6-K 1 ck0001639920-6k_20180726.htm 6-K ck0001639920-6k_20180726.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of July, 2018

Commission File Number: 001-38438

Spotify Technology S.A.

(Translation of registrant’s name into English)

42-44, avenue de la Gare

L- 1610 Luxembourg

Grand Duchy of Luxembourg

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F      Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes      No  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes      No  

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Spotify Technology S.A.

Interim condensed consolidated financial statements

For the three and six months ended June 30, 2018

 


Table of contents

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

1

Interim condensed consolidated statement of operations

 

1

Interim condensed consolidated statement of comprehensive loss

 

2

Interim condensed consolidated statement of financial position

 

3

Interim condensed consolidated statement of changes in equity/(deficit)

 

4

Interim condensed consolidated statement of cash flows

 

5

Notes to the interim condensed consolidated financial statements

 

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

37

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

39

Item 1A. Risk Factors

 

39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 3. Defaults Upon Senior Securities

 

39

Item 5. Other Information

 

40

Signatures

 

41

 

 

 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Interim condensed consolidated statement of operations

(Unaudited)

(in € millions, except share and per share data)

 

 

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

Note

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

4

 

 

1,273

 

 

 

1,007

 

 

 

2,412

 

 

 

1,909

 

Cost of revenue

 

 

 

 

944

 

 

 

775

 

 

 

1,800

 

 

 

1,572

 

Gross profit

 

 

 

 

329

 

 

 

232

 

 

 

612

 

 

 

337

 

Research and development

 

 

 

 

143

 

 

 

95

 

 

 

258

 

 

 

175

 

Sales and marketing

 

 

 

 

173

 

 

 

146

 

 

 

311

 

 

 

256

 

General and administrative

 

 

 

 

103

 

 

 

70

 

 

 

174

 

 

 

124

 

 

 

 

 

 

419

 

 

 

311

 

 

 

743

 

 

 

555

 

Operating loss

 

 

 

 

(90

)

 

 

(79

)

 

 

(131

)

 

 

(218

)

Finance income

 

5

 

 

41

 

 

 

41

 

 

 

56

 

 

 

68

 

Finance costs

 

5

 

 

(343

)

 

 

(148

)

 

 

(497

)

 

 

(210

)

Share in earnings of associate

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

1

 

Finance income/(costs) - net

 

 

 

 

(302

)

 

 

(108

)

 

 

(441

)

 

 

(141

)

Loss before tax

 

 

 

 

(392

)

 

 

(187

)

 

 

(572

)

 

 

(359

)

Income tax expense/(benefit)

 

6

 

 

2

 

 

 

1

 

 

 

(9

)

 

 

2

 

Net loss attributable to owners of the parent

 

 

 

 

(394

)

 

 

(188

)

 

 

(563

)

 

 

(361

)

Net loss per share attributable to owners of the parent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic and diluted

 

7

 

 

(2.20

)

 

 

(1.24

)

 

 

(3.25

)

 

 

(2.40

)

Weighted-average ordinary shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic and diluted

 

7

 

 

179,077,124

 

 

 

151,069,953

 

 

 

173,459,249

 

 

 

150,612,183

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 


-1-


Interim condensed consolidated statement of comprehensive loss

(Unaudited)

(in € millions)

 

 

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

Note

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss attributable to owners of the parent

 

 

 

 

(394

)

 

 

(188

)

 

 

(563

)

 

 

(361

)

Other comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Items that may be subsequently reclassified to

   condensed consolidated statement of operations

   (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Gains on short term investments

 

19

 

 

1

 

 

 

1

 

 

 

 

 

 

2

 

   Exchange differences on translation of foreign

     operations

 

 

 

 

4

 

 

 

(2

)

 

 

(11

)

 

 

(1

)

Items not to be subsequently reclassified to

   condensed consolidated statement of operations

  (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Gain in the fair value of long term investment

 

19

 

 

1

 

 

 

 

 

 

46

 

 

 

 

Other comprehensive income/(loss) for the

   period (net of tax)

 

 

 

 

6

 

 

 

(1

)

 

 

35

 

 

 

1

 

Total comprehensive loss for the period

   attributable to owners of the parent

 

 

 

 

(388

)

 

 

(189

)

 

 

(528

)

 

 

(360

)

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

-2-


Interim condensed consolidated statement of financial position

(in € millions)

 

  

 

Note

 

 

June 30, 2018

 

 

December 31, 2017

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

8

 

 

 

83

 

 

 

73

 

Intangible assets including goodwill

 

 

9

 

 

 

175

 

 

 

162

 

Investment in associate

 

 

 

 

 

 

1

 

 

 

1

 

Long term investment

 

 

19

 

 

 

968

 

 

 

910

 

Restricted cash and other non-current assets

 

 

10

 

 

 

65

 

 

 

54

 

Deferred tax assets

 

 

6

 

 

 

10

 

 

 

9

 

 

 

 

 

 

 

 

1,302

 

 

 

1,209

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

14

 

 

 

324

 

 

 

360

 

Income tax receivable

 

 

 

 

 

 

1

 

 

 

 

Short term investments

 

 

19

 

 

 

885

 

 

 

1,032

 

Cash and cash equivalents

 

 

 

 

 

 

810

 

 

 

477

 

Other current assets

 

 

 

 

 

 

38

 

 

 

29

 

 

 

 

 

 

 

 

2,058

 

 

 

1,898

 

Total assets

 

 

 

 

 

 

3,360

 

 

 

3,107

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

 

 

 

 

 

 

 

 

 

Other paid in capital

 

 

 

 

 

 

3,733

 

 

 

2,488

 

Other reserves

 

 

11

 

 

 

256

 

 

 

177

 

Accumulated deficit

 

 

 

 

 

 

(2,990

)

 

 

(2,427

)

Equity attributable to owners of parent

 

 

 

 

 

 

999

 

 

 

238

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Convertible notes

 

 

13

 

 

 

 

 

 

944

 

Accrued expenses and other liabilities

 

 

17

 

 

 

71

 

 

 

56

 

Provisions

 

 

18

 

 

 

8

 

 

 

6

 

Deferred tax liabilities

 

 

6

 

 

 

2

 

 

 

3

 

 

 

 

 

 

 

 

81

 

 

 

1,009

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

 

15

 

 

 

369

 

 

 

341

 

Income tax payable

 

 

 

 

 

 

4

 

 

 

9

 

Deferred revenue

 

 

16

 

 

 

234

 

 

 

216

 

Accrued expenses and other liabilities

 

 

17

 

 

 

991

 

 

 

881

 

Provisions

 

 

18

 

 

 

51

 

 

 

59

 

Derivative liabilities

 

 

19

 

 

 

631

 

 

 

354

 

 

 

 

 

 

 

 

2,280

 

 

 

1,860

 

Total liabilities

 

 

 

 

 

 

2,361

 

 

 

2,869

 

Total equity and liabilities

 

 

 

 

 

 

3,360

 

 

 

3,107

 

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

-3-


Interim condensed consolidated statement of changes in equity/(deficit)

(Unaudited)

(in € millions)

 

  

 

Note

 

Share

capital

 

 

Other

paid in

capital

 

 

Other

reserves

 

 

Accumulated

deficit

 

 

(Deficit)/Equity

attributable to

owners of parent

 

Balance at January 1, 2017

 

 

 

 

 

 

 

830

 

 

 

122

 

 

 

(1,192

)

 

 

(240

)

Loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

(361

)

 

 

(361

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Issuance of shares upon exercise of stock

  options and restricted stock units

 

12

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

20

 

Issuance of ordinary shares related to business

combination

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Share-based payments

 

12

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

33

 

Income tax impact associated with share-based

   payments

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Balance at June 30, 2017

 

 

 

 

 

 

 

852

 

 

 

157

 

 

 

(1,553

)

 

 

(544

)

Balance at January 1, 2018

 

 

 

 

 

 

 

2,488

 

 

 

177

 

 

 

(2,427

)

 

 

238

 

Loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

(563

)

 

 

(563

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Issuance of new shares

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Issuance of shares upon exercise of stock

  options and restricted stock units

 

12

 

 

 

 

 

96

 

 

 

 

 

 

 

 

 

96

 

Issuance of shares upon exchange of

  Convertible Notes

 

19

 

 

 

 

 

1,145

 

 

 

 

 

 

 

 

 

1,145

 

Share-based payments

 

12

 

 

 

 

 

 

 

 

42

 

 

 

 

 

 

42

 

Income tax impact associated with share-based

   payments

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Balance at June 30, 2018

 

 

 

 

 

 

 

3,733

 

 

 

256

 

 

 

(2,990

)

 

 

999

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

-4-


Interim condensed consolidated statement of cash flows

(Unaudited)

(in € millions)

 

 

 

 

Six months ended June 30,

 

 

 

Note

 

2018

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

(563

)

 

 

(361

)

Adjustments to reconcile net loss to net cash flows

 

 

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

8

 

 

13

 

 

 

23

 

Amortization of intangible assets

 

9

 

 

4

 

 

 

3

 

Share-based payments expense

 

12

 

 

41

 

 

 

33

 

Finance income

 

5

 

 

(56

)

 

 

(68

)

Finance costs

 

5

 

 

497

 

 

 

210

 

Income tax (benefit)/expense

 

 

 

 

(9

)

 

 

2

 

Share in earnings of associate

 

 

 

 

 

 

 

(1

)

Other

 

 

 

 

(2

)

 

 

3

 

Changes in working capital:

 

 

 

 

 

 

 

 

 

 

Decrease/(increase) in trade receivables and other assets

 

 

 

 

27

 

 

 

(27

)

Increase in trade and other liabilities

 

 

 

 

148

 

 

 

267

 

Increase in deferred revenue

 

16

 

 

16

 

 

 

24

 

(Decrease)/increase in provisions

 

18

 

 

(7

)

 

 

46

 

Interest received

 

 

 

 

12

 

 

 

9

 

Income tax (paid)/received

 

 

 

 

(7

)

 

 

2

 

Net cash flows from operating activities

 

 

 

 

114

 

 

 

165

 

Investing activities

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

8

 

 

(11

)

 

 

(6

)

Purchases of short term investments

 

19

 

 

(715

)

 

 

(667

)

Sales and maturities of short term investments

 

19

 

 

881

 

 

 

586

 

Transaction fees for long term investment

 

 

 

 

(9

)

 

 

 

Change in restricted cash

 

10

 

 

(11

)

 

 

(36

)

Other

 

 

 

 

(13

)

 

 

(44

)

Net cash flows from/(used in) investing activities

 

 

 

 

122

 

 

 

(167

)

Financing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from the issuance of ordinary shares

 

 

 

 

4

 

 

 

 

Proceeds from exercise of share options

 

12

 

 

96

 

 

 

20

 

Other

 

 

 

 

(2

)

 

 

(2

)

Net cash flows from financing activities

 

 

 

 

98

 

 

 

18

 

Net increase in cash and cash equivalents

 

 

 

 

334

 

 

 

16

 

Cash and cash equivalents at beginning of the period

 

 

 

 

477

 

 

 

755

 

Net foreign exchange losses on cash and cash equivalents

 

 

 

 

(1

)

 

 

(39

)

Cash and cash equivalents at June 30

 

 

 

 

810

 

 

 

732

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment in trade and

   other liabilities

 

8

 

 

17

 

 

 

8

 

Issuance of shares upon exchange of Convertible Notes

 

19

 

 

1,145

 

 

 

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

-5-


Notes to the interim condensed consolidated financial statements

(Unaudited)

1.

Corporate information

Spotify Technology S.A. (the “Company”) is a public limited company incorporated and domiciled in Luxembourg. The Company’s registered office is 42-44 avenue de la Gare, L1610, Luxembourg.

The principal activity of the Company and its subsidiaries (the “Group,” “we,” “us,” or “our”) is music streaming. The Group’s premium service (“Premium Service”) provides users with unlimited online and offline high-quality streaming access to its catalog. The Premium Service offers a commercial-free music experience. The Group’s ad-supported service (“Ad-Supported Service,” and together with the Premium Service, the “Service”) has no subscription fees and provides users with limited on-demand online access to the catalog. The Group depends on securing content licenses from a number of major and minor content owners and other rights holders in order to provide its service.

On April 3, 2018, the Group completed a direct listing of the Company’s ordinary shares on the New York Stock Exchange (“NYSE”).

2.

Basis of preparation and summary of significant accounting policies

The interim condensed consolidated financial statements of Spotify Technology S.A. for the three and six months ended June 30, 2018 and 2017 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim financial information is unaudited. The interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2017, as they do not include all the information and disclosures required in the annual consolidated financial statements. Interim results are not necessarily indicative of the results for a full year. The interim condensed consolidated financial statements are presented in millions of Euros.

On January 1, 2018, the Group adopted International Financial Reporting Standard (“IFRS”) 9, Financial Instruments, which replaces IAS 39, Financial Instruments: Recognition and Measurement. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Under the provisions of the standard, the Group made the election to present in other comprehensive income, changes in the fair value of its long term investment in Tencent Music Entertainment Group (“TME”), a private company that provides digital music services to users including streaming, online live broadcasts, and karaoke services, without recognizing fair value changes to profit and loss upon derecognition. The Group concluded that the accounting treatment of its remaining financial assets, financial liabilities and derivative instruments under IAS 39 was in accordance with the requirements of IFRS 9 and, therefore, there was no material impact on the Group’s condensed consolidated financial statements upon adoption of the standard.

Other than as mentioned above, the accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of our consolidated financial statements for the year ended December 31, 2017. None of the new or amended standards and interpretations as of January 1, 2018 have had a material impact on our financial result or position.

3.

Critical accounting estimates and judgments

In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2017.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events.

-6-


4.

Segment information

 

The Group has two reportable segments: Premium and Ad-Supported. The Premium Service is a paid service in which customers can listen on-demand and offline. Revenue is generated through subscription fees. The Ad-Supported Service is free to the user. Revenue is generated through the sale of advertising. Royalty costs are primarily recorded in each segment based on specific rates for each segment agreed to with rights holders. The remaining royalties that are not specifically associated to either of the segments are allocated based on user activity or the revenue recognized in each segment. No operating segments have been aggregated to form the reportable segments.

 

Key financial performance measures of the segments including revenue, cost of revenue, and gross profit are as follows:

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in € millions)

 

Premium

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

1,150

 

 

 

904

 

 

 

2,187

 

 

 

1,732

 

Cost of revenue

 

 

841

 

 

 

686

 

 

 

1,608

 

 

 

1,396

 

Gross profit

 

 

309

 

 

 

218

 

 

 

579

 

 

 

336

 

Ad-Supported

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

123

 

 

 

103

 

 

 

225

 

 

 

177

 

Cost of revenue

 

 

103

 

 

 

89

 

 

 

192

 

 

 

176

 

Gross profit

 

 

20

 

 

 

14

 

 

 

33

 

 

 

1

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

1,273

 

 

 

1,007

 

 

 

2,412

 

 

 

1,909

 

Cost of revenue

 

 

944

 

 

 

775

 

 

 

1,800

 

 

 

1,572

 

Gross profit

 

 

329

 

 

 

232

 

 

 

612

 

 

 

337

 

 

Reconciliation of gross profit

 

General expenditures, finance income, finance costs, taxes, and share in earnings of associate are not allocated to individual segments as these are managed on an overall group basis. The reconciliation between reportable segment gross profit to our loss before tax is as follows:

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in € millions)

 

Segment gross profit

 

 

329

 

 

 

232

 

 

 

612

 

 

 

337

 

Research and development

 

 

(143

)

 

 

(95

)

 

 

(258

)

 

 

(175

)

Sales and marketing

 

 

(173

)

 

 

(146

)

 

 

(311

)

 

 

(256

)

General and administrative

 

 

(103

)

 

 

(70

)

 

 

(174

)

 

 

(124

)

Finance income

 

 

41

 

 

 

41

 

 

 

56

 

 

 

68

 

Finance costs

 

 

(343

)

 

 

(148

)

 

 

(497

)

 

 

(210

)

Share in earnings of associate

 

 

 

 

 

(1

)

 

 

 

 

 

1

 

Loss before tax

 

 

(392

)

 

 

(187

)

 

 

(572

)

 

 

(359

)

 

-7-


Revenue by country

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in € millions)

 

United States

 

 

473

 

 

 

395

 

 

 

889

 

 

 

746

 

United Kingdom

 

 

142

 

 

 

109

 

 

 

270

 

 

 

208

 

Luxembourg

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

Other countries

 

 

658

 

 

 

502

 

 

 

1,252

 

 

 

954

 

 

 

 

1,273

 

 

 

1,007

 

 

 

2,412

 

 

 

1,909

 

 

Premium revenue is attributed to a country based on where the membership originates. Ad-Supported revenue is attributed to a country based on where the advertising campaign is viewed. There are no countries that make up greater than 10% of total revenue included in “Other countries.”

 

5.

Finance income and costs

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,