Facebook Reports Second Quarter 2019 Results

Published

MENLO PARK, Calif., July 24, 2019 /PRNewswire/ -- Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended June 30, 2019.

"We had a strong quarter and our business and community continue to grow," said Mark Zuckerberg, Facebook founder and CEO. "We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services."

Second Quarter 2019 Financial Highlights

Three Months Ended June 30, Year-over-Year %
In millions, except percentages and per share amounts 2019* 2018 Change
Revenue:
   Advertising $ 16,624 $ 13,038 28 %
   Payments and other fees 262 193 36 %
Total revenue 16,886 13,231 28 %
Total costs and expenses 12,260 7,368 66 %
Income from operations $ 4,626 $ 5,863 (21) %
Operating margin 27 % 44 %
Provision for income taxes $ 2,216
Effective tax rate 46 %
Net income $ 2,616 $ 5,106 (49) %
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) %

Three Months Ended June 30, Year-over-Year %
In millions, except percentages and per share amounts 2019* 2018 Change *Includes an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding these expenses, our operating margin would have been 12 percentage points higher, our effective tax rate would have been 30 percentage points lower and our diluted EPS would have been $1.08 higher.
Revenue:
   Advertising $ 16,624 $ 13,038 28 %
   Payments and other fees 262 193 36 %
Total revenue 16,886 13,231 28 %
Total costs and expenses 12,260 7,368 66 %
Income from operations $ 4,626 $ 5,863 (21) %
Operating margin 27 % 44 %
Provision for income taxes $ 2,216
Effective tax rate 46 %
Net income $ 2,616 $ 5,106 (49) %
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) %

Second Quarter 2019 Operational and Other Financial Highlights

  • Daily active users (DAUs) – DAUs were 1.59 billion on average for June 2019, an increase of 8% year-over-year.
  • Monthly active users (MAUs) – MAUs were 2.41 billion as of June 30, 2019, an increase of 8% year-over-year.
  • Mobile advertising revenue – Mobile advertising revenue represented approximately 94% of advertising revenue for the second quarter of 2019, up from approximately 91% of advertising revenue in the second quarter of 2018.
  • Capital expenditures – Capital expenditures, including principal payments on finance leases, were $3.78 billion for the second quarter of 2019.
  • Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $48.60 billion at the end of the second quarter of 2019.
  • Headcount – Headcount was 39,651 as of June 30, 2019, an increase of 31% year-over-year.

In addition, we estimate that more than 2.1 billion people now use Facebook, Instagram, WhatsApp, or Messenger (our "Family" of services) every day on average, and more than 2.7 billion people use at least one of our Family of services each month.

In July 2019, we entered into a settlement and modified consent order to resolve the inquiry of the FTC into our platform and user data practices. Among other matters, our settlement with the FTC requires us to pay a penalty of $5.0 billion and to significantly enhance our practices and processes for privacy compliance and oversight. In particular, we have agreed to implement a comprehensive expansion of our privacy program, including substantial management and board of directors oversight, stringent operational requirements and reporting obligations, and a process to regularly certify our compliance with the privacy program to the FTC. In the second quarter of 2019, we recorded an additional $2.0 billion accrual in connection with our settlement with the FTC, which is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet.

On June 7, 2019, a three-judge panel from the Ninth Circuit Court of Appeals issued an opinion in Altera Corp. v. Commissioner which reversed a United States Tax Court decision regarding the treatment of share-based compensation expense in a cost sharing arrangement and resulted in a cumulative income tax expense of $1.11 billion recorded in the second quarter of 2019.

Other Matters

The online technology industry and our company have received increased regulatory scrutiny in the past quarter. In June 2019, we were informed by the FTC that it had opened an antitrust investigation of our company. In addition, in July 2019, the Department of Justice announced that it will begin an antitrust review of market-leading online platforms.

Webcast and Conference Call Information

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

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (404) 537-3406 or +1 (855) 859-2056, conference ID 1484548.

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

About Facebook

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

Contacts

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

Press:Vanessa Chanpress@fb.com / newsroom.fb.com

Forward Looking Statements

This press release contains forward-looking statements regarding our future business expectations. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on mobile operating systems, networks, and standards that we do not control; risks associated with new products and changes to existing products as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; maintaining and enhancing our brand and reputation; our ongoing safety, security, and content review efforts; competition; risks associated with government actions that could restrict access to our products or impair our ability to sell advertising in certain countries; litigation and government inquiries; privacy and regulatory concerns; risks associated with acquisitions; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed with the SEC on April 25, 2019, which is available on our Investor Relations website at investor.fb.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. In addition, please note that the date of this press release is July 24, 2019, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Non-GAAP Financial Measures

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

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

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

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

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

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

Three Months Ended June 30, Year-over-Year % FACEBOOK, INC.
In millions, except percentages and per share amounts 2019* 2018 Change *Includes an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding these expenses, our operating margin would have been 12 percentage points higher, our effective tax rate would have been 30 percentage points lower and our diluted EPS would have been $1.08 higher. CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Revenue: (In millions, except for per share amounts)
   Advertising $ 16,624 $ 13,038 28 % (Unaudited)
   Payments and other fees 262 193 36 % Three Months EndedJune 30, Six Months EndedJune 30,
Total revenue 16,886 13,231 28 % 2019* 2018 2019* 2018
Total costs and expenses 12,260 7,368 66 % Revenue $ 16,886 $ 13,231 $ 31,963 $ 25,197
Income from operations $ 4,626 $ 5,863 (21) % Costs and expenses:
Operating margin 27 % 44 % Cost of revenue 3,307 2,214 6,123 4,141
Provision for income taxes $ 2,216 Research and development 3,315 2,523 6,175 4,761
Effective tax rate 46 % Marketing and sales 2,414 1,855 4,434 3,450
Net income $ 2,616 $ 5,106 (49) % General and administrative 3,224 776 7,288 1,532
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) % Total costs and expenses 12,260 7,368 24,020 13,884
Income from operations 4,626 5,863 7,943 11,313
Interest and other income, net 206 5 371 165
Income before provision for income taxes 4,832 5,868 8,314 11,478
Provision for income taxes 2,216 762 3,269 1,385
Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093
Less: Net income attributable to participating securities 1
Net income attributable to Class A and Class B common stockholders $ 2,616 $ 5,106 $ 5,045 $ 10,092
Earnings per share attributable to Class A and Class B common stockholders:
Basic $ 0.92 $ 1.76 $ 1.77 $ 3.48
Diluted $ 0.91 $ 1.74 $ 1.76 $ 3.43
Weighted average shares used to compute earnings per share attributable to Class A and
Class B common stockholders:
Basic 2,855 2,895 2,855 2,900
Diluted 2,875 2,930 2,873 2,939
Share-based compensation expense included in costs and expenses:
Cost of revenue $ 109 $ 74 $ 196 $ 130
Research and development 927 881 1,650 1,599
Marketing and sales 160 139 273 248
General and administrative 107 92 194 164
Total share-based compensation expense $ 1,303 $ 1,186 $ 2,313 $ 2,141

Three Months Ended June 30, Year-over-Year % FACEBOOK, INC.
In millions, except percentages and per share amounts 2019* 2018 Change *Includes an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding these expenses, our operating margin would have been 12 percentage points higher, our effective tax rate would have been 30 percentage points lower and our diluted EPS would have been $1.08 higher. CONDENSED CONSOLIDATED STATEMENTS OF INCOME *Includes $2.0 billion and $5.0 billion of legal expenses accrued within general and administrative expense related to the FTC settlement in the second quarter and the first six months of 2019, respectively, and $1.1 billion of cumulative income tax expense related to the Altera matter.
Revenue: (In millions, except for per share amounts)
   Advertising $ 16,624 $ 13,038 28 % (Unaudited)
   Payments and other fees 262 193 36 % Three Months EndedJune 30, Six Months EndedJune 30,
Total revenue 16,886 13,231 28 % 2019* 2018 2019* 2018
Total costs and expenses 12,260 7,368 66 % Revenue $ 16,886 $ 13,231 $ 31,963 $ 25,197
Income from operations $ 4,626 $ 5,863 (21) % Costs and expenses:
Operating margin 27 % 44 % Cost of revenue 3,307 2,214 6,123 4,141
Provision for income taxes $ 2,216 Research and development 3,315 2,523 6,175 4,761
Effective tax rate 46 % Marketing and sales 2,414 1,855 4,434 3,450
Net income $ 2,616 $ 5,106 (49) % General and administrative 3,224 776 7,288 1,532
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) % Total costs and expenses 12,260 7,368 24,020 13,884
Income from operations 4,626 5,863 7,943 11,313
Interest and other income, net 206 5 371 165
Income before provision for income taxes 4,832 5,868 8,314 11,478
Provision for income taxes 2,216 762 3,269 1,385
Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093
Less: Net income attributable to participating securities 1
Net income attributable to Class A and Class B common stockholders $ 2,616 $ 5,106 $ 5,045 $ 10,092
Earnings per share attributable to Class A and Class B common stockholders:
Basic $ 0.92 $ 1.76 $ 1.77 $ 3.48
Diluted $ 0.91 $ 1.74 $ 1.76 $ 3.43
Weighted average shares used to compute earnings per share attributable to Class A and
Class B common stockholders:
Basic 2,855 2,895 2,855 2,900
Diluted 2,875 2,930 2,873 2,939
Share-based compensation expense included in costs and expenses:
Cost of revenue $ 109 $ 74 $ 196 $ 130
Research and development 927 881 1,650 1,599
Marketing and sales 160 139 273 248
General and administrative 107 92 194 164
Total share-based compensation expense $ 1,303 $ 1,186 $ 2,313 $ 2,141

 

Three Months Ended June 30, Year-over-Year % FACEBOOK, INC. FACEBOOK, INC.
In millions, except percentages and per share amounts 2019* 2018 Change *Includes an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding these expenses, our operating margin would have been 12 percentage points higher, our effective tax rate would have been 30 percentage points lower and our diluted EPS would have been $1.08 higher. CONDENSED CONSOLIDATED STATEMENTS OF INCOME *Includes $2.0 billion and $5.0 billion of legal expenses accrued within general and administrative expense related to the FTC settlement in the second quarter and the first six months of 2019, respectively, and $1.1 billion of cumulative income tax expense related to the Altera matter. CONDENSED CONSOLIDATED BALANCE SHEETS
Revenue: (In millions, except for per share amounts) (In millions)
   Advertising $ 16,624 $ 13,038 28 % (Unaudited) (Unaudited)
   Payments and other fees 262 193 36 % Three Months EndedJune 30, Six Months EndedJune 30, June 30, 2019 December 31, 2018
Total revenue 16,886 13,231 28 % 2019* 2018 2019* 2018 Assets
Total costs and expenses 12,260 7,368 66 % Revenue $ 16,886 $ 13,231 $ 31,963 $ 25,197 Current assets:
Income from operations $ 4,626 $ 5,863 (21) % Costs and expenses: Cash and cash equivalents $ 13,877 $ 10,019
Operating margin 27 % 44 % Cost of revenue 3,307 2,214 6,123 4,141 Marketable securities 34,719 31,095
Provision for income taxes $ 2,216 Research and development 3,315 2,523 6,175 4,761 Accounts receivable, net of allowances of $295 and $229 as of June 30, 2019 and
Effective tax rate 46 % Marketing and sales 2,414 1,855 4,434 3,450 December 31, 2018, respectively 7,513 7,587
Net income $ 2,616 $ 5,106 (49) % General and administrative 3,224 776 7,288 1,532 Prepaid expenses and other current assets 1,852 1,779
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) % Total costs and expenses 12,260 7,368 24,020 13,884 Total current assets 57,961 50,480
Income from operations 4,626 5,863 7,943 11,313 Property and equipment, net 29,999 24,683
Interest and other income, net 206 5 371 165 Operating lease right-of-use assets, net 7,272
Income before provision for income taxes 4,832 5,868 8,314 11,478 Intangible assets, net 994 1,294
Provision for income taxes 2,216 762 3,269 1,385 Goodwill 18,334 18,301
Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093 Other assets 2,446 2,576
Less: Net income attributable to participating securities 1 Total assets $ 117,006 $ 97,334
Net income attributable to Class A and Class B common stockholders $ 2,616 $ 5,106 $ 5,045 $ 10,092
Earnings per share attributable to Class A and Class B common stockholders: Liabilities and stockholders' equity
Basic $ 0.92 $ 1.76 $ 1.77 $ 3.48 Current liabilities:
Diluted $ 0.91 $ 1.74 $ 1.76 $ 3.43 Accounts payable $ 655 $ 820
Weighted average shares used to compute earnings per share attributable to Class A and Partners payable 560 541
Class B common stockholders: Operating lease liabilities, current 688
Basic 2,855 2,895 2,855 2,900 Accrued expenses and other current liabilities 10,878 5,509
Diluted 2,875 2,930 2,873 2,939 Deferred revenue and deposits 198 147
Share-based compensation expense included in costs and expenses: Total current liabilities 12,979 7,017
Cost of revenue $ 109 $ 74 $ 196 $ 130 Operating lease liabilities, non-current 7,122
Research and development 927 881 1,650 1,599 Other liabilities 8,143 6,190
Marketing and sales 160 139 273 248 Total liabilities 28,244 13,207
General and administrative 107 92 194 164 Commitments and contingencies
Total share-based compensation expense $ 1,303 $ 1,186 $ 2,313 $ 2,141 Stockholders' equity:
Common stock and additional paid-in capital 44,277 42,906
Accumulated other comprehensive loss (483) (760)
Retained earnings 44,968 41,981
Total stockholders' equity 88,762 84,127
Total liabilities and stockholders' equity $ 117,006 $ 97,334

 

Three Months Ended June 30, Year-over-Year % FACEBOOK, INC. FACEBOOK, INC. FACEBOOK, INC.
In millions, except percentages and per share amounts 2019* 2018 Change *Includes an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding these expenses, our operating margin would have been 12 percentage points higher, our effective tax rate would have been 30 percentage points lower and our diluted EPS would have been $1.08 higher. CONDENSED CONSOLIDATED STATEMENTS OF INCOME *Includes $2.0 billion and $5.0 billion of legal expenses accrued within general and administrative expense related to the FTC settlement in the second quarter and the first six months of 2019, respectively, and $1.1 billion of cumulative income tax expense related to the Altera matter. CONDENSED CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Revenue: (In millions, except for per share amounts) (In millions) (In millions)
   Advertising $ 16,624 $ 13,038 28 % (Unaudited) (Unaudited) (Unaudited)
   Payments and other fees 262 193 36 % Three Months EndedJune 30, Six Months EndedJune 30, June 30, 2019 December 31, 2018 Three Months EndedJune 30, Six Months EndedJune 30,
Total revenue 16,886 13,231 28 % 2019* 2018 2019* 2018 Assets 2019 2018 2019 2018
Total costs and expenses 12,260 7,368 66 % Revenue $ 16,886 $ 13,231 $ 31,963 $ 25,197 Current assets: Cash flows from operating activities
Income from operations $ 4,626 $ 5,863 (21) % Costs and expenses: Cash and cash equivalents $ 13,877 $ 10,019 Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093
Operating margin 27 % 44 % Cost of revenue 3,307 2,214 6,123 4,141 Marketable securities 34,719 31,095 Adjustments to reconcile net income to net cash provided by operating activities:
Provision for income taxes $ 2,216 Research and development 3,315 2,523 6,175 4,761 Accounts receivable, net of allowances of $295 and $229 as of June 30, 2019 and    Depreciation and amortization 1,502 1,034 2,857 1,983
Effective tax rate 46 % Marketing and sales 2,414 1,855 4,434 3,450 December 31, 2018, respectively 7,513 7,587    Share-based compensation 1,303 1,186 2,313 2,141
Net income $ 2,616 $ 5,106 (49) % General and administrative 3,224 776 7,288 1,532 Prepaid expenses and other current assets 1,852 1,779    Deferred income taxes 1 101 184 54
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) % Total costs and expenses 12,260 7,368 24,020 13,884 Total current assets 57,961 50,480    Other 9 10 14 18
Income from operations 4,626 5,863 7,943 11,313 Property and equipment, net 29,999 24,683 Changes in assets and liabilities:
Interest and other income, net 206 5 371 165 Operating lease right-of-use assets, net 7,272    Accounts receivable (1,006) (627) 64 161
Income before provision for income taxes 4,832 5,868 8,314 11,478 Intangible assets, net 994 1,294    Prepaid expenses and other current assets (252) (535) (168) (898)
Provision for income taxes 2,216 762 3,269 1,385 Goodwill 18,334 18,301    Other assets 24 (77) 65 (59)
Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093 Other assets 2,446 2,576    Operating lease right-of-use assets, net (521) (1,711)
Less: Net income attributable to participating securities 1 Total assets $ 117,006 $ 97,334    Accounts payable 8 49 (87) 50
Net income attributable to Class A and Class B common stockholders $ 2,616 $ 5,106 $ 5,045 $ 10,092    Partners payable 20 51 20 53
Earnings per share attributable to Class A and Class B common stockholders: Liabilities and stockholders' equity    Accrued expenses and other current liabilities 2,827 (17) 5,982 690
Basic $ 0.92 $ 1.76 $ 1.77 $ 3.48 Current liabilities:    Deferred revenue and deposits 55 51 (4)
Diluted $ 0.91 $ 1.74 $ 1.76 $ 3.43 Accounts payable $ 655 $ 820    Operating lease liabilities, non-current 556 1,638
Weighted average shares used to compute earnings per share attributable to Class A and Partners payable 560 541    Other liabilities 1,473 18 1,657 (124)
Class B common stockholders: Operating lease liabilities, current 688 Net cash provided by operating activities 8,615 6,299 17,924 14,158
Basic 2,855 2,895 2,855 2,900 Accrued expenses and other current liabilities 10,878 5,509 Cash flows from investing activities
Diluted 2,875 2,930 2,873 2,939 Deferred revenue and deposits 198 147 Purchases of property and equipment, net (3,633) (3,459) (7,470) (6,272)
Share-based compensation expense included in costs and expenses: Total current liabilities 12,979 7,017 Purchases of marketable securities (5,152) (4,261) (11,755) (8,283)
Cost of revenue $ 109 $ 74 $ 196 $ 130 Operating lease liabilities, non-current 7,122 Sales of marketable securities 2,944 4,282 4,456 8,612
Research and development 927 881 1,650 1,599 Other liabilities 8,143 6,190 Maturities of marketable securities 1,895 1,071 4,105 2,338
Marketing and sales 160 139 273 248 Total liabilities 28,244 13,207 Other investing activities, net (64) (16) (114) (66)
General and administrative 107 92 194 164 Commitments and contingencies Net cash used in investing activities (4,010) (2,383) (10,778) (3,671)
Total share-based compensation expense $ 1,303 $ 1,186 $ 2,313 $ 2,141 Stockholders' equity: Cash flows from financing activities
Common stock and additional paid-in capital 44,277 42,906 Taxes paid related to net share settlement of equity awards (606) (927) (1,119) (1,758)
Accumulated other comprehensive loss (483) (760) Repurchases of Class A common stock (1,144) (3,349) (1,758) (5,123)
Retained earnings 44,968 41,981 Principal payments on finance leases (142) (267)
Total stockholders' equity 88,762 84,127 Net change in overdraft in cash pooling entities 58 (119)
Total liabilities and stockholders' equity $ 117,006 $ 97,334 Other financing activities, net 4 4 9 7
Net cash used in financing activities (1,830) (4,272) (3,254) (6,874)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 26 (186) (18) (149)
Net increase (decrease) in cash, cash equivalents, and restricted cash 2,801 (542) 3,874 3,464
Cash, cash equivalents, and restricted cash at beginning of the period 11,197 12,210 10,124 8,204
Cash, cash equivalents, and restricted cash at end of the period $ 13,998 $ 11,668 $ 13,998 $ 11,668
Reconciliation of cash, cash equivalents, and restricted cash to the condensed
consolidated balance sheets
Cash and cash equivalents $ 13,877 $ 11,552 $ 13,877 $ 11,552
Restricted cash, included in prepaid expenses and other current assets 9 11 9 11
Restricted cash, included in other assets 112 105 112 105
Total cash, cash equivalents, and restricted cash $ 13,998 $ 11,668 $ 13,998 $ 11,668

 

Three Months Ended June 30, Year-over-Year % FACEBOOK, INC. FACEBOOK, INC. FACEBOOK, INC. FACEBOOK, INC.
In millions, except percentages and per share amounts 2019* 2018 Change *Includes an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding these expenses, our operating margin would have been 12 percentage points higher, our effective tax rate would have been 30 percentage points lower and our diluted EPS would have been $1.08 higher. CONDENSED CONSOLIDATED STATEMENTS OF INCOME *Includes $2.0 billion and $5.0 billion of legal expenses accrued within general and administrative expense related to the FTC settlement in the second quarter and the first six months of 2019, respectively, and $1.1 billion of cumulative income tax expense related to the Altera matter. CONDENSED CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Revenue: (In millions, except for per share amounts) (In millions) (In millions) (In millions)
   Advertising $ 16,624 $ 13,038 28 % (Unaudited) (Unaudited) (Unaudited) (Unaudited)
   Payments and other fees 262 193 36 % Three Months EndedJune 30, Six Months EndedJune 30, June 30, 2019 December 31, 2018 Three Months EndedJune 30, Six Months EndedJune 30, Three Months EndedJune 30, Six Months EndedJune 30,
Total revenue 16,886 13,231 28 % 2019* 2018 2019* 2018 Assets 2019 2018 2019 2018 2019 2018 2019 2018
Total costs and expenses 12,260 7,368 66 % Revenue $ 16,886 $ 13,231 $ 31,963 $ 25,197 Current assets: Cash flows from operating activities Supplemental cash flow data
Income from operations $ 4,626 $ 5,863 (21) % Costs and expenses: Cash and cash equivalents $ 13,877 $ 10,019 Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093 Cash paid during the period for:
Operating margin 27 % 44 % Cost of revenue 3,307 2,214 6,123 4,141 Marketable securities 34,719 31,095 Adjustments to reconcile net income to net cash provided by operating activities: Interest $ 3 $ $ 6 $
Provision for income taxes $ 2,216 Research and development 3,315 2,523 6,175 4,761 Accounts receivable, net of allowances of $295 and $229 as of June 30, 2019 and    Depreciation and amortization 1,502 1,034 2,857 1,983 Income taxes, net $ 1,014 $ 1,545 $ 1,696 $ 2,281
Effective tax rate 46 % Marketing and sales 2,414 1,855 4,434 3,450 December 31, 2018, respectively 7,513 7,587    Share-based compensation 1,303 1,186 2,313 2,141 Non-cash investing activities:
Net income $ 2,616 $ 5,106 (49) % General and administrative 3,224 776 7,288 1,532 Prepaid expenses and other current assets 1,852 1,779    Deferred income taxes 1 101 184 54 Net change in prepaids and liabilities related to property and equipment $ 111 $ (198) $ (203) $ 231
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) % Total costs and expenses 12,260 7,368 24,020 13,884 Total current assets 57,961 50,480    Other 9 10 14 18 Property and equipment in accounts payable and accrued liabilities $ 1,667 $ 1,146 $ 1,667 $ 1,146
Income from operations 4,626 5,863 7,943 11,313 Property and equipment, net 29,999 24,683 Changes in assets and liabilities:
Interest and other income, net 206 5 371 165 Operating lease right-of-use assets, net 7,272    Accounts receivable (1,006) (627) 64 161
Income before provision for income taxes 4,832 5,868 8,314 11,478 Intangible assets, net 994 1,294    Prepaid expenses and other current assets (252) (535) (168) (898)
Provision for income taxes 2,216 762 3,269 1,385 Goodwill 18,334 18,301    Other assets 24 (77) 65 (59)
Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093 Other assets 2,446 2,576    Operating lease right-of-use assets, net (521) (1,711)
Less: Net income attributable to participating securities 1 Total assets $ 117,006 $ 97,334    Accounts payable 8 49 (87) 50
Net income attributable to Class A and Class B common stockholders $ 2,616 $ 5,106 $ 5,045 $ 10,092    Partners payable 20 51 20 53
Earnings per share attributable to Class A and Class B common stockholders: Liabilities and stockholders' equity    Accrued expenses and other current liabilities 2,827 (17) 5,982 690
Basic $ 0.92 $ 1.76 $ 1.77 $ 3.48 Current liabilities:    Deferred revenue and deposits 55 51 (4)
Diluted $ 0.91 $ 1.74 $ 1.76 $ 3.43 Accounts payable $ 655 $ 820    Operating lease liabilities, non-current 556 1,638
Weighted average shares used to compute earnings per share attributable to Class A and Partners payable 560 541    Other liabilities 1,473 18 1,657 (124)
Class B common stockholders: Operating lease liabilities, current 688 Net cash provided by operating activities 8,615 6,299 17,924 14,158
Basic 2,855 2,895 2,855 2,900 Accrued expenses and other current liabilities 10,878 5,509 Cash flows from investing activities
Diluted 2,875 2,930 2,873 2,939 Deferred revenue and deposits 198 147 Purchases of property and equipment, net (3,633) (3,459) (7,470) (6,272)
Share-based compensation expense included in costs and expenses: Total current liabilities 12,979 7,017 Purchases of marketable securities (5,152) (4,261) (11,755) (8,283)
Cost of revenue $ 109 $ 74 $ 196 $ 130 Operating lease liabilities, non-current 7,122 Sales of marketable securities 2,944 4,282 4,456 8,612
Research and development 927 881 1,650 1,599 Other liabilities 8,143 6,190 Maturities of marketable securities 1,895 1,071 4,105 2,338
Marketing and sales 160 139 273 248 Total liabilities 28,244 13,207 Other investing activities, net (64) (16) (114) (66)
General and administrative 107 92 194 164 Commitments and contingencies Net cash used in investing activities (4,010) (2,383) (10,778) (3,671)
Total share-based compensation expense $ 1,303 $ 1,186 $ 2,313 $ 2,141 Stockholders' equity: Cash flows from financing activities
Common stock and additional paid-in capital 44,277 42,906 Taxes paid related to net share settlement of equity awards (606) (927) (1,119) (1,758)
Accumulated other comprehensive loss (483) (760) Repurchases of Class A common stock (1,144) (3,349) (1,758) (5,123)
Retained earnings 44,968 41,981 Principal payments on finance leases (142) (267)
Total stockholders' equity 88,762 84,127 Net change in overdraft in cash pooling entities 58 (119)
Total liabilities and stockholders' equity $ 117,006 $ 97,334 Other financing activities, net 4 4 9 7
Net cash used in financing activities (1,830) (4,272) (3,254) (6,874)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 26 (186) (18) (149)
Net increase (decrease) in cash, cash equivalents, and restricted cash 2,801 (542) 3,874 3,464
Cash, cash equivalents, and restricted cash at beginning of the period 11,197 12,210 10,124 8,204
Cash, cash equivalents, and restricted cash at end of the period $ 13,998 $ 11,668 $ 13,998 $ 11,668
Reconciliation of cash, cash equivalents, and restricted cash to the condensed
consolidated balance sheets
Cash and cash equivalents $ 13,877 $ 11,552 $ 13,877 $ 11,552
Restricted cash, included in prepaid expenses and other current assets 9 11 9 11
Restricted cash, included in other assets 112 105 112 105
Total cash, cash equivalents, and restricted cash $ 13,998 $ 11,668 $ 13,998 $ 11,668

 

Three Months Ended June 30, Year-over-Year % FACEBOOK, INC. FACEBOOK, INC. FACEBOOK, INC. FACEBOOK, INC. Reconciliation of GAAP to Non-GAAP Results
In millions, except percentages and per share amounts 2019* 2018 Change *Includes an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding these expenses, our operating margin would have been 12 percentage points higher, our effective tax rate would have been 30 percentage points lower and our diluted EPS would have been $1.08 higher. CONDENSED CONSOLIDATED STATEMENTS OF INCOME *Includes $2.0 billion and $5.0 billion of legal expenses accrued within general and administrative expense related to the FTC settlement in the second quarter and the first six months of 2019, respectively, and $1.1 billion of cumulative income tax expense related to the Altera matter. CONDENSED CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions, except percentages)
Revenue: (In millions, except for per share amounts) (In millions) (In millions) (In millions) (Unaudited)
   Advertising $ 16,624 $ 13,038 28 % (Unaudited) (Unaudited) (Unaudited) (Unaudited) Three Months EndedJune 30, Six Months EndedJune 30,
   Payments and other fees 262 193 36 % Three Months EndedJune 30, Six Months EndedJune 30, June 30, 2019 December 31, 2018 Three Months EndedJune 30, Six Months EndedJune 30, Three Months EndedJune 30, Six Months EndedJune 30, 2019 2018 2019 2018
Total revenue 16,886 13,231 28 % 2019* 2018 2019* 2018 Assets 2019 2018 2019 2018 2019 2018 2019 2018 GAAP revenue $ 16,886 $ 13,231 $ 31,963 $ 25,197
Total costs and expenses 12,260 7,368 66 % Revenue $ 16,886 $ 13,231 $ 31,963 $ 25,197 Current assets: Cash flows from operating activities Supplemental cash flow data Foreign exchange effect on 2019 revenue using 2018 rates 574 1,077
Income from operations $ 4,626 $ 5,863 (21) % Costs and expenses: Cash and cash equivalents $ 13,877 $ 10,019 Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093 Cash paid during the period for: Revenue excluding foreign exchange effect $ 17,460 $ 33,040
Operating margin 27 % 44 % Cost of revenue 3,307 2,214 6,123 4,141 Marketable securities 34,719 31,095 Adjustments to reconcile net income to net cash provided by operating activities: Interest $ 3 $ $ 6 $ GAAP revenue year-over-year change % 28 % 27 %
Provision for income taxes $ 2,216 Research and development 3,315 2,523 6,175 4,761 Accounts receivable, net of allowances of $295 and $229 as of June 30, 2019 and    Depreciation and amortization 1,502 1,034 2,857 1,983 Income taxes, net $ 1,014 $ 1,545 $ 1,696 $ 2,281 Revenue excluding foreign exchange effect year-over-year change % 32 % 31 %
Effective tax rate 46 % Marketing and sales 2,414 1,855 4,434 3,450 December 31, 2018, respectively 7,513 7,587    Share-based compensation 1,303 1,186 2,313 2,141 Non-cash investing activities: GAAP advertising revenue $ 16,624 $ 13,038 $ 31,536 $ 24,833
Net income $ 2,616 $ 5,106 (49) % General and administrative 3,224 776 7,288 1,532 Prepaid expenses and other current assets 1,852 1,779    Deferred income taxes 1 101 184 54 Net change in prepaids and liabilities related to property and equipment $ 111 $ (198) $ (203) $ 231 Foreign exchange effect on 2019 advertising revenue using 2018 rates 572 1,075
Diluted earnings per share (EPS) $ 0.91 $ 1.74 (48) % Total costs and expenses 12,260 7,368 24,020 13,884 Total current assets 57,961 50,480    Other 9 10 14 18 Property and equipment in accounts payable and accrued liabilities $ 1,667 $ 1,146 $ 1,667 $ 1,146 Advertising revenue excluding foreign exchange effect $ 17,196 $ 32,611
Income from operations 4,626 5,863 7,943 11,313 Property and equipment, net 29,999 24,683 Changes in assets and liabilities: GAAP advertising revenue year-over-year change % 28 % 27 %
Interest and other income, net 206 5 371 165 Operating lease right-of-use assets, net 7,272    Accounts receivable (1,006) (627) 64 161 Advertising revenue excluding foreign exchange effect year-over-year change % 32 % 31 %
Income before provision for income taxes 4,832 5,868 8,314 11,478 Intangible assets, net 994 1,294    Prepaid expenses and other current assets (252) (535) (168) (898)
Provision for income taxes 2,216 762 3,269 1,385 Goodwill 18,334 18,301    Other assets 24 (77) 65 (59) Net cash provided by operating activities $ 8,615 $ 6,299 $ 17,924 $ 14,158
Net income $ 2,616 $ 5,106 $ 5,045 $ 10,093 Other assets 2,446 2,576    Operating lease right-of-use assets, net (521) (1,711) Purchases of property and equipment, net (3,633) (3,459) (7,470) (6,272)
Less: Net income attributable to participating securities 1 Total assets $ 117,006 $ 97,334    Accounts payable 8 49 (87) 50 Principal payments on finance leases (142) (267)
Net income attributable to Class A and Class B common stockholders $ 2,616 $ 5,106 $ 5,045 $ 10,092    Partners payable 20 51 20 53 Free cash flow $ 4,840 $ 2,840 $ 10,187 $ 7,886
Earnings per share attributable to Class A and Class B common stockholders: Liabilities and stockholders' equity    Accrued expenses and other current liabilities 2,827 (17) 5,982 690
Basic $ 0.92 $ 1.76 $ 1.77 $ 3.48 Current liabilities:    Deferred revenue and deposits 55 51 (4)
Diluted $ 0.91 $ 1.74 $ 1.76 $ 3.43 Accounts payable $ 655 $ 820    Operating lease liabilities, non-current 556 1,638
Weighted average shares used to compute earnings per share attributable to Class A and Partners payable 560 541    Other liabilities 1,473 18 1,657 (124)
Class B common stockholders: Operating lease liabilities, current 688 Net cash provided by operating activities 8,615 6,299 17,924 14,158
Basic 2,855 2,895 2,855 2,900 Accrued expenses and other current liabilities 10,878 5,509 Cash flows from investing activities
Diluted 2,875 2,930 2,873 2,939 Deferred revenue and deposits 198 147 Purchases of property and equipment, net (3,633) (3,459) (7,470) (6,272)
Share-based compensation expense included in costs and expenses: Total current liabilities 12,979 7,017 Purchases of marketable securities (5,152) (4,261) (11,755) (8,283)
Cost of revenue $ 109 $ 74 $ 196 $ 130 Operating lease liabilities, non-current 7,122 Sales of marketable securities 2,944 4,282 4,456 8,612
Research and development 927 881 1,650 1,599 Other liabilities 8,143 6,190 Maturities of marketable securities 1,895 1,071 4,105 2,338
Marketing and sales 160 139 273 248 Total liabilities 28,244 13,207 Other investing activities, net (64) (16) (114) (66)
General and administrative 107 92 194 164 Commitments and contingencies Net cash used in investing activities (4,010) (2,383) (10,778) (3,671)
Total share-based compensation expense $ 1,303 $ 1,186 $ 2,313 $ 2,141 Stockholders' equity: Cash flows from financing activities
Common stock and additional paid-in capital 44,277 42,906 Taxes paid related to net share settlement of equity awards (606) (927) (1,119) (1,758)
Accumulated other comprehensive loss (483) (760) Repurchases of Class A common stock (1,144) (3,349) (1,758) (5,123)
Retained earnings 44,968 41,981 Principal payments on finance leases (142) (267)
Total stockholders' equity 88,762 84,127 Net change in overdraft in cash pooling entities 58 (119)
Total liabilities and stockholders' equity $ 117,006 $ 97,334 Other financing activities, net 4 4 9 7
Net cash used in financing activities (1,830) (4,272) (3,254) (6,874)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 26 (186) (18) (149)
Net increase (decrease) in cash, cash equivalents, and restricted cash 2,801 (542) 3,874 3,464
Cash, cash equivalents, and restricted cash at beginning of the period 11,197 12,210 10,124 8,204
Cash, cash equivalents, and restricted cash at end of the period $ 13,998 $ 11,668 $ 13,998 $ 11,668
Reconciliation of cash, cash equivalents, and restricted cash to the condensed
consolidated balance sheets
Cash and cash equivalents $ 13,877 $ 11,552 $ 13,877 $ 11,552
Restricted cash, included in prepaid expenses and other current assets 9 11 9 11
Restricted cash, included in other assets 112 105 112 105
Total cash, cash equivalents, and restricted cash $ 13,998 $ 11,668 $ 13,998 $ 11,668

 

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