10-Q 1 twtr-10q_20190331.htm 10-Q twtr-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                    

Commission File Number 001-36164

 

Twitter, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-8913779

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1355 Market Street, Suite 900

San Francisco, California 94103

(Address of principal executive offices and Zip Code)

(415) 222-9670

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES      NO  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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      NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES      NO  

The number of shares of the registrant’s common stock outstanding as of April 23, 2019 was 768,631,304.

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

  

Page

Item 1.

 

Financial Statements (Unaudited)

  

6

 

 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

6

 

 

Consolidated Statements of Income for the Three Months Ended March 31, 2019 and March 31, 2018

 

7

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and March 31, 2018

 

8

 

 

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and March 31, 2018

 

9

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and March 31, 2018

 

10

 

 

Notes to Consolidated Financial Statements

 

11

Item 2.

 

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

  

27

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

38

Item 4.

 

Controls and Procedures

  

39

 

 

 

PART II – OTHER INFORMATION

  

 

Item 1.

 

Legal Proceedings

  

40

Item 1A.

 

Risk Factors

  

40

Item 6.

 

Exhibits

  

64

 

 

Signatures

  

66

 

 

 

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

our ability to attract and retain users and increase the level of engagement, including ad engagement, of our users and its impact on revenue;

 

our plans regarding health and user safety, including our expectations regarding the impact on our reported metrics, policies, enforcement and preventing manipulation of our platform;

 

our expectations regarding monetizable DAU (mDAU), changes in cost per ad engagement and changes in ad engagements;

 

our ability to develop or acquire new products, product features and services, improve our existing products and services, including with respect to Promoted Tweet product features, video and performance advertising, and increase the value of our products and services;

 

our business strategies, plans and priorities, including our plans for growth and hiring, investment in our research and development efforts and our plans to scale capacity and enhance capability and reliability of our infrastructure, including capital expenditures relating to infrastructure;

 

our ability to provide new content from third parties, including our ability to secure live streaming video content on terms that are acceptable to us;

 

our ability to attract advertisers to our platforms, products and services and increase the amount that advertisers spend with us;

 

our expectations regarding our user growth and growth rates and related opportunities as well as the continued usage of our mobile applications, including the impact of seasonality;

 

our ability to increase our revenue and our revenue growth rate, including advertising and data licensing and other revenue;

 

our ability to improve user monetization;

 

our future financial performance, including trends in cost per ad engagement, revenue (including data licensing revenue), cost of revenue, operating expenses, including stock-based compensation and income taxes;

 

our expectations regarding fluctuations in our tax expense and cash taxes;

 

the impact of the General Data Protection Regulation (GDPR) and other data and privacy regulation;

 

the impact of content- or copyright-related legislation or regulation;

 

our expectations regarding outstanding litigation or the decisions of the courts;

 

the effects of seasonal trends on our results of operations;

 

the impact of our future transactions and corporate structuring on our income and other taxes;

 

the sufficiency of our cash and cash equivalents, short-term investment balance and credit facility together with cash generated from operations to meet our working capital and capital expenditure requirements;

 

our ability to timely and effectively develop, invest in, scale and adapt our existing technology and network infrastructure;

 

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

 

our expectations regarding international operations and foreign exchange gains and losses.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

3


You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, cash flows or prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 


4


NOTE REGARDING KEY METRICS

We review a number of metrics, including monetizable daily active usage or users, or mDAU, monthly active usage or users, or MAU, changes in ad engagements and changes in cost per ad engagement, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics” for a discussion of how we calculate mDAU, MAU, changes in ad engagements and changes in cost per ad engagement.

We define mDAU as Twitter users who logged in and accessed Twitter on any given day through Twitter.com or Twitter applications that are able to show ads. Our definition and calculation of mDAU is the same as that of the DAU data presented since the first quarter of 2016. The calculation of mDAU is not based on any standardized industry methodology and is not necessarily calculated in the same manner or comparable to similarly-titled measures presented by other companies. Average mDAU for a period represents the number of mDAU on each day of such period divided by the number of days for such period. Changes in mDAU are a measure of changes in the size of our daily logged in active user base. To calculate the year-over-year change in mDAU, we subtract the average mDAU for the three months ended in the previous year from the average mDAU for the same three months ended in the current year and divide the result by the average mDAU in the previous year.

We define MAU as Twitter users who logged in or were otherwise authenticated and accessed Twitter through our website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websites in the 30-day period ending on the date of measurement. Average MAU for a period represent the average of the MAU at the end of each month during the period. We believe that mDAU, and its related growth, are the best ways to measure our success against our objectives and to show the size of our audience and engagement going forward, so we will discontinue disclosing MAU after this quarter.

Certain metrics also include users that access Twitter through applications that automatically contact our servers for regular updates with no discernible user-initiated action involved, which we refer to as third-party auto-polling MAU. This activity causes our system to count MAU associated with such applications as active users on the day or days such contact occurs. As of December 31, 2018, fewer than 8.5% of MAU may have been third-party auto-polling MAU. Third-party auto-polling does not apply to mDAU as mDAU does not include users accessing Twitter through third-party applications.

The numbers of active users presented in this Quarterly Report on Form 10-Q are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our large user base around the world. Furthermore, our metrics may be impacted by our information quality efforts, which are our overall efforts to reduce malicious activity on the service, inclusive of spam, malicious automation, and fake accounts. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2019 represented fewer than 5% of our mDAU and MAU during the quarter. The false or spam accounts for a period represents the average of false or spam accounts in the samples during each monthly analysis period during the quarter. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our active users, and have made improvements in our spam detection capabilities that have resulted in the suspension of a large number of spam, malicious automation and fake accounts. We intend to continue to make such improvements. After we determine an account is spam, malicious automation or fake, we stop counting it in our mDAU, MAU, or related metrics. Additionally, we rely on third-party SMS aggregators and mobile carriers to deliver SMS messages to certain of our users when we send our SMS messages to such accounts. If, however, we are notified of material deliverability issues because of, for example, infrastructure issues at the service-provider level or governmental restrictions based on content, we do not include the affected users in MAU. We also treat multiple accounts held by a single person or organization as multiple users for purposes of calculating mDAU or MAU because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our active users may not accurately reflect the actual number of people or organizations using our platform.

In addition, our data regarding user geographic location for purposes of reporting the geographic location of our mDAU and MAU is based on the IP address or phone number associated with the account when a user initially registered the account on Twitter. The IP address or phone number may not always accurately reflect a user’s actual location at the time such user engaged with our platform. For example, someone accessing Twitter on a mobile device may appear to be accessing Twitter from the location of the proxy server that the user connects to rather than from the user’s actual location.

We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology.

 

 

 

5


PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

TWITTER, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,247,661

 

 

$

1,894,444

 

Short-term investments

 

 

4,212,231

 

 

 

4,314,957

 

Accounts receivable, net of allowance for doubtful accounts of $3,027 and $3,559

 

 

684,220

 

 

 

788,700

 

Prepaid expenses and other current assets

 

 

111,673

 

 

 

112,935

 

Total current assets

 

 

7,255,785

 

 

 

7,111,036

 

Property and equipment, net

 

 

913,096

 

 

 

885,078

 

Operating lease right-of-use assets

 

 

707,309

 

 

 

 

Intangible assets, net

 

 

40,239

 

 

 

45,025

 

Goodwill

 

 

1,228,644

 

 

 

1,227,269

 

Deferred tax assets, net

 

 

918,820

 

 

 

808,459

 

Other assets

 

 

81,338

 

 

 

85,705

 

Total assets

 

$

11,145,231

 

 

$

10,162,572

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

172,169

 

 

$

145,186

 

Accrued and other current liabilities

 

 

358,095

 

 

 

405,751

 

Convertible notes, short-term

 

 

910,257

 

 

 

897,328

 

Operating lease liabilities, short-term

 

 

123,417

 

 

 

 

Finance lease liabilities, short-term

 

 

57,741

 

 

 

68,046

 

Total current liabilities

 

 

1,621,679

 

 

 

1,516,311

 

Convertible notes, long-term

 

 

1,751,695

 

 

 

1,730,922

 

Operating lease liabilities, long-term

 

 

628,896

 

 

 

 

Finance lease liabilities, long-term

 

 

14,243

 

 

 

24,394

 

Deferred and other long-term tax liabilities, net

 

 

20,263

 

 

 

17,849

 

Other long-term liabilities

 

 

19,636

 

 

 

67,502

 

Total liabilities

 

 

4,056,412

 

 

 

3,356,978

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.000005 par value-- 200,000 shares authorized; none issued and outstanding

 

 

 

 

 

 

Common stock, $0.000005 par value-- 5,000,000 shares authorized; 767,913 and 764,257 shares issued and outstanding

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

8,408,749

 

 

 

8,324,974

 

Accumulated other comprehensive loss

 

 

(56,665

)

 

 

(65,311

)

Accumulated deficit

 

 

(1,263,269

)

 

 

(1,454,073

)

Total stockholders' equity

 

 

7,088,819

 

 

 

6,805,594

 

Total liabilities and stockholders' equity

 

$

11,145,231

 

 

$

10,162,572

 

 

 

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

 

 

 

6


TWITTER, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

786,890

 

 

$

664,871

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of revenue

 

 

264,011

 

 

 

222,823

 

Research and development

 

 

146,246

 

 

 

123,346

 

Sales and marketing

 

 

205,799

 

 

 

178,059

 

General and administrative

 

 

77,176

 

 

 

65,718

 

Total costs and expenses

 

 

693,232

 

 

 

589,946

 

Income from operations

 

 

93,658

 

 

 

74,925

 

Interest expense

 

 

(37,260

)

 

 

(27,015

)

Interest income

 

 

40,541

 

 

 

16,181

 

Other expense, net

 

 

(436

)

 

 

(209

)

Income before income taxes

 

 

96,503

 

 

 

63,882

 

Provision (benefit) for income taxes

 

 

(94,301

)

 

 

2,885

 

Net income

 

$

190,804

 

 

$

60,997

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

 

$

0.08

 

Diluted

 

$

0.25

 

 

$

0.08

 

Weighted-average shares used to compute net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

 

764,550

 

 

 

747,697

 

Diluted

 

 

777,689

 

 

 

765,861

 

 

 

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

 

 

 

7


TWITTER, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Net income

 

$

190,804

 

 

$

60,997

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on investments in available-for-sale securities

 

 

8,848

 

 

 

(1,829

)

Change in foreign currency translation adjustment

 

 

(202

)

 

 

11,083

 

Net change in accumulated other comprehensive income (loss)

 

 

8,646

 

 

 

9,254

 

Comprehensive income

 

$

199,450

 

 

$

70,251

 

 

 

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

 

 

 

8


TWITTER, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

764,257

 

 

$

4

 

 

 

746,902

 

 

$

4

 

Issuance of common stock in connection with RSU vesting

 

 

3,889

 

 

 

 

 

 

5,098

 

 

 

 

Exercise of stock options

 

 

72

 

 

 

 

 

 

305

 

 

 

 

Shares withheld related to net share settlement of equity awards

 

 

(305

)

 

 

 

 

 

(260

)

 

 

 

Other activities

 

 

 

 

 

 

 

 

(8

)

 

 

 

Balance, end of period

 

 

767,913

 

 

$

4

 

 

 

752,037

 

 

$

4

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

$

8,324,974

 

 

 

 

 

$

7,750,522

 

Exercise of stock options

 

 

 

 

 

96

 

 

 

 

 

 

2,768

 

Shares withheld related to net share settlement of equity awards

 

 

 

 

 

(9,477

)

 

 

 

 

 

(7,550

)

Stock-based compensation

 

 

 

 

 

93,156

 

 

 

 

 

 

85,685

 

Other activities

 

 

 

 

 

 

 

 

 

 

 

4

 

Balance, end of period

 

 

 

 

$

8,408,749

 

 

 

 

 

$

7,831,429

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

$

(65,311

)

 

 

 

 

$

(31,579

)

Other comprehensive income

 

 

 

 

 

8,646

 

 

 

 

 

 

9,254

 

Balance, end of period

 

 

 

 

$

(56,665

)

 

 

 

 

$

(22,325

)

Accumulated deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

$

(1,454,073

)

 

 

 

 

$

(2,671,729

)

Cumulative-effect adjustment from adoption of revenue recognition rule

 

 

 

 

 

 

 

 

 

 

 

12,060

 

Net income

 

 

 

 

 

190,804

 

 

 

 

 

 

60,997

 

Balance, end of period

 

 

 

 

$

(1,263,269

)

 

 

 

 

$

(2,598,672

)

Total stockholders' equity

 

 

767,913

 

 

$

7,088,819

 

 

 

752,037

 

 

$

5,210,436

 

 

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

 

 

 


9


TWITTER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

190,804

 

 

$

60,997

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

113,474

 

 

 

96,846

 

Stock-based compensation expense

 

 

83,491

 

 

 

73,266

 

Amortization of discount on convertible notes

 

 

30,877

 

 

 

20,722

 

Deferred income taxes

 

 

(110,056

)

 

 

(670

)

Other adjustments

 

 

4,073

 

 

 

352

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

103,633

 

 

 

61,166

 

Prepaid expenses and other assets

 

 

26,149

 

 

 

(22,892

)

Accounts payable

 

 

(12,879

)

 

 

(26,948

)

Accrued and other liabilities

 

 

(77,873

)

 

 

(20,166

)

Net cash provided by operating activities

 

 

351,693

 

 

 

242,673

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(83,026

)

 

 

(93,091

)

Proceeds from sales of property and equipment

 

 

1,956

 

 

 

1,763

 

Purchases of marketable securities

 

 

(1,635,142

)

 

 

(831,882

)

Proceeds from maturities and sales of marketable securities

 

 

1,745,658

 

 

 

665,568

 

Other investing activities

 

 

 

 

 

(1,350

)

Net cash provided by (used in) investing activities

 

 

29,446

 

 

 

(258,992

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(9,477

)

 

 

(7,557

)

Payments of finance lease obligations

 

 

(19,719

)

 

 

(24,247

)

Proceeds from exercise of stock options

 

 

95

 

 

 

2,768

 

Net cash used in financing activities

 

 

(29,101

)

 

 

(29,036

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

352,038

 

 

 

(45,355

)

Foreign exchange effect on cash, cash equivalents and restricted cash

 

 

(146

)

 

 

1,950

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,921,875

 

 

 

1,673,857

 

Cash, cash equivalents and restricted cash at end of period

 

$

2,273,767

 

 

$

1,630,452

 

Supplemental disclosures of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Equipment purchases under finance leases

 

$

 

 

$

16,086

 

Changes in accrued property and equipment purchases

 

$

43,720

 

 

$

(2,798

)

Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,247,661

 

 

$

1,601,028

 

Restricted cash included in prepaid expenses and other current assets

 

 

1,222

 

 

 

2,747

 

Restricted cash included in other assets

 

 

24,884

 

 

 

26,677

 

Total cash, cash equivalents and restricted cash

 

$

2,273,767

 

 

$

1,630,452

 

 

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

 

 

10


TWITTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Description of Business and Summary of Significant Accounting Policies

Twitter, Inc. (“Twitter” or the “Company”) was incorporated in Delaware in April 2007, and is headquartered in San Francisco, California. Twitter offers products and services for users, advertisers, developers and platform and data partners.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in management’s opinion, all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results expected for the full fiscal year or any other period.  

The accompanying interim consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

Prior Period Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update on leases. The new guidance requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities for operating leases, initially measured at the present value of the lease payments, on the consolidated balance sheets. In addition, it requires lessees to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. The FASB has subsequently issued additional updates that allow entities to apply certain practical expedients upon transition to this new guidance. The Company adopted this guidance as of January 1, 2019 and elected to apply practical expedients permitted under the transition guidance that allow the Company to use the beginning of the period of adoption (January 1, 2019) as the date of initial application, to not separate non-lease components from lease components for lessee and lessor transactions, and to not reassess lease classification, treatment of initial direct costs, or whether an existing or expired contract contains a lease. Prior period financial statements were not recast under the new guidance. The adoption of the new lease standard resulted in the recognition of operating lease ROU assets of $737.7 million recorded in operating lease right-of-use assets and lease liabilities of $777.1 million recorded in operating lease liabilities, short-term and operating lease liabilities, long-term on the consolidated balance sheets as of January 1, 2019. In connection with the adoption of this standard, deferred rent of $53.0 million, which was previously recorded in accrued and other current liabilities and in other long-term liabilities on the consolidated balance sheets, was derecognized. Additionally, prepaid rents of $13.6 million which were previously recorded in prepaid expenses and other current assets on the consolidated balance sheets are now presented as a reduction to operating lease liabilities, short-term.

In March 2017, the FASB issued a new accounting standard update on shortening the premium amortization period for purchased non-contingently callable debt securities. The new guidance shortens the amortization period for the premium on purchased non-contingently callable debt securities to the earliest call date. Prior to this guidance, entities generally amortized the premium as a yield adjustment over the contractual life of the security. The Company adopted this new accounting standard as of January 1, 2019 and the adoption did not have a material impact on the Company’s financial statements.

11


In February 2018, the FASB issued a new accounting standard update to give entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings (accumulated deficit). The new guidance also requires entities to make additional disclosures, regardless of whether reclassification of tax effects is elected. The Company adopted this new accounting standard during the three months ended March 31, 2019 and did not elect the option to reclassify tax effects as a result of tax reform and as such, adoption did not have a material impact on the Company’s financial statements and related disclosures.

With the exception of the standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2019, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, that are of significance or potential significance to the Company.

Note 2. Revenue

Revenue Recognition

Revenue is recognized when the control of promised goods or services is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company identifies its contracts with customers and all performance obligations within those contracts. The Company then determines the transaction price and allocates the transaction price to the performance obligations within the Company's contracts with customers, recognizing revenue when, or as, the Company satisfies its performance obligations. While the majority of the Company's revenue transactions are based on standard business terms and conditions, the Company also enters into sales agreements with advertisers and data partners that sometimes involve multiple performance obligations and occasionally include non-standard terms or conditions.

Revenue by geography is based on the billing address of the customers. The following table sets forth revenue by services and revenue by geographic area (in thousands):  

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue by services:

 

 

 

 

 

 

 

 

Advertising services

 

$

679,466

 

 

$

575,156

 

Data licensing and other

 

 

107,424

 

 

 

89,715

 

Total revenue

 

$

786,890

 

 

$

664,871

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue by geographic area:

 

 

 

 

 

 

 

 

United States

 

$

432,356

 

 

$

346,570

 

Japan

 

 

135,571

 

 

 

116,826

 

Rest of World

 

 

218,963

 

 

 

201,475

 

Total revenue

 

$

786,890

 

 

$

664,871

 

 

 

 

 

 

 

 

 

 

 

 

Contract Balances

 

The Company enters into contracts with its customers, which may give rise to contract liabilities (deferred revenue) and contract assets (unbilled revenue). The payment terms and conditions within the Company’s contracts vary by the type and location of its customer and products or services purchased, the substantial majority of which are due in less than one year. When the timing of revenue recognition differs from the timing of payments made by customers, the Company recognizes either unbilled revenue (its performance precedes the billing date) or deferred revenue (customer payment is received or receivable in advance of performance).

 

Deferred Revenue (Contract Liabilities)

The Company presents deferred revenue within accrued and other current liabilities in the consolidated balance sheets. The Company's deferred revenue balance primarily consists of cash payments due in advance of satisfying its performance obligations relating to data licensing contracts and performance obligations given to customers based on their spend relating to advertising contracts, for which the Company defers, as they represent material rights. The Company recognizes deferred revenue relating to its data licensing contracts on a straight-line basis over the period in which the Company provides data. The Company recognizes deferred revenue relating to its advertising contracts based on the amount of customer spend and the relative standalone selling price of the material rights.

 

12


Unbilled Revenue (Contract Assets)

The Company presents unbilled revenue within prepaid expenses and other current assets and other assets in the consolidated balance sheets. The Company's unbilled revenue primarily consists of amounts that have yet to be billed under contracts with escalating fee structures. Specifically, because the Company generally recognizes revenue on a straight-line basis for data licensing arrangements with escalating fee structures, revenue recognized exceeds amounts the Company has a right to bill during the earliest periods of such contracts, resulting in unbilled revenue.

The following table presents contract balances (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Unbilled Revenue

 

$

21,228

 

 

$

20,786

 

Deferred Revenue

 

$

35,497

 

 

$

38,949

 

 

 

 

 

 

 

 

 

 

The amount of revenue recognized in the three months ended March 31, 2019 that was included in the opening deferred revenue balance was $24.0 million. This revenue consists primarily of revenue recognized as a result of the utilization of bonus media inventory earned by and material rights provided to customers in prior periods and the satisfaction of its performance obligations relating to data licensing contracts with advance cash payments.

The amount of revenue recognized from obligations satisfied (or partially satisfied) in prior periods was not material.

The increase in unbilled revenue balance from December 31, 2018 to March 31, 2019 was primarily attributable to differences between revenue recognized and amounts billed in the Company's data licensing arrangements with escalating fee structures due to recognizing such fees as revenue on a straight-line basis.

The decrease in deferred revenue balance from December 31, 2018 to March 31, 2019 was primarily due to utilization of bonus and make good media inventory earned in prior periods and the satisfaction of its performance obligations relating to data licensing contracts with advance cash payments, offset by bonus and make good media inventory offered to customers during the period.

Remaining Performance Obligations

As of March 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations in contracts with an original expected duration exceeding one year is $459.9 million. This total amount primarily consists of long-term data licensing contracts and excludes deferred revenue related to the Company’s short-term advertising service arrangements. The Company expects to recognize this amount as revenue over the following time periods (in thousands):

 

 

 

Remaining Performance Obligations

 

 

 

 

 

 

 

Remainder of

 

 

 

 

 

 

2021 and

 

 

 

Total

 

 

2019

 

 

2020

 

 

Thereafter

 

Revenue expected to be recognized on remaining performance obligations

 

$

459,912

 

 

$

152,706

 

 

$

153,845

 

 

$

153,361

 

 

Note 3. Cash, Cash Equivalents and Short-term Investments

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash

 

$

228,235

 

 

$

229,924

 

Money market funds

 

 

1,072,853

 

 

 

861,206

 

Corporate notes, commercial paper and certificates of deposit

 

 

946,573

 

 

 

803,314

 

Total cash and cash equivalents

 

$

2,247,661

 

 

$

1,894,444

 

Short-term investments:

 

 

 

 

 

 

 

 

U.S. government and agency securities including treasury bills

 

$

797,307

 

 

$

1,053,408

 

Corporate notes, commercial paper and certificates of deposit

 

 

3,414,924

 

 

 

3,261,549

 

Total short-term investments

 

$

4,212,231

 

 

$

4,314,957

 

 

13


The contractual maturities of securities classified as available-for-sale as of March 31, 2019 were as follows (in thousands):

 

 

 

March 31,

 

 

 

2019

 

Due within one year

 

$

2,660,580

 

Due after one year through five years

 

 

1,551,651

 

Total

 

$

4,212,231

 

 

The following tables summarize unrealized gains and losses related to available-for-sale securities classified as short-term investments on the Company’s consolidated balance sheets (in thousands):

 

 

 

March 31, 2019

 

 

 

Gross

 

 

Gross

 

 

Gross

 

 

Aggregated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Costs

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. government and agency securities including treasury bills

 

$

797,036

 

 

$

549

 

 

$

(278

)

 

$

797,307

 

Corporate notes, commercial paper and

   certificates of deposit

 

 

3,410,394

 

 

 

5,382

 

 

 

(852

)

 

 

3,414,924

 

Total available-for-sale securities classified as

   short-term investments

 

$

4,207,430

 

 

$

5,931

 

 

$

(1,130

)

 

$

4,212,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

Gross

 

 

Gross

 

 

Gross

 

 

Aggregated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Costs

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. government and agency securities including treasury bills

 

$

1,053,988

 

 

$

41

 

 

$

(621

)

 

$

1,053,408

 

Corporate notes, commercial paper and

   certificates of deposit

 

 

3,265,012

 

 

 

713

 

 

 

(4,176

)

 

 

3,261,549

 

Total available-for-sale securities classified as

   short-term investments

 

$

4,319,000

 

 

$

754

 

 

$

(4,797

)

 

$

4,314,957

 

 

 

The gross unrealized loss on securities in a continuous loss position for 12 months or longer was not material as of March 31, 2019 and December 31, 2018.

Investments are reviewed periodically to identify possible other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables above as the Company believes that the decrease in fair value of these securities is temporary and expects to recover the initial cost of investment for these securities.

 

14


Note 4. Fair Value Measurements

The Company measures its cash equivalents, short-term investments and derivative financial instruments at fair value. The Company classifies its cash equivalents, short-term investments and derivative financial instruments within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company’s Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of the Company’s Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily-available pricing sources for the identical underlying security that may not be actively traded.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 based on the three-tier fair value hierarchy (in thousands):

 

 

March 31, 2019

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

1,072,853

 

 

$

 

 

$

1,072,853

 

Corporate notes

 

 

 

 

7,572

 

 

 

7,572

 

Commercial paper

 

 

 

 

939,001

 

 

 

939,001

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

 

 

 

797,307

 

 

 

797,307

 

Corporate notes

 

 

 

 

1,965,786

 

 

 

1,965,786

 

Commercial paper

 

 

 

 

782,860

 

 

 

782,860

 

Certificates of deposit

 

 

 

 

666,278

 

 

 

666,278

 

Other current assets:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

1,472

 

 

 

1,472

 

Total

$

1,072,853

 

 

$

5,160,276

 

 

$

6,233,129

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

3,403

 

 

 

3,403

 

Total

$

 

 

$

3,403

 

 

$

3,403

 

 

 

 

December 31, 2018

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

861,206

 

 

$

 

 

$

861,206

 

Corporate notes

 

 

 

 

24,537

 

 

 

24,537

 

Commercial paper

 

 

 

 

778,777

 

 

 

778,777

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

 

 

 

294,128

 

 

 

294,128

 

U.S. government and agency securities

 

 

 

 

759,280

 

 

 

759,280

 

Corporate notes

 

 

 

 

1,713,835

 

 

 

1,713,835

 

Commercial paper

 

 

 

 

733,999

 

 

 

733,999

 

Certificates of deposit

 

 

 

 

813,715

 

 

 

813,715

 

Other current assets:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

1,343

 

 

 

1,343

 

Total

$

861,206

 

 

$

5,119,614

 

 

$

5,980,820

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

3,826

 

 

 

3,826

 

<