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Investor Relations

Facebook Reports Third Quarter 2014 Results

October 28, 2014

MENLO PARK, Calif., Oct. 28, 2014 /PRNewswire/ -- Facebook, Inc. (NASDAQ: FB) today reported financial results for the quarter ended September 30, 2014.

"This has been a good quarter with strong results," said Mark Zuckerberg, Facebook founder and CEO. "We continue to focus on serving our community well and continue to invest in connecting the world over the next decade."


Third Quarter 2014 Financial Summary



Three Months Ended

September 30,


Nine Months Ended

September 30,

In millions, except percentages and per share amounts

2014


2013


2014


2013

Revenue

$

3,203


$

2,016


$

8,615


$

5,286

Income from Operations








   GAAP

$

1,397


$

736


$

3,861


$

1,672

   Non-GAAP*

$

1,820


$

1,024


$

4,987


$

2,451

Operating Margin








   GAAP

44%


37%


45%


32%

   Non-GAAP*

57%


51%


58%


46%

Net Income








   GAAP

$

806


$

425


$

2,239


$

977

   Non-GAAP*

$

1,149


$

666


$

3,194


$

1,520

Diluted Earnings per Share (EPS)








   GAAP

$

0.30


$

0.17


$

0.86


$

0.39

   Non-GAAP*

$

0.43


$

0.27


$

1.22


$

0.61


 * Non-GAAP information for the three and nine months ended September 30, 2013 has been updated to exclude amortization of intangible assets to conform to our current period presentation. See the table below titled "Reconciliation of Non-GAAP Results to Nearest GAAP Measures."

Third Quarter 2014 Operational Highlights

  • Daily active users (DAUs) were 864 million on average for September 2014, an increase of 19% year-over-year.
  • Mobile DAUs were 703 million on average for September 2014, an increase of 39% year-over-year.
  • Monthly active users (MAUs) were 1.35 billion as of September 30, 2014, an increase of 14% year-over-year.
  • Mobile MAUs were 1.12 billion as of September 30, 2014, an increase of 29% year-over-year. 

Third Quarter 2014 Financial Highlights

Revenue - Revenue for the third quarter of 2014 totaled $3.20 billion, an increase of 59%, compared with $2.02 billion in the third quarter of 2013. Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased by 58%.

  • Revenue from advertising was $2.96 billion, a 64% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, revenue from advertising would have increased by 63%.
  • Mobile advertising revenue represented approximately 66% of advertising revenue for the third quarter of 2014, up from approximately 49% of advertising revenue in the third quarter of 2013.
  • Payments and other fees revenue was $246 million, a 13% increase from the same quarter last year.

Costs and expenses - GAAP costs and expenses for the third quarter of 2014 were $1.81 billion, an increase of 41% from the third quarter of 2013. Non-GAAP information for 2013 has been updated to exclude amortization of intangible assets to conform to our current period presentation. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP costs and expenses were $1.38 billion in the third quarter of 2014, up 39% compared to $992 million for the third quarter of 2013.

Income from operations - GAAP income from operations for the third quarter of 2014 was $1.40 billion, up 90% compared to $736 million in the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP income from operations for the third quarter of 2014 was $1.82 billion, up 78% compared to $1.02 billion for the third quarter of 2013.

Operating margin - GAAP operating margin was 44% for the third quarter of 2014, compared to 37% in the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP operating margin was 57% for the third quarter of 2014, compared to 51% for the third quarter of 2013.

Provision for income taxes - GAAP income tax expense for the third quarter of 2014 was $530 million, representing a 40% effective tax rate. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, the non-GAAP effective tax rate would have been approximately 35%.

Net income and EPS - GAAP net income for the third quarter of 2014 was $806 million, up 90% compared to $425 million for the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, and income tax adjustments, non-GAAP net income for the third quarter of 2014 was $1.15 billion, up 73% compared to $666 million for the third quarter of 2013. GAAP diluted EPS was $0.30 in the third quarter of 2014, up 76% compared to $0.17 in the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, and income tax adjustments, non-GAAP diluted EPS for the third quarter of 2014 was $0.43, up 59% compared to $0.27 in the third quarter of 2013.

Capital expenditures - Capital expenditures for the third quarter of 2014 were $482 million.

Cash and cash equivalents and marketable securities - Cash and cash equivalents and marketable securities were $14.25 billion at the end of the third quarter of 2014.

Free cash flow - Free cash flow for the third quarter of 2014 was $766 million.

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 release 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 website and 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 11108302.

About Facebook

Founded in 2004, Facebook's mission is to give people the power to share and 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.

Contacts

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

Press:
Vanessa Chan
press@fb.com / newsroom.fb.com

Forward Looking Statements

This press release contains forward-looking statements regarding our future business expectations, 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; our reliance on advertising revenue; our ability to continue to monetize our mobile products; risks associated with new product development and their introduction as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; competition; litigation; privacy and regulatory concerns; risks associated with acquisitions; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed with the SEC on July 24, 2014, 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, 2014. In addition, please note that the date of this press release is October 28, 2014, 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: revenue excluding foreign exchange effect 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; non-GAAP effective tax rate; 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 particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically amortization of intangible assets, share-based compensation expense, and payroll tax related to share-based compensation expense, and the related income tax effects of the aforementioned exclusions, 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:

Amortization of intangible assets. We amortize intangible assets acquired in connection with acquisitions. We exclude these amortization expenses because we do not believe these expenses are reflective of ongoing operating results in the period. These amounts arise from our prior acquisitions and have no direct correlation to the operation of our business.

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 718, we believe that providing non-GAAP financial measures that exclude this expense allows investors the ability to make more meaningful comparisons between our operating results and those of other companies. 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. 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 amortization of intangible assets, 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.

Foreign exchange effect on revenue. We translate revenue for the three and nine months ended September 30, 2014 using prior year exchange rates for our settlement currencies, which we believe is a useful metric that facilitates comparison to our historical performance.

Purchases of property and equipment; Property and equipment acquired under capital leases. We subtract both purchases of property and equipment and property and equipment acquired under capital 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 finance such property or equipment with a capital lease. We believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business.

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 INCOME

(In millions, except for per share amounts)

(Unaudited)



Three Months Ended

September 30,


Nine Months Ended

September 30,


2014


2013


2014


2013

Revenue

$

3,203



$

2,016



$

8,615



$

5,286


Costs and expenses:












Cost of revenue

565



507



1,501



1,384


Research and development

608



369



1,555



1,006


Marketing and sales

374



233



1,055



704


General and administrative

259



171



643



520


  Total costs and expenses

1,806



1,280



4,754



3,614


Income from operations

1,397



736



3,861



1,672


Interest and other income/(expense), net

(61)



(10)



(65)



(48)


Income before provision for income taxes

1,336



726



3,796



1,624


Provision for income taxes

530



301



1,557



647


Net income

$

806



$

425



$

2,239



$

977


Less: Net income attributable to participating securities

4



3



10



6


Net income attributable to Class A and Class B common stockholders

$

802



$

422



$

2,229



$

971


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












Basic

$

0.31



$

0.17



$

0.87



$

0.40


Diluted

$

0.30



$

0.17



$

0.86



$

0.39


Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:












Basic

2,587



2,430



2,565



2,408


Diluted

2,644



2,528



2,616



2,504


Share-based compensation expense included in costs and expenses:












Cost of revenue

$

16



$

12



$

44



$

31


Research and development

243



164



643



432


Marketing and sales

53



34



146



91


General and administrative

41



29



108



79


  Total share-based compensation expense

$

353



$

239



$

941



$

633


Payroll tax expenses related to share-based compensation included in costs and expenses:












Cost of revenue

$

1



$



$

3



$

1


Research and development

6



8



27



26


Marketing and sales

1



2



7



7


General and administrative

3



2



7



6


  Total payroll tax expenses related to share-based compensation

$

11



$

12



$

44



$

40


Amortization of intangible assets included in costs and expenses:












Cost of revenue

$

26



$

5



$

42



$

9


Research and development

9



9



25



28


Marketing and sales

1



1



3



3


General and administrative

23



22



71



66


  Total amortization of intangible assets

$

59



$

37



$

141



$

106


 

FACEBOOK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)





September 30,

2014


December 31,

2013

Assets






Current assets:







Cash and cash equivalents

$

8,999



$

3,323



Marketable securities

5,251



8,126



Accounts receivable

1,363



1,109



Prepaid expenses and other current assets

502



512




Total current assets

16,115



13,070


Property and equipment, net

3,703



2,882


Intangible assets, net

1,317



883


Goodwill

2,612



839


Other assets

441



221


Total assets

$

24,188



$

17,895










Liabilities and stockholders' equity






Current liabilities:







Accounts payable

$

120



$

87



Partners payable

208



181



Accrued expenses and other current liabilities

709



555



Deferred revenue and deposits

48



38



Current portion of capital lease obligations

149



239




Total current liabilities

1,234



1,100










Capital lease obligations, less current portion

129



237


Other liabilities

1,587



1,088




Total liabilities

2,950



2,425










Stockholders' equity







Common stock and additional paid-in capital

15,949



12,297



Accumulated other comprehensive (loss) income

(109)



14



Retained earnings

5,398



3,159




Total stockholders' equity

21,238



15,470


Total liabilities and stockholders' equity

$

24,188



$

17,895


 

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Three Months Ended

September 30,


Nine Months Ended

September 30,


2014


2013


2014


2013

Cash flows from operating activities








Net income

$

806


$

425


$

2,239


$

977

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








Depreciation and amortization

289


274


810


737

Lease abandonment

(5)


43


(31)


108

Share-based compensation

353


239


941


633

Deferred income taxes

4


2


(30)


21

Tax benefit from share-based award activity

479


129


1,354


277

Excess tax benefit from share-based award activity

(482)


(130)


(1,365)


(285)

Other

2


19


5


39

Changes in assets and liabilities:








Accounts receivable

(182)


(83)


(264)


(145)

Prepaid expenses and other current assets

(55)


5


(45)


433

Other assets

(176)


9


(158)


(35)

Accounts payable

(57)


(19)


12


(17)

Partners payable

(17)


(1)


(22)


2

Accrued expenses and other current liabilities

123


(114)


198


(105)

Deferred revenue and deposits

(12)


4


3


6

Other liabilities

178


148


227


345

Net cash provided by operating activities

1,248


950


3,874


2,991

Cash flows from investing activities








Purchases of property and equipment

(482)


(284)


(1,314)


(879)

Purchases of marketable securities

(1,733)


(904)


(6,215)


(4,364)

Sales of marketable securities

5,423


1,158


7,391


2,433

Maturities of marketable securities

636


780


1,710


2,954

Acquisitions of businesses, net of cash acquired, and purchases of intangible assets

(735)


(16)


(754)


(237)

Change in restricted cash and deposits

(111)



(113)


4

Other investing activities, net

(1)



(2)


(1)

Net cash provided by (used in) investing activities

2,997


734


703


(90)

Cash flows from financing activities








Taxes paid related to net share settlement of equity awards


(148)


(3)


(706)

Proceeds from exercise of stock options

5


10


7


20

Repayment of long-term debt


(1,500)



(1,500)

Principal payments on capital lease obligations

(49)


(91)


(199)


(291)

Excess tax benefit from share-based award activity

482


130


1,365


285

Net cash provided by (used in) financing activities

438


(1,599)


1,170


(2,192)

Effect of exchange rate changes on cash and cash equivalents

(68)


14


(71)


7

Net increase in cash and cash equivalents

4,615


99


5,676


716

Cash and cash equivalents at beginning of period

4,384


3,001


3,323


2,384

Cash and cash equivalents at end of period

$

8,999


$

3,100


$

8,999


$

3,100

Supplemental cash flow data








Cash paid during the period for:








Interest

$

3


$

7


$

11


$

33

Income taxes

$

46


$

43


$

107


$

61

Cash received during the period for:








Income taxes

$

4


$


$

6


$

419









Non-cash investing and financing activities:








Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions

$

20


$

36


$

38


$

31

Property and equipment acquired under capital leases

$


$


$


$

11

Fair value of shares issued related to acquisitions of businesses

$

1,368


$


$

1,368


$

77

 

Reconciliation of Non-GAAP Results to Nearest GAAP Measures*

(In millions, except percentages and per share amounts)

(Unaudited)



Three Months Ended

September 30,



Nine Months Ended

September 30,


2014


2013



2014


2013

GAAP revenue

$

3,203


$

2,016



$

8,615


$

5,286

Foreign exchange effect on 2014 revenue using 2013 rates

21





42



Revenue excluding foreign exchange effect

$

3,182





$

8,573



GAAP revenue year-over-year change %

59%





63%



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

58%





62%



GAAP advertising revenue

$

2,957


$

1,798



$

7,898


$

4,641

Foreign exchange effect on 2014 advertising revenue using 2013 rates

21





42



Advertising revenue excluding foreign exchange effect

$

2,936





$

7,856



GAAP advertising revenue year-over-year change %

64%





70%



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

63%





69%



GAAP costs and expenses

$

1,806


$

1,280



$

4,754


$

3,614

Share-based compensation expense

(353)


(239)



(941)


(633)

Payroll tax expenses related to share-based compensation

(11)


(12)



(44)


(40)

Amortization of intangible assets

(59)


(37)



(141)


(106)

Non-GAAP costs and expenses

$

1,383


$

992



$

3,628


$

2,835

GAAP income from operations

$

1,397


$

736



$

3,861


$

1,672

Share-based compensation expense

353


239



941


633

Payroll tax expenses related to share-based compensation

11


12



44


40

Amortization of intangible assets

59


37



141


106

Non-GAAP income from operations

$

1,820


$

1,024



$

4,987


$

2,451

GAAP net income

$

806


$

425



$

2,239


$

977

Share-based compensation expense

353


239



941


633

Payroll tax expenses related to share-based compensation

11


12



44


40

Amortization of intangible assets

59


37



141


106

Income tax adjustments

(80)


(47)



(171)


(236)

Non-GAAP net income

$

1,149


$

666



$

3,194


$

1,520

GAAP and Non-GAAP diluted shares

2,644


2,528



2,616


2,504

GAAP diluted earnings per share

$

0.30


$

0.17



$

0.86


$

0.39

Net income attributable to participating securities




(0.01)


Non-GAAP adjustments to net income

0.13


0.10



0.37


0.22

Non-GAAP diluted earnings per share

$

0.43


$

0.27



$

1.22


$

0.61

GAAP operating margin

44%


37%



45%


32%

Share-based compensation expense

11%


12%



11%


12%

Payroll tax expenses related to share-based compensation

—%


1%



1%


1%

Amortization of intangible assets

2%


2%



2%


2%

Non-GAAP operating margin

57%


51%



58%


46%

GAAP income before provision for income taxes

$

1,336


$

726



$

3,796


$

1,624

GAAP provision for income taxes

530


301



1,557


647

GAAP effective tax rate

40%


41%



41%


40%

GAAP income before provision for income taxes

$

1,336


$

726



$

3,796


$

1,624

Share-based compensation and related payroll tax expenses

364


251



985


673

Amortization of intangible assets

59


37



141


106

Non-GAAP income before provision for income taxes

$

1,759


$

1,014



$

4,922


$

2,403

Non-GAAP provision for income taxes

610


348



1,728


883

Non-GAAP effective tax rate

35%


34%



35%


37%

Net cash provided by operating activities

$

1,248


$

950



$

3,874


$

2,991

Purchases of property and equipment

(482)


(284)



(1,314)


(879)

Property and equipment acquired under capital leases





(11)

Free cash flow

$

766


$

666



$

2,560


$

2,101


* Non-GAAP information for the three and nine months ended September 30, 2013 has been updated to exclude amortization of intangible assets to conform to our current period presentation.

SOURCE Facebook, Inc.

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