eBay Inc. Reports Third Quarter 2017 Results
SAN JOSE, Calif., Oct. 18, 2017 /PRNewswire/ -- eBay Inc. (NASDAQ: EBAY), a global commerce leader, delivered gross merchandise volume (GMV) for the quarter ended September 30, 2017 of $21.7 billion, increasing 8% on an as-reported basis and 7% on a foreign exchange (FX) neutral basis. Revenue for the quarter was $2.4 billion, up 9% on an as-reported basis and 8% on an FX-Neutral basis.
During the quarter, eBay delivered GAAP net income from continuing operations of $523 million, or $0.48 per diluted share, and Non-GAAP net income from continuing operations of $514 million, or $0.48 per diluted share. The company generated $877 million of operating cash flow and $720 million of free cash flow from continuing operations while also repurchasing $907 million of its common stock in the quarter.
"In Q3, we drove acceleration across all three of our platforms, delivering strong top and bottom line financial results and our fastest volume growth in over three years," said Devin Wenig, President and CEO of eBay Inc. "Our customers are responding to the significant product enhancements we have been making, and this is reflected in our results."
Underlying total eBay Inc. performance, the Marketplace platforms delivered $20.5 billion of GMV and $1.9 billion of revenue. Marketplace GMV was up 9% on an as-reported basis and 7% on an FX-Neutral basis, driven by acceleration in the U.S. and Europe, which led to revenue growth of 8% on an as-reported basis and 7% on an FX-Neutral basis. StubHub drove GMV of $1.2 billion, up 2%, and revenue of $275 million, up 5%, driven by continued growth in its international business. Classifieds growth accelerated in the quarter with revenue of $235 million, up 19% on an as-reported basis and 13% on an FX-Neutral basis, driven primarily by strength in Germany.
In the third quarter, eBay added nearly two million active buyers across its platforms, for a total of 168 million global active buyers. This figure has been adjusted to exclude domestic active buyers in India following the sale of eBay's India business to Flipkart. Marketplace continued to enhance user experiences with product changes including grouped listings, simplified selling flows and eBay Authenticate. eBay activated its brand platform with campaigns across the U.S., U.K. and Australia during the quarter and was once again recognized in Interbrand's Best Global Brands report. StubHub continued to strengthen its partnership with Major League Baseball and is now integrated with all 30 teams. Additionally, the company will now serve as the official secondary ticketing partner to the T-Mobile Arena, Las Vegas' newest sports and entertainment venue.
Third Quarter Financial Highlights (presented in millions, except per share data and percentages)
Third Quarter
2017 2016 Change
---- ----
eBay Inc.
---------
Net revenues $2,409 $2,217 $192 9%
------------ ------ ------ ---- ---
GAAP - Continuing Operations
----------------------------
Income from continuing
operations $523 $418 $105 25%
---------------------- ---- ---- ---- ---
Earnings per diluted share from
continuing operations $0.48 $0.36 $0.12 32%
------------------------------- ----- ----- ----- ---
Non-GAAP - Continuing
Operations
---------------------
Net income $514 $509 $5 1%
---------- ---- ---- --- ---
Earnings per diluted share $0.48 $0.45 $0.03 7%
-------------------------- ----- ----- ----- ---
Other Selected Financial and Operational Results
-- Operating margin -- GAAP operating margin decreased to 24.0% for the
third quarter of 2017, compared to 24.4% for the same period last year.
Non-GAAP operating margin decreased to 29.6% in the third quarter of
2017, compared to 29.9% for the same period last year.
-- Taxes -- The GAAP effective tax rate for continuing operations for the
third quarter of 2017 was 25%, compared to 22% for the third quarter of
2016. The non-GAAP effective tax rate for continuing operations for the
third quarter of 2017 was 23%, compared to 22% for the third quarter of
2016.
-- Cash flow -- The company generated $877 million of operating cash flow
from continuing operations and $720 million of free cash flow from
continuing operations during the third quarter of 2017.
-- Stock repurchase program -- The company repurchased approximately $907
million of its common stock, or 25 million shares, in the third quarter
of 2017. The company's total repurchase authorization remaining as of
September 30, 2017 was $2.6 billion.
-- Cash and cash equivalents and non-equity investments -- The company's
cash and cash equivalents and non-equity investments portfolio totaled
$11.4 billion as of September 30, 2017.
Business Outlook
-- Fourth quarter 2017 -- The company expects net revenue between $2.58
billion and $2.62 billion, representing FX-Neutral growth of 6% - 8%,
with GAAP earnings per diluted share from continuing operations in the
range of $0.40 - $0.45 and non-GAAP earnings per diluted share from
continuing operations in the range of $0.57 - $0.59.
-- Full year 2017 - The company expects net revenue between $9.53 billion
and $9.57 billion, representing Organic FX-Neutral growth of
approximately 7%, with GAAP earnings per diluted share from continuing
operations in the range of $1.85 - $1.90 and non-GAAP earnings per
diluted share from continuing operations in the range of $1.99 - $2.01.
Quarterly Conference Call and Webcast
eBay Inc. will host a conference call to discuss third quarter 2017 results at 2:00 p.m. Pacific Time today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, can be accessed through the company's Investor Relations website at https://investors.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.
eBay Inc. uses its Investor Relations website at https://investors.ebayinc.com as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor, in addition to following press releases, SEC filings, public conference calls and webcasts.
About eBay
eBay Inc. (NASDAQ: EBAY) is a global commerce leader including the Marketplace, StubHub and Classifieds platforms. Collectively, we connect millions of buyers and sellers around the world, empowering people and creating opportunity through Connected Commerce. Founded in 1995 in San Jose, Calif., eBay is one of the world's largest and most vibrant marketplaces for discovering great value and unique selection. In 2016, eBay enabled $83 billion of gross merchandise volume. For more information about the company and its global portfolio of online brands, visit www.ebayinc.com.
Presentation
All growth rates represent year over year comparisons, except as otherwise noted. All amounts in tables are presented in U.S. dollars, rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not sum or recalculate using the rounded dollar amounts provided.
Non-GAAP Financial Measures
This press release includes the following financial measures defined as "non-GAAP financial measures" by the Securities and Exchange Commission (SEC): non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin, non-GAAP effective tax rate and free cash flow. These non-GAAP financial measures are presented on a continuing operations basis. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, see "Business Outlook," "Non-GAAP Measures of Financial Performance," "Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin," "Reconciliation of GAAP Net Income to Non-GAAP Net Income and Reconciliation of GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate" and "Reconciliation of Operating Cash Flow to Free Cash Flow" included in this press release.
Forward-Looking Statements
This press release contains forward-looking statements relating to, among other things, the future performance of eBay Inc. and its consolidated subsidiaries that are based on the company's current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of eBay Inc. and its consolidated subsidiaries, including expected financial results for the fourth quarter and full year 2017 and the future growth in its business. Actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Other factors that could cause or contribute to such differences include, but are not limited to: changes in political, business and economic conditions, any regional or general economic downturn or crisis and any conditions that affect ecommerce growth or cross-border trade; fluctuations in foreign currency exchange rates; the company's need to successfully react to the increasing importance of mobile commerce and the increasing social aspect of commerce; an increasingly competitive environment for its business; changes to the company's capital allocation or management of operating cash; the company's ability to manage its indebtedness, including managing exposure to interest rates and maintaining its credit ratings; the company's need to manage an increasingly large enterprise with a broad range of businesses of varying degrees of maturity and in many different geographies; the company's need and ability to manage regulatory, tax, data security and litigation risks; whether the operational, marketing and strategic benefits of the separation of the eBay and PayPal businesses can be achieved; the company's ability to timely upgrade and develop its technology systems, infrastructure and customer service capabilities at reasonable cost while maintaining site stability and performance and adding new products and features; and the company's ability to integrate, manage and grow businesses that have been acquired or may be acquired in the future.
The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof.
More information about factors that could affect the company's operating results is included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the company's most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company's Investor Relations website at https://investors.ebayinc.com or the SEC's website at www.sec.gov. All information in this release is as of October 18, 2017. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to the company on the date hereof. The company assumes no obligation to update such statements.
eBay Inc.
Unaudited Condensed Consolidated Balance Sheet
September 30, December 31,
2017 2016
---- ----
(In millions)
ASSETS
Current assets:
Cash and cash
equivalents $1,760 $1,816
Short-term
investments 4,270 5,333
Accounts
receivable, net 626 592
Other current
assets 1,202 1,134
Total current
assets 7,858 8,875
Long-term
investments 6,302 3,969
Property and
equipment, net 1,546 1,516
Goodwill 4,669 4,501
Intangible
assets, net 78 102
Deferred tax
assets 5,214 4,608
Other assets 276 276
Total assets $25,943 $23,847
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt $749 $1,451
Accounts payable 260 283
Accrued expenses
and other
current
liabilities 1,964 1,893
Deferred revenue 117 110
Income taxes
payable 100 110
Total current
liabilities 3,190 3,847
Deferred and
other tax
liabilities,
net 2,157 1,888
Long-term debt 9,249 7,509
Other
liabilities 64 64
Total
liabilities 14,660 13,308
------ ------
Total
stockholders'
equity 11,283 10,539
------
Total
liabilities and
stockholders'
equity $25,943 $23,847
======= =======
eBay Inc.
Unaudited Condensed Consolidated Statement of Income
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
(In millions, except per share amounts)
Net revenues $2,409 $2,217 $6,954 $6,584
Cost of net revenues (1) 556 498 1,632 1,468
Gross profit 1,853 1,719 5,322 5,116
----- ----- ----- -----
Operating expenses:
Sales and marketing (1) 627 600 1,826 1,760
Product development (1) 316 288 907 822
General and administrative (1) 254 224 766 651
Provision for transaction losses 68 56 193 172
Amortization of acquired
intangible assets 10 9 28 24
Total operating expenses 1,275 1,177 3,720 3,429
----- ----- ----- -----
Income from operations 578 542 1,602 1,687
Interest and other, net 119 (9) 113 (40)
--- --- --- ---
Income from continuing
operations before income taxes 697 533 1,715 1,647
Income tax benefit (provision) (174) (115) (130) (310)
---- ---- ---- ----
Income from continuing
operations $523 $418 $1,585 $1,337
Loss from discontinued
operations, net of income taxes - (5) - (7)
Net income $523 $413 $1,585 $1,330
==== ==== ====== ======
Income (loss) per share - basic:
Continuing operations $0.49 $0.37 $1.48 $1.17
Discontinued operations - - - (0.01)
Net income per share - basic $0.49 $0.37 $1.48 $1.16
===== ===== ===== =====
Income (loss) per share - diluted:
Continuing operations $0.48 $0.36 $1.45 $1.16
Discontinued operations - - - (0.01)
--- --- --- -----
Net income per share - diluted $0.48 $0.36 $1.45 $1.15
===== ===== ===== =====
Weighted average shares:
Basic 1,062 1,126 1,074 1,143
===== ===== ===== =====
Diluted 1,078 1,139 1,091 1,153
===== ===== ===== =====
(1) Includes stock-based compensation as
follows:
Cost of net revenues $14 $9 $40 $26
Sales and marketing 19 24 68 71
Product development 45 40 131 115
General and administrative 40 32 117 94
$118 $105 $356 $306
==== ==== ==== ====
eBay Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
Three Months Ended Nine Months Ended
September 30,
September 30,
2017 2016 2017 2016
---- ---- ---- ----
(In millions)
Cash flows from operating activities:
Net income $523 $413 $1,585 $1,330
Income from discontinued
operations, net of income
taxes - 5 - 7
Adjustments:
Provision for transaction
losses 68 56 193 172
Depreciation and amortization 173 172 504 506
Stock-based compensation 118 105 356 306
Gain on sale of business (167) - (167) -
Deferred income taxes 85 (61) (38) (123)
Changes in assets and
liabilities, and other, net of
acquisition effects 77 112 (275) 9
--- --- ---- ---
Net cash provided by continuing
operating activities 877 802 2,158 2,207
--- --- ----- -----
Net cash provided by (used in)
discontinued operating
activities (1) - - - (1)
--- --- --- ---
Net cash provided by operating
activities 877 802 2,158 2,206
--- --- ----- -----
Cash flows from investing activities:
Purchases of property and
equipment (157) (185) (474) (490)
Purchases of investments (3,673) (2,654) (11,276) (7,782)
Equity investment in Flipkart (514) - (514) -
Maturities and sales of
investments 4,963 2,410 10,778 5,929
Other (3) (166) (24) (225)
--- ---- --- ----
Net cash used in continuing
investing activities 616 (595) (1,510) (2,568)
--- ---- ------ ------
Net cash used in discontinued
investing activities (1) - - - -
Net cash used in investing
activities 616 (595) (1,510) (2,568)
--- ---- ------ ------
Cash flows from financing activities:
Proceeds from issuance of
common stock 12 15 74 67
Repurchases of common stock (907) (501) (1,824) (2,002)
Excess tax benefits from stock-
based compensation - 5 - 9
Tax withholdings related to net
share settlements of
restricted stock units and
awards (40) (19) (170) (96)
Proceeds from issuance of long-
term debt, net - - 2,484 2,216
Repayment of debt (1,450) (11) (1,450) (17)
Other (17) 8 (2) 5
--- --- ---
Net cash provided by (used in)
continuing financing
activities (2,402) (503) (888) 182
------ ---- ---- ---
Net cash used in discontinued
financing activities (1) - - - -
--- --- --- ---
Net cash provided by (used in)
financing activities (2,402) (503) (888) 182
------ ---- ---- ---
Effect of exchange rate changes
on cash and cash equivalents 33 48 184 101
--- --- --- ---
Net increase (decrease) in cash
and cash equivalents (876) (248) (56) (79)
---- ---- --- ---
Cash and cash equivalents at
beginning of period 2,636 2,001 1,816 1,832
Cash and cash equivalents at
end of period 1,760 1,753 1,760 1,753
Less: Cash and cash equivalents
of discontinued operations - - - -
Cash and cash equivalents of
continuing operations at end
of period $1,760 $1,753 $1,760 $1,753
====== ====== ====== ======
eBay Inc.
Unaudited Summary of Consolidated Net Revenues
Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
---- ---- ---- ---- ----
(In millions, except percentages)
Net Revenues by Type:
Net transaction revenues:
Marketplace $1,606 $1,590 $1,525 $1,602 $1,484
Current quarter vs prior year
quarter 8% 5% 2% 1% 2%
Percent from international 61% 61% 60% 62% 62%
StubHub 273 227 204 274 261
Current quarter vs prior year
quarter 5% 1% 15% 18% 31%
Percent from international 4% 5% 4% 3% 2%
---
Total net transaction revenues 1,879 1,817 1,729 1,876 1,745
Current quarter vs prior year
quarter 8% 4% 3% 3% 5%
Percent from international 53% 54% 53% 53% 53%
Marketing services and other revenues:
Marketplace 293 283 283 313 273
Current quarter vs prior year
quarter 7% 2% 4% (4)% 3%
Percent from international 52% 51% 47% 48% 45%
Classifieds 235 219 199 201 197
Current quarter vs prior year
quarter 19% 6% 7% 10% 11%
Percent from international 100% 100% 100% 100% 100%
StubHub, Corporate and other 2 9 6 5 2
Total marketing services and
other revenues 530 511 488 519 472
Current quarter vs prior year
quarter 12% 6% 6% 3% 7%
Percent from international 73% 73% 69% 68% 68%
Total net revenues $2,409 $2,328 $2,217 $2,395 $2,217
====== ====== ====== ====== ======
Current quarter vs prior year
quarter 9% 4% 4% 3% 6%
eBay Inc.
Unaudited Supplemental Operating Data
Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
---- ---- ---- ---- ----
(In millions, except percentages)
Active Buyers (1) 168 167 165 162 160
Current quarter vs
prior year quarter 5% 5% 5% 4% 3%
Gross Merchandise Volume (2)
Marketplace $20,518 $20,392 $19,980 $21,036 $18,905
Current quarter vs
prior year quarter 9% 3% 2% 2% 2%
StubHub $1,162 $1,009 $917 $1,239 $1,142
Current quarter vs
prior year quarter 2% (5)% 6% 5% 23%
--- --- --- --- ---
Total GMV $21,680 $21,401 $20,897 $22,275 $20,047
======= ======= ======= ======= =======
Current quarter vs
prior year quarter 8% 3% 3% 3% 3%
(1) All buyers who successfully closed a
transaction on our Marketplace and
StubHub platforms within the previous
12-month period. Buyers may register
more than once, and as a result, may
have more than one account.
(2) Total value of all successfully closed
transactions between users on our
Marketplace and StubHub platforms
during the period regardless of
whether the buyer and seller actually
consummated the transaction. We
believe that GMV provides a useful
measure of the overall volume of
closed transactions that flow through
our platforms in a given period,
notwithstanding the inclusion in GMV
of closed transactions that are not
ultimately consummated.
Prior period Active Buyers and GMV have been adjusted and related growth rates recalculated to exclude the impact of the sale of our eBay India business.
eBay Inc.
Business Outlook
The guidance figures provided below and elsewhere in this press release are forward-looking statements, reflect a number of estimates, assumptions and other uncertainties, and are approximate in nature because the company's future performance is difficult to predict. Such guidance is based on information available on the date of this press release, and the company assumes no obligation to update it.
The company's future performance involves risks and uncertainties, and the company's actual results could differ materially from the information below and elsewhere in this press release. Some of the factors that could affect the company's operating results are set forth under the caption "Forward-Looking Statements" above in this press release. More information about factors that could affect the company's operating results is included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in its most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting eBay's investor relations website at https://investors.ebayinc.com or the SEC's website at www.sec.gov.
eBay Inc.
Three Months
Ending
December 31, 2017
(In billions,
except per
share
amounts) GAAP Non-GAAP (a)
---- -----------
Net Revenue $2.58 - $2.62 $2.58 - $2.62
Diluted EPS
from
continuing
operations $0.40 - $0.45 $0.57 - $0.59
Twelve Months
Ending
December 31, 2017
(In billions,
except per
share
amounts) GAAP Non-GAAP (b)
---- -----------
Net Revenue $9.53 - $9.57 $9.53 - $9.57
Diluted EPS
from
continuing
operations $1.85 - $1.90 $1.99 - $2.01
(a) Estimated non-GAAP amounts above for the three months
ending December 31, 2017, reflect adjustments that exclude
the estimated amortization of acquired intangible assets of
approximately $15 - $20 million and estimated stock-based
compensation expense and associated employer payroll tax
expense of approximately $130 - $140 million, as well as
the related income tax impact. Estimated non-GAAP amounts
above for the three months ending December 31, 2017,
reflect adjustments that exclude the estimated tax impacts
of the company's legal entity realignment of approximately
$60 - $90 million.
(b) Estimated non-GAAP amounts above for the twelve months
ending December 31, 2017, reflect adjustments that exclude
the estimated amortization of acquired intangible assets of
approximately $60 - $65 million and estimated stock-based
compensation expense and associated employer payroll tax
expense of approximately $500 - $510 million, as well as
the related income tax impact. Estimated non-GAAP amounts
above for the twelve months ending December 31, 2017,
reflect adjustments that exclude the estimated tax impacts
of the company's legal entity realignment of approximately
$(10) - $(40) million as well as a $167 million gain from
eBay Inc.
Non-GAAP Measures of Financial Performance
To supplement the company's condensed consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, the company uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin, non-GAAP effective tax rate, and free cash flow. These non-GAAP financial measures are presented on a continuing operations basis.
These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company's results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the company's results of operations in conjunction with the corresponding GAAP measures.
Reconciliation to the nearest GAAP measure of all non-GAAP measures included in this press release can be found in the tables included in this press release.
These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and its prospects for the future. Specifically, the company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses, gains and losses, or net purchases of property and equipment, as the case may be, that may not be indicative of its core operating results and business outlook. In addition, because the company has historically reported certain non-GAAP results to investors, the company believes that the inclusion of non-GAAP measures provides consistency in the company's financial reporting.
For its internal budgeting process, and as discussed further below, the company's management uses financial measures that do not include stock-based compensation expense, employer payroll taxes on stock-based compensation, amortization or impairment of acquired intangible assets, impairment of goodwill, amortization of deferred tax assets associated with the realignment of its legal structure and related foreign exchange effects, significant gains or losses from the disposal/acquisition of a business, certain effects of the planned separation of our eBay and PayPal businesses, certain gains and losses on investments, restructuring-related charges and the income taxes associated with the foregoing. In addition to the corresponding GAAP measures, the company's management also uses the foregoing non-GAAP measures in reviewing the financial results of the company.
The company excludes the following items from non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin and non-GAAP effective tax rate:
Stock-based compensation expense and related employer payroll taxes. This expense consists of expenses for stock options, restricted stock and employee stock purchases. The company excludes stock-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses that management does not believe are reflective of ongoing operating results. The related employer payroll taxes are dependent on the company's stock price and the timing and size of exercises by employees of their stock options and the vesting of their restricted stock, over which management has limited to no control, and as such management does not believe it correlates to the company's operation of the business.
Amortization or impairment of acquired intangible assets, impairment of goodwill, amortization of deferred tax assets associated with the realignment of its legal structure and related foreign exchange effects, significant gains or losses and transaction expenses from the acquisition or disposal of a business and certain gains or losses on investments. The company incurs amortization or impairment of acquired intangible assets and goodwill in connection with acquisitions and may incur significant gains or losses from the acquisition or disposal of a business and therefore excludes these amounts from its non-GAAP measures. The company also excludes certain gains and losses on investments. The company excludes the non-cash amortization of deferred tax assets associated with the realignment of its legal structure and related foreign exchange effects. The company excludes these items because management does not believe they correlate to the ongoing operating results of the company's business.
Restructuring. These charges consist of expenses for employee severance and other exit and disposal costs. The company excludes significant restructuring charges primarily because management does not believe they are reflective of ongoing operating results.
Other certain significant gains, losses, or charges that are not indicative of the company's core operating results. These are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future. The company excludes these amounts from its results primarily because management does not believe they are indicative of its current or ongoing operating results.
Separation. These are significant expenses that are related to the separation of our eBay and PayPal businesses into separate publicly traded companies. These consist primarily of third-party consulting fees, legal fees, employee retention payments, tax indemnifications and other expenses related to the separation.
Tax effect of non-GAAP adjustments. This amount is used to present stock-based compensation and the other amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.
In addition to the non-GAAP measures discussed above, the company also uses free cash flow. Free cash flow represents operating cash flows less purchases of property and equipment. The company considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property, buildings, and equipment, which can then be used to, among other things, invest in the company's business, make strategic acquisitions, and repurchase stock. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period.
eBay Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
(In millions, except percentages)
GAAP operating income $578 $542 $1,602 $1,687
Stock-based compensation
expense and related
employer payroll taxes 119 106 367 315
Amortization of acquired
intangible assets within
cost of net revenues 6 6 19 14
Amortization of acquired
intangible assets within
operating expenses 10 9 28 24
Separation - - - (1)
Other significant gains,
losses or charges - - (3) (13)
---
Total non-GAAP operating
income adjustments 135 121 411 339
--- --- --- ---
Non-GAAP operating income $713 $663 $2,013 $2,026
---- ---- ------ ------
Non-GAAP operating margin 29.6% 29.9% 29.0% 30.8%
---- ---- ---- ----
Reconciliation of GAAP Net Income to Non-GAAP Net Income and
GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate*
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
(In millions, except per share amounts and percentages)
GAAP income from
continuing
operations before
income taxes $697 $533 $1,715 $1,647
GAAP provision for
income taxes (174) (115) (130) (310)
---- ---- ---- ----
GAAP net income from
continuing
operations $523 $418 $1,585 $1,337
Non-GAAP adjustments to net income
from continuing operations:
Non-GAAP operating
income from
continuing
operations
adjustments (see
table above) 135 121 411 339
Gains or losses on
investments and sale
of business (167) - (183) (35)
Tax effect of step-
up of intangible
assets basis - - (695) -
Foreign exchange
effect of step-up
of intangible assets
basis - - 376 -
Tax effect of non-
GAAP adjustments 23 (30) 51 (86)
--- --- --- ---
Non-GAAP net income
from continuing
operations $514 $509 $1,545 $1,555
Diluted net income from continuing
operations per share:
GAAP $0.48 $0.36 $1.45 $1.16
----- ----- ----- -----
Non-GAAP $0.48 $0.45 $1.42 $1.35
----- ----- ----- -----
Shares used in GAAP
diluted net income
(loss) per-share
calculation 1,078 1,139 1,091 1,153
----- ----- ----- -----
GAAP effective tax
rate -Continuing
operations 25% 22% 8% 19%
--- --- --- ---
Tax effect of non-
GAAP adjustments to
net income from
continuing
operations (2)% -% 13% 1%
--- --- --- ---
Non-GAAP effective
tax rate -
Continuing
operations 23% 22% 21% 20%
--- --- --- ---
*Presented on a continuing operations basis
Reconciliation of Operating Cash Flow to Free Cash Flow*
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
(In millions)
Net cash
provided by
continuing
operating
activities $877 $802 $2,158 $2,207
Less:
Purchases
of property
and
equipment (157) (185) (474) (490)
---- ----
Free cash
flow from
continuing
operations $720 $617 $1,684 $1,717
==== ==== ====== ======
*Presented on a continuing operations basis
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SOURCE eBay Inc.
