Facebook Reports Third Quarter 2017 Results

Three Months Ended September 30,

Year-over-Year % Change

In millions, except percentages and per share amounts

2017

2016

   Advertising

$

10,142

$

6,816

49

%

   Payments and other fees

186

195

(5)

%

Total revenue

10,328

7,011

47

%

Total costs and expenses(1)

5,206

3,894

34

%

Income from operations(1)

$

5,122

$

3,117

64

%

Operating margin(1)

50

%

44

%

Provision for income taxes

$

529

Effective tax rate

10

%

Net income(1)

$

4,707

$

2,627

79

%

Diluted Earnings per Share (EPS)(1)

$

1.59

$

0.90

77

%

(1)

In the fourth quarter of 2016, we elected to early adopt Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2016-09). We were required to reflect any adoption adjustments as of January 1, 2016, the beginning of the annual period that included the interim period of adoption. As such, certain financial highlights data for the three months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 — Summary of Significant Accounting Policies (Note 1) in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.

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,

2017

2016(1)

2017

2016(1)

Revenue

$

10,328

$

7,011

$

27,681

$

18,829

Costs and expenses:

Cost of revenue

1,448

987

3,843

2,742

Research and development

2,052

1,542

5,805

4,356

Marketing and sales

1,170

926

3,351

2,654

General and administrative

536

439

1,831

1,217

Total costs and expenses

5,206

3,894

14,830

10,969

Income from operations

5,122

3,117

12,851

7,860

Interest and other income, net

114

47

281

125

Income before provision for income taxes

5,236

3,164

13,132

7,985

Provision for income taxes

529

537

1,467

1,337

Net income

$

4,707

$

2,627

$

11,665

$

6,648

Less: Net income attributable to participating securities

3

7

13

20

Net income attributable to Class A and Class B common

stockholders

$

4,704

$

2,620

$

11,652

$

6,628

Earnings per share attributable to Class A and Class B common

stockholders:

Basic

$

1.62

$

0.91

$

4.02

$

2.32

Diluted

$

1.59

$

0.90

$

3.95

$

2.28

Weighted average shares used to compute earnings per share attributable

to Class A and Class B common stockholders:

Basic

2,904

2,871

2,898

2,857

Diluted

2,956

2,931

2,954

2,918

Share-based compensation expense included in costs and expenses:

Cost of revenue

$

47

$

30

$

128

$

81

Research and development

776

636

2,233

1,853

Marketing and sales

114

95

330

272

General and administrative

73

63

218

181

Total share-based compensation expense

$

1,010

$

824

$

2,909

$

2,387

(1)

We elected to early adopt ASU 2016-09 in the fourth quarter of 2016. Our condensed consolidated statements of income for the three and nine months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.

FACEBOOK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

September 30, 2017

December 31, 2016

Assets

Current assets:

Cash and cash equivalents

$

7,201

$

8,903

Marketable securities

31,088

20,546

Accounts receivable, net of allowances for doubtful accounts of $103 and $94 as of September 30,

2017 and December 31, 2016, respectively

4,424

3,993

Prepaid expenses and other current assets

1,490

959

      Total current assets

44,203

34,401

Property and equipment, net

12,158

8,591

Intangible assets, net

2,050

2,535

Goodwill

18,213

18,122

Other assets

2,374

1,312

Total assets

$

78,998

$

64,961

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

383

$

302

Partners payable

314

280

Accrued expenses and other current liabilities

2,503

2,203

Deferred revenue and deposits

105

90

      Total current liabilities

3,305

2,875

Other liabilities

4,485

2,892

      Total liabilities

7,790

5,767

Stockholders' equity:

Common stock and additional paid-in capital

40,199

38,227

Accumulated other comprehensive loss

(200)

(703)

Retained earnings

31,209

21,670

      Total stockholders' equity

71,208

59,194

Total liabilities and stockholders' equity

$

78,998

$

64,961

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016(1)

2017

2016(1)

Cash flows from operating activities

Net income

$

4,707

$

2,627

$

11,665

$

6,648

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization

773

591

2,172

1,728

Share-based compensation

1,010

824

2,909

2,387

Deferred income taxes

(94)

(23)

(152)

(201)

Other

7

4

18

23

Changes in assets and liabilities:

Accounts receivable

(458)

(253)

(235)

(478)

Prepaid expenses and other current assets

(57)

(57)

(634)

(314)

Other assets

47

42

130

46

Accounts payable

31

18

(7)

(21)

Partners payable

32

6

22

20

Accrued expenses and other current liabilities

(62)

228

95

642

Deferred revenue and deposits

16

(2)

12

21

Other liabilities

176

31

550

677

Net cash provided by operating activities

6,128

4,036

16,545

11,178

Cash flows from investing activities

Purchases of property and equipment

(1,755)

(1,095)

(4,470)

(3,222)

Purchases of marketable securities

(6,273)

(7,733)

(20,410)

(17,368)

Sales of marketable securities

3,651

5,633

7,649

9,791

Maturities of marketable securities

730

131

2,228

1,034

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

intangible assets

(98)

(61)

(106)

(81)

Change in restricted cash and deposits

31

8

64

82

Net cash used in investing activities

(3,714)

(3,117)

(15,045)

(9,764)

Cash flows from financing activities

Taxes paid related to net share settlement of equity awards

(866)

(6)

(2,360)

(6)

Principal payments on capital lease and other financing obligations

—

—

—

(312)

Repurchases of Class A common stock

(640)

—

(1,018)

—

Other financing activities, net

(26)

(2)

(14)

4

Net cash used in financing activities

(1,532)

(8)

(3,392)

(314)

Effect of exchange rate changes on cash and cash equivalents

67

19

190

31

Net increase (decrease) in cash and cash equivalents

949

930

(1,702)

1,131

Cash and cash equivalents at beginning of period

6,252

5,108

8,903

4,907

Cash and cash equivalents at end of period

$

7,201

$

6,038

$

7,201

$

6,038

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016(1)

2017

2016(1)

Supplemental cash flow data

Cash paid during the period for:

Interest

$

—

$

—

$

—

$

11

Income taxes, net

$

434

$

357

$

1,793

$

764

Non-cash investing and financing activities:

     Net change in accounts payable, accrued expenses and other current

liabilities, and other liabilities related to property and equipment additions

$

285

$

230

$

441

$

319

Settlement of acquisition-related contingent consideration liability

$

102

$

33

$

102

$

33

Change in unsettled repurchases of Class A common stock

$

$

—

$

20

$

—

(1)

We elected to early adopt ASU 2016-09 in the fourth quarter of 2016. Our condensed consolidated statements of cash flows for the three and nine months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.

Reconciliation of GAAP to Non-GAAP Results

(In millions, except percentages)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

GAAP revenue

$

10,328

$

7,011

$

27,681

$

18,829

   Foreign exchange effect on 2017 revenue using 2016 rates

(128)

36

Revenue excluding foreign exchange effect

$

10,200

$

27,717

GAAP revenue year-over-year change %

47

%

47

%

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

45

%

47

%

GAAP advertising revenue

$

10,142

$

6,816

$

27,163

$

18,256

   Foreign exchange effect on 2017 advertising revenue using 2016 rates

(128)

35

Advertising revenue excluding foreign exchange effect

$

10,014

$

27,198

GAAP advertising revenue year-over-year change %

49

%

49

%

Advertising revenue excluding foreign exchange effect year-over-

year change %

47

%

49

%

Net cash provided by operating activities(1)

$

6,128

$

4,036

$

16,545

$

11,178

   Purchases of property and equipment

(1,755)

(1,095)

(4,470)

(3,222)

Free cash flow(1)

$

4,373

$

2,941

$

12,075

$

7,956

(1)

We elected to early adopt ASU 2016-09 in the fourth quarter of 2016. Net cash provided by operating activities and free cash flow for the three and nine months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.