Revenue increased 18% to $2.667 billion, 21%
FX-neutral revenue growthGAAP EPS increased 8% to $0.27 and
non-GAAP EPS increased 14% to $0.35
Global technology platform and digital payments leader PayPal
Holdings, Inc. (Nasdaq: PYPL) today announced strong third quarter
results for the period ended September 30, 2016. For the quarter,
PayPal deepened engagement on its platform, advanced its commitment
to customer choice, gained share, continued its strong momentum in
mobile payments, expanded its customer base and delivered
innovative products.
Financial highlights for the third quarter include:
- Revenue growth of 18% to $2.667
billion, or 21% on a foreign currency neutral (FX-neutral)
basis
- GAAP operating margin of 13% with
non-GAAP operating margin of 18%
- GAAP earnings per diluted share (EPS)
growth of 8% to $0.27, non-GAAP EPS growth of 14% to $0.35
- Operating cash flow of $801 million,
free cash flow of $618 million
Operating highlights for the third quarter include:
- Active customer accounts of 192
million, up 11% with growth of 19 million active customer
accounts
- 1.5 billion transactions processed, up
24%
- 30 payment transactions per active
account on a trailing twelve months basis, up 13%
- $87 billion in total payment volume
(TPV), up 25%, or 28% on an FX-neutral basis
“We are pleased to have delivered another quarter of strong
results. The opportunities for PayPal to grow and gain share have
never been greater. We are executing against our strategic plan
with intensity and speed, and we are committed to seizing the
opportunities in front of us by truly embracing the mantle of
“Customer Champion.” We are further expanding the ubiquity and
value of the PayPal brand and moving deliberately towards achieving
our vision of becoming an everyday, essential financial service for
people around the world,” said Dan Schulman, President and CEO of
PayPal.
Advancing Customer Choice and Increasing Customer
Engagement
PayPal continues to improve the customer experience on its
platform by providing differentiated value to both consumers and
merchants. In the quarter, PayPal made meaningful progress in
offering customer choice in its online and mobile checkout
experiences to enhance how customers in the U.S. can send money,
shop, and pay with PayPal. These customers are now able to set
their preferred funding type in their PayPal Wallet to sources
other than their PayPal balance, giving them the option to pay by
default with their favorite debit card, credit card, or bank
account.
In the third quarter, the company processed 1.5 billion payment
transactions, which translates to 30 payment transactions per
active account on a trailing twelve months basis, a 13% increase
from a year ago. Customers are engaged at higher levels than ever
before. PayPal’s focus on customer choice is designed to deliver
exceptional customer experiences to increase engagement on the
PayPal platform.
The move to customer choice is also allowing PayPal to forge
valuable, new strategic partnerships across the ecosystem. During
the quarter, PayPal announced major agreements with Visa and
Mastercard. In addition, as an extension of previous agreements
with Alibaba, PayPal launched the first stages of becoming a
payment option on Alibaba’s global retail marketplace,
AliExpress.
Gaining Market Share and Growing Mobile Payments
In the third quarter, PayPal gained market share and extended
its leadership position. PayPal processed $87 billion in TPV,
representing growth of 25%, or 28% on an FX-neutral basis, which
was faster than the growth rate of e-commerce. Merchant Services
TPV grew 32%, or 34% on an FX-neutral basis, and represented 84% of
overall TPV for the quarter. PayPal processed nearly $26 billion in
mobile payment volume, up 56%, representing 29% of TPV for the
quarter. Venmo, the company’s social payments platform, processed
$4.9 billion of TPV, up 131%.
PayPal added notable new merchants to the platform, ending the
quarter with 15 million active merchant accounts. The list of
leading brands choosing PayPal now includes H&M in four
European countries, Costco de Mexico, Yelp, and Yandex Direct.
PayPal demonstrated another strong quarter of customer
acquisition, adding new consumers and merchants to the platform.
The company grew its active customer accounts by 11%, ending the
quarter with 192 million active customer accounts.
Delivering Innovative Product Experiences - One Touch and
Xoom
As of the third quarter, more than 32 million active consumer
accounts and four million active merchant accounts have opted in to
One Touch. By the end of 2016, PayPal expects more than five
million active merchant accounts to be offering One Touch to more
than 36 million active consumer accounts.
PayPal will also now allow customers to link their PayPal and
Xoom accounts, giving PayPal customers access to their funding
sources within Xoom. PayPal’s U.S. customers will be able to send
funds to 10 new markets and get access to new services in the more
than 50 countries that Xoom supports. Xoom also recently added a
“request” feature, allowing remittances to become a two-way
interaction between senders and receivers for the first time with
Xoom.
Third Quarter
2016 Financial Highlights
Third
Quarter
(presented in millions, except per
share data and percentages)
2016
2015
YoY
Growth
FX-Neutral
YoYGrowth
Total Payment Volume (TPV) $87,403 $69,738 $17,665 25% 28%
GAAP Net revenues $2,667 $2,258 $409 18% 21% Net income $323
$301 $22 7% N/A Earnings per diluted share $0.27 $0.25 $0.02 8% N/A
Non-GAAP Net revenues $2,667 $2,258 $409 18% 21% Net income
$425 $377 $48 13% N/A Earnings per diluted share $0.35 $0.31 $0.04
14% N/A
Other Selected Financial and
Operational Results
Operating Margin - GAAP operating margin for the third
quarter of 2016 decreased to 13.0%, compared to 14.6% for the same
period last year. Non-GAAP operating margin decreased to 18.4%,
compared to non-GAAP operating margin of 19.9% for the same period
last year.
Taxes - The GAAP effective tax rate for the third quarter
of 2016 was 10.3%, compared to 14.0% for the third quarter of 2015.
The non-GAAP effective tax rate was 15.3%, compared to the non-GAAP
effective tax rate of 17.7% for the third quarter of 2015.
Cash Flow - PayPal generated $801 million of operating
cash flow and $618 million of free cash flow during the third
quarter of 2016.
Cash, Cash Equivalents and Investments - PayPal’s cash,
cash equivalents and investments totaled $6.4 billion at
September 30, 2016.
2016 Financial Guidance
Full Year 2016
- PayPal expects full year 2016 revenue
in the range of $10.780 to $10.850 billion.
- PayPal expects revenue to grow 17% at
current spot rates and 20% on an FX-neutral basis.
- PayPal expects GAAP earnings per
diluted share in the range of $1.13 - $1.15 and non-GAAP earnings
per diluted share in the range of $1.48 - $1.50.
- Estimated non-GAAP amounts above for
the twelve months ending December 31, 2016, reflect adjustments of
approximately $580 - $600 million, primarily including the
following items: stock-based compensation expense, employer payroll
taxes on stock-based compensation, and amortization of acquired
intangible assets.
Fourth Quarter 2016
- PayPal expects revenue to grow 14% -
17% at current spot rates and 16% - 19% on an FX-neutral basis, to
a range of $2.920 to $2.990 billion.
- PayPal expects GAAP earnings per
diluted share in the range of $0.30 - $0.32 and non-GAAP earnings
per diluted share in the range of $0.40 - $0.42.
- Estimated non-GAAP amounts above for
the three months ending December 31, 2016, reflect adjustments of
approximately $150 - $170 million, primarily including the
following items: stock-based compensation expense, employer payroll
taxes on stock-based compensation, and amortization of acquired
intangible assets.
Guidance for full year 2016 revenue growth rates represent
year-over-year comparisons versus non-GAAP pro forma measures.
Please see "Non-GAAP Financial Measures" and "Non-GAAP Measures of
Financial Performance" for important additional information.
Quarterly Conference Call and Webcast
PayPal Holdings, Inc. will host a conference call to discuss
third quarter 2016 results at 2:00 p.m. Pacific Time today. A
live webcast of the conference call, together with a slide
presentation that includes supplemental financial information and
reconciliations of certain non-GAAP and non-GAAP pro forma measures
to their most directly comparable GAAP measures, can be accessed
through the company's Investor Relations website at https://investor.paypal-corp.com. In addition, an
archive of the webcast will be accessible for 90 days through the
same link.
PayPal Holdings, Inc. uses its Investor Relations website
(https://investor.paypal-corp.com),
its PayPal Stories Blog (https://www.paypal.com/stories/us), Twitter handle
(@PayPal), LinkedIn page (https://www.linkedin.com/company/paypal), Facebook
page (https://www.facebook.com/PayPalUSA/) and YouTube
channel (https://www.youtube.com/paypal) as a means of
disclosing information about the company and for complying with its
disclosure obligations under Regulation FD. The information we
post through these channels may be deemed
material. Accordingly, investors should monitor these channels
in addition to PayPal’s press releases, SEC filings, public
conference calls and webcasts.
About PayPal
At PayPal (Nasdaq:PYPL), we put people at the center of
everything we do. Founded in 1998, we continue to be at the
forefront of the digital payments revolution. PayPal gives people
better ways to manage and move their
money, offering them choice and flexibility in how they
are able to send money, pay or get paid. We operate an
open, secure and technology
agnostic payments platform that
businesses use to securely transact with their
customers online, in stores and increasingly
on mobile devices. In 2015, 28% of the 4.9 billion
payments we processed were made on a mobile device. With
our 192 million active customer accounts, PayPal is a
truly global payments platform that is available to people in more
than 200 markets, allowing customers to get paid in more than
100 currencies, withdraw funds to their bank accounts in 56
currencies and hold balances in their PayPal accounts in 25
currencies. For more information on PayPal, visit https://www.paypal.com/about. For PYPL financial
information, visit https://investor.paypal-corp.com.
Presentation
All growth rates represent year-over-year comparisons, except as
otherwise noted. FX-neutral results are calculated by translating
the current period’s local currency results by the prior period’s
exchange rate. FX-neutral growth rates are calculated by comparing
the current period's FX-neutral results by the prior period's
results, excluding the impact from hedging activities. All amounts
in tables are presented in U.S. dollars, rounded to the nearest
millions, except as otherwise noted. As a result, certain amounts
may not sum or recalculate using the rounded dollar amounts
provided.
Non-GAAP Financial Measures
This press release includes the following financial measures
defined as “non-GAAP financial measures” by the Securities and
Exchange Commission (SEC): non-GAAP net income, non-GAAP earnings
per diluted share, non-GAAP operating margin, non-GAAP effective
tax rate and free cash flow. For an explanation of the foregoing
non-GAAP measures, please see “Non-GAAP Measures of Financial
Performance” included in this press release. These measures may be
different from non-GAAP financial measures used by other companies.
The presentation of this financial information, which is not
prepared under any comprehensive set of accounting rules or
principles, is not intended to be considered in isolation of, or as
a substitute for, the financial information prepared and presented
in accordance with generally accepted accounting principles (GAAP).
For a reconciliation of these non-GAAP financial measures to the
most directly comparable GAAP measures, see “Non-GAAP Measures
of Financial Performance,” “Reconciliation of GAAP Operating
Margin to Non-GAAP Operating Margin,” “Reconciliation of
GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS
to Non-GAAP Diluted EPS and GAAP Effective Tax Rate to
Non-GAAP Effective Tax Rate,”,“Reconciliation of GAAP Net
Revenues by Type to Non-GAAP Pro Forma Net Revenues by Type, and
GAAP Net Revenues by Geography to Non-GAAP Pro Forma Net Revenues
by Geography” and “Reconciliation of Operating Cash Flow to Free
Cash Flow.” In addition, the company has included certain revenue
growth rates, including guidance for full year 2016 revenue growth,
which represent year-over-year comparisons versus non-GAAP pro
forma measures. The company has chosen to present non-GAAP pro
forma measures because it believes that these measures provide
investors a consistent basis for assessing the company’s
performance and help to facilitate comparisons across different
periods. These pro forma adjustments reflect items that are
factually supportable, directly attributable to the separation of
the company from eBay Inc. on July 17, 2015, and expected to have a
continuing impact on the company’s results of operations.
Forward-Looking Statements
This press release contains forward-looking statements relating
to, among other things, the future performance of PayPal Holdings,
Inc. and its consolidated subsidiaries that are based on the
company's current expectations, forecasts and assumptions and
involve risks and uncertainties. These statements include, but are
not limited to, statements regarding expected financial results for
fourth quarter and the full year 2016 and future growth in the
company’s businesses. Actual results could differ materially from
those predicted or implied and reported results should not be
considered as an indication of future performance. Factors that
could cause or contribute to such differences include, but are not
limited to: changes in political, business and economic conditions,
including any regional general economic downturn or crisis and any
conditions that affect e-commerce growth; fluctuations in foreign
currency exchange rates; the uncertainty surrounding the
implementation effects, and impact of the United Kingdom's
referendum in favor of leaving the European Union ("Brexit"); the
competitive, regulatory, payment card association-related and other
risks specific to the company's PayPal, PayPal Credit, Braintree,
Venmo, Xoom and Paydiant products, especially as PayPal continues
to expand geographically and introduce new products and as new laws
and regulations related to payments and financial services come
into effect; the impact of the company's customer choice
initiatives, including on its funding mix and transaction expense;
the company's ability to successfully react to the increasing
importance of mobile payments and mobile commerce; the company's
ability to deal with the increasingly competitive environment for
its businesses, including competition for consumers and merchants;
the company's need and ability to manage other regulatory, tax and
litigation risks as its products and services are offered in more
jurisdictions and applicable laws become more restrictive; changes
to the company's capital allocation or management of operating
cash; the company's need to manage an increasingly large enterprise
with a broad range of businesses of varying degrees of maturity and
in many different geographies; the effect of management changes and
business initiatives; any changes the company may make to its
product offerings; the company's ability to timely upgrade and
develop its technology systems, infrastructure and customer service
capabilities at reasonable cost; the company's ability to maintain
stability and performance of its Payment Platform while adding new
products and features in a timely fashion; and the company's
ability to profitably integrate, manage and grow businesses that
have been acquired or may be acquired in the future. The
forward-looking statements in this release do not include the
potential impact of any acquisitions or divestitures that may be
announced and/or completed after the date hereof.
More information about factors that could affect the company's
operating results is included under the captions “Risk Factors” and
“Management's Discussion and Analysis of Financial Condition and
Results of Operations” in the company's annual report on Form 10-K,
and subsequent quarterly reports on Form 10-Q, copies of which
may be obtained by visiting the company's Investor Relations
website at https://investor.paypal-corp.com or the SEC's
website at www.sec.gov. All
information in this release is as of October 20, 2016. Undue
reliance should not be placed on the forward-looking statements in
this press release, which are based on information available to the
company on the date hereof. The company assumes no obligation to
update such statements.
PayPal Holdings, Inc.
Unaudited Condensed Combined and Consolidated Balance Sheet
September 30, 2016 December 31,
2015 (In millions, except par value) ASSETS
Current assets: Cash and cash equivalents $ 1,369 $ 1,393
Short-term investments 3,719 2,018 Accounts receivable, net 187 137
Loans and interest receivable, net 4,815 4,184 Funds receivable and
customer accounts 13,320 12,261 Prepaid expenses and other current
assets 751 655 Total current assets 24,161
20,648 Long-term investments 1,339 2,348 Property and
equipment, net 1,451 1,344 Goodwill 4,068 4,069 Intangible assets,
net 245 358 Other assets 92 114 Total assets $ 31,356
$ 28,881
LIABILITIES AND EQUITY Current
liabilities: Accounts payable $ 174 $ 145 Funds payable and amounts
due to customers 14,120 12,261 Accrued expenses and other current
liabilities 1,272 1,179 Income taxes payable 50 32
Total current liabilities 15,616 13,617 Deferred tax liability and
other long-term liabilities 1,548 1,505 Total
liabilities 17,164 15,122 Equity: Common stock,
$0.0001 par value; 4,000 shares authorized; 1,206 and 1,224
outstanding — — Treasury stock at cost, 26 shares as of September
30, 2016 (945 ) — Additional paid-in-capital 13,419 13,100 Retained
earnings 1,679 668 Accumulated other comprehensive (loss) income 39
(9 ) Total equity 14,192 13,759 Total
liabilities and equity $ 31,356 $ 28,881
PayPal Holdings, Inc.
Unaudited Condensed Combined and Consolidated Statement of
Income Three Months Ended September 30, Nine
Months Ended September 30, 2016 2015
2016 2015 (In millions, except per share
amounts) Net revenues $ 2,667 $ 2,258 $ 7,861 $ 6,692
Operating expenses: Transaction expense 830 651 2,392 1,860
Transaction and loan losses 271 201 781 564
Customer support and operations (1)
325 284 939 811
Sales and marketing (1)
233 226 716 682 Product development (1) 215 197 619 584 General and
administrative (1) 261 216 753 648 Depreciation and amortization
(1) 184 153 535 444 Restructuring — — — 49
Total operating expenses 2,319 1,928 6,735
5,642 Operating income 348 330 1,126 1,050 Other income (expense),
net 12 20 36 20 Income before income taxes 360
350 1,162 1,070 Income tax expense 37 49 151
209 Net income $ 323 $ 301 $ 1,011 $ 861 Net
income per share: Basic $ 0.27 $ 0.25 $ 0.83 $ 0.71 Diluted $ 0.27
$ 0.25 $ 0.83 $ 0.70 Weighted average shares: Basic 1,207 1,221
1,211 1,221 Diluted 1,214 1,227 1,218 1,227
(1) Includes stock-based compensation as
follows:
Customer support and operations 21 16 61 44 Sales and marketing 21
18 59 42 Product development 34 33 102 97 General and
administrative 31 25 91 68 Depreciation and amortization 2 2
4 6 $ 109 $ 94 $ 317 $ 257
PayPal Holdings,
Inc. Unaudited Condensed Combined and Consolidated Statement
of Cash Flows Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016 2015 (In millions)
Cash flows from operating activities: Net income $ 323 $ 301
$ 1,011 $ 861 Adjustments: Transaction and loan losses 271 201 781
564 Depreciation and amortization 185 153 535 444 Stock-based
compensation 107 94 313 256 Deferred income taxes (17 ) (5 ) 71 87
Excess tax benefits from stock-based compensation (4 ) (8 ) (36 )
(24 ) Gain on sale of principal loans receivable held for sale, net
(5 ) (5 ) (17 ) (35 ) Changes in assets and liabilities: Accounts
receivable (20 ) (85 ) (50 ) (98 ) Receivable from eBay — 79 — 121
Principal loans receivable held for sale, net 5 5 17 9 Accounts
payable 6 (36 ) 28 2 Payable to eBay — (96 ) — (217 ) Income taxes
payable 14 40 51 75 Other assets and liabilities (64 ) 14
(469 ) (227 ) Net cash provided by operating activities 801
652 2,235 1,818 Cash flows from investing
activities: Purchases of property and equipment (183 ) (133 ) (517
) (558 ) Proceeds from sales of property and equipment — 15 — 26
Changes in principal loans receivable, net (408 ) (554 ) (884 )
(146 ) Purchases of investments (6,775 ) (6,001 ) (16,984 ) (17,253
) Maturities and sales of investments 5,279 5,362 14,614 11,003
Acquisitions, net of cash acquired — (10 ) (19 ) (283 ) Funds
receivable and customer accounts 398 (475 ) 620 314 Notes and
receivable from eBay — — — 575 Net cash
provided by (used in) investing activities (1,689 ) (1,796 ) (3,170
) (6,322 ) Cash flows from financing activities: Proceeds from
issuance of common stock 1 36 58 36 Purchases of treasury stock (49
) — (945 ) — Excess tax benefits from stock-based compensation 4 8
36 24 Contribution from (to) eBay — 29 — 3,858 Tax withholdings
related to net share settlements of equity awards (1 ) (7 ) (95 ) —
Borrowings (repayments) under financing arrangements — (4 ) (21 )
(877 ) Funds payable and amounts due to customers 283 416
1,862 1,190 Net cash provided by financing
activities 238 478 895 4,224 Effect of
exchange rate changes on cash and cash equivalents 1 (16 )
16 (41 ) Net change in cash and cash equivalents (649 ) (682
) (24 ) (321 ) Cash and cash equivalents at beginning of period
2,018 2,562 1,393 2,201 Cash and cash
equivalents at end of period $ 1,369 $ 1,880 $ 1,369
$ 1,880 Supplemental cash flow disclosures: Cash paid
for interest $ 1 $ 2 $ 3 $ 14 Cash paid for income taxes $ 7 $ 25 $
43 $ 56
PayPal Holdings, Inc.Unaudited
Summary of Combined and Consolidated Net Revenues
We earn revenue from the following types of transactions:
- Transaction revenues: Net transaction
fees charged to consumers and merchants based on the volume of
activity processed through our Payments Platform, including our
PayPal, PayPal Credit, Venmo, Braintree and Xoom products.
- Other value added services: Net
revenues derived principally from interest and fees earned on our
PayPal Credit loans receivable portfolio, subscription fees,
gateway fees, gain on sale of participation interest in certain
consumer loans receivable, revenue share we earn through
partnerships, interest earned on certain PayPal customer account
balances, fees earned through our Paydiant products and other
services that we provide to consumers and merchants.
Net Revenues by Type Three Months
Ended
September 30,2016
June 30,2016
March 31,2016
December 31,2015
September 30,2015
(In millions, except percentages) Transaction
revenues $ 2,314 $ 2,323 $ 2,238 $ 2,262 $ 1,982 Current
quarter vs prior quarter — % 4 % (1 )% 14 % 1
%
Current quarter vs prior year quarter 17 % 18 % 17 % 15 % 13
%
Percentage of total 87 % 88 % 88 % 88 % 88
%
Other value added services 353 327 306 294 276
Current quarter vs prior quarter 8 % 7 % 4 % 7 % (16 )% Current
quarter vs prior year quarter 28 % — % 37 % 30 % 25
%
Percentage of total 13 % 12 % 12 % 12 % 12
%
Total net revenues $ 2,667 $ 2,650 $ 2,544 $ 2,556 $
2,258 Current quarter vs prior quarter 1 % 4 % — % 13 % (2 )%
Current quarter vs prior year quarter(1) 18 % 15 % 19 % 17 % 14
%
(1) Q2'16 and Q3'15 total net revenues current quarter vs
prior year quarter growth rates on a non-GAAP pro forma basis were
16% and 15%, respectively. For a reconciliation to GAAP net
revenues, please see “Reconciliation of GAAP Net Revenues by Type
to Non-GAAP Pro Forma Net Revenues by Type, and GAAP Net Revenues
by Geography to Non-GAAP Pro Forma Net Revenues by Geography”
included in this press release.
Net
Revenues by Geography Three Months Ended
September 30,2016
June 30,2016
March 31,2016
December 31,2015
September 30,2015
(In millions, except percentages) U.S. net revenues $
1,436 $ 1,407 $ 1,343 $ 1,302 $ 1,138 Current quarter vs prior
quarter(1) 2
%
5 % 3 % 14 % (3
)%
Current quarter vs prior year quarter(2) 26
%
20 % 30 % 25 % 20
%
Percent of total 54
%
53 % 53 % 51 % 50
%
International net revenues 1,231 1,243 1,201 1,254
1,120 Current quarter vs prior quarter (1 )% 3 % (4 )% 12 % (1 )%
Current quarter vs prior year quarter(3) 10
%
10 % 8 % 9 % 9
%
(FXN) Current quarter vs prior year quarter(4) 16
%
18 % 15 % 18 % 16
%
Percent of total 46
%
47 % 47 % 49 % 50
%
Total net revenues $ 2,667 $ 2,650 $ 2,544 $ 2,556 $
2,258 Current quarter vs prior quarter 1
%
4 % — % 13 % (2 )% Current quarter vs prior year quarter(5) 18
%
15 % 19 % 17 % 14
%
(FXN) Current quarter vs prior year quarter(6) 21
%
19 % 23 % 21 % 18
%
(1) Q3'15 U.S. net revenues current quarter vs prior quarter
growth rate on a non-GAAP pro forma basis was (2)%. (2) Q2'16 and
Q1'16 U.S. net revenues current quarter vs prior year quarter
growth rates on a non-GAAP pro forma basis were 21% and 31%,
respectively. (3) Q1'16 international net revenues current quarter
vs prior year quarter growth rate on a non-GAAP pro forma basis was
9%. (4) Q3'15 international net revenues (FXN) current quarter vs
prior year quarter growth rate on a non-GAAP pro forma basis was
17%. (5) Q2'16 and Q3'15 total net revenues current quarter vs
prior year quarter growth rates on a non-GAAP pro forma basis were
16% and 15%, respectively. (6) Q3'15 total net revenues (FXN)
current quarter vs prior year quarter growth rate on a non-GAAP pro
forma basis was 19%. For a reconciliation to GAAP net revenues,
please see “Reconciliation of GAAP Net Revenues by Type to Non-GAAP
Pro Forma Net Revenues by Type, and GAAP Net Revenues by Geography
to Non-GAAP Pro Forma Net Revenues by Geography” included in this
press release.
PayPal Holdings, Inc.
Unaudited Supplemental Operating
Data
Three Months Ended
September 30,2016
June 30,2016
March 31,2016
December 31,2015
September 30,2015
(In millions, except percentages) Active customer
accounts(1) 192 188 184 179 173 Current quarter vs prior
quarter 2 % 2 % 2 % 4 % 2 % Current quarter vs prior year quarter
11 % 11 % 11 % 11 % 10 %
Number of payment
transactions(2) 1,512 1,448 1,414 1,428 1,216 Current
quarter vs prior quarter 4 % 2 % (1 )% 17 % 5 % Current quarter vs
prior year quarter 24 % 25 % 26 % 25 % 25 %
Payment
transactions per active account(3) 30.2 29.4 28.4 27.5
26.9 Current quarter vs prior quarter 3 % 3 % 3 % 2 % 3 % Current
quarter vs prior year quarter 13 % 13 % 12 % 12 % 12 %
Total Payment Volume(4) $ 87,403 $ 86,208 $ 81,056 $
81,523 $ 69,738 Current quarter vs prior quarter 1 % 6 % (1 )% 17 %
3 % Current quarter vs prior year quarter 25 % 28 % 29 % 23 % 20 %
(FXN) Current quarter vs prior year quarter 28 % 29 % 31 % 29 % 27
% Transaction Expense Rate(5) 0.95 % 0.94 % 0.93 % 0.92 %
0.93 % Transaction and Loan Loss Rate(6) 0.31 % 0.30 % 0.31 % 0.30
% 0.29 %
Transaction Margin(7) 58.7 %
59.8 % 60.4 % 61.1 %
62.3 % (1) An active customer account is a
registered account that successfully sent or received at least one
payment or payment reversal through our Payments Platform,
excluding transactions processed through our gateway and Paydiant
products, in the past 12 months. (2) Payment transactions is the
total number of payments, net of payment reversals, successfully
completed through our Payments Platform, excluding transactions
processed through our gateway and Paydiant products. (3) Number of
payment transactions per active customer account reflects the total
number of payment transactions within the previous 12 month period,
divided by active customer accounts at the end of the period. (4)
Total Payment Volume or “TPV” is the value of payments, net of
payment reversals, successfully completed through our Payments
Platform, excluding transactions processed through our gateway and
Paydiant products. (5) Transaction expense rate is calculated by
dividing transaction expense by TPV. (6) Transaction and loan loss
rate is calculated by dividing transaction and loan loss by TPV.
(7) Transaction margin is total revenue less transaction expense
and transaction and loan loss, divided by total revenue.
PayPal Holdings,
Inc.Non-GAAP Measures of Financial Performance
To supplement the company's condensed consolidated financial
statements presented in accordance with generally accepted
accounting principles, or GAAP, the company uses non-GAAP measures
of certain components of financial performance. These non-GAAP
measures include non-GAAP net income, non-GAAP earnings per diluted
share, non-GAAP operating margin, non-GAAP effective tax rate and
free cash flow.
These non-GAAP measures are not in accordance with, or an
alternative to, measures prepared in accordance with GAAP and may
be different from non-GAAP measures used by other companies. In
addition, these non-GAAP measures are not based on any
comprehensive set of accounting rules or principles. Non-GAAP
measures have limitations in that they do not reflect all of the
amounts associated with the company's results of operations as
determined in accordance with GAAP. These measures should only be
used to evaluate the company's results of operations in conjunction
with the corresponding GAAP measures.
Reconciliation to the most directly comparable GAAP measure of
all non-GAAP measures included in this press release can be found
in the tables included in this press release.
These non-GAAP measures are provided to enhance investors'
overall understanding of the company's current financial
performance and its prospects for the future. Specifically, the
company believes the non-GAAP measures provide useful information
to both management and investors by excluding certain expenses,
gains and losses, as the case may be, that may not be indicative of
its core operating results and business outlook. In addition,
because the company has historically reported certain non-GAAP
results to investors, the company believes that the inclusion of
non-GAAP measures provides consistency in the company's financial
reporting.
For its internal budgeting process, and as discussed further
below, the company's management uses financial measures that do not
include stock-based compensation expense, employer payroll taxes on
stock-based compensation, amortization or impairment of acquired
intangible assets, impairment of goodwill, significant gains or
losses from the disposal/acquisition of a business, certain effects
of the separation from eBay, certain gains and losses on
investments, restructuring-related charges and the income taxes
associated with the foregoing. In addition to the corresponding
GAAP measures, the company's management also uses the foregoing
non-GAAP measures in reviewing the financial results of the
company.
The company excludes the following items from non-GAAP net
income, non-GAAP earnings per diluted share, non-GAAP operating
margin and non-GAAP effective tax rate:
Stock-based compensation expense and related
employer payroll taxes. This consists of expenses for equity awards
under our equity incentive plans. We exclude stock-based
compensation expense from our non-GAAP measures primarily because
they are non-cash expenses that management does not believe are
reflective of ongoing operating results. The related employer
payroll taxes are dependent on our stock price and the timing and
size of exercises and vesting of equity awards, over which
management has limited to no control, and as such management does
not believe it correlates to the operation of our business.
Amortization or impairment of acquired
intangible assets, impairment of goodwill, and transaction expenses
from the acquisition or disposal of a business. We incur
amortization or impairment of acquired intangible assets and
goodwill in connection with acquisitions and may incur significant
gains or losses from the acquisition or disposal of a business and
therefore exclude these amounts from our non-GAAP measures. We
exclude these items because management does not believe they are
reflective of our ongoing operating results.
Restructuring. These consist of expenses for
employee severance and other exit and disposal costs. The company
excludes significant restructuring charges primarily because
management does not believe they are reflective of ongoing
operating results.
Other certain significant gains, losses, or
charges that are not indicative of the Company’s core operating
results. These expenses are significant gains, losses, or charges
during a period that are the result of isolated events or
transactions which have not occurred frequently in the past and are
not expected to occur regularly or be repeated in the future. The
company excludes these amounts from its results primarily because
management does not believe they are indicative of its current or
ongoing operating results.
Separation. These are significant expenses
related to the separation of PayPal from eBay Inc. into an
independent publicly traded company. These consist primarily of
third-party consulting fees, legal fees, employee retention
payments and other income and expenses incurred to complete the
separation.
Tax effect of non-GAAP adjustments. This
amount is used to present stock-based compensation and the other
amounts described above on an after-tax basis consistent with the
presentation of non-GAAP net income.
The company also uses free cash flow, a non-GAAP measure. Free
cash flow represents operating cash flows less purchases of
property and equipment. The company considers free cash flow to be
a liquidity measure that provides useful information to management
and investors about the amount of cash generated by the business
after the purchases of property, buildings, and equipment, which
can then be used to, among other things, invest in the company's
business, make strategic acquisitions, and repurchase stock. A
limitation of the utility of free cash flow as a measure of
financial performance is that it does not represent the total
increase or decrease in the company's cash balance for the
period.
In addition to the non-GAAP measures discussed above, the
Company also analyzes certain measures, including net revenues and
operating expenses, on an FX-neutral basis to better measure the
comparability of operating results between periods. The Company
believes that changes in foreign currency exchange rates are not
indicative of the Company’s operations and evaluating growth in net
revenues and operating expenses on an FX-neutral basis provides an
additional meaningful and comparable assessment of these measures
to both management and investors. FX-neutral results are calculated
by translating the current period’s local currency results by the
prior period’s exchange rate. FX-neutral growth rates are
calculated by comparing the current period's FX-neutral results by
the prior period's results, excluding the impact from hedging
activities.
PayPal Holdings, Inc. Reconciliation
of GAAP Operating Margin to Non-GAAP Operating Margin
Three Months Ended September
30,
2016 2015 (In
millions, except percentages) (unaudited) GAAP operating income
$ 348 $ 330 Stock-based compensation expense and related employer
payroll taxes 110 95 Acquisition related transaction expense — 2
Separation — 3 Amortization of acquired intangible assets 32
20 Total non-GAAP operating income adjustments 142
120 Non-GAAP operating income $ 490 $ 450
Non-GAAP operating margin 18.4 % 19.9 %
Reconciliation of GAAP Net Income to Non-GAAP Net Income,
GAAP Diluted EPS to Non-GAAP Diluted EPS, and GAAP
Effective Tax Rate to Non-GAAP Effective Tax Rate
Three Months Ended September 30, 2016
2015 (In millions, except percentages)
GAAP income before income taxes $ 360 $ 350 GAAP income tax expense
37 49 GAAP net income 323 301 Non-GAAP adjustments to
net income: Non-GAAP operating income adjustments (see table above)
142 120 Separation (Other income (expense), net) — (12 ) Tax effect
of non-GAAP adjustments (40 ) (32 ) Non-GAAP net income $ 425
$ 377 GAAP net income per diluted share $ 0.27
$ 0.25 Non-GAAP net income per diluted share $ 0.35 $ 0.31 Shares
used in non-GAAP diluted share calculation(1) 1,214 1,227
GAAP effective tax rate 10 % 14 % Tax effect of non-GAAP
adjustments to net income 5 % 4 % Non-GAAP effective tax rate 15 %
18 % (1) Non-GAAP net income per diluted share for the three
months ended September 30, 2015 is calculated using the weighted
average number of common shares outstanding for the period
beginning after the distribution date.
PayPal Holdings, Inc.
Reconciliation of GAAP Net Revenues by Type to Non-GAAP Pro
Forma Net Revenues by Type, and GAAP Net Revenues by
Geography to Non-GAAP Pro Forma Net Revenues by Geography
Net Revenues by Type Three Months Ended,
Year EndedDecember 31,
June 30,2015
March 31,2015
December 31,2014
September 30,2014
2015 (In millions/unaudited) Transaction
revenues $ 1,970 $ 1,914 $ 1,967 $ 1,754 $ 8,128 Pro forma
adjustment(1) (4 ) (3 ) (4 ) (4 ) (7 ) Non-GAAP pro forma
transaction revenues 1,966 1,911 1,963 1,750
8,121 Other value added services 327
223 226 221 1,120 Pro forma adjustment(1) — — —
— — Non-GAAP pro forma other value
added services 327 223 226 221
1,120 Total net revenues $ 2,297 $ 2,137 $ 2,193 $
1,975 $ 9,248 Pro forma adjustment(1) (4 ) (3 ) (4 ) (4 ) (7
) Total non-GAAP pro forma net revenues 2,293 2,134
2,189 1,971 9,241 (1) Reflects
the impact of lower transaction revenues from payment services
provided by PayPal to eBay as the result of the terms of certain
commercial agreements negotiated between the parties that stipulate
lower transaction fees than those historically charged to eBay.
Net Revenues by Geography
Three Months Ended, Year
EndedDecember 31,
June 30,2015
March 31,2015
December 31,2014
September 30,2014
2015 (In millions/unaudited) U.S. net
revenues $ 1,170 $ 1,030 $ 1,043 $ 949 $ 4,640 Pro forma
adjustment(1) (3 ) (2 ) (3 ) (3 ) (5 ) Non-GAAP pro forma
U.S. net revenues 1,167 1,028 1,040 946
4,635 International net revenues $ 1,127 $
1,107 $ 1,150 $ 1,026 4,608 Pro forma adjustment(1) (1 ) (1 ) (1 )
(1 ) (2 ) Non-GAAP pro forma international net revenues
1,126 1,106 1,149 1,025 4,606
Total net revenues $ 2,297 $ 2,137 $ 2,193 $ 1,975 $
9,248 Pro forma adjustment(1) (4 ) (3 ) (4 ) (4 ) (7 )
Non-GAAP pro forma net revenues 2,293 2,134 2,189
1,971 9,241 (1) Reflects the
impact of lower transaction revenues from payment services provided
by PayPal to eBay as the result of the terms of certain commercial
agreements negotiated between the parties that stipulate lower
transaction fees than those historically charged to eBay.
Reconciliation of Operating Cash Flow
to Free Cash Flow
Three Months Ended September 30, Nine Months Ended
September 30, 2016 2015 2016
2015 (In millions/unaudited) Net cash provided by
operating activities $ 801 $ 652 $ 2,235 $ 1,818 Less: Purchases of
property and equipment (183 ) (133 ) (517 ) (558 ) Free cash flow $
618 $ 519 $ 1,718 $ 1,260
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161020006479/en/
PayPalInvestor Relations ContactGabrielle
RabinovitchSenior Director, Investor
Relationsgrabinovitch@paypal.comorMedia
Relations ContactMartha Cass, 416-860-6213Senior Director,
Corporate Communicationsmcass@paypal.com
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