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Facebook Reports Third Quarter 2019 Results

October 31, 2019

MENLO PARK, Calif., Oct. 30, 2019 /PRNewswire/ -- Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended September 30, 2019.

“We had a good quarter and our community and business continue to grow,” said Mark Zuckerberg, Facebook founder and CEO. “We are focused on making progress on major social issues and building new experiences that improve people’s lives around the world.”

Third Quarter 2019 Financial Highlights


Three Months Ended September 30,


Year-over-Year %
Change

In millions, except percentages and per share amounts

2019


2018


Revenue:






Advertising

$

17,383



$

13,539



28

%

Payments and other fees

269



188



43

%

Total revenue

17,652



13,727



29

%

Total costs and expenses

10,467



7,946



32

%

Income from operations

$

7,185



$

5,781



24

%

Operating margin

41

%


42

%



Provision for income taxes

$

1,238






Effective tax rate

17

%





Net income

$

6,091



$

5,137



19

%

Diluted earnings per share (EPS)

$

2.12



$

1.76



20

%

Third Quarter 2019 Operational and Other Financial Highlights

In addition, we estimate that around 2.2 billion people now use Facebook, Instagram, WhatsApp, or Messenger (our “Family” of services) every day on average, and around 2.8 billion people use at least one of our Family of services each month.

Webcast and Conference Call Information

Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast of Facebook’s earnings conference call can be accessed at investor.fb.com, along with the earnings press release, financial tables, and slide presentation. Facebook uses the investor.fb.com and newsroom.fb.com websites as well as Mark Zuckerberg’s Facebook Page ( https://www.facebook.com/zuck ) as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (404) 537-3406 or +1 (855) 859-2056, conference ID 9647087.

Transcripts of conference calls with publishing equity research analysts held today will also be posted to the investor.fb.com website.

About Facebook

Founded in 2004, Facebook’s mission is to give people the power to build community and bring the world closer together. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.

Contacts

Investors:
Deborah Crawford
investor@fb.com / investor.fb.com

Press:
Bertie Thomson
press@fb.com / newsroom.fb.com

Forward-Looking Statements

This press release contains forward-looking statements regarding our future business expectations. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on mobile operating systems, networks, and standards that we do not control; risks associated with new products and changes to existing products as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; maintaining and enhancing our brand and reputation; our ongoing safety, security, and content review efforts; competition; risks associated with government actions that could restrict access to our products or impair our ability to sell advertising in certain countries; litigation and government inquiries; privacy and regulatory concerns; risks associated with acquisitions; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption “Risk Factors” in our Quarterly Report on Form 10-Q filed with the SEC on July 25, 2019, which is available on our Investor Relations website at investor.fb.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. In addition, please note that the date of this press release is October 30, 2019, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (GAAP), we use the following non-GAAP financial measures: revenue excluding foreign exchange effect, advertising revenue excluding foreign exchange effect and free cash flow. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures.

We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.

We exclude the following items from our non-GAAP financial measures:

Foreign exchange effect on revenue. We translated revenue for the three and nine months ended September 30, 2019 using the prior year’s monthly exchange rates for our settlement or billing currencies other than the U.S. dollar, which we believe is a useful metric that facilitates comparison to our historical performance.

Purchases of property and equipment, net; Principal payments on finance leases. We subtract both net purchases of property and equipment and principal payments on finance leases in our calculation of free cash flow because we believe that these two items collectively represent the amount of property and equipment we need to procure to support our business, regardless of whether we procure such property or equipment with a finance lease. We believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business. Free cash flow is not intended to represent our residual cash flow available for discretionary expenditures.

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the “Reconciliation of GAAP to Non-GAAP Results” table in this press release.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except for per share amounts)

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2019


2018


2019


2018

Revenue

$

17,652



$

13,727



$

49,615



$

38,924


Costs and expenses:








Cost of revenue

3,155



2,418



9,279



6,559


Research and development

3,548



2,657



9,722



7,418


Marketing and sales

2,416



1,928



6,850



5,379


General and administrative

1,348



943



8,636



2,475


Total costs and expenses

10,467



7,946



34,487



21,831


Income from operations

7,185



5,781



15,128



17,093


Interest and other income, net

144



131



515



297


Income before provision for income taxes

7,329



5,912



15,643



17,390


Provision for income taxes

1,238



775



4,507



2,160


Net income

$

6,091



$

5,137



$

11,136



$

15,230


Less: Net income attributable to participating securities







(1)


Net income attributable to Class A and Class B common stockholders

$

6,091



$

5,137



$

11,136



$

15,229


Earnings per share attributable to Class A and Class B common stockholders:








Basic

$

2.13



$

1.78



$

3.90



$

5.26


Diluted

$

2.12



$

1.76



$

3.87



$

5.20


Weighted-average shares used to compute earnings per share attributable to Class A and








Class B common stockholders:








Basic

2,854



2,885



2,855



2,895


Diluted

2,874



2,913



2,875



2,931


Share-based compensation expense included in costs and expenses:








Cost of revenue

$

91



$

72



$

287



$

202


Research and development

907



748



2,557



2,347


Marketing and sales

148



133



421



380


General and administrative

103



87



297



251


Total share-based compensation expense

$

1,249



$

1,040



$

3,562



$

3,180


FACEBOOK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)





September 30,
2019


December 31,
2018

Assets




Current assets:





Cash and cash equivalents

$

15,979



$

10,019



Marketable securities

36,290



31,095



Accounts receivable, net of allowances of $301 and $229 as of September 30, 2019 and







December 31, 2018, respectively

7,673



7,587



Prepaid expenses and other current assets

2,137



1,779




Total current assets

62,079



50,480


Property and equipment, net

32,284



24,683


Operating lease right-of-use assets, net

8,403




Intangible assets, net

853



1,294


Goodwill

18,338



18,301


Other assets

2,461



2,576


Total assets

$

124,418



$

97,334








Liabilities and stockholders' equity




Current liabilities:





Accounts payable

$

860



$

820



Partners payable

590



541



Operating lease liabilities, current

776





Accrued expenses and other current liabilities

10,877



5,509



Deferred revenue and deposits

225



147




Total current liabilities

13,328



7,017


Operating lease liabilities, non-current

8,356




Other liabilities

8,735



6,190




Total liabilities

30,419



13,207


Commitments and contingencies




Stockholders' equity:





Common stock and additional paid-in capital

45,059



42,906



Accumulated other comprehensive loss

(849)



(760)



Retained earnings

49,789



41,981




Total stockholders' equity

93,999



84,127


Total liabilities and stockholders' equity

$

124,418



$

97,334


FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2019


2018


2019


2018

Cash flows from operating activities








Net income

$

6,091



$

5,137



$

11,136



$

15,230


Adjustments to reconcile net income to net cash provided by operating activities:








Depreciation and amortization

1,416



1,107



4,273



3,090


Share-based compensation

1,249



1,040



3,562



3,180


Deferred income taxes

175



30



358



83


Other

30



3



44



19


Changes in assets and liabilities:








Accounts receivable

(328)



(489)



(264)



(328)


Prepaid expenses and other current assets

(360)



8



(527)



(889)


Other assets



(40)



66



(99)


Operating lease right-of-use assets

(1,179)





(2,890)




Accounts payable

89



37



2



88


Partners payable

39



63



59



116


Accrued expenses and other current liabilities

457



350



6,439



1,044


Deferred revenue and deposits

31



24



82



20


Operating lease liabilities, non-current

1,276





2,914




Other liabilities

321



226



1,977



102


Net cash provided by operating activities

9,307



7,496



27,231



21,656


Cash flows from investing activities








Purchases of property and equipment, net

(3,532)



(3,343)



(11,002)



(9,614)


Purchases of marketable securities

(7,397)



(4,375)



(19,152)



(12,658)


Sales of marketable securities

2,946



2,492



7,402



11,104


Maturities of marketable securities

2,943



1,053



7,048



3,391


Other investing activities, net

(10)



(75)



(124)



(141)


Net cash used in investing activities

(5,050)



(4,248)



(15,828)



(7,918)


Cash flows from financing activities








Taxes paid related to net share settlement of equity awards

(591)



(905)



(1,710)



(2,663)


Repurchases of Class A common stock

(1,148)



(4,256)



(2,906)



(9,379)


Principal payments on finance leases

(144)





(411)




Net change in overdraft in cash pooling entities

(141)





(260)




Other financing activities, net

5



3



14



11


Net cash used in financing activities

(2,019)



(5,158)



(5,273)



(12,031)


Effect of exchange rate changes on cash, cash equivalents, and restricted cash

(156)



(14)



(174)



(167)


Net increase (decrease) in cash, cash equivalents, and restricted cash

2,082



(1,924)



5,956



1,540


Cash, cash equivalents, and restricted cash at beginning of the period

13,998



11,668



10,124



8,204


Cash, cash equivalents, and restricted cash at end of the period

$

16,080



$

9,744



$

16,080



$

9,744










Reconciliation of cash, cash equivalents, and restricted cash to the condensed








consolidated balance sheets








Cash and cash equivalents

$

15,979



$

9,637



$

15,979



$

9,637


Restricted cash, included in prepaid expenses and other current assets

7



7



7



7


Restricted cash, included in other assets

94



100



94



100


Total cash, cash equivalents, and restricted cash

$

16,080



$

9,744



$

16,080



$

9,744


FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2019


2018


2019


2018

Supplemental cash flow data








Cash paid during the period for:








Interest

$

4



$



$

9



$


Income taxes, net

$

832



$

447



$

2,528



$

2,728


Non-cash investing activities:








Net change in prepaids and liabilities related to property and equipment

$

144



$

382



$

(59)



$

613


Property and equipment in accounts payable and accrued liabilities

$

1,850



$

1,504



$

1,850



$

1,504


Reconciliation of GAAP to Non-GAAP Results

(In millions, except percentages)

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2019


2018


2019


2018

GAAP revenue

$

17,652



$

13,727



$

49,615



$

38,924


Foreign exchange effect on 2019 revenue using 2018 rates

297





1,374




Revenue excluding foreign exchange effect

$

17,949





$

50,989




GAAP revenue year-over-year change %

29

%




27

%



Revenue excluding foreign exchange effect year-over-year change %

31

%




31

%



GAAP advertising revenue

$

17,383



$

13,539



$

48,919



$

38,373


Foreign exchange effect on 2019 advertising revenue using 2018 rates

295





1,370




Advertising revenue excluding foreign exchange effect

$

17,678





$

50,289




GAAP advertising revenue year-over-year change %

28

%




27

%



Advertising revenue excluding foreign exchange effect year-over-year change %

31

%




31

%











Net cash provided by operating activities

$

9,307



$

7,496



$

27,231



$

21,656


Purchases of property and equipment, net

(3,532)



(3,343)



(11,002)



(9,614)


Principal payments on finance leases

(144)





(411)




Free cash flow

$

5,631



$

4,153



$

15,818



$

12,042


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SOURCE Facebook