shares used in diluted calculation
125,471

 
15,721

 
120,967

 
16,867

Diluted net loss per share attributable to common stockholders
$
(0.34
)
 
$
(0.34
)
 
$
(0.11
)
 
$
(0.11
)
The following weighted-average employee equity awards were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):
 
Three Months Ended
March 31,
 
2015
 
2014
Employee stock options
2,908

 
3,671

RSUs and other equity
5,875

 
1,204

Total
8,783

 
4,875


11.
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, and sublease rental income as of March 31, 2015 are as follows (in thousands):
 

18


Year Ending December 31,
Gross Operating Lease Commitments (1)
 
Sublease Income (2)
 
Net Operating Lease Commitments
Remainder of 2015
$
91,131

 
$
(4,302
)
 
$
86,829

2016
139,136

 
(17,446
)
 
121,690

2017
139,457

 
(17,592
)
 
121,865

2018
136,970

 
(18,109
)
 
118,861

2019
136,054

 
(18,653
)
 
117,401

Thereafter
821,200

 
(140,407
)
 
680,793

Total minimum lease payments
$
1,463,948

 
$
(216,509
)
 
$
1,247,439

 __________________
(1)
Subsequent to March 31, 2015, the Company leased additional office space to be developed for aggregate future minimum lease payments of approximately $367.3 million over a term of 12 years. The Company estimates the payments will begin in early 2018.
(2)
Primarily represents sublease income for several buildings the Company leases in Sunnyvale, California to be recognized over the next 12 years.
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.
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.
 
12.
Stockholders’ Equity
Common Stock
As of March 31, 2015, the Company had 110,178,629 shares and 15,699,338 shares of Class A common stock and Class B common stock outstanding, respectively. As of December 31, 2014, the Company had 109,259,689 and 15,782,261 shares of Class A common stock and Class B common stock outstanding, respectively.

19


Stock Option Activity
A summary of stock option activity for the three months ended March 31, 2015 is as follows: 
 
Options Outstanding
 
Weighted-Average
Remaining
Contractual 
Term
(in years)
 
Aggregate
Intrinsic
Value
(in thousands)
 
Number of
Shares
 
Weighted-Average
Exercise Price
 
 
 
 
Outstanding—December 31, 2014
3,027,717

 
$
69.53

 
 
 
 
Granted
222,132

 
267.21

 
 
 
 
Exercised
(375,788
)
 
23.18

 
 
 
 
Canceled or expired
(4,173
)
 
27.78

 
 
 
 
Outstanding—March 31, 2015
2,869,888

 
$
90.97

 
6.36
 
$
459,864

Options vested and expected to vest as of March 31, 2015
2,747,160

 
$
85.68

 
6.25
 
$
454,249

Options vested and exercisable as of March 31, 2015
1,912,848

 
$
37.72

 
5.20
 
$
405,788

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 March 31, 2015 was $249.86. The total intrinsic value of options exercised was approximately $88.3 million and $128.1 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was approximately $68.2 million, which is expected to be recognized over the next 2.96 years.

20


RSU Activity
A summary of RSU activity for the three months ended March 31, 2015 is as follows: 
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value
(in thousands)
Unvested—December 31, 2014
5,140,627

 
$
176.78

 
 
Granted
1,514,389

 
267.37

 
 
Vested
(460,414
)
 
157.44

 
 
Canceled
(141,804
)
 
173.09

 
 
Unvested—March 31, 2015
6,052,798

 
$
201.01

 
$
1,512,352

Expected to vest as of March 31, 2015
5,276,256

 


 
$
1,318,325

The intrinsic value of RSUs released was approximately $122.4 million and $65.6 million in the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, the total unrecognized compensation cost, adjusted for estimated forfeitures, related to RSUs was approximately $987.4 million, which is expected to be recognized over the next 2.9 years.
Restricted Stock
As of March 31, 2015, the total unrecognized compensation cost related to restricted stock was approximately $38.6 million, which is expected to be recognized over the next 1.3 years.
Stock-Based Compensation
The following table presents the amount of stock-based compensation related to stock-based awards to employees recognized in the Company’s condensed consolidated statements of operations during the periods presented (in thousands):
 
Three Months Ended
March 31,
 
2015
 
2014
Cost of revenue
$
9,757

 
$
5,836

Sales and marketing
19,341

 
12,181

Product development
49,970

 
33,126

General and administrative
24,041

 
16,626

Total stock-based compensation
103,109

 
67,769

Tax benefit from stock-based compensation
(30,104
)
 
(18,778
)
Total stock-based compensation, net of tax effect
$
73,005

 
$
48,991


The Company capitalized $4.4 million and $2.7 million for the three months ended March 31, 2015 and 2014, respectively, of stock-based compensation as website development costs.

13.
Accumulated Other Comprehensive Income
The following table presents the components of AOCI, net of tax, for the periods presented:
 
Unrealized Gains/Losses on Investments
 
Unrealized Gains on Cash Flow Hedges
 
Foreign Currency Translation Adjustments
 
Total
AOCI—December 31, 2014

$
(149
)
 
$

 
$
(49
)
 
$
(198
)
Other comprehensive income (loss) before adjustments
335

 
883

 
(3
)
 
1,215

Amounts reclassified from AOCI
68

 

 

 
68

     Other comprehensive income (loss)
$
403

 
$
883

 
$
(3
)
 
$
1,283

AOCI—March 31, 2015

$
254

 
$
883

 
$
(52
)
 
$
1,085


21



 
Unrealized Gains/Losses on Investments
 
Foreign Currency Translation Adjustments
 
Total
AOCI—December 31, 2013

$
317

 
$
(3
)
 
$
314

Other comprehensive income (loss) before adjustments
358

 

 
358

Amounts reclassified from AOCI
10

 

 
10

     Other comprehensive income (loss)
368

 

 
368

AOCI—March 31, 2014

$
685

 
$
(3
)
 
$
682

The following table presents the impact of reclassification adjustments from AOCI on net loss for the periods presented:
AOCI Components
 
Location
 
Three Months Ended
March 31,
 
 
 
 
2015
 
2014
Unrealized gains on cash flow hedges
 
Net revenue
 
$

 
$

Unrealized losses on investments
 
Other income (expense), net
 
(68
)
 
(10
)
Total amount reclassified from AOCI
 
 
 
$
(68
)
 
$
(10
)

14.
Income Taxes
The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from activities outside the United States are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries because it is the Company’s intent to reinvest earnings 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 the income tax provision, including the estimate of the annual effective tax rate by legal entity and by jurisdiction.
On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (the "2014 Act"). Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2013. The 2014 Act extended the research credit for one year to December 31, 2014. As a result of the retroactive extension, the Company recognized a tax benefit of $15.5 million for qualifying amounts incurred in 2014. However, the federal research credit has not been extended for new research activities incurred after December 31, 2014 and as such, the Company will not have a similar tax benefit in 2015 unless new legislation is passed which will provide a credit for qualifying amounts generated in 2015.
The Company recorded income tax expense of $10.6 million and $13.6 million for the three months ended March 31, 2015 and 2014, respectively. The tax provision decreased in the three months ended March 31, 2015 compared to the same period last year primarily due to the decrease in forecasted U.S. profit before tax, foreign tax losses which derive no benefit, acquisition costs, and non-deductible stock-based compensation. The Company's foreign losses increased during the three months ended March 31, 2015 compared to the same period last year primarily due to international research and development expenses, which had a higher growth rate than international revenue. International research and development expenses include costs charged to foreign jurisdictions by LinkedIn Corporation.


22


15.
Information About Revenue and Geographic Areas
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
March 31,
 
2015
 
2014
Net revenue by product:
 
 
 
Talent Solutions
$
396,375

 
$
291,594

Marketing Solutions
119,192

 
86,064

Premium Subscriptions
122,120

 
95,535

Total
$
637,687

 
$
473,193

 
Three Months Ended
March 31,
 
2015
 
2014
Net revenue by geographic region:
 
 
 
United States
$
389,258

 
$
284,878

Other Americas (1)
38,066

 
31,904

Total Americas
427,324

 
316,782

EMEA(2)
156,563

 
117,871

APAC (3)
53,800

 
38,540

Total
$
637,687

 
$
473,193

 __________________
(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.
 
16.
Subsequent Events
    
In April 2015, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with lynda.com, Inc. ("lynda.com"), a California-based privately held online learning company that offers an extensive, high quality library of professional training videos and courses. The acquisition of lynda.com positions the Company to be able to further expand on its long-term content strategy, and to realize the Company's vision of building the world's first economic graph. The total consideration for all of the outstanding equity interests of lynda.com is expected to be approximately $1.5 billion, subject to adjustment, in a combination of approximately 52% in cash and approximately 48% in the Company's Class A common stock. The Company also plans to issue stock options to purchase its Class A common stock related to certain outstanding lynda.com employee stock options to be assumed in the acquisition. In addition, after closing, the Company expects to grant RSU awards to continuing lynda.com employees. The consideration is subject to change based on (i) purchase price adjustment provisions and (ii) certain indemnifications of former lynda.com security holders after the closing of the acquisition. A portion of the consideration will be placed in escrow to satisfy these indemnifications as described in the Merger Agreement.
The Company estimates that the total consideration will be primarily allocated to purchase price consideration. For accounting purposes, the equity consideration will be valued based on the closing price of the Company's Class A common stock on the acquisition close date, and is therefore subject to change. The acquisition will be accounted for as a business combination and, accordingly, the total purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition close date. This acquisition is subject to customary closing conditions and is expected to close in the second quarter of 2015, at which time the Company expects to have the initial purchase price allocation completed.
In April 2015, the Company leased additional office space to be developed for aggregate future minimum lease payments of approximately $367.3 million over a term of 12 years. The Company estimates the payments will begin in early 2018.

23




24


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” above, 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, 2014, filed on February 12, 2015.

Overview
We are the world’s largest professional network on the Internet with approximately 364 million members in over 200 countries and territories. We believe we are the most extensive, accurate and accessible network focused on professionals. We seek to create value for members by connecting them to the most important people, knowledge, and opportunities in their professional lives. Our members create the core of our platform, and we, in turn, provide members with applications and tools to help them more effectively manage their careers to achieve their full potential.
In the three months ended March 31, 2015, we continued to experience growth in revenue as well as member and member activity as compared to the same period in 2014. With respect to our platform, we continue to increase the value we deliver to members and increase our network of registered members as we continue to invest in our core experience, especially focused on mobile, global expansion, content, and hiring. With respect to monetization, our net revenue was $637.7 million for the three months ended March 31, 2015, which represented an increase of 35% compared to the same period in 2014. Our future growth will depend, in part, on our ability to continue to increase our member base and create value for our members on both mobile and desktop devices, as well as continuing to expand our product offerings and international presence, 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 continue to decrease over time. Also, given the large scale and critical mass of our network, we believe member and engagement growth, as measured by our key metrics, will decelerate over time and that this may impact the growth of portions of our business.
In April 2015, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with lynda.com, Inc. ("lynda.com"), a California-based privately held online learning company that offers an extensive, high quality library of professional training videos and courses. The acquisition of lynda.com positions us to be able to further expand on our long-term content strategy, and to realize our vision of building the world's first economic graph. The total consideration for all of the outstanding equity interests of lynda.com is expected to be approximately $1.5 billion, subject to adjustment, in combination of approximately 52% in cash and approximately 48% in our Class A common stock. The consideration is subject to change based on (i) purchase price adjustment provisions and (ii) certain indemnifications of former lynda.com security holders after the closing of the acquisition. A portion of the consideration will be placed in escrow to satisfy these indemnifications as described in the Merger Agreement. This acquisition is subject to customary closing conditions and is expected to close in the second quarter of 2015.
In 2015, our philosophy is to continue to invest for long-term growth with particular focus on the following:
Talent. We expect to continue expanding our workforce, specifically related to our product development team and field sales organization. This will result in an increase in headcount-related expenses, including stock-based compensation expense and capital expenditures related to facilities. As of March 31, 2015, we had 7,633 employees, which represented an increase of 41% 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. These investments are particularly focused on expanding our footprint of data centers.
Product. With respect to product development, we will focus investment on our key value proposition: connect to opportunity.

25


Members. We plan to continue to invest in our member experience focusing on connecting members to their professional world through our desktop and mobile flagship feed experiences; allowing members to stay informed through professional news and knowledge through our publishing platform and content ecosystem; and enabling members to get hired and build their careers.
Customers. We plan to continue to invest in our product development efforts to transform the way customers hire, market, and sell. In 2015, we expect to accelerate hiring product development headcount dedicated to our monetized product lines: Talent Solutions, Marketing Solutions, and Premium Subscriptions, which includes Sales Solutions.
In addition, we expect to continue to invest in mobile across our product lines. Mobile is the fastest growing channel for member engagement, growing at twice the rate of overall site traffic with mobile unique visiting members representing 50% of unique visiting members in first quarter of 2015.
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 expect to be in an operating loss on a consolidated basis under United States generally accepted accounting principles (“U.S. GAAP”).

Key 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 an 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. Continued member growth is also 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 indirectly result in increased sales of our Talent Solutions, Marketing Solutions, and Premium Subscriptions, as customers will have access to an expanded pool of relevant professionals. 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, as growth of sales and marketing activities generally takes more time to develop than membership growth.
The following table presents the number of registered members as of the periods presented by geographic region:
 
 
March 31,
 
 
 
2015
 
2014
 
% Change
 
(in thousands)
 
 
Members by geographic region:
 
 
 
 
 
 
 
 
 
United States
115,628

 
32
%
 
99,449

 
34
%
 
16
%
Other Americas (1)
62,581

 
17
%
 
51,016

 
17
%
 
23
%
Total Americas
178,209

 
49
%
 
150,465

 
51
%
 
18
%
EMEA (2)
116,745

 
32
%
 
92,835

 
31
%
 
26
%
APAC (3)
68,975

 
19
%
 
53,166

 
18
%
 
30
%
Total number of registered members (4)
363,929

 
100
%
 
296,466

 
100
%
 
23
%
 ______________________
(1)
Canada, Latin America and South America
(2)
Europe, the Middle East and Africa (“EMEA”)
(3)
Asia-Pacific (“APAC”)

26


(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 traffic is 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.

Unique Visiting Members. We define unique visiting members as the total number of members who have visited LinkedIn.com on desktop or have visited selected mobile applications offered by LinkedIn.com on their mobile devices at least once during the month. We view unique visiting members as a key indicator of whether we are delivering value to members by continuing to improve our product offerings as well as growth in our brand awareness among members. Higher levels of member traffic contribute to building a larger pool of professional talent and a richer data ecosystem, which is our key monetizable asset. We leverage these assets, both directly and indirectly, to grow sales within Talent Solutions, Marketing Solutions, and Premium Subscriptions. Continued 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
March 31,
 
 
 
2015
 
2014
 
% Change
 
(in thousands)
 
 
Unique visiting members (1), (3)
96,847

 
82,098

 
18
%
Mobile unique visiting members (2), (3)
48,701

 
35,182

 
38
%
 ______________________
(1)
Members who have visited LinkedIn.com on desktop and/or have visited selected mobile applications offered by LinkedIn.com on their mobile devices.
(2)
Members who have visited selected mobile applications offered by 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. We define page views as the total number of page views members view during the measurement period on LinkedIn.com for desktop and on selected mobile applications offered by LinkedIn.com for mobile devices. Similar to unique visiting members, we believe member page views is a key indicator for gaining insight into whether our members are deriving increased value from our solutions. We expect growth in member 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, member 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 application reduces the number of clicks and pages a user touches in order to create a high quality mobile experience.


27


The following table presents the number of member page views during the periods presented:
 
Three Months Ended
March 31,
 
 
 
2015
 
2014
 
% Change
 
(in millions)
 
 
Member page views (1), (2)
33,828

 
25,931

 
30
%
 ______________________
(1)
These metrics include member page views on LinkedIn.com for desktop and selected mobile applications offered by LinkedIn for mobile devices.
(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 ("LCS") customers as the number of enterprises and professional organizations that we have under active contracts for our LCS products as of the date of measurement. Our LCS products include LinkedIn Recruiter, Job Slots, LinkedIn Recruitment Media, and LinkedIn Career Pages, which are all part of Talent Solutions. LCS products do not include LinkedIn Jobs or Subscriptions. LCS customers have historically purchased through our field sales channel, which represents approximately 75% of Talent Solutions revenue. We believe the number of LCS 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 LCS customers as of the periods presented: 
 
March 31,
 
 
 
2015
 
2014
 
% Change
 
 
 
 
LCS customers
34,764

 
25,844

 
35
%
 
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 majority of our Premium Subscriptions are sold online on our website; however, with the launch of the new Sales Navigator and our increasing investment in a Sales Solutions field sales team, we expect that the portion of Premium Subscriptions revenue derived from our field sales channel will increase over time. 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.


28


The following table presents our net revenue by field and online sales:
 
Three Months Ended
March 31,
 
2015
 
2014
 
($ in thousands)
Field sales
$
393,251

 
62
%
 
$
275,262

 
58
%
Online sales
244,436

 
38
%
 
197,931

 
42
%
     Net revenue
$
637,687

 
100
%
 
$
473,193

 
100
%
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we disclose adjusted EBITDA, a non-GAAP financial measure. The following table presents a reconciliation of adjusted EBITDA to net loss, the most directly comparable U.S. GAAP financial measure.
We include 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 and employees. 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 U.S. 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 loss and our other U.S. GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (in thousands):
 
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in thousands)
Reconciliation of Adjusted EBITDA:
 
 
 
     Net loss
$
(42,439
)
 
$
(13,319
)
     Provision for income taxes
10,572

 
13,581

     Other (income) expense, net
14,647

 
(1,026
)
     Depreciation and amortization
73,972

 
49,740

     Stock-based compensation
103,109

 
67,769

     Adjusted EBITDA
$
159,861

 
$
116,745



29



Results of Operations
The following tables set 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
March 31,
 
2015
 
2014
 
(as a percentage of net revenue)
Condensed Consolidated Statements of Operations Data: (1)
 
 
 
Net revenue
100
 %
 
100
 %
Costs and expenses:
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below)
14

 
13

Sales and marketing
36

 
35

Product development
26

 
25

General and administrative
15

 
16

Depreciation and amortization
12

 
11

Total costs and expenses
103

 
100

Loss from operations
(3
)
 

Other income (expense), net:
 
 
 
Interest income

 

Interest expense
(2
)
 

Other, net
(1
)
 

Other income (expense), net
(2
)
 

Income (loss) before income taxes
(5
)
 

Provision for income taxes
2

 
3

Net loss
(7
)
 
(3
)
Accretion of redeemable noncontrolling interest

 

Net loss attributable to common stockholders
(7
)%
 
(3
)%
 ______________________
(1) Certain items may not total due to rounding.

Net Revenue
We generate revenue from Talent Solutions, Marketing Solutions and Premium Subscriptions.
Talent Solutions. Revenue from Talent Solutions is derived primarily from providing access to the LinkedIn Recruiter product and job postings. We provide access to our professional database of both active and passive job candidates with LinkedIn Recruiter, which allows corporate recruiting teams to identify candidates based on industry, job function, geography, experience/education, and other specifications. Revenue from the LinkedIn Recruiter product is recognized ratably over the subscription period, which consists primarily of annual subscriptions that are billed monthly, quarterly, or annually. We also earn revenue from the placement of job postings on our website, which generally run for 30 days. Independent recruiters can pay to post job openings that are accessible through job searches or targeted job matches. Revenue from job postings is recognized as the posting is displayed or at the expiration of the contract period, if not utilized.
Marketing Solutions. Revenue from Marketing Solutions is earned from advertisements (consisting of content-based, graphic display, and text link) shown primarily on Linkedin.com and our mobile applications based on either a cost per click or cost per advertisement model, with the mix shifting increasingly to cost per click. Revenue from Internet advertising is recognized as the online advertisements are displayed on Linkedin.com and our mobile applications. Through the recent acquisition of Bizo and the re-launch of our marketing solutions product suite, we now sell and recognize a portion of revenue from off-network advertising. The typical duration of our advertising contracts is approximately two months.

30


Premium Subscriptions. Revenue from Premium Subscriptions is derived primarily from selling various online subscriptions to customers that allow users to have further access to premium services on LinkedIn.com. We also include revenue from our Sales Solutions products, which includes solutions sold through our field sales channel. We offer our members monthly or annual subscriptions. Revenue from Premium Subscriptions is recognized ratably over the contract period, which is generally one to 12 months.
 
Three Months Ended
March 31,
 
 
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
Net revenue by product:
 
 
 
 
 
Talent Solutions
$
396,375

 
$
291,594

 
36
%
Marketing Solutions
119,192

 
86,064

 
38
%
Premium Subscriptions
122,120

 
95,535

 
28
%
Total
$
637,687

 
$
473,193

 
35
%
Percentage of net revenue by product: (1)
 
 
 
 
 
Talent Solutions
62
%
 
62
%
 
 
Marketing Solutions
19
%
 
18
%
 
 
Premium Subscriptions
19
%
 
20
%
 
 
Total
100
%
 
100
%
 
 
  ______________________
(1)     Certain items may not total due to rounding.
Total net revenue increased $164.5 million in the three months ended March 31, 2015 compared to the same period last year. Net revenue from our Talent Solutions increased $104.8 million in the three months ended March 31, 2015 compared to the same period last year. These increases were driven by increased spending by existing customers as well as generating business from new customers, as evidenced by the 35% increase in the number of LCS customers as of March 31, 2015 compared to the same period last year.
Net revenue from our Marketing Solutions increased $33.1 million in the three months ended March 31, 2015, compared to the same period last year. The increase was primarily due to the introduction of Sponsored Updates in our field sales and self-service channels, and to a lesser extent, revenue from our recent acquisition of Bizo Inc. Sponsored Updates allows marketers to show paid content in LinkedIn members' update feeds. Sponsored content represented approximately 40% of Marketing Solutions revenue in the three months ended March 31, 2015, and we expect it to continue to represent a larger percentage of Marketing Solutions revenue as we continue to gain traction in our shift to content marketing.
Net revenue from our Premium Subscriptions increased $26.6 million in the three months ended March 31, 2015 compared to the same period last year primarily due to the increase in revenue from our Sales Solutions products, which includes Sales Navigator. Our Sales Solutions products continue to grow at a faster rate than our other Premium Subscription products as well as continue to represent a larger percentage of total Premium Subscriptions revenue. Sales Solutions represented approximately 30% of Premium Subscriptions revenue in the three months ended March 31, 2015.

31


The following table presents our net revenue by geographic region:
 
 
Three Months Ended
March 31,
 
 
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
Net revenue by geographic region:
 
 
 
 
 
United States
$
389,258

 
$
284,878

 
37
%
Other Americas (1)
38,066

 
31,904

 
19
%
Total Americas
427,324

 
316,782

 
35
%
EMEA (2)
156,563

 
117,871

 
33
%
APAC (3)
53,800

 
38,540

 
40
%
Total
$
637,687

 
$
473,193

 
35
%
 ______________________
(1)
Canada, Latin America and South America
(2)
Europe, the Middle East and Africa (“EMEA”)
(3)
Asia-Pacific (“APAC”)

United States revenue increased $104.4 million in the three months ended March 31, 2015 compared to the same period last year. International revenue increased $60.1 million in the three months ended March 31, 2015 compared to the same period last year. International revenue represented 39% of total revenue in the three months ended March 31, 2015, and 40% of total revenue in the three months ended March 31, 2014. The increase in international revenue is due to the expansion of our sales, technical and support operations in international locations and growth in our international member base due to developing our brand across various international geographies. The increase in international revenue is partially offset by foreign currency fluctuations caused by the strengthening of the U.S. dollar and, we expect our international revenue to continue to be negatively impacted in 2015 as a result of the strengthening of the U.S. dollar this quarter relative to the foreign currencies we transact in. We expect international revenue to increase on an absolute basis and to remain relatively flat as a percentage of total revenue in 2015 as we continue to expand our sales force in key international markets where member engagement supports business efforts at scale.

32


The following table presents our net revenue by geography, by product:
 
 
Three Months Ended
March 31,
 
 
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
Net revenue by geography, by product:
 
 
 
 
 
United States
 
 
 
 

Talent Solutions
$
240,752

 
$
180,403

 
33
%
Marketing Solutions
77,412

 
49,038

 
58
%
Premium Subscriptions
71,094

 
55,437

 
28
%
Total United States revenue
$
389,258

 
$
284,878

 
37
%
International
 
 
 
 
 
Talent Solutions
$
155,623

 
$
111,191

 
40
%
Marketing Solutions
41,780

 
37,026

 
13
%
Premium Subscriptions
51,026

 
40,098

 
27
%
Total International revenue
$
248,429

 
$
188,315

 
32
%
 
 
 
 
 
 
Total
$
637,687

 
$
473,193

 
35
%
Cost of Revenue
Our cost of revenue primarily consists of salaries, benefits and stock-based compensation for our production operations, customer support, infrastructure and advertising operations teams and web hosting costs related to operating our website. Credit card processing fees, sales taxes, allocated facilities costs and other supporting overhead costs are also included in cost of revenue. We also expect higher expenses from off-network advertising associated with Marketing Solutions products in 2015 in connection with our acquisition of Bizo, Inc. Consistent with our investment philosophy for 2015, we expect cost of revenue to increase on an absolute basis and as a percentage of revenue.
 
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