Pandora 2016 Annual Report Download

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2016 Annual Report

Table of contents

  • Page 1
    2016 Annual Report

  • Page 2
    80,000,000+ Monthly active users * 1,000,000+ Analyzed songs in the Pandora® collection 65,000,000,000+ Thumbs * U.S., AUSTRALIA, & NEW ZEALAND *Announced December 2015 | Source: Internal Data

  • Page 3
    ...BUSINESS MODEL ® Music Genome Project Comprehensive database of music analysis Up to 450 attributes per song Collective Feedback 65+ billion thumbs in aggregate* 9+ billion stations created* Ongoing Personalization & Discovery Individual Engagement Real-time adaptation of playlists Advertising...

  • Page 4
    Anytime. Anywhere.

  • Page 5
    ...music personalization and for monetization of a lean-back listening experience, writing the book on audio advertising in the digital realm. December 31, 2015 who listened to Pandora for an average of 22 hours per month. This audience has now created the result of a fierce dedication to the product...

  • Page 6
    ... our revenue organizations. • Sara Clemens is now our Chief Operating Officer, in charge of scaling our business, operating new ventures and managing human resources. • Chris Phillips adds engineering and marketing to his CPO responsibilities and will oversee the full end-to-end development...

  • Page 7
    ...US music service. As of the end of 2015, we are at an all-time high that ended December 31, 2015, and engagement continued to grow to approximately 22 hours a month per active of more than 10% share of US radio listening. We reached more than 80 million active users during the 30-day period user as...

  • Page 8
    ... information, adding more and more precision to our song-selection. We will leverage this data as we enter into new business lines such as on-demand subscription services, live events and more. Each competitive advantage - personalization, effortless discovery, monetization, scale and data...

  • Page 9
    ... No.) 94612 (Zip Code) Pandora Media, Inc. (510) 451-4100 (Registrant's telephone number, including area code) Securities registered pursuant to section 12(g) of the Act: Title of each class Common stock, $0.0001 par value Name of each exchange on which registered The New York Stock Exchange...

  • Page 10
    ...Yes o No The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2015 (the last business day of the registrant's most recently completed second quarter), based on the closing price of such stock on The New York Stock Exchange on such date was...

  • Page 11
    ... Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes...

  • Page 12
    ... and market data contained in this Annual Report on Form 10-K are based on independent industry publications, including those generated by Triton Digital Media or "Triton" and International Data Corporation or "IDC" or other publicly available information. This information involves a number of...

  • Page 13
    ... 30-day period. Since we launched our non-subscription, ad-supported radio service in 2005 our listeners have created over 9 billion stations. Ticketfly Pandora completed the acquisition of Ticketfly on October 31, 2015. Ticketfly is a leading live events technology company that provides ticketing...

  • Page 14
    ... personalization technologies, including the Music Genome Project and our playlist generating algorithms. When a listener enters a single song, artist or genre to start a station, the Pandora service instantly generates a station that plays music or comedy we think that listener will enjoy. Based...

  • Page 15
    ..., we make the Pandora service available through a variety of distribution channels. In addition to streaming our service to computers, we have developed Pandora mobile device applications or "apps" for smartphones such as iPhone, phones running the Android operating system, the Windows Phone and for...

  • Page 16
    ...80% of our total revenue, respectively, and we expect that advertising will comprise a substantial majority of revenue for the foreseeable future. Pandora Audio Advertising. Our audio advertising products allow custom audio messages to be delivered between songs during short ad interludes. Audio ads...

  • Page 17
    ...-free access and higher audio quality on supported devices. Pandora One is primarily available for purchase through major app stores and through the Pandora website. For the eleven months ended December 31, 2013 and the twelve months ended December 31, 2014 and 2015, subscription and other revenue...

  • Page 18
    ... we pay per-performance rates for streaming of sound recordings via our Pandora One subscription service that are higher than the per-performance rates for our non-subscription, ad-supported service. As a result, we may incur higher royalty expenses to SoundExchange for a listener that subscribes to...

  • Page 19
    ... the music industry, we decided to forgo the application of the RMLC royalty rate from June 2013 through September 2015. As a result, cost of revenue - content acquisition costs increased by $28.2 million in the twelve months ended December 31, 2015, of which $23.9 million was related to a one-time...

  • Page 20
    ... in local sales offices throughout the United States and in Canada. Artist Relations Pandora Artist Marketing Platform In October 2014, we launched Pandora AMP, a free online service that gives artists and their managers a detailed view of their audience on our service. Pandora AMP provides data and...

  • Page 21
    ... hours from interactive music streaming services such as Spotify, Apple Music, YouTube, Google Play Music, Amazon Prime, Rhapsody, and Deezer. These services offer consumers the ability to choose the songs and artists they want to hear, create customized playlists and download music for play offline...

  • Page 22
    ...the sale of tickets primarily through online channels, but also through telephone, mobile devices and ticket outlets. In the online environment, we compete with other websites, live events technology and ticketing companies to provide event information, sell tickets and provide other online services...

  • Page 23
    ... we announce material financial information to our investors using our Investor Relations website, SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with the public about the Company, our services and other issues. It is...

  • Page 24
    ...to damages for copyright infringement. Changes in third-party licenses for the right to publicly perform musical works may reduce the number of sound recordings available to stream on our service or materially increase our content acquisition costs. The number of works administered by ASCAP, BMI...

  • Page 25
    ... viable direct licenses with record labels for the right to reproduce and publicly perform sound recordings on our service may delay or prevent our plans to expand our subscription offerings into multiple tiers, including an on-demand offering, and delay or prevent our international expansion...

  • Page 26
    ... users. If we are unable to maintain revenue growth from our advertising products, particularly in mobile advertising, our results of operations will be materially adversely affected. Our number of listener hours on mobile devices comprised approximately 85% of our total listener hours in 2015...

  • Page 27
    ... by listeners using mobile and connected devices, or do so in a timeframe that supports our business plans. Advertising spending is increasingly being placed through new data-driven channels, such as the programmatic buying ecosystem, where mobile offerings are not as mature as their web-based...

  • Page 28
    ..., including the value of mobile digital advertising; • continuing to develop and diversify our advertising platform, which currently includes delivery of display, audio and video advertising products through multiple delivery channels, including computers, mobile and other connected devices; and...

  • Page 29
    ...addressing a number of challenges. Some of these challenges include: • providing listeners with a consistent high quality, user-friendly and personalized experience; • successfully expanding our share of listening in cars; • continuing to build and maintain availability of catalogs of music...

  • Page 30
    ... existing and attract new listeners. We believe that a key differentiating factor between the Pandora service and other music content providers is our ability to predict music that our listeners will enjoy. Our personalized playlist generating system, based on the Music Genome Project and our...

  • Page 31
    ... include iHeart Radio, iTunes Radio, Beats 1 Radio, LastFM and other companies in the traditional broadcast and internet radio market. We also directly compete with the non-interactive, Internet radio offerings provided by digital music streaming services such as Spotify, Google Play Music and...

  • Page 32
    ...acquisition and represents an entirely new line of business for us. Ticketfly's business is highly sensitive to rapidly changing public tastes and is dependent on the availability of popular artists and events. Ticketfly's revenue is derived from ticketing services under client contracts with venues...

  • Page 33
    ... comedy, live events and podcasts, subjects us to additional business, legal, financial and competitive risks. Expansion of our operations into delivery of content beyond pre-recorded music involves numerous risks and challenges, including increased capital requirements, new competitors and the...

  • Page 34
    ... to reach additional listeners, and increase current listener hours, through other platforms and partners over time, including through direct integration into connected cars. However, product design cycles in automotive manufacturing are lengthy and the useful lives of automobiles in service is long...

  • Page 35
    ...of our service, increase listener hours and sell advertising, each of which could harm our operating results, cash flow and financial condition. Digital music streaming is an evolving industry, which makes it difficult to evaluate our near- and long-term business prospects. Digital music streaming...

  • Page 36
    ...to online and mobile digital advertising markets and utilize our advertising product solutions. Continued growth could also strain our ability to maintain reliable service levels for our listeners, effectively monetize our listener hours, develop and improve our operational, financial and management...

  • Page 37
    ... that we develop using such data, could in turn limit our ability to stream personalized music content to our listeners and offer targeted advertising opportunities to our advertising customers, each of which are critical to the success of our business. We have incurred, and will continue to incur...

  • Page 38
    ... to the holiday season, and in the first quarter of each year due to increased use of media-streaming devices received as gifts during the holiday season. If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our...

  • Page 39
    ...We have registered "Pandora," "Music Genome Project", "Next Big Sound", "Ticketfly" and other marks as trademarks in the United States and other countries. Nevertheless, competitors may adopt service names similar to ours, or purchase confusingly similar terms as keywords in internet search engine...

  • Page 40
    ... an open source license, we may be required to publicly release the affected portions of our source code, be forced to re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce the value of our services and technologies...

  • Page 41
    ... could result in litigation and financial losses, and could potentially cause us to lose listeners, artists, advertisers, revenue and employees. We are subject to a number of risks related to credit card and debit card payments we accept. We accept subscription payments through credit and debit...

  • Page 42
    ... our security measures and significantly higher credit card-related costs, each of which could adversely affect our business, financial condition and results of operations. If we are unable to maintain our chargeback rate or refund rates at acceptable levels, credit card and debit card companies may...

  • Page 43
    ... are located, and in New York, and we may incur significant costs to attract them. If we are unable to attract and retain our executive officers and key employees, we may not be able to achieve our strategic objectives, and our business could be harmed. We use share-based and other performance-based...

  • Page 44
    ... provide high quality service to our listeners, such disruptions could negatively impact our ability to run our business, resulting in a loss of existing or potential listeners and advertisers and increased maintenance costs, which would adversely affect our operating results and financial condition...

  • Page 45
    ... cause the price of our common stock to fluctuate include, but are not limited to: • our actual or anticipated operating performance and the operating performance of similar companies in the internet, radio or digital media spaces; our ability to grow active users and listener hours; competitive...

  • Page 46
    ... of time. In addition, if we are acquired, certain terms of our music licensing arrangements, including favorable royalty rates that currently apply to us, may not be available to an acquiror. These terms may discourage a potential acquiror from making an offer to buy us or may reduce the price such...

  • Page 47
    ... tolerance and will also support our continued growth. The data centers host the Pandora.com website and intranet applications that are used to manage the website content. The websites are designed to be fault-tolerant, with a collection of identical web servers connecting to an enterprise database...

  • Page 48
    ... ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on The New York Stock Exchange ("NYSE") under the symbol "P." The following table sets forth the range of high and low intra-day sales prices per share of our common stock for the periods indicated, as reported by...

  • Page 49
    ...2011. Data for the NYA Composite, MTK and SOCL assume reinvestment of dividends. The comparisons in the graph are historical and are not intended to forecast or be indicative of possible future performance of our common stock. Comparison of Cumulative Total Return Among Pandora Media, Inc., New York...

  • Page 50
    ... 21.11 2013 Twelve Months Ended December 31, 2014 2015 As of January 31, 2012 Active users 47.6 2013 65.6 2013 As of December 31, 2014 81.5 2015 81.1 (in millions) 76.2 (1) Listener hours and active users are defined in the section entitled "Key Metrics" in Item 7 of this Annual Report on Form...

  • Page 51
    Table of Contents As of January 31, 2012 Balance Sheet Data: Cash and cash equivalents Working capital Total assets Long-term debt, net Total liabilities Common stock and additional paid-in capital Total stockholders' equity $ 44,126 89,218 178,015 - 73,475 205,971 104,540 $ 65,725 82,644 218,832 -...

  • Page 52
    ... is internet connectivity. To this end, we make the Pandora service available through a variety of distribution channels. In addition to streaming our service to computers, we have developed Pandora mobile device applications ("apps") for smartphones and mobile operating systems, such as the iPhone...

  • Page 53
    ...October 31, 2015. Ticketfly is a leading live events technology company that provides ticketing and marketing software and services for venues and event promoters across North America. Ticketfly's ticketing, digital marketing and analytics software helps promoters book talent, sell tickets and drive...

  • Page 54
    ..., in the Consumer Price Index, applicable to that rate year. For additional information on the CRB ruling, please see "Item 1. Business-Pandora Content, Copyrights and Royalties." Direct Licensing Deals With respect to the public performance of musical works, Pandora has direct licenses with certain...

  • Page 55
    ... addition, our monetization strategy includes increasing the number of ad campaigns for computer, mobile and other connected device platforms sold to local advertisers, placing us in more direct competition with broadcast radio for advertiser spending, especially for audio advertisements. Key to the...

  • Page 56
    ...custom music content such as Pandora Premiers and artist mixtapes. Historically, listener hours related to non-radio content represented a negligible number of listener hours. Including non-radio content in the listener hours we have previously reported for 2013, 2014 and 2015 would not have changed...

  • Page 57
    ...31, 2013 User Type Ad-based active users Subscribers Total 13.34 1.97 15.31 2014 Listener hours (in billions) 17.58 2.45 20.03 18.47 2.64 21.11 Twelve Months Ended December 31, 2015 Advertising Revenue per Thousand Listener Hours ("ad RPMs") We track ad RPMs for our non-subscription, ad-supported...

  • Page 58
    ... service that are higher than the per-performance rates for our non-subscription, adsupported service. **The calculation of RPMs does not include revenue generated by Ticketfly or Next Big Sound. Total Ad RPMs For the twelve months ended December 31, 2015 compared to 2014, total ad RPMs increased...

  • Page 59
    ...the mobile and other connected devices platform increased as advertising revenue growth outpaced the growth in advertising listener hours as a result of an increase in the average price per ad sold on that platform, due in part to our increase in relative volume of local ad sales. Total Subscription...

  • Page 60
    ...31, 2013 Revenue Advertising Subscription and other Ticketing service Total revenue Cost of revenue Cost of revenue-Content acquisition costs Cost of revenue-Other(1) Cost of revenue-Ticketing service(1) Total cost of revenue Gross profit Operating expenses Product development(1) Sales and marketing...

  • Page 61
    ... primarily through the sale of Pandora One, a daily, monthly or annual subscription to a premium version of the Pandora service, which currently includes advertisement-free access and higher audio quality on supported devices. Subscription revenue is recognized on a straight-line basis over the...

  • Page 62
    ... 2015, the deferred revenue related to the return reserve was not significant. Costs and Expenses Cost of revenue consists of cost of revenue-content acquisition costs, cost of revenue-other and cost of revenue ticketing. Our operating expenses consist of product development, sales and marketing...

  • Page 63
    ...31, 2013 Computer Mobile and other connected devices 34% 58% Twelve Months Ended December 31, 2014 2015 34% 53% 41% 55% Cost of revenue-content acquisition costs principally consist of royalties paid for streaming music or other content to our listeners. Royalties are currently calculated using...

  • Page 64
    ...accordingly, we record this as a cost of revenue in the related period. Employee-related costs include salaries and benefits associated with supporting music and ad serving functions. Other costs of ad sales include costs related to music events that are sold as part of advertising arrangements. For...

  • Page 65
    ... product management departments, information technology and costs associated with supporting consumer connected-device manufacturers in implementing our service in their products. We incur product development expenses primarily for improvements to our website and the Pandora app, development of new...

  • Page 66
    ... commissions on subscription purchases through mobile app stores, external sales and marketing expenses such as brand marketing, advertising, direct response and search engine marketing costs, public relations expenses, costs related to music events, agency platform and media measurement expenses...

  • Page 67
    ... including adding personnel and systems to our administrative functions. For the twelve months ended December 31, 2015 compared to 2014, general and administrative expenses increased $41.5 million or 37%, primarily due to a $22.4 million increase in employee-related, facilities and equipment costs...

  • Page 68
    ... the cost of the capped call transactions. Refer to Note 7 "Debt Instruments" in the Notes to Consolidated Financial Statements for further details on our Notes. In September 2013, we completed a follow-on public equity offering in which we sold an aggregate of 15,730,000 shares of our common stock...

  • Page 69
    ... million in stockâ€'based compensation expense. Net cash used in operating activities benefited from a $13.4 million increase in deferred revenue from the prior period primarily due to an increase in subscriptions, partially driven by the temporary implementation of the mobile listening limit and an...

  • Page 70
    ... options and $6.4 million in proceeds from our employee stock purchase plan. In the eleven months ended December 31, 2013, net cash provided by financing activities was $395.0 million, primarily consisting of net proceeds from the follow-on public equity offering of $378.7 million and cash proceeds...

  • Page 71
    ... performance rights of musical works, advertising revenue, subscription and other revenue, business combinations, goodwill and intangible assets and stock based compensation and the valuation of stock option grants and market stock units have the greatest potential impact on our financial statements...

  • Page 72
    ... is generated primarily through the sale of a premium version of the Pandora service which currently includes advertisement-free access and higher audio quality on supported devices. Subscription revenue derived from direct sales to listeners is recognized on a straight-line basis over the duration...

  • Page 73
    ... financial statement line item in our consolidated statement of operations that the asset directly relates to. To the extent that purchased intangibles are used in revenue generating activities, we record the amortization of these intangible assets to cost of revenue. Stock-Based Compensation Stock...

  • Page 74
    ... risk related to the CPI, we do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases...

  • Page 75
    ... FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PANDORA MEDIA, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. 65 67 67 68 69 70 71 72 Reports of Independent Registered Public Accounting Firm Consolidated Financial Statements: Consolidated Balance Sheets Consolidated Statements of Operations...

  • Page 76
    ... the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the eleven month period ended December 31, 2013 and the twelve month periods ended December 31, 2014 and 2015. These financial statements are the responsibility of the Company's management...

  • Page 77
    ... or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of...

  • Page 78
    ... revenue Accrued compensation Other current liabilities Total current liabilities Long-term debt, net Other long-term liabilities Total liabilities Stockholders' equity Common stock, $0.0001 par value, 1,000,000,000 shares authorized: 209,071,488 shares issued and outstanding at December 31, 2014...

  • Page 79
    ... Months Ended December 31, 2013 Revenue Advertising Subscription and other Ticketing service Total revenue Cost of revenue Cost of revenue-Content acquisition costs Cost of revenue-Other Cost of revenue-Ticketing service Total cost of revenue Gross profit Operating expenses Product development Sales...

  • Page 80
    ... Pandora Media, Inc. Consolidated Statements of Comprehensive Loss (in thousands) Eleven Months Ended December 31, 2013 Net loss Change in foreign currency translation adjustment Change in net unrealized losses on marketable securities Other comprehensive income (loss) Total comprehensive...

  • Page 81
    ...2014 Issuance of common stock upon exercise of stock options Issuance of common stock related to acquisitions Stock-based compensation Vesting of restricted stock units Share cancellations to satisfy tax withholding on vesting of restricted stock units Stock issued under employee stock purchase plan...

  • Page 82
    ...on offering, net of issuance costs Proceeds from exercise of stock options Tax payments from net share settlements of restricted stock units Excess tax benefit from stock-based awards Proceeds from employee stock purchase plan Net cash provided by financing activities Effect of exchange rate changes...

  • Page 83
    ... music - whether through earbuds, car speakers or live on stage. Our vision is to be the definitive source of music discovery and enjoyment for billions. The majority of our listener hours occur on mobile devices, with the majority of our revenue generated from advertising on these devices. We offer...

  • Page 84
    ... sale of a premium version of the Pandora service which currently includes advertisement-free access and higher audio quality on supported devices. We offer both an annual and a monthly subscription option. Subscription revenue derived from direct sales to listeners is recognized on a straight-line...

  • Page 85
    ...31, 2014 and 2015, the deferred revenue related to the return reserve was not significant. Multiple-element arrangements. We enter into arrangements with customers to sell advertising packages that include different media placements or ad services that are delivered at the same time, or within close...

  • Page 86
    ...31, 2014 and 2015, we had approximately $2.8 million and $6.3 million of capitalized internal use software and website development costs, net of accumulated amortization. These costs are being amortized over their three-year estimated useful lives. Internal use software and website development costs...

  • Page 87
    ...2013, our board of directors approved the Employee Stock Purchase Plan ("ESPP"), which was approved by our stockholders at the annual meeting in June 2014. We estimate the fair value of shares to be issued under the ESPP on the first day of the offering period using the Black-Scholes valuation model...

  • Page 88
    ...record this as a cost of revenue in the related period. Employee-related costs include salaries and benefits associated with supporting music and ad serving functions. Other costs of ad sales include costs related to music events that are sold as part of advertising arrangements. Product Development...

  • Page 89
    ... commissions on subscription purchases through mobile app stores, external sales and marketing expenses such as brand marketing, advertising, direct response and search engine marketing costs, public relations expenses, costs related to music events, agency platform and media measurement expenses...

  • Page 90
    ... 31, 2015 related to issuance costs paid, which will be accreted to interest expense over the term of the notes. In May 2014, the FASB issued Accounting Standards Update No. 2014-9, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-9"). ASU 2014-9 outlines a single comprehensive model for...

  • Page 91
    ... summarizes our available-for-sale securities' adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category as of December 31, 2014 and 2015. As of December 31, 2014 Adjusted Cost Cash equivalents and marketable securities Money market funds...

  • Page 92
    Table of Contents Pandora Media, Inc. Notes to Consolidated Financial Statements - Continued As of December 31, 2014 Twelve Months or Less Fair Value Money market funds Commercial paper Corporate debt securities U.S. government and government agency debt securities Total $ $ - - 192,699 Gross ...

  • Page 93
    ... of Contents Pandora Media, Inc. Notes to Consolidated Financial Statements - Continued As of December 31, 2014 (in thousands) Accounts receivable, net Accounts receivable Allowance for doubtful accounts Total accounts receivable, net $ $ 219,655 (1,218) 218,437 $ $ 279,240 (2,165) 277,075 2015 The...

  • Page 94
    ... Pandora Media, Inc. Notes to Consolidated Financial Statements - Continued As of December 31, 2014 (in thousands) Other long-term assets Other Ticketing contract advance - long-term Long-term security deposits Total other long-term assets $ $ 1,826 - 4,947 6,773 $ $ 10,929 9,824 9,039 29,792 2015...

  • Page 95
    ... Pandora Media, Inc. Notes to Consolidated Financial Statements - Continued Ticketing amounts due to clients consists of the face value of tickets sold and the revenue share costs related to tickets sold on the Ticketfly ticketing platform that are owed to clients. The face value of tickets sold...

  • Page 96
    ... of Contents Pandora Media, Inc. Notes to Consolidated Financial Statements - Continued As of December 31, 2014 Fair Value Measurement Using Quoted Prices in Active Markets for Identical Instruments (Level 1) Assets Money market funds Commercial paper Corporate debt securities U.S. government and...

  • Page 97
    ... of Contents Pandora Media, Inc. (in thousands) Cash paid by Pandora Cash paid by Ticketfly to option holders Common stock (11,193,847 shares at $12.18 per share) issued by Pandora to selling shareholders Fair value of stock options and restricted stock units assumed Less: purchase price adjustments...

  • Page 98
    ... December 31, 2015, including the related estimated useful lives, where applicable: Ticketfly Rdio Other Estimated fair value Intangible assets: Customer relationships - clients Developed technology Tradename Customer relationships - users FCC license - broadcast radio Tangible assets acquired, net...

  • Page 99
    ... 31, 2014 Weighted average remaining useful lives (in years) Finite-lived intangible assets Patents Developed technology Customer relationships clients Customer relationships - users Trade names Total finite-lived intangible assets Indefinite-lived intangible assets FCC license broadcast radio Total...

  • Page 100
    ..., after deducting the initial purchasers' fees and other estimated expenses. We used approximately $43.2 million of the net proceeds to pay the cost of the capped call transactions. The Notes are unsecured, senior obligations of Pandora, and interest is payable semi-annually at a rate of 1.75% per...

  • Page 101
    ... was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; Prior to the business day immediately preceding July 1, 2020, upon the occurrence of specified corporate events; or At any time on or after July 1, 2020 until...

  • Page 102
    ... our operations using leased office facilities in various locations. We lease office space under arrangements expiring through 2025. Rent expenses for eleven months ended December 31, 2013, the twelve months ended December 31, 2014 and the twelve months ended December 31, 2015 were $5.7 million...

  • Page 103
    ... costs at the rates established by our direct licensing agreements beginning in 2016. Pre-1972 copyright litigation On April 17, 2014, UMG Recordings, Inc., Sony Music Entertainment, Capitol Records, LLC, Warner Music Group Corp. and ABKCO Music and Records, Inc. filed suit against Pandora Media...

  • Page 104
    ... 1, 2016. On October 2, 2014, Flo & Eddie Inc. filed a class action suit against Pandora Media Inc. in the federal district court for the Central District of California. The complaint alleges misappropriation and conversion in connection with the public performance of sound recordings recorded prior...

  • Page 105
    ...822) $ $ (163,460) (7,751) (171,211) Twelve Months Ended December 31, 2014 (in thousands) 2015 The provision for income taxes consists of the following: Eleven Months Ended December 31, 2013 Current Federal State and local International Total current income tax expense Deferred Federal State and...

  • Page 106
    ...Pandora Media, Inc. Eleven Months Ended December 31, 2013 U.S. federal taxes at statutory rate State taxes, net of federal benefit Permanent differences Foreign rate differential Federal and state credits, net of reserve Impact of acquired DTAs and DTLs Change in valuation allowance Change in rate...

  • Page 107
    ... Contents Pandora Media, Inc. of state and $4.3 million of foreign net operating loss carryforwards related to acquisitions. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an "ownership change," the corporation's ability to use its...

  • Page 108
    ... value of shares to be issued under the ESPP on the first day of the offering period using the BlackScholes valuation model. The determination of the fair value is affected by our stock price on the first date of the offering period, as well as other assumptions including the risk-free interest rate...

  • Page 109
    ... 31, 2013, the twelve months ended December 31, 2014 and the twelve months ended December 31, 2015 was determined on the grant date using the BlackScholes option pricing model with the following assumptions: Eleven Months Ended December 31, 2013 Expected life (in years) Risk-free interest rate...

  • Page 110
    ... free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. We currently have no history or expectation of paying cash dividends on our common stock. During the eleven months ended December 31, 2013...

  • Page 111
    ...no stock-based compensation expense related to MSUs or shares of common stock issued under the MSU plan in the eleven months ended December 31, 2013 and the twelve months ended December 31, 2014. The following table summarizes the activities for our MSUs for the twelve months ended December 31, 2015...

  • Page 112
    ... Pandora Media, Inc. Notes to Consolidated Financial Statements - Continued Eleven Months Ended December 31, 2013 Stock-based compensation expense Cost of revenue-Other Cost of revenue-Ticketing service Product development Sales and marketing General and administrative Total stock-based compensation...

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    ... 31, 2013 Options to purchase common stock Restricted stock units Market stock units Total common stock equivalents 22,708 10,366 - 33,074 As of December 31, 2014 (in thousands) 10,980 11,024 - 22,004 12,816 17,272 776 30,864 As of December 31, 2015 On December 9, 2015, we completed an offering of...

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    ... 31, 2015 $ 336,157 (in thousands, except per share data) Total revenue (1) Cost of revenue Cost of Revenue- Content acquisition costs Cost of revenue- Other Cost of revenue- Ticketing service (1) Total cost of revenue Gross profit Operating expenses Product development (1) Sales and marketing...

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    ... management's evaluation of internal control over financial reporting excluded the internal control activities of Ticketfly, which we acquired on October 31, 2015, as discussed in Note 5, "Business Combinations," of the Notes to the Consolidated Financial Statements. We have included the financial...

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    Table of Contents Pandora Media, Inc. system, we updated the processes that constitute our internal control over financial reporting, as necessary, to accommodate related changes to our business processes and accounting procedures. We will continue to implement additional ERP modules in a phased ...

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    ...with the SEC in connection with our 2016 annual meeting of stockholders (the "Proxy Statement") entitled "Election of Class III Directors" and "Management." Information required by this Item regarding our corporate governance, including our audit committee and code of business conduct and ethics, is...

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    ... of this Annual Report on Form 10-K. 1. Index to Financial Statements Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Stockholders' Equity Consolidated...

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    ... of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 18, 2016. PANDORA MEDIA, INC. By: /s/ BRIAN MCANDREWS Name: Brian McAndrews Title: Chief Executive Officer, President and Chairman...

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    ... Timothy Leiweke February 18, 2016 Chief Financial Officer (Principal Financial and Accounting Officer) February 18, 2016 Director February 18, 2016 Director February 18, 2016 Director February 18, 2016 Director February 18, 2016 Director February 18, 2016 Director Elizabeth A. Nelson...

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    ... and Plan of Merger, dated as of October 7, 2015, among the Company, Ticketfly, Inc., Tennessee Acquisition Sub I, Inc., Tennessee Acquisition Sub II, LLC and Shareholder 2.01 Representative Services LLC Asset Purchase Agreement, dated as of November 16, 2015, by and between Pandora Media, Inc...

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    ... 12, 2013, among Pandora Media, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent, dated as of 10.13C December 21, 2015 Form of Restricted Stock Unit Agreement under the 10.14†2011 Equity Incentive Plan Amended Executive Severance and Change in 10.15†Control...

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    ... 31, 2015 and 2014 and the Eleven months Ended December 31, 2013, (iv) Statements of Cash Flows for the Twelve months ended December 31, 2015 and 2014 and the Eleven months ended December 31, 2013 and (v) Notes to Financial 101 Statements †Indicates management contract or compensatory plan...

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