UBER TECHNOLOGIES, INC, 10-Q filed on 6/4/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 22, 2019
Document and Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Entity Registrant Name UBER TECHNOLOGIES, INC.  
Entity Central Index Key 0001543151  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status No  
Entity Filer Category Non-accelerated Filer  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   1,695,552,739
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Assets    
Cash and cash equivalents $ 5,745 $ 6,406
Restricted cash and cash equivalents 136 67
Accounts receivable, net of allowance of $34 and $41, respectively 1,074 919
Prepaid expenses and other current assets 975 860
Assets held for sale 0 406
Total current assets 7,930 8,658
Restricted cash and cash equivalents 1,801 1,736
Investments 10,396 10,355
Equity method investments 1,320 1,312
Property and equipment, net 1,325 1,641
Operating lease right-of-use assets 1,323  
Intangible assets, net 78 82
Goodwill 153 153
Other assets 64 51
Total assets 24,390 23,988
Liabilities, mezzanine equity and stockholders’ deficit    
Accounts payable 151 150
Short-term insurance reserves 961 941
Operating lease liabilities, current 178  
Accrued and other current liabilities 3,424 3,157
Liabilities held for sale 0 11
Total current liabilities 4,714 4,259
Long-term insurance reserves 2,137 1,996
Long-term debt, net of current portion 6,939 6,869
Operating lease liabilities, non-current 1,225  
Other long-term liabilities 3,587 4,072
Total liabilities 18,602 17,196
Commitments and contingencies (Note 14)
Mezzanine equity    
Redeemable non-controlling interest (4) 0
Redeemable convertible preferred stock, $0.00001 par value, 946,246 and 946,246 shares authorized, 903,607 and 904,530 shares issued and outstanding, respectively; aggregate liquidation preference of $14 and $14, respectively 14,224 14,177
Stockholders’ deficit    
Common stock, $0.00001 par value, 2,696,114 and 2,696,114 shares authorized, 457,189 and 457,833 shares issued and outstanding, respectively 0 0
Additional paid-in capital 682 668
Accumulated other comprehensive loss (246) (188)
Accumulated deficit (8,868) (7,865)
Total stockholders’ deficit (8,432) (7,385)
Total liabilities, mezzanine equity, and stockholders’ deficit $ 24,390 $ 23,988
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
shares in Thousands, $ in Millions
Mar. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Allowance for accounts receivable $ 41 $ 34
Par value (in dollars per share) $ 0.00001 $ 0.00001
Preferred share authorized (in shares) 946,246 946,246
Preferred shares issued (in shares) 904,530 903,607
Preferred shares outstanding (in shares) 904,530 903,607
Aggregate liquidation preference $ 14 $ 14
Common stock par value (in dollars per share) $ 0.00001 $ 0.00001
Common stock shares authorized (in shares) 2,696,114 2,696,114
Common stock shares issued (in shares) 457,833 457,189
Common stock shares outstanding (in shares) 457,833 457,189
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Revenue $ 3,099 $ 2,584
Costs and expenses    
Cost of revenue, exclusive of depreciation and amortization shown separately below 1,681 1,156
Operations and support 434 372
Sales and marketing 1,040 677
Research and development 409 340
General and administrative 423 429
Depreciation and amortization 146 88
Total costs and expenses 4,133 3,062
Loss from operations (1,034) (478)
Interest expense (217) (132)
Other income (expense), net 260 4,937
Income (loss) before income taxes and loss from equity method investment (991) 4,327
Provision for income taxes 19 576
Loss from equity method investment, net of tax (6) (3)
Net income (loss) including redeemable non-controlling interest (1,016) 3,748
Less: net loss attributable to redeemable non-controlling interest, net of tax (4) 0
Net income (loss) attributable to Uber Technologies, Inc. $ (1,012) $ 3,748
Net income (loss) per share attributable to Uber Technologies, Inc. common stockholders:    
Basic (in dollars per share) $ (2.23) $ 2.00
Diluted (in dollars per share) $ (2.26) $ 1.84
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:    
Basic (in shares) 453,543 437,065
Diluted (in shares) 453,619 475,153
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net income (loss) including redeemable non-controlling interest $ (1,016) $ 3,748
Other comprehensive income (loss), net of tax:    
Change in foreign currency translation adjustment (54) (7)
Change in unrealized loss on investments in available-for-sale securities (4) 0
Other comprehensive loss, net of tax (58) (7)
Comprehensive income (loss) including redeemable non-controlling interest (1,074) 3,741
Less: Comprehensive loss attributable to redeemable non-controlling interest (4) 0
Comprehensive income (loss) attributable to Uber Technologies, Inc. $ (1,070) $ 3,741
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANIE EQUITY AND STOCKHOLDERS' DEFICIT - USD ($)
shares in Thousands, $ in Millions
Total
Redeemable Non-Controlling Interest
Redeemable Convertible Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Stockholders' equity, beginning balance at Dec. 31, 2017 $ (8,557)     $ 0 $ 320 $ (3) $ (8,874)
Shares, outstanding at Dec. 31, 2017       443,394      
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Exercise of common stock warrants 1     $ 0 1    
Exercise of common stock warrants (in shares)       31      
Repurchase of outstanding stock 5     $ 0     5
Repurchase of outstanding stock (in shares)       (1,707)      
Issuance of common stock from stock option exercise and restricted stock awards 15     $ 0 15    
Issuance of common stock from stock option exercise and restricted stock awards (in shares)       7,689      
Repurchase of unvested early-exercised stock options 0     $ 0      
Repurchase of unvested early-exercised stock options (in shares)       (1)      
Reclassification of early-exercised stock options from liability, net 1       1    
Stock-based compensation 17       17    
Issuance and repayment of employee loans collateralized by outstanding common stock (1)           (1)
Unrealized loss on available-for-sale securities, net of tax 0            
Issuance of common stock as consideration for investment and acquisition 52     $ 0 52    
Issuance of common stock as consideration for investment and acquisition (in shares)       1,528      
Foreign currency translation adjustment (7)         (7)  
Net income (loss) 3,748           3,748
Stockholders' equity, ending balance at Mar. 31, 2018 (4,726)     $ 0 406 (10) (5,122)
Shares, outstanding at Mar. 31, 2018       450,934      
Mezzanine Equity, Amount at Dec. 31, 2017   $ 0 $ 12,210        
Mezzanine Equity, Shares at Dec. 31, 2017     863,305        
Increase (Decrease) in Temporary Equity [Roll Forward]              
Issuance of Series G redeemable convertible preferred stock, net of issuance costs 0   $ 1,500        
Issuance of Series G redeemable convertible preferred stock, net of issuance costs (in shares)     30,755        
Mezzanine Equity, Amount at Mar. 31, 2018   0 $ 13,710        
Mezzanine Equity, Shares at Mar. 31, 2018     894,060        
Stockholders' equity, beginning balance at Dec. 31, 2018 $ (7,385)     $ 0 668 (188) (7,865)
Shares, outstanding at Dec. 31, 2018 457,189     457,189      
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Exercise of common stock warrants     $ 45        
Exercise of common stock warrants (in shares)     923        
Exercise of warrants $ 0            
Lapsing of repurchase option related to Series E redeemable convertible preferred stock issued to a non-employee service provider 0   $ 2        
Lapsing of repurchase option related to Series E redeemable convertible preferred stock issued to a non-employee service provider (in shares)     0        
Repurchase of outstanding stock 0     $ 0      
Repurchase of outstanding stock (in shares)       (1)      
Exercise of stock options 4     $ 0 4    
Exercise of stock options (in shares)       677      
Repurchase of unvested early-exercised stock options 0     $ 0      
Repurchase of unvested early-exercised stock options (in shares)       (32)      
Stock-based compensation 10       10    
Unrealized loss on available-for-sale securities, net of tax (4)         (4)  
Foreign currency translation adjustment (54)         (54)  
Net income (loss) (1,012)           (1,012)
Mezzanine equity, net loss   (4)          
Stockholders' equity, ending balance at Mar. 31, 2019 $ (8,432)     $ 0 $ 682 $ (246) $ (8,868)
Shares, outstanding at Mar. 31, 2019 457,833     457,833      
Mezzanine Equity, Amount at Dec. 31, 2018   0 $ 14,177        
Mezzanine Equity, Shares at Dec. 31, 2018 903,607   903,607        
Mezzanine Equity, Amount at Mar. 31, 2019   $ (4) $ 14,224        
Mezzanine Equity, Shares at Mar. 31, 2019 904,530   904,530        
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities    
Net income (loss) including redeemable non-controlling interest $ (1,016) $ 3,748
Adjustments to reconcile net income (loss) to net cash used in operating activities:    
Depreciation and amortization 146 88
Bad debt expense 47 12
Stock-based compensation 11 61
Gain on business divestitures 0 (3,161)
Deferred income tax 4 486
Revaluation of derivative liabilities (175) 367
Accretion of discount on long-term debt 53 70
Payment-in-kind interest 6 18
Loss on disposal of property and equipment 10 15
Impairment on long-lived assets held for sale 0 20
Loss from equity method investment 6 3
Gain on debt and equity securities, net (16) (1,984)
Non-cash deferred revenue (13) 0
Gain on extinguishment of warrant and call option 0 (120)
Unrealized foreign currency transactions (4) (12)
Other (1) 3
Changes in operating assets and liabilities:    
Accounts receivable (210) (4)
Prepaid expenses and other assets (75) (175)
Accounts payable 0 (66)
Accrued insurance reserve 161 260
Accrued expenses and other liabilities 344 74
Net cash used in operating activities (722) (297)
Cash flows from investing activities    
Proceeds from insurance reimbursement, sale and disposal of property and equipment 40 138
Purchase of property and equipment (129) (90)
Purchase of equity method investments 0 (423)
Proceeds from business disposal, net of cash divested 293 0
Net cash provided by (used in) investing activities 204 (375)
Cash flows from financing activities    
Proceeds from exercise of stock options, net of repurchases 2 15
Repurchase of outstanding shares 0 (7)
Principal repayment on term loan (7) (3)
Principal repayment on revolving lines of credit 0 (77)
Principal payments on capital leases   (19)
Principal payments on capital leases (41)  
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 0 1,250
Dissolution of joint venture and subsequent proceeds 0 19
Other 0 (64)
Net cash provided by (used in) financing activities (46) 1,114
Effect of exchange rate changes on cash and cash equivalents, and restricted cash and cash equivalents 3 2
Net increase (decrease) in cash and cash equivalents, and restricted cash and cash equivalents (561) 444
Cash and cash equivalents, and restricted cash and cash equivalents    
Reclassification from (to) assets held for sale during the period 34 (10)
End of period, excluding cash classified within assets held for sale 7,682 6,262
Reconciliation of cash and cash equivalents, and restricted cash and cash equivalents to the condensed consolidated balance sheets    
Cash and cash equivalents 5,745 4,716
Restricted cash and cash equivalents-current 136 117
Restricted cash and cash equivalents-non-current 1,801 1,429
Total cash and cash equivalents, and restricted cash and cash equivalents 7,682 6,262
Cash paid for:    
Interest, net of amount capitalized 42 16
Income taxes, net of refunds 34 53
Non-cash investing and financing activities:    
Financed construction projects 0 36
Settlement of litigation through issuance of redeemable convertible preferred stock 0 250
Ownership interest in MLU B.V. received in connection with the disposition of Uber Russia/CIS operations 0 1,410
Grab debt security received in exchange for the sale of Southeast Asia operations $ 0 $ 2,275
v3.19.1
Basis of Presentation and Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation and Summary of Significant Accounting Policies
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Uber Technologies, Inc. (“Uber” or “the Company”) was incorporated in Delaware in July 2010, and is headquartered in San Francisco, California. The Company is a technology company that is powering movement in countries around the world, principally in the United States and Canada, Latin America, Europe, the Middle East, and Asia (excluding China).
The Company’s principal activities are to develop and support proprietary technology applications (“platform(s)”) that enable independent providers of ridesharing services (“Driver Partner(s)”), Eats meal preparation services (“Restaurant Partner(s)”) and Eats meal delivery services (“Delivery Partner(s)”), collectively the Company’s “Partners,” to transact with “Rider(s)” (for ridesharing services) and “Eater(s)” (for meal preparation and delivery services), collectively defined as “end-user” or “end-users.”
Driver Partners provide ridesharing services to Riders through a range of offerings based on vehicle type and/or the number of Riders. Restaurant Partners and Delivery Partners provide meal preparation and delivery services, respectively, to Eaters.
In addition, the Company also provides freight transportation services to Shippers within the freight industry and leases vehicles to third-parties that may use the vehicles to provide ridesharing or Eats services through the Platforms. Refer to Note 2 - Revenue for further information.
The Company has organized its operations into two operating and reportable segments: Core Platform and Other Bets. Core Platform primarily includes the ridesharing and Uber Eats products; while Other Bets primarily includes the Company’s Freight and New Mobility products. Refer to Note 13 - Segment Information and Geographic Information for further information.
Initial Public Offering
On May 14, 2019, the Company closed its initial public offering (“IPO”), in which it issued and sold 180 million shares of its common stock. The price was $45.00 per share. The Company received net proceeds of approximately $8.0 billion from the IPO after deducting underwriting discounts and commissions of $106 million and offering expenses. Refer to Note 17 - Subsequent Events for further information.
Upon the closing of the IPO, all shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into 905 million shares of common stock. Additionally, an outstanding warrant which became exercisable upon the closing of the IPO was exercised to purchase 0.2 million shares of common stock.
Pending Acquisition of Careem
On March 26, 2019, the Company entered into an asset purchase agreement (the “Agreement”) with Careem Inc. (“Careem”). Pursuant to the Agreement, upon the terms and subject to the conditions thereof, Augusta Acquisition B.V., an indirect wholly-owned subsidiary of the Company, will acquire substantially all of the assets and assume substantially all of the liabilities of Careem for consideration of approximately $3.1 billion, subject to certain adjustments. The total consideration will consist of up to approximately $1.7 billion in non-interest-bearing unsecured convertible notes and approximately $1.4 billion in cash. Careem is a Dubai-based company that provides ridesharing, meal delivery, and payment services across the Middle East, North Africa, and Pakistan. The acquisition is subject to applicable competition authority approvals in certain of the countries in which Careem operates. The closing is expected to occur in January 2020.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2018, included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (“the Securities Act”), on May 13, 2019 (“the Prospectus”).
In the opinion of management, these financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, cash flows and the change in equity for the periods presented.
Other than described below, there have been no changes to the Company’s significant accounting policies described in the Prospectus that have had a material impact on the Company’s condensed consolidated financial statements and related notes, except for the adoption of the new accounting standard related to lease accounting.
Basis of Consolidation
The condensed consolidated financial statements of the Company include the accounts of the Company and entities consolidated under the variable interest and voting models. All intercompany balances and transactions have been eliminated. Refer to Note 15 - Variable Interest Entities ("VIEs") for further information.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, which affect the reported amounts in the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which management believes are reasonable under the circumstances. On an ongoing basis, the Company evaluates its estimates, including those related to the incremental borrowing rate (“IBR”) applied in lease accounting, accounts receivable allowances, fair values of investments and other financial instruments, useful lives of amortizable long-lived assets and intangible assets, stock-based compensation, income and non-income taxes, insurance reserves, and contingent liabilities. These estimates are inherently subject to judgment and actual results could differ from those estimates.
Significant Accounting Policies - Leases
The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842”), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The Company adopted ASC 842 along with all subsequent ASU clarifications and improvements that are applicable to the Company, on January 1, 2019, using the modified retrospective transition method and used the effective date as the date of initial application. Consequently, financial information is not updated and the disclosures required under ASC 842 are not provided for dates and periods before January 1, 2019. ASC 842 provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits the Company not to reassess under ASC 842 its prior conclusions about lease identification, lease classification and initial direct costs. The Company also made a policy election not to separate non-lease components from lease components, therefore, it will account for lease component and the non-lease components as a single lease component.
The Company determines if a contract contains a lease based on whether it has the right to obtain substantially all of the economic benefits from the use of an identified asset and whether it has the right to direct the use of an identified asset in exchange for consideration, which relates to an asset which the Company does not own. Right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are recognized as the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate (“IBR”), because the interest rate implicit in most of the Company’s leases is not readily determinable. The incremental borrowing rate is a hypothetical rate based on the Company’s understanding of what its credit rating would be. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.
The lease term of operating and finance leases vary from less than a year to 76 years. The Company has leases that include one or more options to extend the lease term for up to 14 years as well as options to terminate the lease within one year. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
Operating leases are included in operating lease right to use assets, operating lease liabilities, current and operating lease liabilities, non-current on the Company’s condensed consolidated balance sheets. Finance leases are included in property and equipment, net, accrued and other current liabilities, and other long-term liabilities on the Company’s condensed consolidated balance sheets. As of March 31, 2019, less than 15% of the Company’s ROU assets were generated from leased assets outside of the U.S.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements.
Upon adoption of the new leasing standard on January 1, 2019, the Company recognized ROU assets of $888 million and lease liabilities of $963 million. The Company reassessed the build-to-suit leases that no longer meet the control-based build-to-suit model and derecognized $392 million in build-to-suit assets, $350 million corresponding financing obligation, and recorded $9 million of deferred tax liability. The initial cash contribution to the Mission Bay 3 & 4 joint venture that was previously reported as a defeasance of a build-to-suit financing obligation of $60 million was derecognized by reclassifying it as an increase to the Mission Bay 3 & 4 equity method investment. The $9 million difference between the total derecognized assets and total derecognized liabilities was recorded in the opening balance of accumulated deficit, net of tax, as of January 1, 2019.
In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” to simplify the accounting for certain instruments with down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Further, companies that provide earnings per share (“EPS”) data will adjust the basic EPS calculation for the effect of the feature when triggered and will also recognize the effect of the trigger within equity. The Company adopted this new standard as of January 1, 2019 and applied the changes retrospectively. The adoption of the new standard did not have a material impact on the Company’s condensed consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, “Improvements to Non-Employee Share-Based Payment Accounting,” which expands the scope of Topic 718, to include share-based payments issued to non-employees for goods or services. The new standard supersedes Subtopic 505-50. The Company adopted the new standard effective January 1, 2019 on a modified retrospective basis. The new standard did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” to require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The standard also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements in ASC 820, “Fair Value Measurement” (“ASC 820”). The new standard is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities,” which amends the guidance for determining whether a decision-making fee is a variable interest and requires organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue
Note 2 - Revenue
The following tables present the Company’s revenues disaggregated by offering and Core Platform revenue by geographical region. Core Platform revenue by geographical region is based on where the trip was completed or meal delivered. This level of disaggregation takes into consideration how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Revenue is presented in the following tables for the three months ended March 31, 2018 and 2019, respectively (in millions):

 
Three Months Ended March 31,
 
 
2018
 
2019
Ridesharing revenue
 
$
2,180


$
2,376

Uber Eats revenue
 
283


536

Vehicle Solutions revenue(1)
 
55


10

Other revenue
 
26


32

Total Core Platform revenue
 
2,544


2,954

Total Other Bets revenue
 
40


145

Total revenue
 
$
2,584


$
3,099

 
 
Three Months Ended March 31,
 
 
2018
 
2019
United States and Canada
 
$
1,387


$
1,750

Latin America ("LATAM")
 
518


450

Europe, Middle East and Africa ("EMEA")
 
388


487

Asia Pacific ("APAC")
 
251


267

Total Core Platform revenue
 
$
2,544


$
2,954

(1) The Company accounts for Vehicle Solutions revenue as an operating lease as defined under ASC 840 for 2018 and ASC 842 in 2019.
Revenue from Contracts with Customers
Ridesharing Revenue
The Company derives revenue primarily from fees paid by Driver Partners for the use of the Company’s platform(s) and related service to facilitate and complete ridesharing services.
Uber Eats Revenue
The Company derives revenue for Uber Eats from Restaurant Partners’ and Delivery Partners’ use of the Uber Eats platform and related service to facilitate and complete Eats transactions.
Other Revenue
Other revenue consists primarily of revenue from the Company’s Uber for Business (“U4B”), financial partnerships products and other immaterial revenue streams.
Other Bets
Other Bets revenue consists primarily of revenue from Uber Freight and other immaterial revenue streams.
Contract Balances
The Company’s contract assets for performance obligations satisfied prior to payment or contract liabilities for consideration collected prior to satisfying the performance obligations are not material for the three months ended March 31, 2019.
Remaining Performance Obligations
As a result of a single contract entered into with a customer during 2018, the Company had $126 million of consideration allocated to an unfulfilled performance obligation as of March 31, 2019. Revenue recognized during three months ended March 31, 2019 related to the contract was not material.
The Company’s remaining performance obligation is expected to be recognized as follows (in millions):
 
 
Less Than or
Equal To 12 Months
 
Greater Than
12 Months
 
Total
As of March 31, 2019
 
$
52

 
$
74

 
$
126


v3.19.1
Fair Value Measurement
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurement
Note 3 - Fair Value Measurement
The Company’s investments on the condensed consolidated balance sheets consisted of the following as of December 31, 2018 and March 31, 2019 (in millions):
 
 
As of
 
 
December 31, 2018
 
March 31, 2019
Non-marketable equity securities:
 
 
 
 
Didi
 
$
7,953

 
$
7,953

Other
 
32

 
79

Debt securities:
 
 
 
 
Grab(1)
 
2,328

 
2,324

Other(2)
 
42

 
40

Investments
 
$
10,355

 
$
10,396

(1) Recorded at fair value with changes in fair value recorded in other comprehensive income (loss), net of tax.
(2) Recorded at fair value with changes in fair value recorded in earnings due to the election of the fair value option of accounting for financial instruments.
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below:    
Level 1
Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs other than the quoted prices that are observable either directly or indirectly for the full term of the assets or liabilities.
Level 3
Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities.
The Company measures its cash equivalents, certain investments, warrants, and derivative financial instruments at fair value. The Company classifies its cash equivalents within Level 1 as the Company values these assets using quoted market prices. The fair value of the Company’s Level 1 financial assets is based on quoted market prices of the identical underlying security. The Company’s investments, warrants and embedded derivatives are categorized as Level 3 because they are valued based on unobservable inputs and other estimation techniques due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such financial instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in millions):
 
As of December 31, 2018
 
As of March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
268

 
$

 
$

 
$
268

 
$
519

 
$

 
$

 
$
519

Restricted cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
1,237

 

 

 
1,237

 
1,246

 

 

 
1,246

Other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other

 

 

 

 

 

 
3

 
3

Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities

 

 
2,370

 
2,370

 

 

 
2,364

 
2,364

Total financial assets
$
1,505

 
$

 
$
2,370

 
$
3,875

 
$
1,765

 
$

 
$
2,367

 
$
4,132

Financial Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
$

 
$

 
$
9

 
$
9

 
$

 
$

 
$

 
$

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrants

 

 
52

 
52

 

 

 
8

 
8

Embedded derivatives

 

 
2,018

 
2,018

 

 

 
1,843

 
1,843

Total financial liabilities
$

 
$

 
$
2,079

 
$
2,079

 
$

 
$

 
$
1,851

 
$
1,851


During the three months ended March 31, 2019, the Company did not make any transfers between the levels of the fair value hierarchy. The Company's policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 at the beginning of the quarter in which a change in circumstances resulted in a transfer.
The following table summarizes the amortized cost, unrealized gains and losses, and fair value of the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2018 and March 31, 2019 (in millions):
 
As of December 31, 2018
 
As of March 31, 2019
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
2,305

 
$
65

 
$

 
$
2,370

 
$
2,305

 
$
65

 
$
(6
)
 
$
2,364


The Company’s Level 3 debt securities as of December 31, 2018 and March 31, 2019 primarily consist of preferred stock investments in privately held companies without readily determinable fair values.
Depending on the investee’s financing activity in a reporting period, management’s estimate of fair value may be primarily derived from the investee’s financing transactions, including the issuance of preferred stock to new investors. The price in these transactions generally provides the best indication of the enterprise value of the investee. Additionally, based on the timing, volume, and other characteristics of the transaction, the Company may supplement this information by using other valuation techniques, including the guideline public company approach.
The guideline public company approach relies on publicly available market data of comparable companies and uses comparative valuation multiples of the investee’s revenue (actual and forecasted), and therefore, unobservable data primarily consists of short-term revenue projections.
Once the fair value of the investee is estimated, an option pricing model (“OPM”) is employed to allocate value to various classes of securities of the investee, including the class owned by the Company. The model involves making key assumptions around the investees’ expected time to liquidity and volatility.
An increase or decrease in any of the unobservable inputs in isolation, such as the security price in a significant financing transaction of the investee, could result in a material increase or decrease in the Company’s estimate of fair value. Other key unobservable inputs, including short-term revenue projections, time to liquidity, and volatility are less sensitive to the valuation in the respective reporting periods, as a result of the primary weighting on the investee’s financing transactions during 2018 and 2019. In the future, depending on the weight of evidence and valuation approaches used, these or other inputs may have a more significant impact on the Company’s estimate of fair value.
The following table summarizes information about the significant unobservable inputs used in the fair value measurement for the Company’s investment in Grab as of December 31, 2018 and March 31, 2019:
Fair value method
 
Relative weighting
 
Key unobservable input
Financing transactions
 
100%
 
Transaction price per share
 
$6.16

The Company determines realized gains or losses on the sale of equity and debt securities on a specific identification method. The Company did not recognize any other-than-temporary impairment losses during three months ended March 31, 2018 and 2019.
The following table summarizes the amortized cost and fair value of the Company’s debt security with a stated contractual maturity date as of December 31, 2018 and March 31, 2019 (in millions):
 
As of December 31, 2018
 
As of March 31, 2019
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due within one year
$

 
$

 
$

 
$

Due after one year through five years
2,275

 
2,328

 
2,275

 
2,324

Total
$
2,275

 
$
2,328

 
$
2,275

 
$
2,324


The following table presents a reconciliation of the Company’s financial assets measured and recorded at fair value on a recurring basis as of March 31, 2019, using significant unobservable inputs (Level 3) (in millions):
 
 
Debt Securities
Balance as of December 31, 2018
 
$
2,370

Total net gains (losses)
 
 
Included in earnings
 
(2
)
Included in other comprehensive income (loss)
 
(4
)
Balance as of March 31, 2019
 
$
2,364


The following table presents a reconciliation of the Company’s financial liabilities measured at fair value as of March 31, 2019 using significant unobservable inputs (Level 3), and the change in fair value recorded in other income (expense), net in the condensed consolidated statements of operations (in millions):
 
 
 Warrants
 
Convertible Debt Embedded Derivative
Balance as of December 31, 2018
 
$
52

 
$
2,018

Vesting of share warrants
 
1

 

Exercise of vested share warrants
 
(45
)
 

Change in fair value
 

 
(175
)
Balance as of March 31, 2019
 
$
8

 
$
1,843


Convertible Debt Embedded Derivative
Convertible debt embedded derivatives originated from the issuance of the 2021 convertible notes and 2022 convertible notes (collectively the “Convertible Notes”) during 2015. Refer to Note 7 - Long-Term Debt and Revolving Credit Arrangements for further information. The fair value of the embedded derivatives was computed as the difference between the estimated value of the Convertible
Notes with and without the Qualified Initial Public Offering (“QIPO”) Conversion Option (“QIPO Conversion Option”). The fair value of the Convertible Notes with and without the QIPO Conversion Option was estimated utilizing a discounted cash flow model to discount the expected payoffs at various potential QIPO dates to the valuation date. The key inputs to the valuation model included the probability of a QIPO occurring at various times, which was estimated to be 100% cumulatively by 2019 and a discount yield that was derived by the credit spread based on the average of the option-adjusted spreads of comparable instruments plus risk-free rates. The discount rate was updated during the period to reflect the yield of comparable instruments issued as of the subsequent valuation dates (average of 8.2% and 6.3% for the Convertible Notes as of March 31, 2018 and 2019, respectively). Fair value measurements are highly sensitive to changes in these inputs; significant changes in these inputs would result in a significantly higher or lower fair value. No value was attributed to other embedded features as they are triggered by events with a remote probability of occurrence.
Warrant Liabilities
In February 2016, the Company issued two warrants to an investor advisor to purchase up to 205,034 shares and 820,138 shares of the Company’s Series G redeemable convertible preferred stock at an exercise price of $0.01 per share in exchange for advisory services. The warrants were liability-classified due to the contingent redemption features in the underlying preferred stock and were consequently measured at their fair value of $45 million as of December 31, 2018. The vested shares were exercised during the first quarter of 2019, and the Company reclassified the $45 million fair value of the vested shares to Series G redeemable convertible preferred stock.
The Company estimates the fair value of warrants using the Black-Scholes option-pricing model, which approximates the intrinsic value of warrants with a nominal exercise price. The fair value of the Series G redeemable convertible preferred stock is estimated based on a combination of subject company prior transaction methods, which utilizes the value of shares sold in the latest financing on an as-converted basis and allocates the estimated business enterprise value to each class of outstanding securities using an option-pricing back-solve model.
Assets Measured at Fair Value on a Non-Recurring Basis
The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment are adjusted to fair value when an impairment charge is recognized. Such fair value measurements are based predominately on Level 3 inputs.
Non-Marketable Equity Securities
The Company measures its non-marketable equity securities that do not have readily determinable fair values under the measurement alternative at cost less impairment, adjusted by price changes from observable transactions recorded within other income (expense), net in the condensed consolidated statements of operations.
The Company’s non-marketable equity securities are investments in privately held companies without readily determinable fair values and primarily relate to its investment in Didi. Prior to January 1, 2018, the Company accounted for its non-marketable equity securities at cost less impairment. On January 1, 2018, the Company adopted ASU 2016-01, which changed the way the Company accounts for non-marketable securities. The Company now adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions subsequent to adoption for identical or similar securities of the same issuer or for impairment (referred to as the measurement alternative). Because the Company adopted ASU 2016-01 prospectively under the measurement alternative, any remeasurement recorded after the adoption date and upon occurrence of an observable transaction captures the accumulated appreciation of the equity security as of the date of that transaction. Remeasured non-marketable equity securities are classified within Level 3 in the fair value hierarchy because the Company estimates the fair value of these securities based on valuation methods, including the common stock equivalent method, using the transaction price of similar securities issued by the investee adjusted for contractual rights and obligations of the securities it holds.
The following is a summary of unrealized gains and losses from remeasurement (referred to as upward or downward adjustments) recorded in other income (expense), net in the condensed consolidated statements of operations, and included as adjustments to the carrying value of non-marketable equity securities held during the three months ended March 31, 2018 and 2019 based on the selling price of newly issued shares of similar preferred stock to new investors using the common stock equivalent valuation method and adjusted for any applicable differences in conversion rights (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2019
Upward adjustments
 
$
1,984

 
$
18

Downward adjustments (including impairment)
 

 

Total unrealized gain for non-marketable equity securities
 
$
1,984

 
$
18



The Company did not record any realized gains or losses for the Company’s non-marketable equity securities as of March 31, 2019.
The following table summarizes the total carrying value of the Company’s non-marketable equity securities held as of December 31, 2018 and March 31, 2019 including cumulative unrealized upward and downward adjustments made to the initial cost basis of the securities (in millions):
 
 
As of
 
 
December 31, 2018
 
March 31, 2019
Initial cost basis
 
$
6,001

 
$
6,030

Upward adjustments
 
1,984

 
2,002

Downward adjustments (including impairment)
 

 

Total carrying value at the end of the period
 
$
7,985

 
$
8,032


v3.19.1
Equity Method Investments
3 Months Ended
Mar. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments
Note 4 - Equity Method Investments
The carrying value of the Company’s equity method investments as of December 31, 2018 and March 31, 2019 (in millions) is as follows:
 
 
As of
 
 
December 31, 2018

March 31, 2019
MLU B.V.
 
$
1,234

 
$
1,182

Mission Bay 3 & 4(1)
 
78

 
138

Equity method investments
 
$
1,312

 
$
1,320

(1) Refer to Note 15 - Variable Interest Entities ("VIEs") for further information on the Company’s interest in Mission Bay 3 & 4.
MLU B.V.
During the first quarter of 2018, the Company contributed the net assets of its Uber Russia/CIS operations into a newly formed private limited liability company (“MLU B.V.” or “Yandex.Taxi joint venture”), with Yandex and the Company holding ownership interests in MLU B.V. The Company contributed $345 million of cash, contracts in the region including Rider, Driver Partner, and Eater contracts, and certain employees in the region to MLU B.V. The Company concurrently issued approximately 2 million shares of Uber Technologies, Inc. Class A common stock, with a fair value of $52 million to MLU B.V.’s parent, Yandex. These shares are subject to a put/call feature resulting in Uber Technologies, Inc.’s contingent obligation to buy back these shares at $48 per share after twelve months from the closing date. Neither the put nor the call had been exercised as of March 31, 2019.
In exchange for consideration contributed, the Company received a seat on MLU B.V.’s board and a 38% equity ownership interest consisting of common stock in MLU B.V. Certain contingent equity issuances of MLU B.V. may dilute the Company’s equity ownership interest to approximately 35%. The investment was determined to be an equity method investment due to the Company’s ability to exercise significant influence over MLU B.V. The initial fair value of the Company’s equity method investment in MLU B.V. was estimated using discounted cash flows of MLU B.V. As a result of the loss of control over Uber Russia/CIS resulting from the transaction, the Company derecognized the assets/liabilities of Uber Russia/CIS and recorded a $954 million gain during the first quarter of 2018 recognized in other income (expense), net in the condensed consolidated statement of operations.
Included in the initial carrying value of $1.4 billion, which represents the fair value on the transaction date, was a basis difference of $908 million related to the difference between the cost of the investment and the Company’s proportionate share of the net assets of MLU B.V. The carrying value of the equity method investments are primarily adjusted for the Company’s share in the losses of MLU B.V. and amortization of basis differences. The carrying value was also adjusted for currency translation adjustments representing fluctuations between the functional currency of the investee, the Ruble and the U.S. Dollar.
As of March 31, 2019, the basis differences between the carrying value of the Company’s investment and its share in the net assets of MLU B.V. amounted to $734 million, including the impact of foreign currency translation, and are comprised primarily of equity method goodwill. Equity method goodwill is not amortized. The Company amortizes the basis difference related to the intangible assets over the estimated useful lives of the assets that gave rise to the difference using the straight-line method. The weighted-average life of the intangible asset is approximately 5.5 years as of March 31, 2019. The investment balance is reviewed for impairment whenever factors indicate that the carrying value of the equity method investment may not be recoverable.
v3.19.1
Property and Equipment, Net
3 Months Ended
Mar. 31, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net
Note 5 - Property and Equipment, Net
The components of property and equipment, net as of December 31, 2018 and March 31, 2019 were as follows (in millions):
 
 
As of
 
 
December 31, 2018
 
March 31, 2019
Land
 
$
67

 
$
67

Building and site improvements
 
93

 
40

Leasehold improvements
 
315

 
312

Computer equipment
 
858

 
880

Leased computer equipment
 
288

 
371

Leased vehicles
 
34

 
33

Internal-use software
 
51

 
72

Furniture and fixtures
 
39

 
39

Dockless e-bikes
 
10

 
18

Construction in progress
 
832

 
570

Total
 
2,587

 
2,402

Less: Accumulated depreciation and amortization
 
(946
)
 
(1,077
)
Property and equipment, net
 
$
1,641

 
$
1,325


Depreciation expense relating to property and equipment was $82 million and $137 million for the three months ended March 31, 2018 and 2019, respectively.
Amounts in construction in progress represent buildings, leasehold improvements, assets under construction, other assets not placed in service, and build-to-suit leases prior to the adoption of ASC 842 on January 1, 2019. Upon adoption of ASC 842, the Company derecognized build-to-suit assets from construction in progress. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies for further information.
v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases, Finance
Note 6 - Leases    
The components of lease expense were as follows (in millions):
 
 
Three Months Ended March 31, 2019
Lease cost
 
 
Finance lease cost:
 
 
      Amortization of assets
 
$
36

      Interest of lease liabilities
 
4

Operating lease cost
 
67

Short-term lease cost
 
8

Variable lease cost
 
25

Sublease income
 
(1
)
Total lease cost
 
$
139

Supplemental cash flow information related to leases was as follows (in millions):
 
 
Three Months Ended March 31, 2019
Other information
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from financing leases
 
$
3

Operating cash flows from operating leases
 
52

Financing cash flows from financing leases
 
41

Right-of-use assets obtained in exchange for lease obligations:
 
 
Operating lease liabilities (1)
 
$
474

Finance lease liabilities
 
83

(1) Includes $415 million of ROU assets and operating lease liabilities recognized in the current period for Mission Bay 3 & 4 leases which commenced in the first quarter of 2019.
Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):
 
 
As of March 31, 2019
Operating Leases
 
 
Operating lease right-of-use assets
 
$
1,323

Operating lease liability, current
 
178

Operating lease liabilities, non-current
 
1,225

     Total operating lease liabilities
 
$
1,403

 
 
As of March 31, 2019
Finance Leases
 
 
Property and equipment, at cost
 
$
371

Accumulated depreciation
 
(133
)
     Property and equipment, net
 
$
238

Other current liabilities
 
$
115

Other long-term liabilities
 
130

     Total finance leases liabilities
 
$
245

 
 
As of March 31, 2019
Weighted-average remaining lease term
 
 
     Operating leases
 
17 years

     Finance leases
 
2 years

Weighted-average discount rate
 
 
     Operating leases
 
7.5
%
     Finance leases
 
5.0
%

Maturities of lease liabilities were as follows (in millions):
 
 
As of March 31, 2019
 
 
Operating Leases
 
Finance Leases
Remainder of 2019
 
$
169

 
$
101

2020
 
210

 
89

2021
 
232

 
63

2022
 
200

 
5

2023
 
169

 

Thereafter
 
1,974

 

Total undiscounted lease payments
 
2,954

 
258

Less: imputed interest
 
(1,551
)
 
(13
)
Total lease liabilities
 
$
1,403

 
$
245


As of March 31, 2019, the Company had additional operating leases and finance leases, primarily for servers, that have not yet commenced of $17 million and $50 million, respectively. These operating and finance leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of 1 year to 10 years.
Failed Sale-Leaseback
In 2015, the Company entered into a JV agreement with a real estate developer (“JV Partner”) to develop parcels of land (“the Land”) in San Francisco on which to construct the Company’s new headquarters buildings (the “Buildings”). The Buildings are to consist of two adjacent towers totaling approximately 423,000 rentable square feet. In connection with the JV arrangement, the Company had acquired a 49% interest in the JV, the principal asset of which was the Land on which the Buildings are to be constructed. In November 2016, the Company and the JV Partner agreed to dissolve the JV and terminate the Company’s commitment to the lease of the Buildings (together “the real estate transaction”). Under the terms of the real estate transaction, the Company obtained the rights and title to the partially constructed building, will complete the development of the two office buildings and retain a 100% ownership of the buildings. In connection with the real estate transaction, the Company also executed two 75-year land lease agreements (“Land Leases”). As of March 31, 2019, commitments under the Land Leases total $172 million until February 2032. After 2032, the annual rent amount will adjust annually based on the prevailing consumer price index.
For accounting purposes, the real estate transaction is in substance the sale-leaseback of its 49% indirect interest in the land. Due to the Company’s continuing involvement through a purchase option on the Land, the Company failed to qualify for sale-leaseback accounting. A failed sale-leaseback transaction is accounted for as a financing transaction whereby the cash and deferred sales proceeds received in the real estate transaction are recorded as a financing obligation. Accordingly, the Company’s previous ownership in the JV, which represented its ownership interest in the Land of $65 million, is included in property and equipment, net, and a corresponding financing obligation of $88 million is included in other long-term liabilities as of March 31, 2019. Future land lease payments of $1.8 billion will be allocated 49% to the financing obligation under the failed sale-leaseback arrangement and 51% to the operating lease of land.
Future minimum payments related to the financing obligations under failed sale-leaseback arrangement as of March 31, 2019 are summarized below (in millions):
 
 
Future Minimum Payments under Failed Sale-Leaseback Arrangements
Fiscal Year Ending December 31,
 
 
Remainder of 2019
 
$

2020
 
2

2021
 
6

2022
 
6

2023
 
6

Thereafter
 
833

Total
 
$
853


Leases, Operating
Note 6 - Leases    
The components of lease expense were as follows (in millions):
 
 
Three Months Ended March 31, 2019
Lease cost
 
 
Finance lease cost:
 
 
      Amortization of assets
 
$
36

      Interest of lease liabilities
 
4

Operating lease cost
 
67

Short-term lease cost
 
8

Variable lease cost
 
25

Sublease income
 
(1
)
Total lease cost
 
$
139

Supplemental cash flow information related to leases was as follows (in millions):
 
 
Three Months Ended March 31, 2019
Other information
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from financing leases
 
$
3

Operating cash flows from operating leases
 
52

Financing cash flows from financing leases
 
41

Right-of-use assets obtained in exchange for lease obligations:
 
 
Operating lease liabilities (1)
 
$
474

Finance lease liabilities
 
83

(1) Includes $415 million of ROU assets and operating lease liabilities recognized in the current period for Mission Bay 3 & 4 leases which commenced in the first quarter of 2019.
Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):
 
 
As of March 31, 2019
Operating Leases
 
 
Operating lease right-of-use assets
 
$
1,323

Operating lease liability, current
 
178

Operating lease liabilities, non-current
 
1,225

     Total operating lease liabilities
 
$
1,403

 
 
As of March 31, 2019
Finance Leases
 
 
Property and equipment, at cost
 
$
371

Accumulated depreciation
 
(133
)
     Property and equipment, net
 
$
238

Other current liabilities
 
$
115

Other long-term liabilities
 
130

     Total finance leases liabilities
 
$
245

 
 
As of March 31, 2019
Weighted-average remaining lease term
 
 
     Operating leases
 
17 years

     Finance leases
 
2 years

Weighted-average discount rate
 
 
     Operating leases
 
7.5
%
     Finance leases
 
5.0
%

Maturities of lease liabilities were as follows (in millions):
 
 
As of March 31, 2019
 
 
Operating Leases
 
Finance Leases
Remainder of 2019
 
$
169

 
$
101

2020
 
210

 
89

2021
 
232

 
63

2022
 
200

 
5

2023
 
169

 

Thereafter
 
1,974

 

Total undiscounted lease payments
 
2,954

 
258

Less: imputed interest
 
(1,551
)
 
(13
)
Total lease liabilities
 
$
1,403

 
$
245


As of March 31, 2019, the Company had additional operating leases and finance leases, primarily for servers, that have not yet commenced of $17 million and $50 million, respectively. These operating and finance leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of 1 year to 10 years.
Failed Sale-Leaseback
In 2015, the Company entered into a JV agreement with a real estate developer (“JV Partner”) to develop parcels of land (“the Land”) in San Francisco on which to construct the Company’s new headquarters buildings (the “Buildings”). The Buildings are to consist of two adjacent towers totaling approximately 423,000 rentable square feet. In connection with the JV arrangement, the Company had acquired a 49% interest in the JV, the principal asset of which was the Land on which the Buildings are to be constructed. In November 2016, the Company and the JV Partner agreed to dissolve the JV and terminate the Company’s commitment to the lease of the Buildings (together “the real estate transaction”). Under the terms of the real estate transaction, the Company obtained the rights and title to the partially constructed building, will complete the development of the two office buildings and retain a 100% ownership of the buildings. In connection with the real estate transaction, the Company also executed two 75-year land lease agreements (“Land Leases”). As of March 31, 2019, commitments under the Land Leases total $172 million until February 2032. After 2032, the annual rent amount will adjust annually based on the prevailing consumer price index.
For accounting purposes, the real estate transaction is in substance the sale-leaseback of its 49% indirect interest in the land. Due to the Company’s continuing involvement through a purchase option on the Land, the Company failed to qualify for sale-leaseback accounting. A failed sale-leaseback transaction is accounted for as a financing transaction whereby the cash and deferred sales proceeds received in the real estate transaction are recorded as a financing obligation. Accordingly, the Company’s previous ownership in the JV, which represented its ownership interest in the Land of $65 million, is included in property and equipment, net, and a corresponding financing obligation of $88 million is included in other long-term liabilities as of March 31, 2019. Future land lease payments of $1.8 billion will be allocated 49% to the financing obligation under the failed sale-leaseback arrangement and 51% to the operating lease of land.
Future minimum payments related to the financing obligations under failed sale-leaseback arrangement as of March 31, 2019 are summarized below (in millions):
 
 
Future Minimum Payments under Failed Sale-Leaseback Arrangements
Fiscal Year Ending December 31,
 
 
Remainder of 2019
 
$

2020
 
2

2021
 
6

2022
 
6

2023
 
6

Thereafter
 
833

Total
 
$
853


v3.19.1
Long-Term Debt and Revolving Credit Arrangements
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Long-Term Debt and Revolving Credit Arrangements
Note 7 - Long-Term Debt and Revolving Credit Arrangements
Components of debt, including the associated effective interest rates were as follows (in millions, except for percentages):
 
 
As of
 
 
 
 
December 31, 2018
 
March 31, 2019
 
Effective Interest Rate
2016 Senior Secured Term Loan
 
$
1,124

 
$
1,121

 
6.1
%
2018 Senior Secured Term Loan
 
1,493

 
1,489

 
6.2
%
2021 Convertible Notes
 
1,844

 
1,867

 
23.5
%
2022 Convertible Notes
 
1,030

 
1,030

 
13.7
%
2023 Senior Note
 
500

 
500

 
7.7
%
2026 Senior Note
 
1,500

 
1,500

 
8.1
%
Total debt
 
7,491

 
7,507

 
 
Less: unamortized discount and issuance costs
 
(595
)
 
(541
)
 
 
Less: current portion of long-term debt
 
(27
)
 
(27
)
 
 
Total long-term debt
 
$
6,869

 
$
6,939

 
 

2016 Senior Secured Term Loan
In July 2016, the Company entered into a secured term loan agreement with a syndicate of lenders to issue senior secured floating-rate term loans for a total of $1.2 billion in proceeds, net of debt discount of $23 million and debt issuance costs of $13 million, with a maturity date of July 2023 (the “2016 Senior Secured Term Loan”).
On June 13, 2018, the Company entered into an amendment to the 2016 Senior Secured Term Loan agreement which increased the effective interest rate to 6.1% on the outstanding balance of the 2016 Senior Secured Term Loan as of the amendment date. The maturity date for the 2016 Senior Secured Term Loan remains July 13, 2023. The amendment qualified as a debt modification that did not result in an extinguishment except for an immaterial syndicated amount of the loan.
The 2016 Senior Secured Term Loan is guaranteed by certain material domestic restricted subsidiaries of the Company. The 2016 Senior Secured Term Loan agreement contains customary covenants restricting the Company and certain of its subsidiaries’ ability to incur debt, incur liens and undergo certain fundamental changes, as well as certain financial covenants specified in the contractual agreement. The Company was in compliance with all covenants as of March 31, 2019. The credit agreement also contains customary events of default. The loan is secured by certain intellectual property of the Company and equity of certain material foreign subsidiaries. The 2016 Senior Secured Term Loan also contains restrictions on the payment of dividends.
2018 Senior Secured Term Loan
In April 2018, the Company entered into a secured term loan agreement with a syndicate of lenders to issue secured floating-rate term loans totaling $1.5 billion in proceeds, net of debt discount of $8 million and debt issuance costs of $15 million, with a maturity date of April 2025 (the “2018 Senior Secured Term Loan”). The 2018 Senior Secured Term Loan was issued on a pari passu basis with the existing 2016 Senior Secured Term Loan. The debt discount and debt issuance costs are amortized to interest expense at an effective interest rate of 6.2%. The 2018 Senior Secured Term Loan is guaranteed by certain material domestic restricted subsidiaries of the Company. The 2018 Senior Secured Term Loan agreement contains customary covenants restricting the Company and certain of its subsidiaries’ ability to incur debt, incur liens and undergo certain fundamental changes, as well as certain financial covenants specified
in the contractual agreement. The Company was in compliance with all covenants as of March 31, 2019. The credit agreement also contains customary events of default. The loan is secured by certain intellectual property of the Company and equity of certain material foreign subsidiaries.
The fair values of the Company’s 2016 Senior Secured Term Loan and 2018 Senior Secured Term Loan was $1.1 billion and $1.5 billion, respectively, as of March 31, 2019 and were determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input.
2021 Convertible Notes
During 2015, the Company issued convertible notes at par for a total of $1.7 billion in proceeds, net of $1 million in debt issuance costs, with an initial maturity date of January 2021 (the “2021 Convertible Notes”). The 2021 Convertible Notes contain various extension options triggered by the events defined in the note agreement and allow the maturity date to be extended up to 2030. The interest rate is 2.5% per annum, payable semi-annually in arrears. During the first four years from the issuance date, at the election of the holders, interest is to be paid in cash or by increasing the principal amount of the 2021 Convertible Notes by payment in kind (“PIK interest”). The holders elected to receive PIK interest during the first four years. The interest rate increases to 12.5% during the last 2 years of the initial term of the 2021 Convertible Notes and is to be paid in cash at the election of the Company. The interest rate during the maturity extension period varies from 3.5% to 12.5% depending on the type of extension option elected.
The 2021 Convertible Notes also contain other embedded features, such as conversion options that are exercisable upon the occurrence of various contingencies. The conversion options involve a discount to the conversion price ranging from 18.0% to 30.5%, increasing with the passage of time. All of the embedded features were analyzed to determine whether they should be bifurcated and separately accounted for as a derivative. Pursuant to such analysis, the Company valued and bifurcated the QIPO Conversion Option, which enables the holders to convert their 2021 Convertible Notes to the shares offered in a QIPO at a predefined discount from the public offering price, and recorded its initial fair value of $1.1 billion as a discount on the 2021 Convertible Notes face amount. The debt discount is amortized to interest expense at an effective interest rate of 23.5%. The Company amortizes the discount over the period until the maturity date of the respective note. The fair value of the QIPO Conversion Option was determined in accordance with the methodology described in Note 3 - Fair Value Measurement, and the changes in fair value are recognized as a component of other income (expense), net in the condensed consolidated statements of operations. The Company recorded $314 million of expense and $129 million of income during the first quarter of 2018 and 2019, respectively, related to the change in the fair value of the 2021 Convertible Notes embedded derivative liability, which was included in total other income (expense), net in the condensed consolidated statements of operations. No value was attributed to other embedded features as they are triggered by events with a remote probability of occurrence. The agreement contains customary covenants that restrict the Company’s ability to, among other things, declare dividends or make certain distributions. On May 14, 2019, the Company closed its IPO, refer to Note 17 - Subsequent Events for further information.
2022 Convertible Notes
During 2015, the Company issued additional convertible notes at par for a total of $949 million in proceeds, net of $0.1 million in debt issuance costs, with an initial maturity date of June 2022 (the “2022 Convertible Notes”). The Company can elect to extend the maturity date of the 2022 Convertible Notes by one year if a material financial market disruption (as defined in the note agreement) exists at initial maturity. The interest rate is 2.5% per annum, compounded semi-annually and payable in PIK interest. If no conversion or settlement event is triggered prior to the 2022 Convertible Notes’ maturity, the 2022 Convertible Notes are redeemed at an 8.0% internal rate of return (“IRR”) either immediately or over a 3-year period, at the Company’s election. The 8.0% IRR payout at maturity is incorporated into the effective interest rate calculation. The 2022 Convertible Notes also contain other embedded features such as conversion options that are exercisable upon the occurrence of various contingencies. The conversion options involve a discount to the conversion price, which ranges from 8.1% to 44.5% increasing with the passage of time. All of the embedded features were analyzed to determine whether they should be bifurcated and separately accounted for as a derivative. Pursuant to such analysis, the Company valued and bifurcated the QIPO Conversion Option, which enables the holders to convert the 2022 Convertible Notes to the shares offered in a QIPO at a predefined discount from the offering price, and recorded its initial fair value of $312 million as a discount on the 2022 Convertible Notes face amount. The debt discount is amortized to interest expense at an effective interest rate of 13.7%. The Company amortizes the discount over the period until the initial maturity date of the respective note. The fair value of the QIPO Conversion Option was determined in accordance with the methodology described in Note 3 - Fair Value Measurement, and the changes in fair value are recognized as a component of other income (expense), net in the condensed consolidated statements of operations. The Company recorded $53 million of expense and $46 million of income during the first quarter of 2018 and 2019, respectively, related to the change in the fair value of the 2022 Convertible Notes embedded derivative liability, which was included in total other income (expense), net in the condensed consolidated statements of operations. No value was attributed to other embedded features as they are triggered by events with a remote probability of occurrence. The agreement contains customary covenants that restrict the Company’s ability to, among other things, declare dividends or make certain distributions.
The 2021 Convertible Notes and the 2022 Convertible Notes are carried on the condensed consolidated balance sheets at their original issuance value, net of unamortized debt discount and issuance costs, and are not marked to fair value each period. The fair values of the 2021 Convertible Notes and the 2022 Convertible Notes were $2.8 billion and $1.4 billion, respectively, as of March 31, 2019. The fair values were determined in accordance with the methodology described in Note 3 - Fair Value Measurement and were categorized as
Level 3 in the fair value hierarchy. On May 14, 2019, the Company closed its IPO, refer to Note 17 - Subsequent Events for further information.
2023 and 2026 Senior Notes
In October 2018, the Company issued five-year notes with aggregate principal amount of $500 million due on November 1, 2023 and eight-year notes with aggregate principal amount of $1.5 billion due on November 1, 2026 (the “2023 and 2026 Senior Notes”) in a private placement offering totaling $2.0 billion. The Company issued the 2023 and 2026 Senior Notes at par and paid approximately $9 million for debt issuance costs. The interest is payable semi-annually on May 1st and November 1st of each year at 7.5% per annum and 8.0% per annum, respectively, beginning on May 1, 2019, and the entire principal amount is due at the time of maturity. The 2023 and 2026 Senior Notes are guaranteed by certain material domestic restricted subsidiaries of the Company. The indentures governing the 2023 and 2026 Senior Notes contain customary covenants restricting the Company and certain of its subsidiaries’ ability to incur debt and incur liens, as well as certain financial covenants specified in the contractual agreements. The Company was in compliance with all covenants as of March 31, 2019.
The fair values of the Company’s 2023 and 2026 Senior Notes were $525 million and $1.6 billion, respectively, as of March 31, 2019 and were determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input.
The following table presents the amount of interest expense recognized relating to the contractual interest coupon, amortization of the debt discount and issuance costs, and the IRR payout with respect to the Senior Secured Term Loan, the Convertible Notes, and the Senior Notes for the three months ended March 31, 2018 and 2019 (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2019
Contractual interest coupon
 
$
32

 
$