Facebook Reports Second Quarter 2019 Results
 
MENLO PARK, Calif. – July 24, 2019 – 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 % Change
In millions, except percentages and per share amounts
2019*
 
2018
 
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
)%
*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.

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

1



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.

2



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 Crawford
investor@fb.com / investor.fb.com

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

3



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.


4



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except for per share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019*
 
2018
 
2019*
 
2018
Revenue
$
16,886

 
$
13,231

 
$
31,963

 
$
25,197

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
3,307

 
2,214

 
6,123

 
4,141

Research and development
3,315

 
2,523

 
6,175

 
4,761

Marketing and sales
2,414

 
1,855

 
4,434

 
3,450

General and administrative
3,224

 
776

 
7,288

 
1,532

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

*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.



5



FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
13,877

 
$
10,019

 
Marketable securities
34,719

 
31,095

 
Accounts receivable, net of allowances of $295 and $229 as of June 30, 2019 and December 31, 2018, respectively
7,513

 
7,587

 
Prepaid expenses and other current assets
1,852

 
1,779

 
 
Total current assets
57,961

 
50,480

Property and equipment, net
29,999

 
24,683

Operating lease right-of-use assets, net
7,272

 

Intangible assets, net
994

 
1,294

Goodwill
18,334

 
18,301

Other assets
2,446

 
2,576

Total assets
$
117,006

 
$
97,334

 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
655

 
$
820

 
Partners payable
560

 
541

 
Operating lease liabilities, current
688

 

 
Accrued expenses and other current liabilities
10,878

 
5,509

 
Deferred revenue and deposits
198

 
147

 
 
Total current liabilities
12,979

 
7,017

Operating lease liabilities, non-current
7,122

 

Other liabilities
8,143

 
6,190

 
 
Total liabilities
28,244

 
13,207

Commitments and contingencies
 
 
 
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




6



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Cash flows from operating activities
 
 
 
 
 
 
 
Net income
$
2,616

 
$
5,106

 
$
5,045

 
$
10,093

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
   Depreciation and amortization
1,502

 
1,034

 
2,857

 
1,983

   Share-based compensation
1,303

 
1,186

 
2,313

 
2,141

   Deferred income taxes
1

 
101

 
184

 
54

   Other
9

 
10

 
14

 
18

Changes in assets and liabilities:
 
 
 
 
 
 
 
   Accounts receivable
(1,006
)
 
(627
)
 
64

 
161

   Prepaid expenses and other current assets
(252
)
 
(535
)
 
(168
)
 
(898
)
   Other assets
24

 
(77
)
 
65

 
(59
)
   Operating lease right-of-use assets, net
(521
)
 

 
(1,711
)
 

   Accounts payable
8

 
49

 
(87
)
 
50

   Partners payable
20

 
51

 
20

 
53

   Accrued expenses and other current liabilities
2,827

 
(17
)
 
5,982

 
690

   Deferred revenue and deposits
55

 

 
51

 
(4
)
   Operating lease liabilities, non-current
556

 

 
1,638

 

   Other liabilities
1,473

 
18

 
1,657

 
(124
)
Net cash provided by operating activities
8,615

 
6,299

 
17,924

 
14,158

Cash flows from investing activities
 
 
 
 
 
 
 
Purchases of property and equipment, net
(3,633
)
 
(3,459
)
 
(7,470
)
 
(6,272
)
Purchases of marketable securities
(5,152
)
 
(4,261
)
 
(11,755
)
 
(8,283
)
Sales of marketable securities
2,944

 
4,282

 
4,456

 
8,612

Maturities of marketable securities
1,895

 
1,071

 
4,105

 
2,338

Other investing activities, net
(64
)
 
(16
)
 
(114
)
 
(66
)
Net cash used in investing activities
(4,010
)
 
(2,383
)
 
(10,778
)
 
(3,671
)
Cash flows from financing activities
 
 
 
 
 
 
 
Taxes paid related to net share settlement of equity awards
(606
)
 
(927
)
 
(1,119
)
 
(1,758
)
Repurchases of Class A common stock
(1,144
)
 
(3,349
)
 
(1,758
)
 
(5,123
)
Principal payments on finance leases
(142
)
 

 
(267
)
 

Net change in overdraft in cash pooling entities
58

 

 
(119
)
 

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



7



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Supplemental cash flow data
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
Interest
$
3

 
$

 
$
6

 
$

Income taxes, net
$
1,014

 
$
1,545

 
$
1,696

 
$
2,281

Non-cash investing activities:
 
 
 
 
 
 
 
Net change in prepaids and liabilities related to property and equipment
$
111

 
$
(198
)
 
$
(203
)
 
$
231

Property and equipment in accounts payable and accrued liabilities
$
1,667

 
$
1,146

 
$
1,667

 
$
1,146






8



Reconciliation of GAAP to Non-GAAP Results
(In millions, except percentages)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
GAAP revenue
$
16,886

 
$
13,231

 
$
31,963

 
$
25,197

Foreign exchange effect on 2019 revenue using 2018 rates
574

 
 
 
1,077

 
 
Revenue excluding foreign exchange effect
$
17,460

 
 
 
$
33,040

 
 
GAAP revenue year-over-year change %
28
%
 
 
 
27
%
 
 
Revenue excluding foreign exchange effect year-over-year change %
32
%
 
 
 
31
%
 
 
GAAP advertising revenue
$
16,624

 
$
13,038

 
$
31,536

 
$
24,833

Foreign exchange effect on 2019 advertising revenue using 2018 rates
572

 
 
 
1,075

 
 
Advertising revenue excluding foreign exchange effect
$
17,196

 
 
 
$
32,611

 
 
GAAP advertising revenue year-over-year change %
28
%
 
 
 
27
%
 
 
Advertising revenue excluding foreign exchange effect year-over-year change %
32
%
 
 
 
31
%
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
8,615

 
$
6,299

 
$
17,924

 
$
14,158

Purchases of property and equipment, net
(3,633
)
 
(3,459
)
 
(7,470
)
 
(6,272
)
Principal payments on finance leases
(142
)
 

 
(267
)
 

Free cash flow
$
4,840

 
$
2,840

 
$
10,187

 
$
7,886







9

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