eBay Inc. Reports Fourth Quarter and Full Year 2018 Results and Announces Capital Structure Evolution
SAN JOSE, Calif., Jan. 29, 2019 /PRNewswire/ -- eBay Inc. (NASDAQ: EBAY), a global commerce leader, delivered revenue for the quarter ended December 31, 2018 of $2.9 billion, increasing 6% on both an as-reported basis and a foreign exchange (FX) neutral basis, primarily driven by gross merchandise volume (GMV) of $24.6 billion, up 1% on an as-reported basis and 2% on a FX-Neutral basis.
During the quarter, eBay delivered GAAP net income from continuing operations of $763 million, or $0.80 per diluted share and Non-GAAP net income from continuing operations of $670 million, or $0.71 per diluted share. The company generated $1.2 billion of operating cash flow and $1.1 billion of free cash flow from continuing operations while also repurchasing approximately $1.5 billion of its common stock in the quarter.
"We delivered record earnings for the fourth quarter and full year 2018," said Devin Wenig, President and CEO of eBay Inc. "In 2019, our focus will be on further improvements to the eBay user experience, while pursuing significant long-term growth opportunities in advertising and payments. We are confident in the strength of our business and future growth prospects, as demonstrated by our decision to institute eBay's first-ever dividend and increase our share repurchase program."
In the fourth quarter, eBay grew active buyers by 4% across its platforms, for a total of 179 million global active buyers. Underlying total eBay performance, the Marketplace platforms delivered $2.3 billion of revenue and $23.2 billion of GMV. Marketplace revenue growth was 7% on an as-reported basis and 6% on a FX-Neutral basis, and GMV was up 1% on an as-reported basis and 3% on a FX-Neutral basis. StubHub drove revenue of $314 million, up 2% on both an as-reported and FX-Neutral basis, and GMV of $1.4 billion, down 2% on an as-reported basis and down 1% on a FX-Neutral basis. Classifieds platforms delivered revenue of $263 million, up 8% on an as-reported basis and 11% on a FX-Neutral basis.
During the quarter, eBay continued strong execution of its advertising and payments growth priorities. The company experienced nearly 150% revenue growth in promoted listings, with 600 thousand active sellers promoting 200 million listings. The multi-year rollout of eBay's managed payments capability, which was initially launched in the third quarter, marks an important shift in strategic direction and a commitment to enhancing the customer experience. During the fourth quarter, eBay intermediated nearly $140 million in GMV.
eBay continued introducing new or expanded programs that improve buying and selling throughout the fourth quarter. Enabling an easier buying experience, eBay partnered with leading service providers to allow shoppers the ability to select and schedule professional auto, home and electronics installation services for eBay purchases. The company also continued to improve purchase confidence when shopping high-priced luxury items by expanding eBay Authenticate into the jewelry category. Additionally, the launch of eBay Instant Selling allows consumers to sell their smartphone devices and get paid instantly with an eBay voucher, without having to manage the selling process.
For the full year 2018, eBay delivered revenue of $10.7 billion, growing 8% on an as-reported basis and 6% on a FX-Neutral basis, primarily driven by GMV of $95 billion, up 7% on an as-reported basis and 5% on a FX-Neutral basis. The company delivered strong operating and free cash flow on a continuing operations basis, generating $2.7 billion and $2.0 billion, respectively, during 2018. eBay also returned $4.5 billion of capital to shareholders through repurchases of its common stock.
Fourth Quarter and Full Year 2018 Financial Highlights (presented in millions, except per share data and percentages)
Fourth Quarter Full Year
2018 2017 Change 2018 2017 Change
eBay Inc.
---
Net revenues $2,877 $2,707 $170 6% $10,746 $9,927 $819 8%
---
GAAP - Continuing Operations
---
Income (loss) from continuing $763 $(2,597) $3,360 129% $2,528 $(1,013) $3,541
**
operations
---
Earnings (loss) per diluted share from $0.80 $(2.51) $3.31 132% $2.55 $(0.95) $3.50
**
continuing operations
---
Non-GAAP - Continuing Operations
---
Net income $670 $618 $52 9% $2,305 $2,162 $143 7%
---
Earnings per diluted share $0.71 $0.59 $0.12 20% $2.32 $2.00 $0.32 16%
---
**Not meaningful
Other Selected Financial and Operational Results
-- Operating margin -- GAAP operating margin decreased to 23.7% for the
fourth quarter of 2018, compared to 24.5% for the same period last year.
Non-GAAP operating margin decreased to 29.2% in the fourth quarter of
2018, compared to 29.8% for the same period last year.
-- Taxes -- The GAAP effective tax rate for continuing operations for the
fourth quarter of 2018 was (47.9)%, compared to 563.4% for the fourth
quarter of 2017. The non-GAAP effective tax rate for continuing
operations for the fourth quarter of 2018 was 16.4%, compared to 19.4%
for the fourth quarter of 2017.
-- Cash flow -- The company generated $1.2 billion of operating cash flow
from continuing operations and $1.1 billion of free cash flow during the
fourth quarter of 2018.
-- Stock repurchase program -- The company repurchased approximately $1.5
billion of its common stock, or 52 million shares, in the fourth quarter
of 2018. The company's total repurchase authorization remaining as of
December 31, 2018 was $3.2 billion.
-- Cash and cash equivalents and non-equity investments -- The company's
cash and cash equivalents and non-equity investments portfolio totaled
$8.6 billion as of December 31, 2018.
Business Outlook
-- First quarter 2019 -- The company expects net revenue between $2.55
billion and $2.60 billion, representing Organic FX-Neutral growth of 0%
- 2%, with GAAP earnings per diluted share from continuing operations in
the range of $0.40 - $0.44 and non-GAAP earnings per diluted share from
continuing operations in the range of $0.62 - $0.64.
-- Full year 2019 -- The company expects net revenue between $10.7 billion
and $10.9 billion, representing Organic FX-Neutral growth of 1% - 3%,
with GAAP earnings per diluted share from continuing operations in the
range of $1.83 - $1.93 and non-GAAP earnings per diluted share from
continuing operations in the range of $2.62 - $2.68.
Capital Structure Evolution
In order to evolve eBay's capital structure given its strong cash generation profile and shareholder return objectives, the company today announced:
-- Initiation of a quarterly dividend of $0.14 per share, with the first
quarterly dividend to be paid on or about March 20, 2019 to shareholders
of record as of the close of business on March 1, 2019
-- Expect to exit 2019 with cash and investments of approximately $3.5
billion
-- Targeting mid-term leverage of approximately 1.5x net debt and gross
debt below 3.0x EBITDA
-- Increase in share repurchase authorization by an additional $4.0 billion
with no expiration, with an expected 2019 share repurchase of
approximately $5.0 billion
-- Expect to return approximately $7.0 billion to shareholders through
dividends and repurchases over the next two years, with approximately
$5.5 billion in 2019 and approximately $1.5 billion in 2020
The company's stock repurchase program is intended to programmatically offset the impact of dilution from its equity compensation programs and, subject to market conditions and other factors, to make opportunistic and programmatic repurchases of its common stock to reduce its outstanding share count. Any share repurchases under the company's stock repurchase programs may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means at times and in such amounts as management deems appropriate and will be funded from the company's working capital or other financing alternatives.
Quarterly Conference Call and Webcast
eBay Inc. will host a conference call to discuss fourth quarter and full year 2018 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 at least three months 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 for all. 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 2018, eBay enabled $95 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 million, except as otherwise noted. As a result, certain amounts may not sum or recalculate using the rounded dollar amounts provided.
New Accounting Standard
Prior period information has been recast to reflect Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, which eBay adopted on January 1, 2018.
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 first quarter and full year 2019 and the future growth in its business, dividends and share repurchases. 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; the company's ability to realize expected growth opportunities in payments intermediation and advertising; 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, including the timing, declaration, amount and payment of any future dividends or levels of the company's share repurchases, 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. 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
December 31, December 31,
2018 2017
---
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $
2,202 $
2,120
Short-term investments 2,713 3,743
Accounts receivable, net 712 696
Other current assets 1,499 1,185
Total current assets 7,126 7,744
Long-term investments 3,778 6,331
Property and equipment, net 1,597 1,597
Goodwill 5,160 4,773
Intangible assets, net 92 69
Deferred tax assets 4,792 5,199
Other assets 274 273
Total assets $
22,819 $
25,986
===
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $
1,546 $
781
Accounts payable 286 330
Accrued expenses and other current liabilities 2,335 2,134
Deferred revenue 170 137
Income taxes payable 117 177
Total current liabilities 4,454 3,559
Deferred tax liabilities 2,925 3,424
Long-term debt 7,685 9,234
Other liabilities 1,474 1,720
Total liabilities 16,538 17,937
---
Total stockholders' equity 6,281 8,049
Total liabilities and stockholders' equity $
22,819 $
25,986
===
eBay Inc.
Unaudited Condensed Consolidated Statement of Income
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
---
(In millions, except per share amounts)
Net revenues $
2,877 $
2,707 $
10,746 $
9,927
Cost of net revenues (1) 618 590 2,382 2,221
Gross profit 2,259 2,117 8,364 7,706
---
Operating expenses:
Sales and marketing (1) 945 784 3,391 2,878
Product development (1) 292 317 1,285 1,224
General and administrative (1) 245 264 1,131 1,030
Provision for transaction losses 83 79 286 272
Amortization of acquired intangible 13 10 49 38
assets
Total operating expenses 1,578 1,454 6,142 5,442
---
Income from operations 681 663 2,222 2,264
Interest and other, net (165) (102) 496 11
---
Income from continuing operations before 516 561 2,718 2,275
income taxes
Income tax provision 247 (3,158) (190) (3,288)
---
Income from continuing operations $
763 $
(2,597) $
2,528 $
(1,013)
Income from discontinued operations, net of (3) (4) 2 (4)
income taxes
Net income $
760 $
(2,601) $
2,530 $
(1,017)
===
Income per share - basic:
Continuing operations $
0.81 $
(2.51) $
2.58 $
(0.95)
Discontinued operations -
Net income per share - basic $
0.81 $
(2.51) $
2.58 $
(0.95)
===
Income per share - diluted:
Continuing operations $
0.80 $
(2.51) $
2.55 $
(0.95)
Discontinued operations -
Net income per share - diluted $
0.80 $
(2.51) $
2.55 $
(0.95)
===
Weighted average shares:
Basic 945 1,035 980 1,064
===
Diluted 950 1,035 991 1,064
===
(1) Includes stock-based compensation as
follows:
Cost of net revenues $
16 $
13 $
59 $
53
Sales and marketing 29 26 111 94
Product development 49 47 197 178
General and administrative 48 41 171 158
$
142 $
127 $
538 $
483
===
eBay Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
---
(In millions)
Cash flows from operating activities:
Net income $
760 $
(2,601) $
2,530 $
(1,017)
Income from discontinued operations, net of income taxes 3 4 (2) 4
Adjustments:
Provision for transaction losses 83 79 286 272
Depreciation and amortization 172 172 696 676
Stock-based compensation 142 127 538 483
(Gain) Loss on investments, net - 70 (572) 49
Gain on sale of business - (167)
Deferred income taxes (234) 1,767 (153) 1,728
Change in fair value of warrant 128 (104)
Changes in assets and liabilities, and other, net of 180 1,370 (558) 1,118
acquisition effects
---
Net cash provided by continuing operating activities 1,234 988 2,661 3,146
---
Net cash used in discontinued operating activities (1) (3)
---
Net cash provided by operating activities 1,233 988 2,658 3,146
---
Cash flows from investing activities:
Purchases of property and equipment (130) (192) (651) (666)
Purchases of investments (11,938) (3,323) (28,115) (14,599)
Maturities and sales of investments 12,470 3,742 30,901 14,520
Equity investment in Flipkart - (514)
Proceeds from sale of equity investment in Flipkart - 1,029
Acquisitions, net of cash acquired - (12) (302) (34)
Other 19 (3) 32 (2)
---
Net cash provided by (used in) investing activities 421 212 2,894 (1,295)
---
Cash flows from financing activities:
Proceeds from issuance of common stock 39 46 109 120
Repurchases of common stock (1,511) (922) (4,502) (2,746)
Tax withholdings related to net share settlements of (36) (49) (225) (219)
restricted stock units and awards
Proceeds from issuance of long-term debt, net - 2,484
Repayment of debt - (2) (750) (1,452)
Other (3) 31 (30) 29
---
Net cash used in financing activities (1,511) (896) (5,398) (1,784)
---
Effect of exchange rate changes on cash, cash equivalents (25) 54 (75) 238
and restricted cash
---
Net increase in cash, cash equivalents and 118 358 79 305
restricted cash
---
Cash, cash equivalents and restricted cash at beginning of 2,101 1,782 2,140 1,835
period
Cash, cash equivalents and restricted cash at end of period $
2,219 $
2,140 $
2,219 $
2,140
===
eBay Inc.
Unaudited Summary of Consolidated Net Revenues
Three Months Ended
December 31, September 30, June 30, March 31, December 31,
2018 2018 2018 2018 2017
---
(In millions, except percentages)
Net Revenues by Type:
Net transaction revenues:
Marketplace $
1,984 $
1,803 $
1,837 $
1,792 $
1,823
Current quarter vs prior year quarter 9 6 9 11 8
%
%
%
%
%
Percent from international 64 62
%
%
%
% % 62 61 62
StubHub 311 286 240 231 306
Current quarter vs prior year quarter 2 6 5 12 12
%
%
%
%
%
Percent from international 6 7 10 8 6
%
%
%
%
%
Total net transaction revenues 2,295 2,089 2,077 2,023 2,129
Current quarter vs prior year quarter 8 6 9 11 9
%
%
%
%
%
Percent from international 56 55
%
%
%
% % 56 55 54
Marketing services and other
revenues:
Marketplace 316 301 298 310 333
Current quarter vs prior year quarter (5)
%
%
%
%
% 3 6 9 6
Percent from international 53 54
%
%
%
% % 52 50 53
Classifieds 263 254 259 246 244
Current quarter vs prior year quarter 8 8 18 24 21
%
%
%
%
%
Percent from international 100 100
%
%
%
% % 100 100 100
StubHub, Corporate and other 3 5 6 1 1
Total marketing services and other 582 560 563 557 578
revenues
Current quarter vs prior year quarter 1 6 10 14 11
%
%
%
%
%
Percent from international 74 75
%
%
%
% % 74 72 73
Total net revenues $
2,877 $
2,649 $
2,640 $
2,580 $
2,707
Current quarter vs prior year quarter 6 6 9 12 9
%
%
%
%
%
eBay Inc.
Unaudited Supplemental Operating Data
Three Months Ended
December 31, September 30, June 30, March 31, December 31,
2018 2018 2018 2018 2017
---
(In millions, except percentages)
Active Buyers (1) 179 177 175 171 170
Current quarter vs prior year quarter 4 4 4 4 5
%
%
% % %
Gross Merchandise Volume (2)
Marketplace $
23,231 $
21,482 $
22,569 $
22,547 $
22,993
Current quarter vs prior year quarter 1 5 11 13 9
%
%
%
% %
StubHub $
1,410 $
1,237 $
1,060 $
1,044 $
1,432
Current quarter vs prior year quarter (2) 7 5 14 16
%
%
%
%
%
---
Total GMV $
24,641 $
22,719 $
23,629 $
23,591 $
24,425
Current quarter vs prior year quarter 1 5 10 13 10
%
%
%
%
%
(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. Starting
in the second quarter of 2018, year-
over-year growth rate is on a pro-
forma basis, which includes Giosis'
Japan business active buyers in both
current and prior year periods.
(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.
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
March 31, 2019
(In
billions,
except (a)
per
share
amounts) GAAP Non-GAAP
---
Net
Revenue
$2.55 - $2.60
$2.55 - $2.60
Diluted
EPS
from
continuing
operations
$0.40 - $0.44
$0.62 - $0.64
Twelve Months
Ending
December 31, 2019
(In
billions,
except (b)
per
share
amounts) GAAP Non-GAAP
---
Net
Revenue
$10.7 - $10.9
$10.7 - $10.9
Diluted
EPS
from
continuing
operations
$1.83 - $1.93
$2.62 - $2.68
(a) Estimated non-GAAP amounts above for the three
months ending March 31, 2019 reflect adjustments
that exclude the estimated amortization of acquired
intangible assets of approximately $13 - $18
million, estimated stock-based compensation
expense and associated employer payroll tax expense
of approximately $130 - $140 million and an
adjustment that excludes the net deferred tax
impact related to the step-up in the tax basis of
intangible assets of approximately $40 - $50
million.
(b) Estimated non-GAAP amounts above for the
twelve months ending December 31, 2019 reflect
adjustments that exclude the estimated amortization
of acquired intangible assets of approximately $50
- $60 million, estimated stock-based compensation
expense and associated employer payroll tax expense
of approximately $550 - $570 million and an
adjustment that excludes the net deferred tax
impact related to the step-up in the tax basis of
intangible assets of approximately $170 - $190
million.
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 gains and losses on investments, gains or losses associated with a warrant agreement that the company entered into with a service provider, 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, certain amortization of deferred tax assets 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, which is not reduced by the effects of the Tax Cuts and Jobs Act, 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.
Change in fair market value of warrant. These are gains or losses associated with a warrant agreement that the company entered into with a service provider, which are attributable to changes in fair value during the period.
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, repurchase stock and pay dividends. 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
Year Ended
December 31, December 31,
2018 2017 2018 2017
---
(In millions, except percentages)
GAAP operating income $
681 $
663 $
2,222 $
2,264
Stock-based compensation expense and related 143 130 554 497
employer payroll taxes
Amortization of acquired intangible assets within 1 5 14 24
cost of net revenues
Amortization of acquired intangible assets within 13 10 49 38
operating expenses
Other significant gains, losses or charges 1 87 (3)
Total non-GAAP operating income 158 145 704 556
adjustments
Non-GAAP operating income $
839 $
808 $
2,926 $
2,820
Non-GAAP operating margin 29.2 29.8 27.2 28.4
% % % %
Reconciliation of GAAP Net Income to Non-GAAP Net Income and
GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate*
Three Months Ended
Year Ended
December 31, December 31,
2018 2017 2018 2017
---
(In millions, except per share amounts and percentages)
GAAP income from continuing operations before $
516 $
561 $
2,718 $
2,275
income taxes
GAAP benefit (provision) for income taxes 247 (3,158) (190) (3,288)
GAAP net income (loss) from continuing operations $
763 $
(2,597) $
2,528 $
(1,013)
Non-GAAP adjustments to net income from
continuing operations:
Non-GAAP operating income from continuing 158 145 704 556
operations adjustments (see table above)
Gains or losses on investments and sale of - 60 (559) (123)
business
Change in fair market value of warrant 128 (104)
Tax effects of US Tax Reform (463) 3,142 (463) 3,142
Tax effect of step-up of intangible assets basis (9) (9) (695)
Foreign exchange effect of step-up of intangible - 376
assets basis
Tax effect of non-GAAP adjustments 93 (132) 208 (81)
Non-GAAP net income from continuing operations $
670 $
618 $
2,305 $
2,162
Diluted net income (loss) from continuing
operations per share:
GAAP $
0.80 $
(2.51) $
2.55 $
(0.95)
Non-GAAP $
0.71 $
0.59 $
2.32 $
2.00
Shares used in GAAP diluted net income (loss) per- 950 1,035 991 1,064
share calculation
Shares used in non-GAAP diluted net income per- 950 1,051 991 1,081
share calculation
GAAP effective tax rate - Continuing operations (47.9) 563.4 7.0 144.5
% % % %
---
Tax effect of non-GAAP adjustments to net income 64.3 (544.0) 9.5 (124.3)
% % % %
(loss) from continuing operations
---
Non-GAAP effective tax rate - Continuing 16.4 19.4 16.5 20.2
% % % %
operations
---
*Presented on a continuing
operations basis
Reconciliation of Operating Cash Flow to Free Cash Flow*
Three Months Ended
Year Ended
December 31, December 31,
2018 2017 2018 2017
---
(In millions)
Net cash provided by continuing operating activities $
1,234 $
988 $
2,661 $
3,146
Less: Purchases of property and equipment (130) (192) (651) (666)
Free cash flow $
1,104 $
796 $
2,010 $
2,480
*Presented on a continuing
operations basis
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SOURCE eBay Inc.
