Press Release
Yahoo Reports Second Quarter 2016 Results
"With the lowest cost structure and headcount in a decade, we continue
to make solid progress against our 2016 plan. Through disciplined
expense management and focused execution, we delivered Q2 results that
met guidance across the board and in some areas exceeded it," said
Q2 2015 | Q2 2016 | |||
GAAP revenue |
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Cost of revenue -TAC |
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$ - million |
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Loss from operations |
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Non-GAAP income from operations |
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Net loss |
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Adjusted EBITDA |
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GAAP net loss per diluted share |
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Non-GAAP net earnings per diluted share |
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* See further discussion related to goodwill and intangibles impairment below
Our second quarter GAAP revenue and Cost of revenue - TAC were impacted
by a required change in revenue presentation related to the Eleventh
Amendment to the Microsoft Search Agreement ("Change in Revenue
Presentation," as discussed below). Specifically,
Business Highlights:
Platforms
-
Kept Yahoo Mail one of the highest rated mail apps in both the
App Store and Google Play, with major updates for iOS and Android versions, including an unsend feature, contact improvements, and a document preview feature. -
Introduced support for Live Video on
Tumblr with YouNow,YouTube , Kanvas and Upclose so thatTumblr can serve as a premier publishing and discovery platform to broadcast, watch and share live videos no matter where they're created.
Verticals
-
Launched updates to
Yahoo News , Sports, and Finance on desktop along with new updated Sports and Finance apps for a cleaner, faster more personalized experience. - Hosted the first-ever live streams of Berkshire Hathaway's annual shareholders meeting, which had more than 1.8 million views across devices in both English and Mandarin, and Adrian Wojnarowski's coverage of the NBA Draft, which attracted approximately 3.7 million total views, with an average watch time of 34 minutes per user.
Advertising
- At our NewFront event, announced new video programming along with opportunities for our advertisers, and expanded open viewability measurement to include Yahoo Gemini native video in partnership with Moat, giving marketers more ways to measure their Yahoo Gemini native video campaigns.
- Launched a new content marketing offering, Yahoo Storytellers, and a new mobile offering, Yahoo Tiles, for advertisers.
Non-Core Assets
-
Generated additional value for shareholders through the sale of
Santa Clara real estate which generated$246 million in net cash proceeds. -
Established Excalibur LLC to explore the divestiture of more than 4,000 non-strategic patents and pending applications.
Second Quarter 2016 Financial Highlights
Mavens Revenue*:
Q2 2015 | Q2 2016 | |||
Mavens revenue |
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Non-Mavens revenue | 723 million | 749 million | ||
Total traffic-driven revenue |
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Non-traffic-driven revenue | 119 million | 55 million | ||
GAAP revenue |
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* The Change in Revenue Presentation contributed
Mavens revenue represented 36 percent and 40 percent of traffic-driven
revenue in the second quarter of 2015 and 2016, respectively. Excluding
the impact of the Change in Revenue Presentation, Mavens revenue would
have been
Mobile Revenue*:
Q2 2015 | Q2 2016 | |||
Mobile revenue |
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Desktop revenue | 872 million | 875 million | ||
Total traffic-driven revenue |
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Non-traffic-driven revenue | 119 million | 55 million | ||
GAAP revenue |
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* The Change in Revenue Presentation contributed
GAAP mobile revenue for the second quarter of 2015 and 2016 was
Mobile revenue represented 22 percent and 30 percent of traffic-driven
revenue in the second quarter of 2015 and 2016, respectively. Excluding
the impact of the Change in Revenue Presentation, mobile revenue would
have been
Gross mobile revenue for the second quarter of 2015 and 2016 was
Search Revenue:
-
GAAP search revenue was
$711 million for the second quarter of 2016 compared to$528 million for the second quarter of 2015. Excluding the impact of the Change in Revenue Presentation, which contributed$252 million to search revenue in the second quarter of 2016, search revenue decreased by 13 percent compared to the second quarter of 2015. -
Gross search revenue was
$765 million for the second quarter of 2016, a decrease of 17 percent compared to the second quarter of 2015. The Change in Revenue Presentation did not impact gross search revenue in the second quarter of 2016. -
Cost of revenue - TAC paid to search Affiliates was
$392 million for the second quarter of 2016, a 270 percent increase compared to the second quarter of 2015. Excluding the impact of the Change in Revenue Presentation, which contributed$252 million to Cost of revenue - TAC in the second quarter of 2016, Cost of revenue - TAC paid to search Affiliates increased by 32 percent compared to the second quarter of 2015. - The number of Paid Clicks decreased 24 percent compared to the second quarter of 2015.
- Price-per-Click increased 8 percent compared to the second quarter of 2015.
Display Revenue:
-
GAAP display revenue was
$470 million for the second quarter of 2016, a 7 percent decrease compared to the second quarter of 2015. -
Cost of revenue - TAC paid to display Affiliates was
$74 million for the second quarter of 2016, a 21 percent decrease compared to the second quarter of 2015. - The number of Ads Sold increased 9 percent compared to the second quarter of 2015.
- Price-per-Ad decreased 15 percent compared to the second quarter of 2015.
During the second quarter of 2016, we determined that there were
indicators present to suggest that it is more likely than not that the
fair value of the
Cash, Cash Equivalents, and
-
Cash, cash equivalents, and marketable securities were
$7,665 million as ofJune 30, 2016 compared to$6,833 million as ofDecember 31, 2015 , an increase of$832 million . The increase is primarily attributable to$776 million of cash from operating activities, which includes$157 million in cash dividends received from an equity investee and a cash tax refund of$190 million received during the first quarter of 2016. The Company also received net cash proceeds of$246 million from the sale of land inSanta Clara and incurred capital expenditures of$152 million .
"I'm pleased that we crossed the first half of the year showing progress
on our 2016 plan and the guidance we provided. By continuing to focus on
revenue, both GAAP and ex-TAC, and excellent expenditure management of
cost and capital, we reported increased cash flow and a strong balance
sheet through the second quarter as exemplified by our cash and
marketable securities of nearly
Change in Revenue Presentation:
Pursuant to the Eleventh Amendment to the Microsoft Search Agreement,
the Company completed the transition of its exclusive sales
responsibilities to Microsoft for Microsoft's paid search services to
premium advertisers in
Live Stream:
Non-GAAP Financial Measures:
This press release includes adjusted GAAP revenue and cost of revenue - TAC amounts that exclude the effect of the Change in Revenue Presentation during the second quarter of 2016. We believe providing this additional information to investors is useful because it provides investors with comparable revenue and cost of revenue -TAC measures for comparison to our historical reported financial information.
This press release and its attachments also include the
following additional financial measures defined as non-GAAP financial
measures by the
Gross mobile revenue is GAAP mobile revenue plus the related revenue share with third parties. Gross search revenue is GAAP search revenue plus the related revenue share with third parties. Revenue ex-TAC is GAAP revenue less cost of revenue - TAC. Adjusted EBITDA, non-GAAP income from operations, non-GAAP net earnings and non-GAAP net earnings per share - diluted, exclude from the most comparable GAAP financial measures certain gains, losses, and expenses that we do not believe are indicative of ongoing results, and exclude stock-based compensation expense. Adjusted EBITDA also excludes taxes, depreciation, amortization of intangible assets, other (expense) income, net (which includes interest, among other items), earnings in equity interests, and net income attributable to noncontrolling interests. Free cash flow is GAAP net cash provided by operating activities (adjusted to include excess tax benefits from stock-based awards), less acquisition of property and equipment, net (i.e., acquisition of property and equipment less proceeds received from disposition of property and equipment) and dividends received from equity investees.
These measures may be different than non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles ("GAAP"). Explanations of the Company's non-GAAP financial measures and reconciliations of these financial measures to the GAAP financial measures the Company considers most comparable are included in the accompanying "Note to Supplemental Financial Data and GAAP to Non-GAAP Reconciliations," "Supplemental Financial Data and GAAP to Non-GAAP Reconciliations," and "GAAP to Non-GAAP Reconciliations."
About
"Ads Sold" consist of display ad impressions for paying advertisers
on
"Affiliates" are third-party entities that have integrated Yahoo's advertising offerings into their websites or other offerings (those websites and other offerings, "Affiliate sites").
"Alibaba Group" means Alibaba Group Holding Limited. In
"Desktop computer" means a desktop or laptop computer, and "desktop revenue" is revenue generated from search and display ads served on Desktop computers and also includes leads, listings and fees revenue and ecommerce revenue allocated to user activity on Desktop computers.
"Gross mobile revenue," a non-GAAP measure, is GAAP mobile revenue plus the related revenue share with third parties.
"Gross search revenue," a non-GAAP measure, is GAAP search revenue plus the related revenue share with third parties.
"Mavens revenue" is revenue generated from, without duplication: (i)
mobile (as defined below), (ii) video ads and video ad packages, (iii)
native ads, and (iv)
"Microsoft Search Agreement" refers to the Search and Advertising
Services and Sales Agreement between
"Mobile revenue" is revenue generated in connection with user activity on mobile devices, including smartphones and tablets, regardless of whether the device is accessing a mobile-optimized service. Mobile revenue is generated primarily from search and display ads. Mobile revenue also includes leads, listings and fees revenue and ecommerce revenue allocated to user activity on mobile devices.
"Native revenue" is revenue generated from native ads (search
and display) on
"Net earnings" means net income (loss) attributable to
"Non-Mavens revenue" is revenue generated from search ads and
traditional (i.e., non-native, non-video, non-
"Non-traffic-driven revenue" is revenue not arising from user
activity on
"Paid Clicks" are clicks by end-users on sponsored search listings
(excluding native ads) on
"Price-per-Ad" is defined as display revenue divided by our total number of Ads Sold.
"Price-per-Click" is defined as Search click-driven revenue divided by our total number of Paid Clicks.
"Search click-driven revenue" is gross search revenue excluding search revenue from Yahoo Japan.
"TAC" refers to traffic acquisition costs. TAC consists of
payments to Affiliates and payments made to companies that direct
consumer and business traffic to
"Yahoo," "Company," and "we" refer to
"Yahoo Properties" refers to the online properties and services that
We periodically review, refine and update our methodologies for monitoring, gathering, and counting number of Ads Sold and Paid Clicks, and for calculating Search click-driven revenue, Price-per-Ad, and Price-per-Click. Methodology changes are applied consistently to all periods presented. No changes were made in the currently reported period.
Additional information about how "Ads Sold," "Paid Clicks,"
"Price-per-Ad," "Price-per-Click," and "Search click-driven revenue" are
defined and calculated is included under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the year
ended
This press release contains forward-looking statements concerning
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Unaudited Condensed Consolidated Balance Sheets | |||||||
(in thousands) | |||||||
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2015 | 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,631,911 | $ | 1,325,404 | |||
Short-term marketable securities | 4,225,112 | 5,055,683 | |||||
Accounts receivable, net | 1,047,504 | 991,185 | |||||
Prepaid expenses and other current assets | 602,792 | 224,729 | |||||
Total current assets | 7,507,319 | 7,597,001 | |||||
Long-term marketable securities | 975,961 | 1,284,026 | |||||
Property and equipment, net | 1,547,323 | 1,326,242 | |||||
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808,114 | 431,366 | |||||
Intangible assets, net | 347,269 | 202,116 | |||||
Other long-term assets and investments | 342,390 | 245,123 | |||||
Investments in Alibaba Group | 31,172,361 | 30,504,958 | |||||
Investments in equity interests | 2,503,229 | 2,623,463 | |||||
Total assets | $ | 45,203,966 | $ | 44,214,295 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 208,691 | $ | 171,621 | |||
Other accrued expenses and current liabilities | 934,658 | 982,860 | |||||
Deferred revenue | 134,031 | 122,026 | |||||
Total current liabilities | 1,277,380 | 1,276,507 | |||||
Convertible notes | 1,233,485 | 1,266,279 | |||||
Long-term deferred revenue | 27,801 | 33,557 | |||||
Other long-term liabilities | 118,689 | 125,826 | |||||
Deferred tax liabilities related to investment in Alibaba Group | 12,611,867 | 12,339,927 | |||||
Deferred and other long-term tax liabilities | 855,324 | 775,895 | |||||
Total liabilities | 16,124,546 | 15,817,991 | |||||
Total |
29,043,537 | 28,363,894 | |||||
Noncontrolling interests | 35,883 | 32,410 | |||||
Total equity | 29,079,420 | 28,396,304 | |||||
Total liabilities and equity | $ | 45,203,966 | $ | 44,214,295 | |||
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Unaudited Condensed Consolidated Statements of Operations | ||||||||||||
(in thousands, except per share amounts) | ||||||||||||
Three Months Ended |
Six Months Ended |
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2015 | 2016 | 2015 | 2016 | |||||||||
Revenue (3) |
$ | 1,243,265 | $ | 1,307,637 | $ | 2,469,235 | $ | 2,394,789 | ||||
Operating expenses: | ||||||||||||
Cost of revenue - traffic acquisition costs (3) |
200,230 | 466,486 | 383,369 | 694,249 | ||||||||
Cost of revenue - other | 295,932 | 268,483 | 581,195 | 551,070 | ||||||||
Sales and marketing | 274,304 | 226,024 | 549,661 | 462,057 | ||||||||
Product development | 306,428 | 280,035 | 633,175 | 558,064 | ||||||||
General and administrative | 180,595 | 158,355 | 354,108 | 313,806 | ||||||||
Amortization of intangibles | 19,982 | 16,369 | 40,055 | 35,142 | ||||||||
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- | 394,901 | - | 394,901 | ||||||||
Intangibles impairment charge | - | 87,335 | - | 87,335 | ||||||||
Gain on sale of patents and land | (9,100) | (120,059) | (11,100) | (121,559) | ||||||||
Restructuring charges, net | 19,688 | 19,384 | 70,920 | 76,614 | ||||||||
Total operating expenses | 1,288,059 | 1,797,313 | 2,601,383 | 3,051,679 | ||||||||
Loss from operations | (44,794) | (489,676) | (132,148) | (656,890) | ||||||||
Other (expense) income, net | (11,741) | 15,062 | (42,804) | (32,354) | ||||||||
Loss before income taxes and earnings in equity interests | (56,535) | (474,614) | (174,952) | (689,244) | ||||||||
(Provision) benefit for income taxes | (58,495) | (15,543) | (17,595) | 19,223 | ||||||||
Earnings in equity interests | 95,841 | 51,777 | 195,531 | 133,351 | ||||||||
Net (loss) income | (19,189) | (438,380) | 2,984 | (536,670) | ||||||||
Less: Net income attributable to noncontrolling interests | (2,365) | (1,533) | (3,340) | (2,475) | ||||||||
Net loss attributable to |
$ | (21,554) | $ | (439,913) | $ | (356) | $ | (539,145) | ||||
Net loss attributable to |
$ | (0.02) | $ | (0.46) | $ | (0.00) | $ | (0.57) | ||||
Shares used in per share calculation - diluted | 937,569 | 948,432 | 936,159 | 947,076 | ||||||||
Stock-based compensation expense by function: | ||||||||||||
Cost of revenue - other | $ | 7,200 | $ | 7,910 | $ | 13,209 | $ | 16,436 | ||||
Sales and marketing | 39,978 | 38,944 | 78,099 | 71,831 | ||||||||
Product development | 50,762 | 58,474 | 98,983 | 106,462 | ||||||||
General and administrative | 27,190 | 26,636 | 50,535 | 45,642 | ||||||||
Restructuring charges, net | - | - | 2,705 | 7,374 | ||||||||
Supplemental Financial Data: |
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Revenue ex-TAC | $ | 1,043,035 | $ | 841,151 | $ | 2,085,866 | $ | 1,700,540 | ||||
Adjusted EBITDA | $ | 261,703 | $ | 172,369 | $ | 492,816 | $ | 319,441 | ||||
Free cash flow(1)(2) | $ | (24,780) | $ | 425,646 | $ | (3,059,702) | $ | 722,841 | ||||
(1) |
During the six months ended |
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(2) |
During the three and six months ended |
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(3) |
Commencing in Q2'16, TAC payments related to the Microsoft Search Agreement, which previously would have been recorded as a reduction of revenue, began to be recorded as a cost of revenue due to a required change in revenue presentation. See "Change in Revenue Presentation" in the accompanying press release. |
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Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||||||||||
(in thousands) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
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2015 | 2016 | 2015 | 2016 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net (loss) income | $ | (19,189 | ) | $ | (438,380 | ) | $ | 2,984 | $ | (536,670 | ) | |||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |
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Depreciation | 119,633 | 105,677 | 236,694 | 213,054 | ||||||||||||
Amortization of intangible assets | 34,046 | 27,550 | 68,524 | 59,838 | ||||||||||||
Accretion of convertible notes discount | 15,660 | 16,504 | 31,117 | 32,794 | ||||||||||||
Stock-based compensation expense | 125,130 | 131,964 | 243,531 | 247,745 | ||||||||||||
Non-cash goodwill impairment charge | - | 394,901 | - | 394,901 | ||||||||||||
Non-cash intangibles impairment charge | - | 87,335 | - | 87,335 | ||||||||||||
Non-cash restructuring (reversals) charges | (74 | ) | 1,014 | (933 | ) | 1,376 | ||||||||||
Non-cash accretion on marketable debt securities | 7,545 | 6,140 | 23,557 | 18,494 | ||||||||||||
Foreign exchange loss (gain) | 3,085 | (29,909 | ) | 21,318 | (36,433 | ) | ||||||||||
Gain on sale of assets and other | (91 | ) | (1,641 | ) | (28 | ) | (1,831 | ) | ||||||||
Gain on sale of patents and land | (9,100 | ) | (120,059 | ) | (11,100 | ) | (121,559 | ) | ||||||||
(Gain) loss on Hortonworks warrants | (5,449 | ) | 2,287 | 6,460 | 41,437 | |||||||||||
Earnings in equity interests | (95,841 | ) | (51,777 | ) | (195,531 | ) | (133,351 | ) | ||||||||
Tax (detriments) benefits from stock-based awards | (36,439 | ) | 624 | (3,617 | ) | 1,816 | ||||||||||
Excess tax benefits from stock-based awards | 35,620 | (3,034 | ) | (1,850 | ) | (10,560 | ) | |||||||||
Deferred income taxes | (30,227 | ) | (55,749 | ) | (13,218 | ) | (93,543 | ) | ||||||||
Dividends received from equity investee | 141,670 | 156,968 | 141,670 | 156,968 | ||||||||||||
Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||||||||
Accounts receivable | (57,042 | ) | (114,478 | ) | 32,881 | 58,199 | ||||||||||
Prepaid expenses and other | (25,833 | ) | 110,639 | (90,078 | ) | 343,422 | ||||||||||
Accounts payable | 6,892 | (3,948 | ) | 37,505 | (1,104 | ) | ||||||||||
Accrued expenses and other liabilities | 165,744 | 202,155 | 232,210 | 59,847 | ||||||||||||
Income taxes payable related to sale of Alibaba Group ADSs | - | - | (3,282,293 | ) | - | |||||||||||
Deferred revenue | (67,788 | ) | (14,853 | ) | (132,790 | ) | (6,477 | ) | ||||||||
Net cash provided by (used in) operating activities | 307,952 | 409,930 | (2,652,987 | ) | 775,698 | |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Acquisition of property and equipment | (155,713 | ) | (77,937 | ) | (267,390 | ) | (154,336 | ) | ||||||||
Proceeds from sales of property and equipment | 271 | 247,587 | 495 | 247,887 | ||||||||||||
Purchases of marketable securities | (1,614,068 | ) | (2,385,685 | ) | (2,326,886 | ) | (4,257,001 | ) | ||||||||
Proceeds from sales of marketable securities | 301,423 | 120,587 | 473,775 | 167,961 | ||||||||||||
Proceeds from maturities of marketable securities | 1,224,829 | 1,572,830 | 3,584,596 | 2,942,666 | ||||||||||||
Acquisitions, net of cash acquired | 1,782 | - | (21,291 | ) | - | |||||||||||
Proceeds from sales of patents | - | - | 20,000 | 1,500 | ||||||||||||
Purchases of intangible assets | (3,451 | ) | (788 | ) | (4,611 | ) | (1,965 | ) | ||||||||
Proceeds from the settlement of derivative hedge contracts | 45,140 | 1,787 | 64,767 | 37,815 | ||||||||||||
Payments for settlement of derivative hedge contracts | (1,731 | ) | (2,140 | ) | (3,882 | ) | (5,164 | ) | ||||||||
Payments for equity investments in privately held companies | - | (9 | ) | - | (9 | ) | ||||||||||
Other investing activities, net | (115 | ) | (35 | ) | (153 | ) | (93 | ) | ||||||||
Net cash (used in) provided by investing activities | (201,633 | ) | (523,803 | ) | 1,519,420 | (1,020,739 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from issuance of common stock | 10,588 | 6,170 | 46,777 | 10,924 | ||||||||||||
Repurchases of common stock | - | - | (203,771 | ) | - | |||||||||||
Excess tax benefits from stock-based awards | (35,620 | ) | 3,034 | 1,850 | 10,560 | |||||||||||
Tax withholdings related to net share settlements of restricted stock awards and restricted stock units | (52,534 | ) | (49,286 | ) | (149,960 | ) | (91,425 | ) | ||||||||
Distributions to noncontrolling interests | (15,847 | ) | (5,948 | ) | (15,847 | ) | (5,948 | ) | ||||||||
Other financing activities, net | (4,442 | ) | (3,930 | ) | (9,015 | ) | (7,567 | ) | ||||||||
Net cash used in financing activities | (97,855 | ) | (49,960 | ) | (329,966 | ) | (83,456 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 5,048 | 9,633 | (12,396 | ) | 21,990 | |||||||||||
Net change in cash and cash equivalents | 13,512 | (154,200 | ) | (1,475,929 | ) | (306,507 | ) | |||||||||
Cash and cash equivalents, beginning of period | 1,174,657 | 1,479,604 | 2,664,098 | 1,631,911 | ||||||||||||
Cash and cash equivalents, end of period | $ | 1,188,169 | $ | 1,325,404 | $ | 1,188,169 | $ | 1,325,404 | ||||||||
Note to Supplemental Financial Data and GAAP
to Non-GAAP Reconciliations
This press release includes adjusted GAAP revenue and cost of revenue - TAC amounts that exclude the effect of the Change in Revenue Presentation during the second quarter of 2016. We believe providing this additional information to investors is useful because it provides investors with comparable revenue and cost of revenue - TAC measures for comparison to our historical reported financial information. See "Change in Revenue Presentation" in the accompanying press release.
This press release and its attachments also include the non-GAAP
financial measures of revenue excluding traffic acquisition costs
("revenue ex-TAC"); gross mobile revenue; gross search revenue; adjusted
EBITDA; non-GAAP income from operations; non-GAAP net earnings; non-GAAP
net earnings per diluted share; and free cash flow, which are reconciled
to revenue (in the case of revenue ex-TAC, gross mobile revenue, and
gross search revenue); net loss attributable to
Revenue ex-TAC is a non-GAAP financial measure defined as GAAP revenue
less TAC that has been recorded as a cost of revenue. TAC consists of
payments made to Affiliates, and payments made to companies that direct
consumer and business traffic to
Each of gross mobile revenue and gross search revenue is a non-GAAP
financial measure. Gross mobile revenue is defined as GAAP mobile
revenue plus the related revenue share with third parties. Gross search
revenue is defined as GAAP search revenue plus the related revenue share
with third parties. We present these amounts to provide investors with
additional metrics used by the Company for evaluation and
decision-making purposes and as an indicator of the size of our presence
in the relevant business. To this end, gross mobile revenue and gross
search revenue report the total receipts generated on
Adjusted EBITDA is defined as net income (loss) attributable to
Non-GAAP income from operations is defined as income (loss) from operations excluding certain gains, losses, and expenses that we do not believe are indicative of our ongoing operating results and further adjusted to exclude stock-based compensation expense. Because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation expense enhances the ability of management and investors to understand the impact of stock-based compensation expense on income (loss) from operations. We consider non-GAAP income from operations to be a profitability measure which facilitates the forecasting of our operating results for future periods and allows for the comparison of our results to historical periods. A limitation of non-GAAP income from operations is that it does not include all items that impact our income from operations for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measure of income (loss) from operations which includes the gains, losses, and expenses that are excluded from non-GAAP income from operations.
Non-GAAP net earnings is defined as net income (loss) attributable to
Free cash flow is a non-GAAP financial measure defined as net cash provided by (used in) operating activities (adjusted to include excess tax benefits from stock-based awards), less acquisition of property and equipment, net (i.e., acquisition of property and equipment less proceeds received from disposition of property and equipment) and dividends received from equity investees. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by business operations, after deducting our net payments for acquisitions and dispositions of property and equipment, which cash can then be used for strategic opportunities or other business purposes including, among others, investing in the Company's business, making strategic acquisitions, strengthening the balance sheet, and repurchasing stock. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for this limitation by also relying on the net change in cash and cash equivalents as presented in the Company's unaudited condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.
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Supplemental Financial Data and GAAP to Non-GAAP Reconciliations | ||||||||||||||||
(in thousands) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
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2015 | 2016 | 2015 | 2016 | |||||||||||||
Revenue for groups of similar services: | ||||||||||||||||
Search (3)(4) |
$ | 528,215 | $ | 711,496 | $ | 1,070,307 | $ | 1,203,377 | ||||||||
Display (4) |
503,328 | 469,537 | 970,266 | 932,556 | ||||||||||||
Other (4) |
211,722 | 126,604 | 428,662 | 258,856 | ||||||||||||
Total revenue | $ | 1,243,265 | $ | 1,307,637 | $ | 2,469,235 | $ | 2,394,789 | ||||||||
Revenue excluding traffic acquisition costs recorded as cost of revenue ("revenue ex-TAC") for groups of similar services: | ||||||||||||||||
GAAP search revenue (3) |
$ | 528,215 | $ | 711,496 | $ | 1,070,307 | $ | 1,203,377 | ||||||||
TAC associated with search revenue (3) |
(105,876 | ) | (392,182 | ) | (205,885 | ) | (536,343 | ) | ||||||||
Search revenue ex-TAC | $ | 422,339 | $ | 319,314 | $ | 864,422 | $ | 667,034 | ||||||||
GAAP display revenue | $ | 503,328 | $ | 469,537 | $ | 970,266 | $ | 932,556 | ||||||||
TAC associated with display revenue | (93,682 | ) | (73,811 | ) | (176,116 | ) | (156,878 | ) | ||||||||
Display revenue ex-TAC | $ | 409,646 | $ | 395,726 | $ | 794,150 | $ | 775,678 | ||||||||
GAAP other revenue | $ | 211,722 | $ | 126,604 | $ | 428,662 | $ | 258,856 | ||||||||
TAC associated with GAAP other revenue | (672 | ) | (493 | ) | (1,368 | ) | (1,028 | ) | ||||||||
Other revenue ex-TAC | $ | 211,050 | $ | 126,111 | $ | 427,294 | $ | 257,828 | ||||||||
Revenue ex-TAC: | ||||||||||||||||
GAAP revenue (3) |
$ | 1,243,265 | $ | 1,307,637 | $ | 2,469,235 | $ | 2,394,789 | ||||||||
TAC (3) |
(200,230 | ) | (466,486 | ) | (383,369 | ) | (694,249 | ) | ||||||||
Revenue ex-TAC | $ | 1,043,035 | $ | 841,151 | $ | 2,085,866 | $ | 1,700,540 | ||||||||
Revenue ex-TAC by segment: | ||||||||||||||||
|
||||||||||||||||
GAAP revenue (3) |
$ | 992,210 | $ | 1,055,068 | $ | 1,976,931 | $ | 1,916,607 | ||||||||
TAC (3) |
(180,822 | ) | (413,194 | ) | (347,477 | ) | (618,065 | ) | ||||||||
Revenue ex-TAC | $ | 811,388 | $ | 641,874 | $ | 1,629,454 | $ | 1,298,542 | ||||||||
EMEA: | ||||||||||||||||
GAAP revenue (3) |
$ | 85,830 | $ | 103,134 | $ | 166,916 | $ | 180,057 | ||||||||
TAC (3) |
(12,950 | ) | (42,330 | ) | (24,654 | ) | (54,839 | ) | ||||||||
Revenue ex-TAC | $ | 72,880 | $ | 60,804 | $ | 142,262 | $ | 125,218 | ||||||||
|
||||||||||||||||
GAAP revenue (3) |
$ | 165,225 | $ | 149,435 | $ | 325,388 | $ | 298,125 | ||||||||
TAC (3) |
(6,458 | ) | (10,962 | ) | (11,238 | ) | (21,345 | ) | ||||||||
Revenue ex-TAC | $ | 158,767 | $ | 138,473 | $ | 314,150 | $ | 276,780 | ||||||||
Total revenue ex-TAC | $ | 1,043,035 | $ | 841,151 | $ | 2,085,866 | $ | 1,700,540 | ||||||||
Direct costs by segment (5): |
||||||||||||||||
|
$ | 78,705 | $ | 65,766 | $ | 139,584 | $ | 138,274 | ||||||||
EMEA | 20,567 | 18,894 | 40,751 | 39,503 | ||||||||||||
|
51,820 | 47,144 | 102,552 | 91,792 | ||||||||||||
Global operating costs (6) |
647,340 | 552,271 | 1,329,263 | 1,137,307 | ||||||||||||
Gain on sale of patents and land | (9,100 | ) | (120,059 | ) | (11,100 | ) | (121,559 | ) | ||||||||
|
- | 394,901 | - | 394,901 | ||||||||||||
Intangibles impairment charge | - | 87,335 | - | 87,335 | ||||||||||||
Restructuring charges, net | 19,688 | 19,384 | 70,920 | 76,614 | ||||||||||||
Depreciation and amortization | 153,679 | 133,227 | 305,218 | 272,892 | ||||||||||||
Stock-based compensation expense | 125,130 | 131,964 | 240,826 | 240,371 | ||||||||||||
Loss from operations | $ | (44,794 | ) | $ | (489,676 | ) | $ | (132,148 | ) | $ | (656,890 | ) | ||||
(3) |
Commencing in Q2'16, TAC payments related to the Microsoft Search Agreement, which previously would have been recorded as a reduction of revenue, began to be recorded as cost of revenue - TAC due to a required change in revenue presentation. See "Change in Revenue Presentation" in the accompanying press release. |
|
(4) |
In Q1'16, we reclassified certain amounts from other revenue to either display or search revenue. Prior period amounts have been revised to conform to the current presentation. | |
(5) |
Direct costs for each segment include certain cost of
revenue-other and costs associated with the local sales teams. Prior
to the second quarter of 2016, certain account management costs
associated with |
|
(6) |
Global operating costs include product development, marketing,
real estate workplace, general and administrative, account
management costs, and other corporate expenses that are managed on
a global basis and that are not directly attributable to any
particular segment. Beginning in the second quarter of 2016,
certain account management costs associated with |
|
|
||||||||||||||||
Supplemental Financial Data and GAAP to Non-GAAP Reconciliations (continued) | ||||||||||||||||
(in thousands) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
|
|
|||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
Reconciliation of net loss attributable to |
||||||||||||||||
Net loss attributable to |
$ | (21,554 | ) | $ | (439,913 | ) | $ | (356 | ) | $ | (539,145 | ) | ||||
Advisory fees | 8,000 | 15,293 | 8,000 | 24,277 | ||||||||||||
Gain on sale of land | - | (120,059 | ) | - | (120,059 | ) | ||||||||||
Depreciation and amortization | 153,679 | 133,227 | 305,218 | 272,892 | ||||||||||||
Stock-based compensation expense | 125,130 | 131,964 | 240,826 | 240,371 | ||||||||||||
|
- | 394,901 | - | 394,901 | ||||||||||||
Intangibles impairment charge | - | 87,335 | - | 87,335 | ||||||||||||
Restructuring charges, net | 19,688 | 19,384 | 70,920 | 76,614 | ||||||||||||
Other (expense) income, net |
11,741 | (15,062 | ) | 42,804 | 32,354 | |||||||||||
Provision for income taxes | 58,495 | 15,543 | 17,595 | (19,223 | ) | |||||||||||
Earnings in equity interests | (95,841 | ) | (51,777 | ) | (195,531 | ) | (133,351 | ) | ||||||||
Net income attributable to noncontrolling interests | 2,365 | 1,533 | 3,340 | 2,475 | ||||||||||||
Adjusted EBITDA | $ | 261,703 | $ | 172,369 | $ | 492,816 | $ | 319,441 | ||||||||
Reconciliation of net cash provided by (used in) operating activities to free cash flow: | ||||||||||||||||
Net cash provided by (used in) operating activities | $ | 307,952 | $ | 409,930 | $ | (2,652,987 | ) | $ | 775,698 | |||||||
Acquisition of property and equipment, net | (155,442 | ) | 169,650 | (266,895 | ) | 93,551 | ||||||||||
Dividends received from equity investee | (141,670 | ) | (156,968 | ) | (141,670 | ) | (156,968 | ) | ||||||||
Excess tax benefits from stock-based awards | (35,620 | ) | 3,034 | 1,850 | 10,560 | |||||||||||
Free cash flow(1)(2) | $ | (24,780 | ) | $ | 425,646 | $ | (3,059,702 | ) | $ | 722,841 | ||||||
Reconciliation of GAAP mobile revenue to gross mobile revenue: | ||||||||||||||||
GAAP mobile revenue (3) |
$ | 251,846 | $ | 377,707 | $ | 485,439 | $ | 637,899 | ||||||||
Revenue share with third parties (3) |
162,801 | 36,510 | 320,678 | 188,090 | ||||||||||||
Gross mobile revenue | $ | 414,647 | $ | 414,217 | $ | 806,117 | $ | 825,989 | ||||||||
Reconciliation of GAAP search revenue to gross search revenue: | ||||||||||||||||
GAAP search revenue (3) |
$ | 528,215 | $ | 711,496 | $ | 1,070,307 | $ | 1,203,377 | ||||||||
Revenue share with third parties (3) |
398,710 | 53,844 | 822,809 | 382,360 | ||||||||||||
Gross search revenue | $ | 926,925 | $ | 765,340 | $ | 1,893,116 | $ | 1,585,737 | ||||||||
(1) |
During the six months ended |
|
(2) |
During the three and six months ended |
|
(3) |
Commencing in Q2'16, TAC payments related to the Microsoft Search Agreement, which previously would have been recorded as a reduction of revenue, began to be recorded as cost of revenue - TAC due to a required change in revenue presentation. See "Change in Revenue Presentation" in the accompanying press release. |
|
|
||||||||||
GAAP to Non-GAAP Reconciliations | ||||||||||
(in thousands, except per share amounts) | ||||||||||
Three Months Ended |
||||||||||
|
||||||||||
2015 | 2016 | |||||||||
GAAP loss from operations | $ | (44,794 | ) | $ | (489,676 | ) | ||||
(a) | Restructuring charges, net | 19,688 | 19,384 | |||||||
(b) | Stock-based compensation expense | 125,130 | 131,964 | |||||||
(c) | Advisory fees | 8,000 | 15,293 | |||||||
(d) | Gain on sale of land | - | (120,059 | ) | ||||||
(e) |
|
- | 394,901 | |||||||
(f) | Intangibles impairment charge | - | 87,335 | |||||||
Non-GAAP income from operations | $ | 108,024 | $ | 39,142 | ||||||
GAAP net loss attributable to |
$ | (21,554 | ) | $ | (439,913 | ) | ||||
(a) | Restructuring charges, net | 19,688 | 19,384 | |||||||
(b) | Stock-based compensation expense | 125,130 | 131,964 | |||||||
(c) | Advisory fees | 8,000 | 15,293 | |||||||
(d) | Gain on sale of land | - | (120,059 | ) | ||||||
(e) |
|
- | 394,901 | |||||||
(f) | Intangibles impairment charge | - | 87,335 | |||||||
(g) | (Gain) loss on Hortonworks warrants | (5,449 | ) | 2,287 | ||||||
(h) |
To adjust the provision for income taxes to reflect an effective
tax rate of 35% for both the three months ended |
26,703 | (4,229 | ) | ||||||
Non-GAAP net earnings | $ | 152,518 | $ | 86,963 | ||||||
GAAP net loss attributable to |
$ | (0.02 | ) | $ | (0.46 | ) | ||||
Non-GAAP net earnings per share - diluted | $ | 0.16 | $ | 0.09 | ||||||
Shares used in non-GAAP per share calculation - diluted | 947,775 | 955,349 | ||||||||
Six Months Ended |
||||||||||
|
||||||||||
2015 | 2016 | |||||||||
GAAP loss from operations | $ | (132,148 | ) | $ | (656,890 | ) | ||||
(a) | Restructuring charges, net | 70,920 | 76,614 | |||||||
(b) | Stock-based compensation | 240,826 | 240,371 | |||||||
(c) | Advisory fees | 8,000 | 24,277 | |||||||
(d) | Gain on sale of land | - | (120,059 | ) | ||||||
(e) |
|
- | 394,901 | |||||||
(f) | Intangibles impairment charge | - | 87,335 | |||||||
Non-GAAP income from operations | $ | 187,598 | $ | 46,549 | ||||||
GAAP net loss attributable to |
$ | (356 | ) | $ | (539,145 | ) | ||||
(a) | Restructuring charges, net | 70,920 | 76,614 | |||||||
(b) | Stock-based compensation | 240,826 | 240,371 | |||||||
(c) | Advisory fees | 8,000 | 24,277 | |||||||
(d) | Gain on sale of land | - | (120,059 | ) | ||||||
(e) |
|
- | 394,901 | |||||||
(f) | Intangibles impairment charge | - | 87,335 | |||||||
(g) | Loss on Hortonworks warrants | 6,460 | 41,437 | |||||||
(h) |
To adjust the provision for income taxes to reflect an effective
tax rate of 35% for both the six months ended |
(35,344 | ) | (38,694 | ) | |||||
Non-GAAP net earnings | $ | 290,506 | $ | 167,037 | ||||||
GAAP net loss attributable to |
$ | (0.00 | ) | $ | (0.57 | ) | ||||
Non-GAAP net earnings per share - diluted | $ | 0.31 | $ | 0.18 | ||||||
Shares used in non-GAAP per share calculation - diluted | 947,877 | 953,345 | ||||||||
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