Etsy 2015 Annual Report Download

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Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is a not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes x No ¨

Table of contents

  • Page 1
    ... fiscal year ended December 31, 2015 OR ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Tct of 1934 For the transition period from to Commission File Number 001-36911 _____ ETSY, INC. (Exact name of registrant as specified in its charter) _____ Delaware (State or...

  • Page 2
    ...x The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2015 (the last business day of the registrant's most recently completed second fiscal quarter), was $1,018,474,398. The number of shares of common stock outstanding as of...

  • Page 3
    ... 13. Item 14. Item 15. Unless the context otherwise requires, we use the terms "Etsy," the "company," "we," "us" and "our" in this Annual Report on Form 10-K, or Annual Report, to refer to Etsy, Inc. and, where appropriate, our consolidated subsidiaries. See "Management's Discussion and Analysis of...

  • Page 4
    ... This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include information related to our possible or assumed future results of operations and expenses, our outlook, our mission, business strategies and plans...

  • Page 5
    ... revenue includes the fees our sellers pay Etsy for services, which include Promoted Listings, our ad service for prominent placement in on-site search results, Direct Checkout, our payment processing service, and Shipping Labels, which allows sellers to purchase shipping labels through our platform...

  • Page 6
    ... place to work in 2013, 2014 and 2015. We plan and build for the long term. We want to build a company that lasts, and we plan to measure our success in years and decades. Etsy sellers in particular depend on us and on our platform to grow their businesses, so we will strive to make decisions that...

  • Page 7
    ... August 2014, are also part of our community. From local boutiques to national chains such as Land of Nod, Lou & Grey, Macy's and Whole Foods, retailers use our platform to connect directly with Etsy sellers and to add unique and distinctive items to their store offerings. In 2015, we introduced our...

  • Page 8
    ... the change the future inevitably brings. As of December 31, 2015, we had 819 employees worldwide, with 496 in our offices in Brooklyn, New York. Of those employees, we had 257 in engineering, 84 in product, 221 in member operations, 196 in corporate and 61 in marketing. We proactively work and...

  • Page 9
    ... shipping labels at home reduces the cost and time it takes Etsy sellers to ship goods to Etsy buyers globally. • • Use of Seller Services in 2015 • Mobile. We developed our "Sell on Etsy" mobile app to help Etsy sellers operate their shops and manage orders. Etsy sellers can also access...

  • Page 10
    ...a link to an Etsy shop or item. In addition, we want to make it even easier for Etsy buyers to sign up, sign in and check out when using their mobile devices. In 2015, we added social sign-up and sign-in through Facebook and Google and expanded mobile payment and digital wallet options for Apple Pay...

  • Page 11
    ... Etsy sellers and Etsy buyers through our direct communication tools, seller stories on our website and apps and in-person events, highlighting personal relationships as a key part of the Etsy experience. For example, Etsy sellers are encouraged to share their stories and use new tools, such as shop...

  • Page 12
    ...to Etsy.com from direct, organic or email sources. A visit represents activity from a unique browser or mobile app. A visit ends after 30 minutes of inactivity. Etsy sellers and Etsy buyers also spend time with each other. For example, they sent 234 million messages on our platform in 2015 using our...

  • Page 13
    ...to enhance our mobile app for Etsy buyers in many ways including adding new deep linking functionality, integrating social sign-up and sign-in, expanding our mobile payment and digital wallet options with Apple Pay, Google Wallet and others. For the year ended December 31, 2015, approximately 60% of...

  • Page 14
    ... We strive to help the Etsy seller manage her shop, connect with Etsy buyers and sell her goods on our platform, all on her mobile device. We plan to bring the Etsy experience to local communities, using mobile technology to highlight Etsy sellers' goods in nearby brick-and-mortar stores and crafts...

  • Page 15
    ... around the world to encourage these connections. We believe our locally-focused work will broaden the reach of our global platform. Offer High-Impact Seller Services. Seller Services, such as Promoted Listings, Direct Checkout and Shipping Labels, help an Etsy seller spend more time on the...

  • Page 16
    ... Business Startups Act of 2012, or the "JOBS Act." We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) in 2020, which will follow the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue...

  • Page 17
    ... reports, proxy statements and other information with the Securities and Exchange Commission, or the "SEC". Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports are available free of charge on our website at investors.etsy...

  • Page 18
    ... hire additional employees, increase our marketing efforts, expand our operations and continue to invest in the development of our platform, including new services and features for our community. These efforts may be more costly than we expect and our revenue may not increase sufficiently to offset...

  • Page 19
    ... to give the Etsy buyer comfort that she is purchasing unique goods from a small business that adheres to certain principles. Our Integrity team uses a combination of machine learning, automated systems and community-generated flags to review items and shops that may violate our policies. We also...

  • Page 20
    ... the sale of those items; we may choose to revise our policies in ways that we believe will be beneficial to our community and our ecosystem in the long term even though the changes may be perceived unfavorably; or we may take actions, such as investing in alternative forms of shipping or locating...

  • Page 21
    ... will. Continued expansion in markets outside of the United States may also require significant financial investment. These investments include marketing to attract and retain new Etsy sellers and Etsy buyers, developing localized services and payment processing functions, forming relationships with...

  • Page 22
    ...or PayPal. In the United States and other countries where Direct Checkout is available, Etsy buyers can use Direct Checkout on our platform to pay with credit cards, debit cards, bank transfers, PayPal, Apple Pay, Google Wallet and Etsy gift cards, rather than being directed to a third-party payment...

  • Page 23
    ... helps automate the most time-consuming aspects of determining shipping costs for Etsy sellers. In addition, we enhanced Direct Checkout by integrating PayPal payments, which enables Etsy sellers to accept PayPal on our platform and reach more Etsy buyers. Offering high-impact Seller Services is...

  • Page 24
    ... store; increased costs to distribute or use our mobile apps; or changes in mobile operating systems, such as iOS and Android, that degrade the functionality of our mobile website or mobile apps or that give preferential treatment to competitive products. • • If Etsy sellers and Etsy buyers...

  • Page 25
    ...Etsy buyers to pay higher shipping costs or find alternative delivery services. Additionally, we believe that it is relatively easy for new businesses to create online commerce offerings or tools or services that enable entrepreneurship. Local companies or more established companies based in markets...

  • Page 26
    ... and store personal and financial information provided by members of our community, such as names, email addresses, the details of transactions and credit card and other financial information. Some of our third-party service providers, such as identity verification and payment processing providers...

  • Page 27
    ... sellers and Etsy buyers could be adversely affected, which could harm our growth prospects and our business. Our ability to recruit and retain employees is important to our success. We strive to attract, retain and motivate employees, from our office administrators to our management team, who share...

  • Page 28
    ...to the Internet and mobile networks. Etsy sellers and Etsy buyers rely on access to the Internet or mobile networks to access our marketplace. Internet service providers may choose to disrupt or degrade access to our platform or increase the cost of such access. Mobile network operators or operating...

  • Page 29
    ... in our ability to make effective use of such technologies could harm our ability to personalize the experience of Etsy buyers, increase our costs and limit our ability to attract and retain Etsy sellers and Etsy buyers on cost-effective terms. As a result, our business could be adversely affected...

  • Page 30
    ... us to pay substantial damages or refrain from permitting any further listing of the relevant items. These types of claims could force us to modify our business practices, which could lower our revenue, increase our costs or make our platform less user-friendly. Moreover, public perception that...

  • Page 31
    ... taxes. The application of indirect taxes, such as sales and use tax, value-added tax, or VAT, provincial taxes, goods and services tax, business tax and gross receipt tax, to businesses like ours and to Etsy sellers and Etsy buyers is a complex and evolving issue. For example, as of January 1, 2015...

  • Page 32
    ... and effective tax rate could adversely affect our business. In January 2015, we implemented a revised corporate structure to more closely align our structure with our global operations and future expansion plans outside of the United States. Our new corporate structure changed how we use our...

  • Page 33
    ... means that we have been a public company for at least 12 months, have filed at least one annual report and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our then most recently completed second fiscal quarter, and (2) the date...

  • Page 34
    ... more of our service providers. For example, when Hurricane Sandy struck New York in October 2012, although our data centers were unaffected, our headquarters in Brooklyn was closed for five days, and we experienced a heavy volume of support requests from Etsy sellers and Etsy buyers, which required...

  • Page 35
    ... of our credit facility. As a result, stockholders will not receive dividends or other distributions and may only receive a return on their investment if the trading price of our common stock increases. Sales of a substantial number of shares of our common stock in the public market by our existing...

  • Page 36
    ..., convertible securities or other equity in the future. We also issue common stock to our employees, directors and other service providers pursuant to our equity incentive plans. Such issuances could be dilutive to investors and could cause the price of our common stock to decline. New investors in...

  • Page 37
    ... Staff Comments. None. Item 2. Properties. Our headquarters are located in Brooklyn, New York where we occupy approximately 104,493 square feet under a lease that expires in 2016. We use these facilities for our principal administration, technology and development and engineering activities. Our...

  • Page 38
    ... has been listed on the Nasdaq Global Select Market under the symbol "ETSY" since April 16, 2015. Prior to that date, there was no public trading market for our common stock. The following table sets forth the high and low intra-day sales price per share of our common stock as reported by Nasdaq...

  • Page 39
    ... 2015 (the date our common stock commenced trading on Nasdaq), through December 31, 2015, of the cumulative total returns for our common stock, the Nasdaq Composite Index and the Russell 2000 Index. The graph assumes $100 was invested at the market close on April 16, 2015 in the common stock of Etsy...

  • Page 40
    ... statements and related notes included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2012 Consolidated Statements of Operations Data: Revenue: Marketplace Seller Services Other Total revenue Cost of revenue(1) Gross profit Operating expenses: Marketing(1) Product development...

  • Page 41
    Table of Contents Year Ended December 31, 2012 Other Operational and Financial Data(2): GMS Adjusted EBITDA Active sellers Active buyers Percent mobile visits Percent mobile GMS Percent international GMS $ $ 895,152 10,669 830 9,317 N/A N/A 28.4% $ $ 1,347,833 16,947 1,074 14,032 41% 30% 28.4% $ $ ...

  • Page 42
    ...December 31, 2015, our mobile apps have been downloaded 31.8 million times. We have continued to enhance our Seller Services. We launched Promoted Listings in 2011, followed by Direct Checkout in 2012, and Shipping Labels in 2013. Seller Services has increased as a percentage of total revenue in the...

  • Page 43
    ... include transaction fees, listing fees and fees for Direct Checkout, Promoted Listings, Shipping Labels and Wholesale enrollment. An Etsy seller is someone who has created an account and has listed an item in our marketplace. An Etsy seller is identified by a unique e-mail address; a single person...

  • Page 44
    ..., Etsy buyers increasingly use mobile devices to search, browse and purchase items on our platform. We view percent mobile visits as a key indicator of the level of engagement of Etsy sellers and Etsy buyers on our mobile website and mobile apps and of our ability to sustain GMS and revenue. Mobile...

  • Page 45
    Table of Contents Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; Adjusted EBITDA does not reflect acquisition-related expenses; Adjusted EBITDA does not consider the impact of foreign exchange loss (gain); Adjusted EBITDA does not reflect ...

  • Page 46
    ...retention rates, we measure repeat activity by Etsy sellers and Etsy buyers. Cohort of 2011 and 2012 Active Sellers We refer to active sellers as of December 31, 2011 as "2011 Active Sellers." Thirty-two percent of 2011 Active Sellers remained active sellers through their fourth year on the platform...

  • Page 47
    ... sellers using Promoted Listings, 40.2% of active sellers using Direct Checkout and 23.9% of active sellers in the United States and Canada using Shipping Labels. We expect seller services revenue related our existing offerings to continue to grow in 2016, driven by increased adoption and product...

  • Page 48
    ...to help an Etsy seller operate her shop, manage orders and access resources. Our Etsy buyer apps and mobile web experience include features designed to keep Etsy buyers engaged and offer an improved shopping experience. As of December 31, 2015, our mobile apps have been downloaded 31.8 million times...

  • Page 49
    ... of her listings in search results generated by Etsy buyers in our marketplace. Revenue from Direct Checkout consists of fees an Etsy seller pays us to process credit, debit and Etsy Gift Card payments. Direct Checkout fees vary between 3-4% of the item's total sale price plus a flat fee per order...

  • Page 50
    ...expenses consist primarily of costs associated with the use of facilities and equipment, including depreciation and amortization, rent, and certain professional services expenses. General and administrative expenses also include employee-related costs, including stock-based compensation expense, for...

  • Page 51
    ... $ 132,648 136,608 4,243 273,499 96,979 176,520 2015 Year Ended December 31, 2013 Revenue: Marketplace Seller Services Other Total revenue Cost of revenue Gross profit Operating expenses: Marketing Product development General and administrative Total operating expenses Income (loss) from operations...

  • Page 52
    ...year ended December 31, 2014. The growth in Seller Services revenue was primarily driven by an increase in revenue from Promoted Listings, as well as increases in Direct Checkout and Shipping Labels revenue. The increase in Promoted Listings revenue was due to the re-launch of the product at the end...

  • Page 53
    ... the year ended December 31, 2015 compared to the year ended December 31, 2014, primarily as a result of an increase in spending on product listing ads and employee-related expenses in our marketing team, which includes our public relations, communications and seller development teams. The increase...

  • Page 54
    ...increase in employee-related expenses, the $3.5 million expense related to the one-time contribution of cash and shares of our common stock to Etsy.org, and an increase in general office expense and maintenance and increased professional services. Other Expense, net Year Ended December 31, 2014 2015...

  • Page 55
    ... use one or more of our Seller Services, 18.2% of active sellers used Promoted Listings, 36.1% of active sellers used Direct Checkout and 21.4% of active sellers in the United States and Canada used Shipping Labels. Other revenue increased $0.7 million, or 19.0%, to $4.4 million in the year ended...

  • Page 56
    ... in spending on product listing ads and, to a lesser extent, from an increase in employee-related costs resulting from increased headcount in our marketing team, which includes our public relations and communications teams. The increase in marketing expenses was also impacted by business changes and...

  • Page 57
    ..., primarily as a result of an increase in employee-related costs from headcount growth in general corporate functions and from building out the executive management team and, to a lesser extent, due to increased legal and accounting fees. Other Expense, net Year Ended December 31, 2013 Other expense...

  • Page 58
    ... of our operating results for any future quarter or year. Three Months Ended Mar. 31, 2014 Revenue: Marketplace Seller Services Other Total revenue Cost of revenue Gross profit Operating expenses: Marketing Product development General and administrative Total operating expenses Income (loss) from...

  • Page 59
    Table of Contents Three Months Ended Mar. 31, 2014 Revenue: Marketplace Seller Services Other Total revenue Cost of revenue Gross profit Operating expenses: Marketing Product development General and administrative Total operating expenses Income (loss) from operations Total other (expense) income, ...

  • Page 60
    ...2014 (5,358) $ Mar. 31, 2015 (36,586) $ Jcne 30, 2015 (6,354) $ Sept. 30, 2015 (6,891) $ Dec. 31, 2015 (4,232) Seasonality Etsy sellers experience increased sales and use more Seller Services during the fourth-quarter holiday shopping season. This has resulted in increased revenue for us during the...

  • Page 61
    ... deposits and money market funds, were held for working capital purposes and to invest in the build-out of our new Brooklyn, New York headquarters and other capital expenditures related to new office spaces globally to support the growth in our business and operations. Through December 31, 2015, we...

  • Page 62
    ... lease of our new Brooklyn, New York headquarters, $4.7 million in cash paid to acquire businesses, capital expenditures, including $8.3 million for website development and internal-use software and $1.3 million for purchases of property and equipment, and net purchases of marketable securities of...

  • Page 63
    ... the year ended December 31, 2015. This was primarily attributable to proceeds from our initial public offering of $199.5 million, the excess tax benefit from the exercise of stock options of $3.9 million and proceeds from the exercise of stock options of $3.6 million, offset by payments related to...

  • Page 64
    ...item she lists. Seller Services revenue includes fees an Etsy seller pays for services such as prominent placement in search results via Promoted Listings, payment processing via Direct Checkout and purchases of shipping labels through our platform via Shipping Labels. We deduct our cost of shipping...

  • Page 65
    ... platform. We recognize Shipping Label revenue when an Etsy seller purchases a shipping label. We recognize Shipping Label revenue on a net basis as we are not the primary obligor in the delivery of these services. Other revenue. Other revenue includes the fees we receive from a third-party payment...

  • Page 66
    ... the related tax liability in our consolidated balance sheet. Stock-Based Compensation Stock options and restricted stock units ("RSUs") are awarded to employees, members of our board of directors and non-employee third parties are measured at fair value at each grant date. Stock options generally...

  • Page 67
    ... business conditions and projections; and the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, given then prevailing market conditions. Since our initial public offering, we have used the market closing price for our common stock as reported...

  • Page 68
    .... We have operations both within the United States and internationally and we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about...

  • Page 69
    ... the impact of currency translation on goods not listed in U.S. dollars and the impact of currency exchange rates on international buyer behavior reduced our year-over-year GMS growth rate by approximately two to four percentage points for the year ended December 31, 2015. Our operating expenses are...

  • Page 70
    ... financial information required by this item is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Etsy, Inc. Index to the Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets...

  • Page 71
    ... their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion...

  • Page 72
    ... net Deferred tax charge-net of current portion Other assets Total assets LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses Capital lease obligations-current Funds payable and amounts due to sellers Deferred revenue Other current...

  • Page 73
    ...of December 31, 2014) Series B convertible preferred stock ($0.001 par value, 1,128,431 shares authorized as of December 31, 2014; 1,128,425 shares issued and outstanding as of December 31, 2014 and no shares issued and outstanding as of December 31, 2015; $903 aggregate liquidation preference as of...

  • Page 74
    ...Etsy, Inc. Consolidated Statements of Operations (In thousands except share and per share data) Year Ended December 31, 2013 Revenue Cost of revenue Gross profit Operating expenses: Marketing Product development...,633 121,958 $ 2015 273,499 96,979 176,520 The accompanying notes are an integral ...

  • Page 75
    Table of Contents Etsy, Inc. Consolidated Statements of Comprehensive Loss (In thousands) Year Ended December 31, 2013 Net loss Other comprehensive income (loss): Cumulative translation adjustment Unrealized gains on marketable securities, net of tax Other comprehensive income (loss) Comprehensive ...

  • Page 76
    ... Equity (In thousands except share and per share data) Series A and A-1 Convertible Preferred Stock Shares Balance as of Dec ember 31, 2012 Stoc k -bas ed c ompens ation expense Exerc ise of v es ted options Repurchase of s hares Retirement of repurchas ed s hares Exc es s tax benefit from the exerc...

  • Page 77
    ... of stock options Excess tax benefit from the exercise of stock options Payments on capitalized lease obligations Deferred payments on acquisition of business Payments relating to public offering Net cash (used in) provided by financing activities Effect of exchange rate changes on cash Net increase...

  • Page 78
    Cash paid for income taxes $ 206 $ 217 $ 7,604 73

  • Page 79
    ... software Non-cash additions to development of internal-use software and property and equipment Non-cash additions to facility financing obligation related to build-to-suit lease Non-cash addition to capitalized public offering costs Fair value of common stock issued in acquisition 243 398 5,564...

  • Page 80
    ...to make, sell and buy unique goods. The Company generates revenue primarily from transaction and listing fees, Promoted Listings, Direct Checkout fees, and Shipping Label sales. Initial Public Offering On April 21, 2015, the Company completed an initial public offering (the "IPO") in which it issued...

  • Page 81
    ... lists. Seller Services revenue includes fees an Etsy seller pays for services such as prominent placement in search results via Promoted Listings, payment processing via Direct Checkout and purchases of shipping labels through the Company's platform via Shipping Labels. The Company deducts its cost...

  • Page 82
    ... processing services, credit card verification service fees and credit card chargebacks to support Direct Checkout revenue and costs of refunds made to Etsy buyers that the Company is not able to collect from Etsy sellers. Accounts Receivable and Allowance for Doubtful Accounts The Company's trade...

  • Page 83
    .... Costs related to the design or maintenance of internal-use software and website development are expensed as incurred. The Company periodically reviews internal-use software and website development costs to determine whether the projects will be completed, placed in service, removed from service...

  • Page 84
    ... acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. When the Company issues stock-based or cash awards to...

  • Page 85
    ... technology, customer relationships and trademarks, generally three years. Stock-Based Compensation For employee stock-based awards, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option-pricing model and the expense is recognized over the service...

  • Page 86
    ...digital marketing, seller development and growth, public relations and communications, brand marketing and design, product marketing and marketing research activities. Marketing expenses are primarily driven by investments to grow and retain members on our platform. Net (Loss) Income Per Share Prior...

  • Page 87
    ... exchange loss within other (expense) income in the statement of operations. Excess Tax Benefits from Exercise of Stock Options The Company uses the "with and without" approach in determining the order in which tax attributes are utilized. As a result, the Company recognizes a tax benefit from stock...

  • Page 88
    ..., the Company granted options to purchase 181,160 shares of common stock to certain key employees of the acquired company. Acquired assets consisted of the Mixel iOS mobile application and related source code and domain name registration. The purchase price was allocated between acquired technology...

  • Page 89
    ...acquisition date, which are tied to continuous service with the Company as an employee or consultant and are being accounted for as post-acquisition stock-based compensation expense over the three-year vesting period. Since the put options relate in part to these shares, these restricted shares will...

  • Page 90
    Table of Contents Etsy, Inc. Notes to Consolidated Financial Statements During the second quarter of 2015, the Company recognized changes to assets and liabilities impacting the associated purchase price allocations of ALM and Grand St. at their respective dates of acquisition. These adjustments ...

  • Page 91
    ... a related put option, and its fair value is determined based on the fair value of the Company's common stock at the period-end reporting date. The fair value of the warrants classified as liability is determined using the periodend fair value of the Company's common stock, the risk-free rate for...

  • Page 92
    ...website development-stock-based compensation Less: Retirements Less: Accumulated amortization $ $ 23,897 8,281 190 1,212 31,156 18,968 12,188 $ $ 2015 31,156 9,719 463 7,869 33,469 19,676 13,793 For the years ended December 31, 2013, 2014 and 2015, the Company recorded amortization expense relating...

  • Page 93
    ... currency translation and adjustment to purchase price allocation of $0.6 million in 2015. The Company did not recognize any goodwill impairments during the years ended December 31, 2013, 2014 and 2015. At December 31, 2014 and 2015, the gross book value and accumulated amortization of intangible...

  • Page 94
    ... at the opening stock price of $24.97 on April 21, 2015, the closing date of the IPO, and $5.1 million was reclassified from liabilities to equity on that date. In October 2015, the Company issued 96,869 shares of common stock upon the net exercise of warrants to purchase 105,099 shares of common...

  • Page 95
    ... the fair value of the convertible preferred stock warrants through April 21, 2015, the closing date of the IPO, utilizing the opening stock price of $24.97 per share. During the years ended December 31, 2013, 2014 and 2015, the Company recorded an unrealized loss of $0.4 million, $0.5 million...

  • Page 96
    ... 31, 2015, there was no convertible preferred stock outstanding. Tender Offers On January 13, 2014, certain investors participated in a tender offer to purchase shares of common stock and preferred stock at a price of $10.60 per share (on an as-converted basis) from the Company's employees and...

  • Page 97
    ... related to the excess of the selling price per share paid to certain of the Company's former employees over the fair value of the shares sold to an investor by these former employees in secondary transactions. Note 10-Stock-based Compensation The Company's 2015 Equity Incentive Plan (the "2015 Plan...

  • Page 98
    ... based on the closing price of the Company's common stock on Nasdaq on the grant date. The fair value of options granted in each year using the Black-Scholes pricing model has been based on the following assumptions: Year Ended December 31, 2013 Volatility Risk-free interest rate Expected term (in...

  • Page 99
    ... 2015 was $4.2 million, which will be recognized over a weighted-average period of 3.11 years. Total stock-based compensation expense included in the consolidated statements of operations is as follows (in thousands): Year Ended December 31, 2013 Cost of revenue Marketing Product development General...

  • Page 100
    ... tax rate differential Non-deductible stock-based compensation Net unrealized loss on warrant and other liabilities Non-deductible items Uncertain tax positions Return to provision adjustment Non-deductible acquisition costs Change in valuation allowance Research and development credit Deferred...

  • Page 101
    ... Revenue Code due to a change of ownership. However, the Company does not believe such annual limitation will impact its realization of the NOL carryforwards. As of December 31, 2014 and 2015, the Company had approximately $0.2 million and $0.7 million of federal alternative minimum tax credits...

  • Page 102
    ... on tax positions related to the current year Additions for tax positions of prior years Reductions for tax provisions of prior years Settlements Balance as of the end of period 2014 - 398 - - - 398 $ $ 2015 398 21,797 34 - - 22,229 The Company files tax returns in the United States, New York, and...

  • Page 103
    ... country is based on the billing address of the seller. The following table summarizes revenue by geographic area (in thousands): Year Ended December 31, 2013 United States International Revenue $ $ 103,428 21,594 125,022 $ $ 2014 153,866 41,725 195,591 $ $ 2015 213,389 60,110 273,499 No individual...

  • Page 104
    ... years ended December 31, 2013, 2014 and 2015 was $2.4 million, $3.6 million and $5.1 million respectively. Build-to-Suit Lease In May 2014, the Company entered into a 10-year lease agreement for approximately 199,000 rentable square feet of office space in Brooklyn, New York for the Company's new...

  • Page 105
    ... the United States District Court for the Eastern District of New York against the Company and certain officers. The complaint was brought on behalf of a purported class consisting of all persons or entities who purchased or otherwise acquired shares of the Company's common stock from April 16, 2015...

  • Page 106
    ... tax accounting and filing requirements on a timely basis; Implemented additional internal reporting procedures, including enhancing the analytical procedures used to assess period-end accruals, to add depth to our review process and improve our segregation of duties; and Enhanced the communication...

  • Page 107
    ... of Contents During the quarter ended September 30, 2015, we substantially completed the assessment of the design of existing controls and implemented new controls as needed to remediate the previously identified material weaknesses. However, as we had yet to complete the testing and evaluation of...

  • Page 108
    ...2016 Annual Meeting of Stockholders ("Proxy Statement") to be filed with the SEC within 120 days of the fiscal year ended December 31, 2015. Our board of directors has adopted a Code of Conduct applicable to all officers, directors and employees, which is available on our website (investors.etsy.com...

  • Page 109
    ... documents are filed as part of this report: (1) Financial Statements. Our Consolidated Financial Statements are listed in the "Index to Consolidated Financial Statements" under Part II, Item 8 of this Annual Report on Form 10-K. (2) Financial Statement Schedules. All schedules are omitted because...

  • Page 110
    ... Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ETSY, INC. Date: March 1, 2016 /s/ Kristina Salen Kristina Salen Chief Financial Officer (Principal Financial and Accounting Officer) Power of Tttorney KNOW...

  • Page 111
    ... officers 2006 Stock Plan, as amended, and forms of agreements thereunder Form of Stock Option Agreement under 2006 Stock Plan with Chad Dickerson 2015 Equity Incentive Plan and form of agreement thereunder 2015 Employee Stock Purchase Plan Agreement of Lease, dated April 14, 2009, between Etsy...

  • Page 112
    ...14* Management Cash Incentive Plan Compensation Program for Non-Employee 10.15* Directors 21.1 List of Subsidiaries of Etsy, Inc. Consent of PricewaterhouseCoopers LLP, 23.1 Independent Registered Public Accounting Firm Power of Attorney (contained in the signature 24.1 page to this Annual Report on...

  • Page 113
    ...Existing Credit Agreement is hereby amended to add the following definitions in appropriate alphabetical order: "Amendment No. 2 " means Amendment No. 2 to this Agreement, dated as of December 21, 2015. "Approved Investment Policy " means that certain "Etsy Investment Objective and Policy Guidelines...

  • Page 114
    ... in the Credit Agreement or any other Loan Document in similar or different circumstances. SECTION 6 . Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7 . Counterparts. This Amendment may be signed in any number of...

  • Page 115
    IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. ETSY, INC., as Borrower By: /s/ Kristina Salen Name: Kristina Salen Title: CFO JARVIS LABS, INC., As Guarantor By: /s/ Chad Dickerson Name: Chad Dickerson Title: CFO

  • Page 116
    MORGAN STANLEY SENIOR FUNDING, as Agent By: /s/ Jonathan Kerner Name: Jonathan Kerner Title: Vice President

  • Page 117
    MORGAN STANLEY BANK, N.A., as Lender By: /s/ Jonathan Kerner Name: Jonathan Kerner Title: Authorized Signatory

  • Page 118
    GOLDMAN SACHS BANK USA, as Lender By: /s/ Jerry Li Name: Jerry Li Title: Authorized Signatory

  • Page 119
    JPMORGAN CHASE BANK, N.A., as Lender By: /s/ Bruce S. Borden Name: Bruce S. Borden Title: Executive Director

  • Page 120
    ... Etsy Ireland Etsy France SAS Ireland France * Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other subsidiaries of Etsy, Inc. are omitted because, considered in the aggregate, they would not constitute a significant subsidiary as of the end of the year covered by this report...

  • Page 121
    ...23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on norm S-8 (No. 333-203438) of Etsy, Inc. of our report dated March 1, 2016 relating to the consolidated financial statements, mhich appears in this norm...

  • Page 122
    ... Chad Dickerson, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of Etsy, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under...

  • Page 123
    ... Kristina Salen, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of Etsy, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under...

  • Page 124
    ... OF THE SARBANES-OXLEY ACT OF 2002 I, Chad Dickerson, certify that the Annual Report of Etsy, Inc. on Form 10-K for the period ended December 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10...

  • Page 125
    ... OF THE SARBANES-OXLEY ACT OF 2002 I, Kristina Salen, certify that the Annual Report of Etsy, Inc. on Form 10-K for the period ended December 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10...

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