Twitter Q3 2020 Financial Results

Twitter, Inc. (NYSE: TWTR) announced financial results for its third quarter 2020.

“We have grown our daily audience by 42 million in the last year as people all around the world come to Twitter to find out about the topics and events they care about most. I’m pleased mDAU grew 29% year over year to 187 million, driven by global conversation around current events and product improvements,” said Jack Dorsey, Twitter’s CEO. “We’re helping people find trusted sources of information by better organizing and surfacing the topics and interests that bring people to Twitter.”

“Advertisers significantly increased their investment on Twitter in Q3, engaging our larger audience around the return of events as well as increased and previously delayed product launches, driving revenue to $936 million, up 14% year over year,” said Ned Segal, Twitter’s CFO. “We also made progress on our brand and direct response products, with updated ad formats, improved measurement, and better prediction. We remain confident that our larger audience, coupled with ongoing revenue product improvements, new events and product launches, and the positive advertiser response to the choices we’ve made as we have grown the service, can drive great outcomes over time.”

Third Quarter 2020 Operational and Financial Highlights

Except as otherwise stated, all financial results discussed below are presented in accordance with generally accepted accounting principles in the United States of America, or GAAP. As supplemental information, we have provided certain non-GAAP financial measures in this press release’s supplemental tables, and such supplemental tables include a reconciliation of these non-GAAP measures to our GAAP results. The sum of individual metrics may not always equal total amounts indicated due to rounding.

Q3 revenue totaled $936 million, an increase of 14% year over year.
- Advertising revenue totaled $808 million, up 15% year over year.
  - Total ad engagements increased 27% year over year.
  - Cost per engagement (CPE) decreased 9% year over year.
- Data licensing and other revenue totaled $128 million, an increase of 5% year over year.
- US revenue totaled $513 million, an increase of 10% year over year.
- International revenue totaled $424 million, an increase of 18% year over year.
Q3 costs and expenses totaled $880 million, an increase of 13% year over year. This resulted in operating income of $56 million and 6% operating margin, compared to operating income of $44 million or 5% operating margin in the same period of the previous year.
Stock-based compensation (SBC) expense grew 18% year over year to $116 million and was approximately 12% of total revenue compared to 19% in the prior quarter. As a reminder, stock-based compensation expense is closely tied to headcount, timing of grants, and vesting.
Q3 net income was $29 million, representing a net margin of 3% and diluted EPS of $0.04. This compares to net income of $37 million, a net margin of 4% and diluted EPS of $0.05 in the same period of the previous year.
Net cash provided by operating activities in the quarter was $215 million, compared to $336 million in the same period last year. Capital expenditures totaled $289 million, compared to $169 million in the same period last year, driven by infrastructure investments in data center build-outs to support audience growth and product innovation.
Average mDAU was 187 million for Q3, compared to 145 million in the same period of the previous year and compared to 186 million in the previous quarter.
- Average US mDAU was 36 million for Q3, compared to 30 million in the same period of the previous year and compared to 36 million in the previous quarter.
- Average international mDAU was 152 million for Q3, compared to 115 million in the same period of the previous year and compared to 150 million in the previous quarter.

Looking Ahead

As we look ahead to Q4, there is a lot to navigate — much of it unique to 2020. On the positive side, October looks a lot like September with events and product launches coming back and we are benefitting from all of the hard work we’ve done to make Twitter a must buy for advertisers looking to launch new products and services and connect with what’s happening. The strength and timing of the holiday shopping season is also likely to play out differently this year than it has historically, with a buying season that may be accelerated and even more digital than ever before.

As we approach the US election, however, it is hard to predict how advertiser behavior could change. In Q2, many brands slowed or paused spend in reaction to US civil unrest, only to increase spend relatively quickly thereafter in an effort to catch up. The period surrounding the US election is somewhat uncertain, but we have no reason to believe that September’s revenue trends can’t continue, or even improve, outside of the election-related window.

We remain confident that our larger audience coupled with ongoing revenue product improvements, new events and product launches, and the tendency of advertisers to respond positively to the choices we have made as we have grown the service, can drive great outcomes over time.

Given improving business conditions, we also intend to continue investing in our most important work and expect total GAAP costs and expenses to grow closer to 20% year over year in Q4. Remember, that was our intention for the full year before the pandemic. We expect SBC expense to be relatively flat sequentially and we expect capex to remain over $250 million in Q4 as a result of our ongoing data center build-out.

Appendix

Third Quarter 2020 Webcast and Conference Call Details
Twitter will host a conference call today, Thursday, October 29, 2020, at 2pm Pacific Time (5pm Eastern Time) to discuss financial results for the third quarter of 2020. The company will be following the conversation about the earnings announcement on Twitter. To have your questions considered during the Q&A, Tweet your question to @TwitterIR using $TWTR. To listen to a live audio webcast, please visit the company’s Investor Relations page at investor.twitterinc.com. Twitter has used, and intends to continue to use, its Investor Relations website and the Twitter accounts of @jack, @nedsegal, @Twitter, and @TwitterIR as means of disclosing material nonpublic information and for complying with its disclosure obligations under Regulation FD.

Fourth Quarter Earnings Release Details
Twitter expects to release financial results for the fourth quarter and full year of 2020 on February 9, 2021. Further detail will be provided via press release.

TWITTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	2,201,073	$	1,799,082
Short-term investments	5,479,974		4,839,970
Accounts receivable, net	747,548		850,184
Prepaid expenses and other current assets	160,984		130,839
Total current assets	8,589,579		7,620,075
Property and equipment, net	1,392,720		1,031,781
Operating lease right-of-use assets	828,213		697,095
Intangible assets, net	58,923		55,106
Goodwill	1,289,147		1,256,699
Deferred tax assets, net	792,362		1,908,086
Other assets	137,848		134,547
Total assets	$	13,088,792	$	12,703,389
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	241,102	$	161,148
Accrued and other current liabilities ⁽¹⁾	623,885		500,893
Convertible notes, short-term	905,532		—
Operating lease liabilities, short-term	161,508		146,959
Finance lease liabilities, short-term	3,076		23,476
Total current liabilities	1,935,103		832,476
Convertible notes, long-term	1,858,685		1,816,833
Senior notes, long-term	692,742		691,967
Operating lease liabilities, long-term	727,011		609,245
Deferred and other long-term tax liabilities, net	28,845		24,170
Other long-term liabilities	34,318		24,312
Total liabilities	5,276,704		3,999,003
Stockholders’ equity:
Common stock	4		4
Additional paid-in capital	9,249,956		8,763,330
Accumulated other comprehensive loss	(90,087)		(70,534)
Retained earnings (accumulated deficit)	(1,347,785)		11,586
Total stockholders’ equity	7,812,088		8,704,386
Total liabilities and stockholders’ equity	$	13,088,792	$	12,703,389


⁽¹⁾ In July 2020, prior to our filing of our Form 10-Q for the second quarter of 2020, we received a draft complaint from the Federal Trade Commission and recorded an accrual of $150.0 million, which is included in accrued and other current liabilities in the consolidated balance sheets, as described in Note 14 in the notes to the consolidated financial statements included in our Form 10-Q for the second quarter of 2020.

TWITTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	$	936,233	$	823,717	$	2,427,308	$	2,451,988
Costs and expenses
Cost of revenue	361,388		281,057		933,464		823,033
Research and development	208,877		178,553		625,071		484,041
Sales and marketing	215,285		226,204		643,858		672,252
General and administrative⁽¹⁾	94,576		93,758		450,181		259,173
Total costs and expenses	880,126		779,572		2,652,574		2,238,499
Income (loss) from operations	56,107		44,145		(225,266)		213,489
Interest expense	(39,614)		(36,226)		(112,712)		(111,803)
Interest income	17,167		40,348		75,077		123,776
Other income (expense), net	(3,977)		(504)		(12,057)		6,583
Income (loss) before income taxes	29,683		47,763		(274,958)		232,045
Provision (benefit) for income taxes	1,024		11,241		1,082,784		(1,114,841)
Net income (loss)	$	28,659	$	36,522	$	(1,357,742)	$	1,346,886
Net income (loss) per share:
Basic	$	0.04	$	0.05	$	(1.73)	$	1.75
Diluted	$	0.04	$	0.05	$	(1.73)	$	1.72
Weighted-average shares used to compute net income (loss) per share:
Basic	790,827		772,789		785,788		768,719
Diluted	806,383		790,523		785,788		784,443

⁽¹⁾ In July 2020, prior to our filing of our Form 10-Q for the second quarter of 2020, we received a draft complaint from the Federal Trade Commission and recorded $150.0 million in general and administrative expenses in the consolidated statements of operations.

TWITTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cash flows from operating activities
Net income (loss)	$	28,659	$	36,522	$	(1,357,742)	$	1,346,886
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	121,983		119,986		366,469		349,076
Stock-based compensation expense	115,969		98,623		346,748		276,729
Amortization of discount on convertible notes	26,673		30,464		74,733		93,251
Bad debt expense	(634)		1,298		16,861		2,661
Deferred income taxes	(6,345)		5,898		(32,382)		68,587
Deferred tax assets establishment related to intra-entity transfers of intangible assets	—		—		—		(1,206,880)
Deferred tax assets valuation allowance establishment	—		—		1,101,374		—
Impairment of investments in privately-held companies	339		—		8,842		1,550
Other adjustments	(2,571)		2,964		(7,756)		(16,502)
Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions:
Accounts receivable	(136,469)		26,695		97,812		93,932
Prepaid expenses and other assets	(27,722)		(18,669)		(24,765)		(21,216)
Operating lease right-of-use assets	43,595		35,688		121,712		104,862
Accounts payable	20,512		(7,859)		(5,722)		(12,599)
Accrued and other liabilities	71,922		39,097		76,497		40,378
Operating lease liabilities	(41,124)		(35,188)		(120,111)		(94,530)
Net cash provided by operating activities	214,787		335,519		662,570		1,026,185
Cash flows from investing activities
Purchases of property and equipment	(290,746)		(170,252)		(577,829)		(389,073)
Proceeds from sales of property and equipment	1,910		1,233		5,815		4,290
Purchases of marketable securities	(1,981,219)		(948,761)		(5,103,983)		(3,940,682)
Proceeds from maturities of marketable securities	1,085,761		1,382,924		3,566,895		4,151,862
Proceeds from sales of marketable securities	66,718		110,026		925,387		173,325
Purchases of investments in privately-held companies	(2,500)		(50,750)		(3,839)		(51,163)
Business combinations, net of cash acquired	—		—		(34,285)		(20,302)
Other investing activities	—		(9,500)		(11,050)		2,281
Net cash provided by (used in) investing activities	(1,120,076)		314,920		(1,232,889)		(69,462)
Cash flows from financing activities
Proceeds from issuance of convertible notes	—		—		1,000,000		—
Debt issuance costs	—		—		(14,662)		—
Repayment of convertible notes	—		(935,000)		—		(935,000)
Taxes paid related to net share settlement of equity awards	(3,726)		(3,757)		(18,344)		(16,695)
Payments of finance lease obligations	(4,117)		(15,694)		(20,573)		(53,627)
Proceeds from exercise of stock options	31		244		454		753
Proceeds from issuances of common stock under employee stock purchase plan	—		—		34,395		25,209
Net cash provided by (used in) financing activities	(7,812)		(954,207)		981,270		(979,360)
Net increase (decrease) in cash, cash equivalents and restricted cash	(913,101)		(303,768)		410,951		(22,637)
Foreign exchange effect on cash, cash equivalents and restricted cash	924		(8,792)		(14,854)		(1,790)
Cash, cash equivalents and restricted cash at beginning of period	3,135,940		2,210,008		1,827,666		1,921,875
Cash, cash equivalents and restricted cash at end of period	$	2,223,763	$	1,897,448	$	2,223,763	$	1,897,448
Supplemental disclosures of non-cash investing and financing activities
Common stock issued in connection with acquisitions	$	—	$	—	$	1,312	$	—
Changes in accrued property and equipment purchases	$	63,400	$	(50,932)	$	103,649	$	26,679
Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows
Cash and cash equivalents	$	2,201,073	$	1,869,444	$	2,201,073	$	1,869,444
Restricted cash included in prepaid expenses and other current assets	2,251		1,869		2,251		1,869
Restricted cash included in other assets	20,439		26,135		20,439		26,135
Total cash, cash equivalents and restricted cash	$	2,223,763	$	1,897,448	$	2,223,763	$	1,897,448

TWITTER, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Non-GAAP net income (loss) and net income (loss) per share:
Net income (loss) ⁽¹⁾	$	28,659	$	36,522	$	(1,357,742)	$	1,346,886
Exclude: Provision (benefit) for income taxes	1,024		11,241		1,082,784		(1,114,841)
Income (loss) before income taxes	29,683		47,763		(274,958)		232,045
Stock-based compensation expense	115,969		98,623		346,748		276,729
Amortization of acquired intangible assets	5,424		3,806		17,984		12,509
Non-cash interest expense related to convertible notes	26,673		30,464		74,733		93,251
Impairment on investments in privately-held companies	339		—		8,842		(8,611)
Restructuring charges	—		—		—		(217)
Non-GAAP income before income taxes	178,088		180,656		173,349		605,706
Non-GAAP provision (benefit) for income taxes ⁽²⁾	26,713		43,820		1,174,944		(1,058,352)
Non-GAAP net income (loss)	$	151,375	$	136,836	$	(1,001,595)	$	1,664,058
GAAP basic shares	790,827		772,789		785,788		768,719
Dilutive equity awards ⁽³⁾	15,556		17,734		—		15,724
Non-GAAP diluted shares ⁽⁴⁾	806,383		790,523		785,788		784,443
Non-GAAP diluted net income (loss) per share	$	0.19	$	0.17	$	(1.27)	$	2.12
Adjusted EBITDA:
Net income (loss) ⁽¹⁾	$	28,659	$	36,522	$	(1,357,742)	$	1,346,886
Stock-based compensation expense	115,969		98,623		346,748		276,729
Depreciation and amortization expense	121,983		119,986		366,469		349,076
Interest and other expense (income), net	26,424		(3,618)		49,692		(18,556)
Provision (benefit) for income taxes	1,024		11,241		1,082,784		(1,114,841)
Restructuring charges	—		—		—		(217)
Adjusted EBITDA	$	294,059	$	262,754	$	487,951	$	839,077
Stock-based compensation expense by function:
Cost of revenue	$	8,581	$	5,757	$	23,333	$	16,778
Research and development	66,111		53,009		204,686		149,499
Sales and marketing	25,550		23,755		73,572		64,022
General and administrative	15,727		16,102		45,157		46,430
Total stock-based compensation expense	$	115,969	$	98,623	$	346,748	$	276,729
Amortization of acquired intangible assets by function:
Cost of revenue	$	5,424	$	3,806	$	17,984	$	11,889
Sales and marketing	—		—		—		620
Total amortization of acquired intangible assets	$	5,424	$	3,806	$	17,984	$	12,509
Restructuring charges by function:
Cost of revenue	$	—	$	—	$	—	$	(13)
Research and development	—		—		—		(73)
Sales and marketing	—		—		—		(87)
General and administrative	—		—		—		(44)
Total restructuring charges	$	—	$	—	$	—	$	(217)
Non-GAAP costs and expenses:
Total costs and expenses	$	880,126	$	779,572	$	2,652,574	$	2,238,499
Less: stock-based compensation expense	(115,969)		(98,623)		(346,748)		(276,729)
Less: amortization of acquired intangible assets	(5,424)		(3,806)		(17,984)		(12,509)
Less: restructuring charges	—		—		—		217
Total non-GAAP costs and expenses	$	758,733	$	677,143	$	2,287,842	$	1,949,478

TWITTER, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
(Continued)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Adjusted free cash flow:
Net cash provided by operating activities	$	214,787	$	335,519	$	662,570	$	1,026,185
Less: purchases of property and equipment	(290,746)		(170,252)		(577,829)		(389,073)
Plus: proceeds from sales of property and equipment	1,910		1,233		5,815		4,290
Adjusted free cash flow	$	(74,049)	$	166,500	$	90,556	$	641,402
Adjusted net income (loss) and adjusted diluted net income (loss) per share:
Net income (loss) ⁽¹⁾	$	28,659	$	36,522	$	(1,357,742)	$	1,346,886
Exclude: benefit from deferred tax asset⁽⁵⁾	—		—		—		(1,206,880)
Exclude: provision for deferred tax assets valuation allowance ⁽⁶⁾	—		—		1,101,374		—
Adjusted net income (loss)	$	28,659	$	36,522	$	(256,368)	$	140,006
GAAP diluted shares	806,383		790,523		785,788		784,443
Adjusted diluted net income (loss) per share	$	0.04	$	0.05	$	(0.33)	$	0.18

⁽²⁾The non-GAAP benefit from income taxes for the nine months ended September 30, 2019 includes benefits of $1.21 billion from the establishment of deferred tax assets from intra-entity transfers of intangible assets. The non-GAAP provision for income taxes for the nine months ended September 30, 2020 includes a provision of $1.11 billion related to the establishment of a valuation allowance against deferred tax assets.

⁽³⁾Gives effect to potential common stock instruments such as stock options, RSUs, shares to be issued under ESPP, unvested restricted stocks and warrants. There is no dilutive effect of the notes or the related hedge and warrant transactions.

⁽⁴⁾ GAAP diluted shares are the same as non-GAAP diluted shares for all periods presented.

⁽⁵⁾ The benefit from deferred tax asset in the nine months ended September 30, 2019 is primarily related to the establishment of deferred tax assets from intra-entity transfers of intangible assets.

⁽⁶⁾ The provision for deferred tax assets valuation allowance in the nine months ended September 30, 2020 is related to the establishment of a valuation allowance against deferred tax assets.

TWITTER, INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP CONSTANT CURRENCY REVENUE
(In millions)
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2020			2019		2020			2019
Revenue, advertising revenue, data licensing and other revenue, international revenue and international advertising revenue excluding foreign exchange effect ⁽¹⁾:
Revenue	$	936		$	824	$	2,427		$	2,452
Foreign exchange effect on 2020 revenue using 2019 rates	(1)					4
Revenue excluding foreign exchange effect	$	935				$	2,431
Revenue year-over-year change percent	14		%			(1)		%
Revenue excluding foreign exchange effect year-over-year change percent	14		%			(1)		%

Advertising revenue	$	808		$	702	$	2,053		$	2,109
Foreign exchange effect on 2020 advertising revenue using 2019 rates	(1)					4
Advertising revenue excluding foreign exchange effect	$	807				$	2,057
Advertising revenue year-over-year change percent	15		%			(3)		%
Advertising revenue excluding foreign exchange effect year-over-year change percent	15		%			(2)		%

Data licensing and other revenue	$	128		$	121	$	375		$	343
Foreign exchange effect on 2020 data licensing and other revenue using 2019 rates	—					—
Data licensing and other revenue excluding foreign exchange effect	$	128				$	375
Data licensing and other revenue year-over-year change percent	5		%			9		%
Data licensing and other revenue excluding foreign exchange effect year-over-year change percent	5		%			9		%

International revenue	$	424		$	358	$	1,081		$	1,099
Foreign exchange effect on 2020 international revenue using 2019 rates	(1)					4
International revenue excluding foreign exchange effect	$	423				$	1,086
International revenue year-over-year change percent	18		%			(2)		%
International revenue excluding foreign exchange effect year-over-year change percent	18		%			(1)		%

International advertising revenue	$	381		$	318	$	960		$	983
Foreign exchange effect on 2020 international advertising revenue using 2019 rates	(1)					4
International advertising revenue excluding foreign exchange effect	$	380				$	964
International advertising revenue year-over-year change percent	20		%			(2)		%
International advertising revenue excluding foreign exchange effect year-over-year change percent	20		%			(2)		%

⁽¹⁾ The sum of individual metrics may not always equal total amounts indicated due to rounding.

RH NEWSROOM

WEEKLY EDITION

Twitter Q3 2020 Financial Results

Reports total revenue grew 14% to $936 million and average monetizable daily active usage (mDAU) grew 29% to 187 million

Peter Duncan

NEWS AGENCIES

NATIONAL EDITIONS

NETWORKS

LEGALESE