Press release from PR Newswire
Facebook Reports Third Quarter 2012 Results
Tuesday, October 23, 2012
Facebook Reports Third Quarter 2012 Results16:05 EDT Tuesday, October 23, 2012MENLO PARK, Calif., Oct. 23, 2012 /PRNewswire/ -- Facebook, Inc. (NASDAQ: FB) today reported financial results for the third quarter, which ended September 30, 2012. "As proud as I am that a billion people use Facebook each month, I'm also really happy that over 600 million people now share and connect on Facebook every month using mobile devices," said Mark Zuckerberg, Facebook founder and CEO. "People who use our mobile products are more engaged, and we believe we can increase engagement even further as we continue to introduce new products and improve our platform. At the same time, we are deeply integrating monetization into our product teams in order to build a stronger, more valuable company."Third Quarter 2012 Financial SummaryIn millions, except percentages and per share amountsQ3'12Q3'11Revenue$ 1,262$ 954Income from Operations GAAP$ 377$ 414 Non-GAAP$ 525$ 484Operating Margin GAAP30%43% Non-GAAP42%51%Net Income (Loss) GAAP $ (59)$ 227 Non-GAAP$ 311$ 273Diluted Earnings (Loss) per Share (EPS) GAAP $ (0.02)$ 0.10 Non-GAAP$ 0.12$ 0.12 Third Quarter 2012 Operational HighlightsMonthly active users (MAUs) were 1.01 billion as of September 30, 2012, an increase of 26% year-over-year Daily active users (DAUs) were 584 million on average for September 2012, an increase of 28% year-over-year Mobile MAUs were 604 million as of September 30, 2012, an increase of 61% year-over-yearRecent Business Highlights ProductCompletely rebuilt Facebook for iOS for faster and more reliable performance Updated Messenger for Android and iOS and made Facebook Camera available in 18 languages Continued to make it easy for mobile developers to build with Facebook New Software Development Kits (SDKs) for iOS and Android Deep integration into iOS 6.0Launched Facebook Gifts, a way to send gifts to celebrate the special moments millions of people share on Facebook each dayAdvertisingLaunched several new advertising products, such as Custom Audiences, Facebook Exchange, Offers, and mobile app install ads Generated 14% of advertising revenue during the third quarter from mobileCorporateConnected 1 billion people since founding the company eight years ago Created Facebook Stories, a new website to share the stories of people using Facebook in extraordinary ways at www.facebookstories.com Closed Instagram acquisition Opened first international engineering office in London Third Quarter 2012 Financial HighlightsRevenue ? Revenue for the third quarter totaled $1.26 billion, an increase of 32%, compared with $954 million in the third quarter of 2011. Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased by 38%.Revenue from advertising was $1.09 billion, representing 86% of total revenue and a 36% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, advertising revenue would have increased by 43%. Payments and other fees revenue for the third quarter was $176 million, a 13% increase over the same quarter in the prior year and a 9% decline sequentially from the second quarter of 2012. Costs and expenses ? Third quarter costs and expenses were $885 million, an increase of 64% from the third quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP costs and expenses were $737 million, an increase of 57%.Income from operations ? For the third quarter, GAAP income from operations was $377 million, compared to income from operations of $414 million for the third quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP income from operations for the third quarter was $525 million, compared to $484 million for the third quarter of 2011.Operating margin ? GAAP operating margin was 30% for the third quarter of 2012, compared to 43% for the third quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP operating margin was 42% for the third quarter of 2012, compared to 51% for the third quarter of 2011.Income tax provision ? The GAAP income tax provision for the third quarter was $431 million, representing a 116% effective tax rate, driven by share-based compensation expense, a portion of which is not tax-deductible. Excluding share-based compensation expense and related payroll tax expenses, the non-GAAP effective tax rate would have been approximately 40%.Net income (loss) ? GAAP income before provision for income taxes was $372 million. After the provision for income taxes, GAAP net loss for the third quarter was $59 million, compared to net income of $227 million for the third quarter of 2011. GAAP EPS for third quarter of 2012 was ($0.02), compared to $0.10 for the same quarter in the prior year. Excluding share-based compensation and related payroll tax expenses and income tax adjustments, non-GAAP net income was $311 million or $0.12 per share, compared to $273 million and $0.12 per share for the same quarter in the prior year.Capital expenditures ? Purchases of property and equipment for the quarter were $171 million. Additionally, $161 million of equipment was procured or financed through capital leases during the third quarter of 2012. Cash and marketable securities ? As of September 30, 2012, cash and marketable securities were $10.5 billion. Webcast and Conference Call InformationFacebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast can be accessed at the Facebook Investor Relations website at investor.fb.com, along with the company's earnings press release, financial tables and slide presentation.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 30503033.About FacebookFounded in 2004, Facebook's mission is to make the world more open and connected. 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.ContactsInvestors: Deborah Crawford+1 (650) email@example.com / investor.fb.comPress: Ashley Zandypress@fb.com / newsroom.fb.comForward Looking Statements This press release contains forward-looking statements regarding our business strategy and plans as well as expectations of future growth and engagement, all of which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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, including mobile engagement and our ability to increase revenues and engagement across a range of geographies; our ability to monetize our mobile products; our ability to expand the Facebook Platform; competition; privacy concerns; 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 for the quarter ended June 30, 2012 filed with the SEC, 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, 2012. In addition, please note that the date of this press release is October 23, 2012, 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 consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: total revenue and advertising revenue excluding foreign exchange effect, non-GAAP costs and expenses, non-GAAP income from operations; non-GAAP net income; non-GAAP diluted shares; non-GAAP diluted earnings per share; non-GAAP operating margin; and non-GAAP effective tax rate. 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 particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically share-based compensation expense and payroll tax related to share-based compensation expense and the related income tax effects, that are recurring and will be reflected in our financial results for the foreseeable future. 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 one or more of our non-GAAP financial measures: Share-based compensation expense. We exclude share-based compensation expense because we believe that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, we believe that providing non-GAAP financial measures that exclude this expense allow investors the ability to make more meaningful comparisons between our operating results and those of other companies. Furthermore, our share-based compensation expense was materially affected in the second quarter of 2012 due to the terms of our RSUs granted prior to 2011, related to which we recognized a cumulative $986 million in share-based compensation expense in the period, despite the fact that these awards were granted and earned over several years. Accordingly, we believe that excluding this expense provides investors and management with greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and may also facilitate comparison with the results of other companies in our industry. Payroll tax expense related to share-based compensation. We exclude payroll tax expense related to share-based compensation expense because, without excluding these tax expenses, investors would not see the full effect that excluding share-based compensation expense had on our operating results. Furthermore, our payroll tax expense was substantially higher due to the terms of our RSUs granted prior to 2011, where, despite the fact that these awards were granted and earned over several years, we recognized $84 million in payroll tax expense in the nine months ended September 30, 2012, with most of this expense being recognized in the second quarter of 2012 and a partially offsetting credit recognized in third quarter of 2012. In addition, these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise, which factors may vary from period to period independent of the operating performance of our business. Similar to share-based compensation expense, we believe that excluding this payroll tax expense provides investors and management with greater visibility to the underlying performance of our business operations and facilitates comparison with other periods as well as the results of other companies.Income tax effect of share-based compensation and related payroll tax expenses. We believe excluding the income tax effect of non-GAAP adjustments assists investors and management in understanding the tax provision related to those adjustments and provides useful supplemental information regarding the underlying performance of our business operations. Assumed preferred stock conversion. As a result of our initial public offering, all outstanding shares of preferred stock were automatically converted into shares of Class B common stock. Consequently, non-GAAP diluted shares and net income per share for periods prior to June 30, 2012 have been calculated assuming this conversion, which we believe facilitates comparison with prior periods.Dilutive securities and other dilutive equity awards excluded from GAAP. In our calculation of non-GAAP weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders for the three and nine months ended September 30, 2012, we give effect to antidilutive RSUs and stock options that are excluded from GAAP weighted average shares due to our reporting of a net loss. We also include unvested RSUs in the nine months ended September 30, 2012 as well as in the three and nine months ended September 30, 2011, the number of which is substantial due to the terms of RSUs granted prior to 2011. We believe including these awards facilitates comparison between periods.Foreign exchange effect on total revenue and advertising revenue. We translate current quarter revenues using prior year exchange rates, which we believe is a useful metric that facilitates comparison to our historical performance.For more information on our non-GAAP financial measures and a reconciliation of such measures to the nearest GAAP measure, please see the "Reconciliation of Non-GAAP Results to Nearest GAAP Measures" table in this press release. FACEBOOK, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In millions, except for per share amounts)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201220112012 Revenue $ 954$ 1,262$ 2,580$ 3,504 Costs and expenses: Cost of revenue236322613967Research and development1082442641,102Marketing and sales114168272703General and administrative82151222717Total costs and expenses5408851,3713,489 Income from operations 4143771,20915 Interest and other income (expense), net Interest expense(10)(11)(26)(35)Other income (expense), net(25)6(7)9 Income (loss) before provision for income taxes 3793721,176(11) Provision for income taxes 152431478- Net income (loss) $ 227$ (59)$ 698$ (11) Less: Net income attributable to participating securities 77-235- Net income (loss) attributable to Class A and Class B common $ 150$ (59)$ 463$ (11) stockholders Earnings (loss) per share attributable to Class A and Class B common stockholders Basic$ 0.11$ (0.02)$ 0.36$ (0.01)Diluted$ 0.10$ (0.02)$ 0.32$ (0.01)Weighted-average shares used to compute earnings (loss)per share attributable to Class A and Class B common stockholdersBasic1,3162,4201,2831,884Diluted1,5202,4201,5071,884 Share-based compensation expense included in costs & expenses Cost of revenue$ 3$ 8$ 679Research and development3311472719Marketing and sales132824279General and administrative212939311Total share-based compensation expense$ 70$ 179$ 141$ 1,388 Payroll tax related to share-based compensation included in costs & expenses Cost of revenue$ -$ (3)$ -$ 3Research and development-(12)236Marketing and sales-(9)116General and administrative-(7)467Total$ -$ (31)$ 7$ 122Share-based compensation expense related to Pre-2011 RSUs included in costs & expenses:Cost of revenue$ -$ 1$ -$ 61Research and development-17-490Marketing and sales-4-212General and administrative-6-251Total$ -$ 28$ -$ 1,014Payroll tax related to Pre-2011 RSUs included in costs & expensesCost of revenue$ -$ (3)$ -$ 3Research and development-(12)-34Marketing and sales-(9)-15General and administrative-(7)-32Total$ -$ (31)$ -$ 84 FACEBOOK, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In millions)(Unaudited)December 31,September 30,20112012AssetsCurrent assetsCash and cash equivalents$ 1,512$ 2,478Marketable securities2,3967,974Accounts receivable547635Income tax refundable-567Prepaid expenses and other current assets149631Total current assets4,60412,285Property and equipment, net1,4752,289Goodwill and intangible assets, net1621,423Other assets9041Total assets$ 6,331$ 16,038Liabilities and stockholders' equityCurrent liabilitiesAccounts payable$ 63$ 59Platform partners payable171155Accrued expenses and other current liabilities296409Deferred revenue and deposits9085Current portion of capital lease obligations279372Total current liabilities8991,080Capital lease obligations, less current portion398530Other liabilities135254Total liabilities1,4321,864Stockholders' equityConvertible preferred stock615-Common stock and additional paid-in capital2,68412,585Accumulated other comprehensive loss(6)(6)Retained earnings1,6061,595Total stockholders' equity4,89914,174Total liabilities and stockholders' equity$ 6,331$ 16,038 FACEBOOK, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201220112012Cash flows from operating activitiesNet income (loss)$ 227$ (59)$ 698$ (11)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization97176220425Loss on write-off of equipment-468Share-based compensation701791411,388Deferred income taxes(15)(60)(29)(434)Tax benefit from share-based award activity50473405854Excess tax benefit from share-based award activity(50)(473)(405)(854)Changes in assets and liabilities:Accounts receivable(44)(50)(72)(90)Income tax refundable---(567)Prepaid expenses and other current assets11331(113)24Other assets(19)9(25)-Accounts payable29283620Platform partners payable53(1)91(16)Accrued expenses and other current liabilities12(27)(9)162Deferred revenue and deposits24-44(5)Other liabilities18205127Net cash provided by operating activities5652501,039931Cash flows from investing activitiesPurchases of property and equipment(136)(171)(421)(1,037)Purchases of marketable securities(850)(1,633)(2,742)(8,590)Sales of marketable securities9544395571Maturities of marketable securities901,307902,413Investments in non-marketable equity securities(1)-(2)(3)Acquisition of businesses, net of cash acquired, and purchases of intangible and other assets(1)(336)(5)(911)Changes in restricted cash and deposits815(2)Net cash used in investing activities(795)(389)(2,980)(7,559)Cash flows from financing activitiesNet proceeds from issuance of common stock-(1)9986,760Proceeds from exercise of stock options3-279Repayment of long-term debt--(250)-Proceeds from sale and lease-back transactions712315205Principal payments on capital lease obligations(46)(88)(128)(231)Excess tax benefit from share-based award activity50473405854Net cash provided by financing activities145071,0677,597Effect of exchange rate changes on cash and cash equivalents (9)12(5)(3)Net increase (decrease) in cash and cash equivalents(225)380(879)966Cash and cash equivalents at beginning of period1,1312,0981,7851,512Cash and cash equivalents at end of period$ 906$ 2,478$ 906$ 2,478Supplemental Cash Flow DataCash paid during the period for:Interest $ 6$ 11$ 19$ 30Income taxes $ 3$ 2$ 179$ 184Non-cash investing and financing activities:Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions$ 6$ (21)$ 62$ (80)Property and equipment acquired under capital leases$ 102$ 161$ 393$ 251Fair value of shares issued related to acquisitions of businesses and other assets$ 2$ 250$ 46$ 275 Reconciliation of Non-GAAP Results to Nearest GAAP Measures(In millions, except for number of shares)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201220112012GAAP revenue$ 954$ 1,262$ 2,580$ 3,504Foreign exchange effect on Q3'12 revenue using Q3'11 rates52Revenue excluding foreign exchange effect$ 1,314GAAP revenue year-over-year change %32%Revenue excluding foreign exchange effect year-over-year change %38%GAAP advertising revenue$ 798$ 1,086$ 2,211$ 2,950Foreign exchange effect on Q3'12 advertising revenue using Q3'11 rates52Advertising revenue excluding foreign exchange effect$ 1,138GAAP advertising revenue year-over-year change %36%Advertising revenue excluding foreign exchange effect year-over-year change %43%GAAP costs and expenses$ 540$ 885$ 1,371$ 3,489Share-based compensation expense(70)(179)(141)(1,388)Payroll tax expenses related to share-based compensation-31(7)(122)Non-GAAP costs and expenses$ 470$ 737$ 1,223$ 1,979GAAP income from operations$ 414$ 377$ 1,209$ 15Share-based compensation expense701791411,388Payroll tax expenses related to share-based compensation-(31)7122Non-GAAP income from operations$ 484$ 525$ 1,357$ 1,525GAAP net income (loss)$ 227$ (59)$ 698$ (11)Share-based compensation expense701791411,388Payroll tax expenses related to share-based compensation-(31)7122Income tax adjustments(24)222(42)(609)Non-GAAP net income$ 273$ 311$ 804$ 890GAAP diluted shares1,5202,4201,5071,884Assumed preferred stock conversion548-548272Dilutive securities excluded due to net loss-159-170Other dilutive equity awards excluded from GAAP1278-259118Non-GAAP diluted shares2,3462,5792,3142,444GAAP diluted earnings (loss) per share$ 0.10$ (0.02)$ 0.32$ (0.01)Net income attributable to participating securities0.05-$ 0.14-Non-GAAP adjustments to net income0.030.15$ 0.070.48Non-GAAP adjustments to diluted shares(0.06)(0.01)$ (0.18)(0.11)Non-GAAP diluted earnings per share$ 0.12$ 0.12$ 0.35$ 0.36GAAP operating margin43%30%47%0%Share-based compensation expense7%14%5%40%Payroll tax expenses related to share-based compensation0%(2%)0%3%Non-GAAP operating margin51%42%53%44%GAAP profit (loss) before tax$ 379$ 372$ 1,176$ (11)GAAP provision for benefit from income taxes152431478-GAAP effective tax rate40%116%41%0%GAAP profit (loss) before tax$ 379$ 372$ 1,176$ (11)Share-based compensation and related payroll tax expenses701481481,510Non-GAAP profit before tax$ 449$ 520$ 1,324$ 1,499Non-GAAP provision for income taxes176209520609Non-GAAP effective tax rate39%40%39%41%1Gives effect to unvested RSUs in periods prior to our IPO for comparability SOURCE Facebook, Inc.