Revenue increased 21% to $3.239 billion, 22%
FX-neutral revenue growth
GAAP EPS increased 17% to $0.31, non-GAAP EPS
increased 31% to $0.46
Global technology platform and digital payments leader PayPal
Holdings, Inc. (NASDAQ:PYPL) today announced third quarter results
for the period ended September 30, 2017.
Financial highlights for the third quarter include:
- Revenue growth of 21% to $3.239
billion, or 22% on a foreign currency neutral (FX-neutral)
basis
- GAAP operating margin of 13.1% and
non-GAAP operating margin of 19.9%
- GAAP earnings per diluted share (EPS)
growth of 17% to $0.31, non-GAAP EPS growth of 31% to $0.46
- Operating cash flow of $1.006 billion,
free cash flow of $841 million, up 36%
Operating highlights for the third quarter include:
- 8.2 million active customer accounts
added, with net new actives up 88%
- 218 million active customer accounts,
with more than 17 million merchant accounts
- 1.9 billion payment transactions, up
26%
- 32.8 payment transactions per active
account on a trailing twelve months basis, up 9%
- $114 billion in total payment volume
(TPV), up 30%, or 29% on an FX-neutral basis
“PayPal delivered one of its strongest quarters since becoming
an independent company. Putting our customers first in everything
we do, enhancing our suite of products and services, and partnering
with some of the world’s most popular brands are delivering
tangible results,” said Dan Schulman, President and CEO of PayPal.
“In addition to our solid financial performance, we also reported
record customer growth with the addition of 8.2 million net new
actives. As the world rapidly accelerates to digital payments, we
have a tremendous opportunity in front of us.”
PayPal's Expanding Value Proposition
PayPal processed $114 billion in TPV in the quarter.
Approximately 35% of payment volume came through a mobile device
and mobile payment volume increased 54% over the same period last
year to approximately $40 billion.
Person-to-Person (P2P) volume grew 47% to $24 billion, and
represented approximately 21% of TPV. Venmo, the company's social
payments platform, processed approximately $30 billion of TPV over
the past twelve months, growing 106% over the same period last
year. In the third quarter, Venmo processed approximately $9
billion of TPV, growing 93% over the same period last year.
PayPal continues to build on its partnership strategy to extend
the relevance of its platform and add value for its consumers and
merchants. During the quarter, PayPal announced a partnership with
Skype to allow users in 22 countries to send money to other Skype
users with PayPal via their Skype mobile app. PayPal also announced
the expansion of its partnership with Mastercard into Canada,
Europe, Latin America and the Caribbean and the Middle East and
Africa.
In the third quarter, PayPal closed the acquisition of Swift
Financial, a leading provider of working capital solutions to small
businesses in the U.S. The previously announced acquisition of TIO
Networks also closed during the quarter.
Third Quarter
2017 Financial and Operating Highlights
Third
Quarter
FX-Neutral
YoY
(presented in millions, except per
share data and percentages)
2017
2016
YoY
Growth
Growth
Total Payment Volume (TPV) $114,045 $87,403 $26,642
30% 29%
GAAP Net revenues $3,239 $2,667 $572 21% 22%
Operating margin 13.1% 13.0% ** 0bps N/A Effective tax rate 15.7%
10.3% ** 547bps N/A Net income $380 $323 $57 18% N/A Earnings per
diluted share $0.31 $0.27 $0.04 17% N/A Net cash provided by
operating activities $1,006 $801 $205 26% N/A
Non-GAAP Net
revenues $3,239 $2,667 $572 21% 22% Operating margin 19.9% 18.4% **
157bps N/A Effective tax rate 16.9% 15.3% ** 158bps N/A Net income
$560 $425 $135 32% N/A Earnings per diluted share $0.46 $0.35 $0.11
31% N/A Free cash flow $841 $618 $223 36% N/A
** Not meaningful.
Cash, Cash Equivalents and Investments - PayPal’s cash,
cash equivalents and investments totaled $7.1 billion as of
September 30, 2017.
2017 Financial Guidance
Full Year 2017 Revenue and Earnings Guidance
- PayPal expects revenue to grow 19 - 20%
at current spot rates and 20 - 21% on an FX-neutral basis, to a
range of $12.920 - $12.980 billion.
- PayPal expects GAAP earnings per
diluted share in the range of $1.34 - $1.36 and non-GAAP earnings
per diluted share in the range of $1.86 - $1.88.
- Estimated non-GAAP amounts above for
the twelve months ending December 31, 2017, reflect adjustments of
approximately $890 - $905 million, primarily representing estimated
stock-based compensation expense and related payroll taxes in the
range of $730 - $740 million.
Fourth Quarter 2017 Revenue and Earnings Guidance
- PayPal expects revenue to grow 20% -
22% at current spot rates and 20% - 22% on an FX-neutral basis, to
a range of $3.570 - $3.630 billion.
- PayPal expects GAAP earnings per
diluted share in the range of $0.37 - $0.39 and non-GAAP earnings
per diluted share in the range of $0.50 - $0.52.
- Estimated non-GAAP amounts above for
the three months ending December 31, 2017, reflect adjustments of
approximately $225 - $240 million, primarily representing estimated
stock-based compensation expense and related payroll taxes in the
range of $205 - $215 million.
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 2017 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 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/), YouTube
channel (https://www.youtube.com/paypal), Dan Schulman’s LinkedIn profile (https://www.linkedin.com/in/dan-schulman/)
and Dan Schulman’s Facebook profile (https://www.facebook.com/DanSchulmanPayPal/)
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
Fueled by a fundamental belief that having access to financial
services creates opportunity, PayPal (NASDAQ: PYPL)
is committed to democratizing financial services and
empowering people and businesses to join and thrive in the global
economy. Our open digital payments platform gives PayPal’s 218
million active account holders the confidence to connect and
transact in new and powerful ways, whether they are online, on a
mobile device, in an app, or in person. Through a combination of
technological innovation and strategic partnerships,
PayPal creates better ways to manage and move money,
and offers choice and flexibility when sending payments, paying or
getting paid. Available in more than 200 markets around the
world, the PayPal platform, including Braintree, Venmo and Xoom,
enables consumers and merchants to receive money in more than 100
currencies, withdraw funds 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 PayPal 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 local currency results by the prior period
exchange rate. FX-neutral growth rates are calculated by comparing
the current period FX-neutral results by the prior period 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 and rates
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 Operating
Cash Flow to Free Cash Flow”.
Forward-Looking Statements
This press release contains forward-looking statements relating
to, among other things, the future results of operations, financial
condition, expectations and plans of PayPal Holdings, Inc. and its
consolidated subsidiaries that reflect PayPal’s current projections
and forecasts. Forward-looking statements can be identified by
words such as “may,” “will,” “would,” “should,” “could,” “expect,”
“anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,”
“forecast” and other similar expressions. Forward-looking
statements include, but are not limited to, statements regarding
projected financial results for the fourth quarter and the full
year 2017 and projected future growth of PayPal’s businesses.
Forward-looking statements are based upon various estimates and
assumptions, as well as information known to PayPal as of the date
of this press release, and are inherently subject to numerous risks
and uncertainties. Accordingly, actual results could differ
materially from those predicted or implied by forward-looking
statements. 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 or general
economic downturn or crisis and any conditions that affect payments
or e-commerce growth; fluctuations in foreign currency exchange
rates; the competitive, regulatory, payment card
association-related and other risks specific to the PayPal, PayPal
Credit, Braintree, Venmo, Xoom, Paydiant and TIO 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
PayPal's customer choice initiatives, including on its funding mix
and transaction expense; PayPal’s ability to successfully react to
the increasing importance of mobile payments and mobile commerce;
PayPal’s ability to deal with the increasingly competitive
environment for its businesses, including competition for consumers
and merchants; the outcome of legal and regulatory proceedings and
PayPal'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 PayPal's capital allocation or management of operating cash;
uncertainty surrounding the implementation and impact of the United
Kingdom's formal notification of its intent to withdraw from the
European Union; PayPal'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 PayPal may
make to its product offerings; the effect of any natural disasters
or other business interruptions on PayPal or PayPal's customers;
PayPal's ability to timely upgrade and develop its technology
systems, infrastructure and customer service capabilities at
reasonable cost; PayPal's ability to maintain the stability,
security and performance of its Payment Platform while adding new
products and features in a timely fashion; risks that planned
acquisitions will not be completed on contemplated terms, or at
all, and that any businesses PayPal may acquire will not perform in
accordance with its expectations, and PayPal'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 adversely affect
PayPal's results of operations, financial condition and prospects
or that could cause actual results to differ from those expressed
or implied in forward-looking statements is included under the
captions “Risk Factors” and “Management's Discussion and Analysis
of Financial Condition and Results of Operations” in PayPal’s most
recent annual report on Form 10-K and its subsequent quarterly
reports on Form 10-Q, copies of which may be obtained by
visiting PayPal'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 19,
2017. For the reasons discussed above, you should not place undue
reliance on the forward-looking statements in this press release.
PayPal assumes no obligation to update such forward-looking
statements.
Copyright © 1999-2017 PayPal. All rights reserved. Other company
and product names may be trademarks of their respective owners.
PayPal Holdings, Inc. Unaudited Condensed
Consolidated Balance Sheet September
30, December 31, 2017 2016
(In millions, except par value) ASSETS Current
assets: Cash and cash equivalents $ 2,330 $ 1,590 Short-term
investments 2,591 3,385 Accounts receivable, net 301 214 Loans and
interest receivable, net 6,321 5,348 Funds receivable and customer
accounts 17,175 14,363 Prepaid expenses and other current assets
719 833 Total current assets 29,437 25,733
Long-term investments 2,217 1,539 Property and equipment,
net 1,485 1,482 Goodwill 4,326 4,059 Intangible assets, net 226 211
Other assets 70 79 Total assets $ 37,761 $
33,103
LIABILITIES AND EQUITY Current liabilities:
Accounts and notes payable $ 974 $ 192 Funds payable and amounts
due to customers 17,975 15,163 Accrued expenses and other current
liabilities 1,665 1,459 Income taxes payable 89 64
Total current liabilities 20,703 16,878 Deferred tax liability and
other long-term liabilities 1,626 1,513 Total
liabilities 22,329 18,391 Equity: Common stock,
$0.0001 par value; 4,000 shares authorized; 1,202 and 1,207
outstanding — — Treasury stock at cost, 43 and 27 shares (1,701 )
(995 ) Additional paid-in-capital 14,071 13,579 Retained earnings
3,204 2,069 Accumulated other comprehensive income (loss) (142 ) 59
Total equity 15,432 14,712 Total liabilities
and equity $ 37,761 $ 33,103
PayPal
Holdings, Inc. Unaudited Condensed Consolidated Statement of
Income Three Months Ended September
30, Nine Months Ended September 30,
2017 2016 2017
2016 (In millions, except per share amounts)
Net revenues $ 3,239 $ 2,667 $ 9,350 $ 7,861 Operating expenses:
Transaction expense 1,102 830 3,153 2,392 Transaction and loan
losses 363 271 971 781 Customer support and operations(1) 346 325
998 939 Sales and marketing (1) 278 233 800 716 Product development
(1) 240 215 686 619 General and administrative (1) 293 261 840 753
Depreciation and amortization (1) 194 184 578 535 Restructuring —
— 40 — Total operating expenses 2,816
2,319 8,066 6,735 Operating income 423 348 1,284
1,126 Other income (expense), net 28 12 52 36
Income before income taxes 451 360 1,336 1,162 Income tax expense
71 37 161 151 Net income $ 380 $ 323
$ 1,175 $ 1,011 Net income per share: Basic $ 0.32 $
0.27 $ 0.98 $ 0.83 Diluted $ 0.31 $ 0.27 $ 0.96 $ 0.83 Weighted
average shares: Basic 1,202 1,207 1,203 1,211 Diluted 1,223 1,214
1,218 1,218 (1) Includes stock-based compensation as
follows: Customer support and operations 38 21 102 61 Sales and
marketing 36 21 97 59 Product development 64 34 168 102 General and
administrative 54 31 147 91 Depreciation and amortization 3
2 8 4 $ 195 $ 109 $ 522 $ 317
PayPal Holdings, Inc. Unaudited Condensed
Consolidated Statement of Cash Flows
Three Months Ended September 30, Nine
Months Ended September 30, 2017
2016 2017 2016 (In
millions) Cash flows from operating activities: Net
income $ 380 $ 323 $ 1,175 $ 1,011 Adjustments: Transaction and
loan losses 363 271 971 781 Depreciation and amortization 194 185
578 535 Stock-based compensation 193 107 514 313 Deferred income
taxes (89 ) (17 ) 13 71 Excess tax benefits from stock-based
compensation — (4 ) — (36 ) Gain on sale of principal loans
receivable held for sale, net (4 ) (5 ) (16 ) (17 ) Changes in
assets and liabilities: Accounts receivable (43 ) (20 ) (5 ) (50 )
Principal loans receivable held for sale, net 4 5 16 17 Accounts
payable — 6 4 28 Income taxes payable 3 14 24 51 Other assets and
liabilities 5 (64 ) (596 ) (469 ) Net cash provided by
operating activities 1,006 801 2,678 2,235
Cash flows from investing activities: Purchases of property
and equipment (165 ) (183 ) (487 ) (517 ) Changes in principal
loans receivable, net (527 ) (408 ) (1,154 ) (884 ) Purchases of
investments (2,271 ) (6,775 ) (14,227 ) (16,984 ) Maturities and
sales of investments 3,491 5,279 13,027 14,614 Acquisitions, net of
cash acquired (323 ) — (323 ) (19 ) Funds receivable and customer
accounts (1,603 ) 398 (1,236 ) 620 Net cash (used in)
investing activities (1,398 ) (1,689 ) (4,400 ) (3,170 ) Cash flows
from financing activities: Proceeds from issuance of common stock
14 1 100 58 Purchases of treasury stock (100 ) (49 ) (706 ) (945 )
Excess tax benefits from stock-based compensation — 4 — 36 Tax
withholdings related to net share settlements of equity awards (16
) (1 ) (140 ) (95 ) Borrowings under financing arrangements, net of
repayments 626 — 620 (21 ) Funds payable and amounts due to
customers 915 283 2,553 1,862 Net cash
provided by financing activities 1,439 238 2,427
895 Effect of exchange rate changes on cash and cash
equivalents 12 1 35 16 Net change in
cash and cash equivalents 1,059 (649 ) 740 (24 ) Cash and cash
equivalents at beginning of period 1,271 2,018 1,590
1,393 Cash and cash equivalents at end of period $
2,330 $ 1,369 $ 2,330 $ 1,369
Supplemental cash flow disclosures: Cash paid for interest $ 1 $ 1
$ 3 $ 3 Cash paid for income taxes $ 15 $ 7 $ 88 $ 43
PayPal Holdings, Inc.Unaudited
Summary of 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, Xoom and TIO
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 and merchant working capital advances,
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,
June 30, March 31,
December 31,
September 30,
2017 2017 2017 2016 2016 (In
millions, except percentages) Transaction revenues $
2,833 $ 2,749 $ 2,599 $ 2,615 $ 2,314 Current quarter vs prior
quarter 3 % 6 % (1 )% 13 % — % Current quarter vs prior year
quarter 22 % 18 % 16 % 16 % 17 % Percentage of total 87 % 88 % 87 %
88 % 87 %
Other value added services 406 387 376 366
353 Current quarter vs prior quarter 5 % 3 % 3 % 4 % 8 % Current
quarter vs prior year quarter 15 % 18 % 23 % 24 % 28 % Percentage
of total 13 % 12 % 13 % 12 % 13 %
Total net revenues
$ 3,239 $ 3,136 $ 2,975 $ 2,981 $ 2,667 Current quarter vs prior
quarter 3 % 5 % — % 12 % 1 % Current quarter vs prior year quarter
21 % 18 % 17 % 17 % 18 %
Net Revenues by Geography
Three Months Ended
September 30,
June 30, March 31,
December 31,
September 30,
2017 2017 2017 2016 2016 (In
millions, except percentages) U.S. net revenues $ 1,743
$ 1,690 $ 1,606 $ 1,574 $ 1,436 Current quarter vs prior quarter 3
% 5 % 2 % 10 % 2 % Current quarter vs prior year quarter 21 % 20 %
20 % 21 % 26 % Percent of total 54 % 54 % 54 % 53 % 54 %
International net revenues 1,496 1,446 1,369 1,407 1,231
Current quarter vs prior quarter 3 % 6 % (3 )% 14 % (1 )% Current
quarter vs prior year quarter 22 % 16 % 14 % 12 % 10 % (FXN)
Current quarter vs prior year quarter 22 % 20 % 18 % 17 % 16 %
Percent of total 46 % 46 % 46 % 47 % 46 %
Total net
revenues $ 3,239 $ 3,136 $ 2,975 $ 2,981 $ 2,667 Current
quarter vs prior quarter 3 % 5 % — % 12 % 1 % Current quarter vs
prior year quarter 21 % 18 % 17 % 17 % 18 % (FXN) Current quarter
vs prior year quarter 22 % 20 % 19 % 19 % 21 %
PayPal Holdings, Inc. Unaudited Supplemental Operating
Data Three Months Ended,
September 30,
June 30, March 31,
December 31,
September 30, 2017 2017
2017 2016 2016 (In millions, except
percentages) Active customer accounts(1) 218 210
203 197 192 Current quarter vs prior quarter 4 % 3 % 3 % 3 % 2 %
Current quarter vs prior year quarter 14 % 12 % 11 % 10 % 11 %
Number of payment transactions(2) 1,900 1,775
1,732 1,755 1,512 Current quarter vs prior quarter 7 % 2 % (1 )% 16
% 4 % Current quarter vs prior year quarter 26 % 23 % 23 % 23 % 24
%
Payment transactions per active account(3)
32.8 32.3 31.7 31.1 30.2 Current quarter vs prior quarter 2 % 2 % 2
% 3 % 3 % Current quarter vs prior year quarter 9 % 10 % 12 % 13 %
13 %
Total Payment Volume(4) $ 114,045 $
106,444 $ 99,327 $ 99,348 $ 87,403 Current quarter vs prior quarter
7 % 7 % — % 14 % 1 % Current quarter vs prior year quarter 30 % 23
% 23 % 22 % 25 % (FXN) Current quarter vs prior year quarter 29 %
26 % 25 % 25 % 28 % Transaction Expense Rate(5) 0.97 % 1.00
% 0.99 % 0.96 % 0.95 % Transaction and Loan Loss Rate(6) 0.32 %
0.29 % 0.30 % 0.31 % 0.31 %
Transaction Margin(7)
54.8 % 56.3 % 56.7 % 57.7 % 58.7 % (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 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, restructuring-related
charges, other certain gains, losses or charges that are not
indicative of the company's core operating results 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. 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 significant
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.
Certain other 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.
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, 2017
2016 (In millions, except percentages) GAAP
operating income $ 423 $ 348 Stock-based compensation expense and
related employer payroll taxes 197 110 Amortization of acquired
intangible assets 26 32 Total non-GAAP operating
income adjustments 223 142 Non-GAAP operating income
$ 646 $ 490 Non-GAAP operating margin 20 % 18 %
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, 2017
2016 (In millions, except percentages)
(unaudited) GAAP income before income taxes $ 451 $ 360 GAAP income
tax expense 71 37 GAAP net income 380 323 Non-GAAP
adjustments to net income: Non-GAAP operating income adjustments
(see table above) 223 142 Other(1) 23 — Tax effect of non-GAAP
adjustments (66 ) (40 ) Non-GAAP net income $ 560 $ 425
Diluted net income per share: GAAP $ 0.31 $ 0.27
Non-GAAP $ 0.46 $ 0.35 Shares used in GAAP diluted share
calculation 1,223 1,214 Shares used in non-GAAP diluted share
calculation 1,223 1,214 GAAP effective tax rate 16 % 10 %
Tax effect of non-GAAP adjustments to net income 1 % 5 % Non-GAAP
effective tax rate 17 % 15 %
(1)
Tax expense related to intra-entity transfer of
intellectual property.
PayPal Holdings, Inc.
Reconciliation of Operating Cash Flow to Free Cash Flow
Three Months Ended September 30,
Nine Months Ended September 30, 2017
2016 2017 2016 (In
millions/unaudited) Net cash provided by operating activities $
1,006 $ 801 $ 2,678 $ 2,235 Less: Purchases of property and
equipment (165 ) (183 ) (487 ) (517 ) Free cash flow $ 841 $
618 $ 2,191 $ 1,718
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171019006420/en/
PayPalInvestor Relations ContactGabrielle RabinovitchVice
President, Investor
Relationsgrabinovitch@paypal.comorMedia
Relations ContactsAmanda Miller, 408-219-0563Director, Corporate
Communicationsamandacmiller@paypal.comorMartha
CassSenior Director, Corporate
Communicationsmcass@paypal.com
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