PayPal Reports Second Quarter 2019 Results
SAN JOSE, Calif., July 24, 2019 /PRNewswire/ -- Global technology platform and digital payments leader PayPal Holdings, Inc. (NASDAQ: PYPL) today announced second quarter results for the period ended June 30, 2019.
"PayPal delivered another solid quarter, and consequently we are raising EPS guidance for the year. Net new active accounts increased by a record 41 million over the last 12 months, and engagement per active account once again increased by 9% to 39 times a year. Venmo's momentum continues, with 70% growth in total payment volume to $24 billion. Earlier this month, Xoom expanded to 32 new send markets throughout Europe," said Dan Schulman, President and CEO of PayPal.
Financial highlights for second quarter 2019
-- Revenue of $4.31 billion; growing 12% on both a spot and foreign
currency-neutral (FX-neutral or FXN) basis.
-- The completion of the sale of the U.S. consumer credit receivables
portfolio to Synchrony in July 2018 negatively affected revenue
growth by approximately seven percentage points.
-- GAAP operating margin of 16.4% with non-GAAP operating margin of 23.2%.
-- GAAP EPS of $0.69, increasing 58%; non-GAAP EPS of $0.86, increasing
47%.
-- Q2-19 EPS includes $0.14 benefit related to PayPal's strategic
investments versus $0.02 benefit in Q2-18.
-- Operating cash flow of $1.17 billion, free cash flow of $1.04 billion.
Operating highlights for second quarter 2019
-- 9.0 million net new active accounts, bringing total active accounts to
286 million accounts, up 17%.
-- 3.0 billion payment transactions, up 28%.
-- $172 billion in total payment volume (TPV), up 24%, or 26% on an
FX-neutral basis.
-- 39.0 payment transactions per active account on a trailing twelve months
basis, up 9%.
PayPal's key business drivers
-- Merchant Services volume grew 30% on an FX-neutral basis.
-- eBay Marketplaces volume declined 4% on an FX-neutral basis versus
growth of 6% in Q2-18, and represented 9% of TPV for the quarter versus
12% a year ago.
-- Person-to-Person (P2P) volume grew 40% to $46 billion, and represented
27% of TPV.
-- Venmo processed $24 billion of TPV in the second quarter, growing 70%.
PayPal's platform and strategic investments
In the second quarter, PayPal announced the PayPal Commerce Platform, a new solution designed to meet the specific needs of marketplaces, e-commerce solution providers, and crowdfunding platforms by bringing together a comprehensive set of technologies, tools, services, and financing solutions for businesses.
In addition, PayPal extended its global partnership with Uber in the second quarter and announced plans to explore future commercial payment collaborations. PayPal also made a $500 million strategic investment in Uber.
In July, PayPal's Xoom product launched its international money transfer services in the UK and 31 other European markets. Customers across Europe can now use Xoom to send money, pay bills or reload phones to more than 130 markets internationally.
Second Quarter 2019 Financial and Operating Highlights
Second Quarter
(presented in
millions, except
per share data and
percentages) 2019 2018 YoY Growth FX-Neutral
YoY Growth
Total Payment Volume $
172,359 $
139,403 $
32,956 24 26
(TPV) % %
GAAP
Net revenues $
4,305 $
3,857 $
448 12 12
% %
Operating margin 16.4
% 14.8
%
** 155
bps N/A
Effective tax rate 12.7
% 13.6
%
** (90)
bps N/A
Net income $
823 $
526 $
297 56
% N/A
Earnings per diluted $
0.69 $
0.44 $
0.25 58
share % N/A
Net cash provided by
operating
activities $
1,174 $
28
**
** N/A
Non-GAAP
Net revenues $
4,305 $
3,857 $
448 12 12
% %
Operating margin 23.2
% 21.3
%
** 192
bps N/A
Effective tax rate 17.6
% 18.0
%
** (33)
bps N/A
Net income $
1,018 $
703 $
315 45
% N/A
Earnings per diluted $
0.86 $
0.58 $
0.28 47
share % N/A
Free cash flow $
1,035 $
(170)
**
** N/A
** Not meaningful.
Cash, Cash Equivalents, and Investments - PayPal's cash, cash equivalents, and investments totaled $10.7 billion as of June 30, 2019.
Short-Term Borrowings - PayPal's notes payable totaled $2.5 billion as of June 30, 2019.
2019 Financial Guidance
Full year 2019 revenue and earnings guidance
-- PayPal expects revenue to grow 14 - 15% at current spot rates and 14 -
15% on an FX-neutral basis, to a range of $17.60 - $17.80 billion. As
previously disclosed, full year 2019 revenue growth guidance includes an
expected decline of approximately 3.5 percentage points for full year
2019 related to the sale of U.S. consumer credit receivables portfolio
to Synchrony.
-- PayPal expects GAAP earnings per diluted share in the range of $2.16 -
$2.22 and non-GAAP earnings per diluted share in the range of $3.12 -
$3.17. EPS guidance for full year 2019 includes $0.26 of unrealized
gains from PayPal's strategic investments recognized in the first and
second quarters of 2019 and an approximate $0.03 of expected net
unrealized gains related to PayPal's strategic investment portfolio in
Q3 2019.
-- Estimated non-GAAP amounts for the twelve months ending December 31,
2019, reflect adjustments of approximately $1.37 - $1.43 billion,
including estimated stock-based compensation expense and related payroll
taxes in the range of $1.06 - $1.10 billion.
-- Estimated revenue includes approximately 1.5 points of revenue growth
from acquisitions that closed in 2018.
-- The dilutive impact of acquisitions that closed in 2018 is estimated to
be $0.40 to $0.44 on GAAP EPS and $0.08 to $0.10 on non-GAAP EPS.
Third quarter 2019 revenue and earnings guidance
-- PayPal expects revenue to grow 18 - 19% at current spot rates and 18 -
19% on an FX-neutral basis, to a range of $4.33 - $4.38 billion.
-- PayPal expects GAAP earnings per diluted share in the range of $0.32 -
$0.35 and non-GAAP earnings per diluted share in the range of $0.69 -
$0.71. GAAP and non-GAAP EPS guidance for third quarter 2019 includes an
approximate $0.03 of expected net unrealized gains related to PayPal's
strategic investment portfolio. GAAP EPS guidance also includes an
estimated $0.15 of negative impact related to taxes associated with the
acquisition of iZettle.
-- Estimated non-GAAP amounts for the three months ending September 30,
2019, reflect adjustments of approximately $300 - $330 million,
including estimated stock-based compensation expense and related payroll
taxes in the range of $250 - $265 million.
-- Estimated revenue includes approximately 1.5 points of revenue growth
from acquisitions that closed in 2018.
-- The dilutive impact of acquisitions that closed in 2018 is estimated to
be $0.19 to $0.23 on GAAP EPS and $0.01 to $0.02 on non-GAAP EPS.
Please see "Non-GAAP Financial Measures" and "Non-GAAP Measures of Financial Performance" for important additional information.
Quarterly conference call and webcast
PayPal Holdings, Inc. will host a conference call to discuss second quarter 2019 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 most directly comparable GAAP measures, can be accessed through the company's Investor Relations website at https://investor.paypal-corp.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.
PayPal Holdings, Inc. uses its Investor Relations website (https://investor.paypal-corp.com), its PayPal Stories Blog (https://www.paypal.com/stories/us), Twitter handles (@PayPal and @PayPalNews), LinkedIn page (https://www.linkedin.com/company/paypal), Facebook page (https://www.facebook.com/PayPalUSA/), YouTube channel (https://www.youtube.com/paypal), Dan Schulman's LinkedIn profile (https://www.linkedin.com/in/dan-schulman/), John Rainey's LinkedIn profile (www.linkedin.com/in/john-rainey-pypl) and Dan Schulman's Facebook page (https://www.facebook.com/DanSchulmanPayPal/) as a means of disclosing information about the company and for complying with its disclosure obligations under Regulation FD. The information that is posted through these channels may be deemed material. Accordingly, investors should monitor these channels in addition to PayPal's press releases, SEC filings, public conference calls, and webcasts.
About PayPal
Fueled by a fundamental belief that having access to financial services creates opportunity, PayPal Holdings, Inc. (NASDAQ: PYPL) is committed to democratizing financial services and empowering people and businesses to join and thrive in the global economy. Our open digital payments platform gives PayPal's 286 million active account holders the confidence to connect and transact in new and powerful ways, whether they are online, on a mobile device, in an app, or in person. Through a combination of technological innovation and strategic partnerships, PayPal creates better ways to manage and move money, and offers choice and flexibility when sending payments, paying or getting paid. Available in more than 200 markets around the world, the PayPal platform, including Braintree, Venmo, Xoom and iZettle, enables consumers and merchants to receive money in more than 100 currencies, withdraw funds in 56 currencies and hold balances in their PayPal accounts in 25 currencies. For more information on PayPal, visit https://www.paypal.com/about. For PayPal Holdings, Inc. financial information, visit https://investor.paypal-corp.com.
Presentation
All growth rates represent year-over-year comparisons, except as otherwise noted. FX-neutral results are calculated by translating the current period local currency results by the prior period exchange rate. FX-neutral growth rates are calculated by comparing the current period FX-neutral results with the prior period results, excluding the impact from hedging activities. All amounts in tables are presented in U.S. dollars, rounded to the nearest millions, except as otherwise noted. As a result, certain amounts and rates may not sum or recalculate using the rounded dollar amounts provided.
Non-GAAP financial measures
This press release includes financial measures defined as "non-GAAP financial measures" by the Securities and Exchange Commission (SEC) including: non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate, free cash flow, and adjusted free cash flow. For an explanation of the foregoing non-GAAP measures, please see "Non-GAAP Measures of Financial Performance" included in this press release. 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 most directly comparable GAAP measures, see "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, GAAP Diluted EPS to Non-GAAP Diluted EPS and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate," and "Reconciliation of Operating Cash Flow to Free Cash Flow and Adjusted Free Cash Flow."
Forward-looking statements
This press release contains forward-looking statements relating to, among other things, the future results of operations, financial condition, expectations and plans of PayPal Holdings, Inc. and its consolidated subsidiaries that reflect PayPal's current projections and forecasts. Forward-looking statements can be identified by words such as "may," "will," "would," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "strategy," "future," "opportunity," "plan," "project," "forecast," and other similar expressions. Forward-looking statements include, but are not limited to, statements regarding projected financial results for the third quarter and full year 2019, impact and timing of acquisitions, and projected future growth of PayPal's businesses. Forward-looking statements are based upon various estimates and assumptions, as well as information known to PayPal as of the date of this press release, and are inherently subject to numerous risks and uncertainties. Accordingly, actual results could differ materially from those predicted or implied by forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the effect of political, business, economic, market and trade conditions, including any regional or general economic downturn or crisis and any conditions that affect payments or e-commerce growth; fluctuations in foreign currency exchange rates; the competitive, regulatory, payment card association-related and other risks specific to the PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and other products, especially as PayPal continues to expand geographically and introduce new products and as new laws and regulations related to payments and financial services come into effect; the impact of PayPal's customer choice initiatives, including on its funding mix and transaction expense; PayPal's ability to successfully compete in an increasingly competitive environment for its businesses, products and services, including competition for consumers and merchants and the increasing importance of mobile payments and mobile commerce; the outcome of legal and regulatory proceedings and PayPal's need and ability to manage regulatory, tax and litigation risks as its products and services are offered in more jurisdictions and applicable laws become more restrictive; changes to PayPal's capital allocation or management of operating cash; uncertainty surrounding the implementation and impact of the United Kingdom's formal notification of its intent to withdraw from the European Union; cyberattacks and security vulnerabilities in PayPal products and services that could disrupt business, reduce revenue, increase costs, harm us competitively, or lead to liability; the effect of management changes and business initiatives; any changes PayPal may make to its product offerings; the effect of any natural disasters or other business interruptions on PayPal or PayPal's customers; PayPal's ability to timely upgrade and develop its technology systems, infrastructure and customer service capabilities at reasonable cost; PayPal's ability to maintain the stability, security, and performance of its Payment Platform while adding new products and features in a timely fashion; the risk that PayPal may not realize the expected benefits of the sale of U.S. consumer credit receivables to Synchrony Financial; risks that planned acquisitions will not be completed on contemplated terms, or at all, and that any businesses PayPal may acquire may not perform in accordance with its expectations; and PayPal's ability to profitably 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 adversely affect PayPal's results of operations, financial condition and prospects or that could cause actual results to differ from those expressed or implied in forward-looking statements is included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in PayPal's most recent annual report on Form 10-K and its subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting PayPal's Investor Relations website at https://investor.paypal-corp.com or the SEC's website at www.sec.gov. All information in this release speaks as of July 24, 2019. For the reasons discussed above, you should not place undue reliance on the forward-looking statements in this press release. PayPal assumes no obligation to update such forward-looking statements.
Copyright © 1999-2019 PayPal. All rights reserved. Other company and product names may be trademarks of their respective owners.
PayPal Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheets
June 30, December 31,
2019 2018
--- ---
(In millions, except par value)
ASSETS
Current assets:
Cash and cash equivalents $
4,909 $
7,575
Short-term investments 3,506 1,534
Accounts receivable, net 379 313
Loans and interest receivable,
net 3,166 2,532
Funds receivable and customer
accounts 23,573 20,062
Prepaid expenses and other
current assets 902 947
Total current assets 36,435 32,963
Long-term investments 2,278 971
Property and equipment, net 1,720 1,724
Goodwill 6,236 6,284
Intangible assets, net 699 825
Other assets 1,023 565
Total assets $
48,391 $
43,332
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $
199 $
281
Notes payable 2,499 1,998
Funds payable and amounts due to
customers 25,073 21,562
Accrued expenses and other
current liabilities 2,022 2,002
Income taxes payable 54 61
Total current liabilities 29,847 25,904
Deferred tax liability and other
long-term liabilities 2,405 2,042
Total liabilities 32,252 27,946
Equity:
Common stock, $0.0001 par value;
4,000 shares authorized; 1,177
and 1,174 shares outstanding as
of June 30, 2019 and December
31, 2018, respectively -
Preferred stock, $0.0001 par
value; 100 shares authorized,
unissued -
Treasury stock at cost, 99 and
91 shares as of June 30, 2019
and December 31, 2018,
respectively (6,216) (5,511)
Additional paid-in-capital 15,010 14,939
Retained earnings 7,373 5,880
Accumulated other comprehensive
income (loss) (28) 78
Total equity 16,139 15,386
Total liabilities and equity $
48,391 $
43,332
PayPal Holdings, Inc.
Unaudited Condensed Consolidated Statements of Income
Three Months Ended June 30, Six Months Ended June 30,
---
2019 2018 2019 2018
---
(In millions, except per share amounts)
Net revenues $
4,305 $
3,857 $
8,433 $
7,542
Operating expenses:
Transaction expense 1,627 1,362 3,176 2,637
Transaction and loan losses 318 334 659 639
Customer support and
operations(1)(2) 399 338 787 680
Sales and marketing(1)(2) 356 307 685 588
Technology and development
(1)(2) 483 441 994 889
General and
administrative(1)(2) 419 387 838 734
Restructuring and other charges (2) 116 71 269
Total operating expenses 3,600 3,285 7,210 6,436
Operating income 705 572 1,223 1,106
Other income (expense), net 238 37 437 51
Income before income taxes 943 609 1,660 1,157
Income tax expense 120 83 170 120
Net income $
823 $
526 $
1,490 $
1,037
Net income per share:
Basic $
0.70 $
0.44 $
1.27 $
0.87
Diluted $
0.69 $
0.44 $
1.25 $
0.86
Weighted average shares:
Basic 1,175 1,187 1,173 1,190
Diluted 1,187 1,202 1,188 1,209
(1)Includes stock-based compensation as
follows:
Customer support and
operations(2) 45 41 93 83
Sales and marketing(2) 32 29 64 63
Technology and development(2) 80 74 173 146
General and administrative(2) 73 66 154 127
$
230 $
210 $
484 $
419
(2) Prior period amounts have
been updated to reflect the
classification changes
described in the Form 8-K filed
on April 9, 2019.
PayPal Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended June 30, Six Months Ended June 30,
---
2019 2018 2019 2018
---
(In millions)
Cash flows from operating activities:
Net income $
823 $
526 $
1,490 $
1,037
Adjustments:
Transaction and loan losses 318 334 659 639
Depreciation and amortization 228 180 458 365
Stock-based compensation 223 205 470 410
Deferred income taxes (39) (2) 35 89
Cost basis adjustments to loans and
interest receivable held for sale - 116 244
Unrealized gains on strategic investments (218) (31) (398) (31)
Other (48) (5) (92) (10)
Changes in assets and liabilities:
Accounts receivable 30 (24) (66) 1
Changes in loans and interest receivable
held for sale, net - (977) 4 (2,268)
Accounts payable (46) 18 (49) (17)
Income taxes payable (21) (14) (7) (14)
Other assets and liabilities (76) (298) (303) (766)
Net cash provided by (used in) operating
activities 1,174 28 2,201 (321)
Cash flows from investing activities:
Purchases of property and equipment (139) (198) (357) (376)
Changes in principal loans receivable, net (375) 262 (732) 1,000
Purchases of investments (5,053) (5,341) (13,191) (10,616)
Maturities and sales of investments 4,509 5,378 10,537 9,669
Acquisitions, net of cash and restricted
cash acquired - (16) (16)
Funds receivable (39) 473 (2,214) 902
Net cash (used in) provided by investing
activities (1,097) 558 (5,957) 563
Cash flows from financing activities:
Proceeds from issuance of common stock 67 65 74 78
Purchases of treasury stock - (500) (756) (2,325)
Tax withholdings related to net share
settlements of equity awards (140) (37) (449) (372)
Borrowings under financing arrangements 500 500 2,075
Repayments under financing arrangements - (1,076) (1,076)
Funds payable and amounts due to customers 569 213 3,129 1,078
Net cash provided by (used in) financing
activities 996 (1,335) 2,498 (542)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash (2) (56) (1) (63)
Net change in cash, cash equivalents, and
restricted cash 1,071 (805) (1,259) (363)
Cash, cash equivalents, and restricted cash
at beginning of period 10,903 8,727 13,233 8,285
Cash, cash equivalents, and restricted cash
at end of period $
11,974 $
7,922 $
11,974 $
7,922
Supplemental cash flow disclosures:
Cash paid for interest $
25 $
18 $
45 $
26
Cash paid for income taxes, net $
154 $
186 $
176 $
180
PayPal Holdings, Inc.
Unaudited Summary of Consolidated Net Revenues
We earn revenue from the following types of transactions:
-- Transaction revenues: Net transaction fees charged to merchants and
consumers on a transaction basis primarily based on the volume of
activity, or Total Payment Volume ("TPV"), completed on our Payments
Platform, including our PayPal, PayPal Credit, Venmo, Braintree, Xoom,
and iZettle products.
-- Other value added services: Net revenues derived primarily from revenue
earned through partnerships, subscription fees, gateway fees, and other
services we provide to our merchants and customers. We also earn
revenues from interest and fees earned primarily on our PayPal credit
portfolio of loans receivable, gain on sale of participation interest in
certain loans and advances, and interest earned on certain PayPal
customer account balances.
Net Revenues by
Type
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2019 2019 2018 2018 2018
---
(In millions, except percentages)
Transaction
revenues $
3,878 $
3,731 $
3,851 $
3,343 $
3,318
Current quarter vs 4 (3) 15 1 4
prior quarter
%
%
%
%
%
Current quarter vs 17 17 19 17 20
prior year quarter
%
%
%
%
%
Percentage of total 90 90 91 91 86
%
%
%
%
%
Other value added
services 427 397 375 340 539
Current quarter vs 8 6 10 (37)
prior quarter
%
%
%
%
% 10
Current quarter vs (21) (19) (25) (11)
prior year quarter
%
% % % % 49
Percentage of total 10 10 9 9 14
%
%
%
%
%
Total net revenues $
4,305 $
4,128 $
4,226 $
3,683 $
3,857
Current quarter vs 4 (2) 15 (5) 5
prior quarter
%
%
%
%
%
Current quarter vs 12 12 13 14 23
prior year quarter
%
%
%
%
%
Net Revenues by
Geography
Three Months Ended
---
June 30, March 31, December 31, September 30, June 30,
2019 2019 2018 2018 2018
---
(In millions, except percentages)
U.S. net revenues $
2,297 $
2,187 $
2,189 $
1,962 $
2,150
Current quarter vs 5 % 12 (9) 6
prior quarter
%
%
%
%
Current quarter vs 7 8 7 13 27
prior year quarter
%
%
%
%
%
Percent of total 53 53 52 53 56
%
%
%
%
%
International net
revenues 2,008 1,941 2,037 1,721 1,707
Current quarter vs 3 (5) 18 1 3
prior quarter
%
%
%
%
%
Current quarter vs 18 17 20 15 18
prior year quarter
%
%
%
%
%
(FXN) Current
quarter vs prior
%
%
%
%
%
year quarter 18 17 19 15 16
Percent of total 47 47 48 47 44
%
%
%
%
%
Total net revenues $
4,305 $
4,128 $
4,226 $
3,683 $
3,857
Current quarter vs 4 (2) 15 (5) 5
prior quarter
%
%
%
%
%
Current quarter vs 12 12 13 14 23
prior year quarter
%
%
%
%
%
(FXN) Current
quarter vs prior
%
%
%
%
%
year quarter 12 12 13 14 22
PayPal Holdings, Inc.
Unaudited Supplemental Operating Data
Three Months Ended,
June 30, March 31, December 31, September 30, June 30,
2019 2019 2018 2018 2018
--- ---
(In millions, except percentages)
Active accounts(1) 286 277 267 254 244
Current quarter vs 3 3 5 4 3
prior quarter % % % % %
Current quarter vs
prior year % % % % %
quarter 17 17 17 15 15
Number of payment
transactions(2) 2,973 2,838 2,867 2,463 2,327
Current quarter vs 5 (1) 16 6 5
prior quarter %
% % % %
Current quarter vs
prior year % % % % %
quarter 28 28 28 27 28
Payment
transactions per
active account(3) 39.0 37.9 36.9 36.5 35.7
Current quarter vs 3 3 1 2 3
prior quarter % % % % %
Current quarter vs
prior year % % % % %
quarter 9 9 9 9 9
Total Payment
Volume(4) $
172,359 $
161,492 $
163,648 $
143,004 $
139,403
Current quarter vs 7 (1) 14 3 5
prior quarter %
% % % %
Current quarter vs
prior year % % % % %
quarter 24 22 23 24 29
(FXN) Current
quarter vs prior % % % % %
year quarter 26 25 25 25 27
Transaction
Expense Rate(5) 0.94
% 0.96
% 0.96
% 0.96
% 0.98
%
Transaction and
Loan Loss Rate(6) 0.18
% 0.21
% 0.21
% 0.21
% 0.24
%
Transaction
Margin(7) 54.8
% 54.2
% 54.6
% 54.9
% 56.0
%
Amounts in the table are
rounded to the nearest
million, except as
otherwise noted. As a
result, certain amounts may
not recalculate using the
rounded amounts provided.
(1) An active account is an
account registered directly with
PayPal or a platform access
partner that has completed a
transaction on our Payments
Platform, not including gateway-
exclusive transactions, within
the past 12 months.
(2) Payment transactions are the
total number of payments, net of
payment reversals, successfully
completed on our Payments
Platform or enabled by PayPal via
a partner payment solution, not
including gateway-exclusive
transactions.
(3) Number of payment transactions
per active account reflects the
total number of payment
transactions within the previous
12 month period, divided by
active accounts at the end of the
period.
(4) TPV is the value of payments,
net of reversals, successfully
completed on our Payments
Platform or enabled by PayPal via
a partner payment solution, not
including gateway-exclusive
transactions.
(5) Transaction expense rate is
calculated by dividing
transaction expense by TPV.
(6) Transaction and loan loss rate
is calculated by dividing
transaction and loan loss by TPV.
(7) Transaction margin is total
revenue less transaction expense
and transaction and loan loss,
divided by total revenue.
PayPal Holdings, 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 net income per diluted share, non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate, free cash flow and adjusted free cash flow.
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 most directly comparable 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, 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, restructuring-related charges, certain other gains, losses, benefits or charges that are not indicative of the company's core operating results 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 net income per diluted share, non-GAAP operating income, non-GAAP operating margin and non-GAAP effective tax rate:
Stock-based compensation expense and related employer payroll taxes. This consists of expenses for equity awards under our equity incentive plans. We exclude stock-based compensation expense from our non-GAAP measures primarily because they are non-cash expenses. The related employer payroll taxes are dependent on our stock price and the timing and size of exercises and vesting of equity awards, over which management has limited to no control, and as such management does not believe it correlates to the operation of our business.
Amortization or impairment of acquired intangible assets, impairment of goodwill, and transaction expenses from the acquisition or disposal of a business. We incur amortization or impairment of acquired intangible assets and goodwill in connection with acquisitions and may incur significant gains or losses or transactional expenses from the acquisition or disposal of a business and therefore exclude these amounts from our non-GAAP measures. We exclude these items because management does not believe they are reflective of our ongoing operating results.
Restructuring. These 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.
Certain other significant gains, losses, benefits, or charges that are not indicative of the company's core operating results. These are significant gains, losses, benefits, 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 in the future. The company excludes these amounts from its non-GAAP results because management does not believe they are indicative of its current or ongoing operating results.
Tax effect of non-GAAP adjustments. This adjustment is made 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.
The company also uses free cash flow, a non-GAAP measure. 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.
In addition to the non-GAAP measures discussed above, the company also analyzes certain measures, including net revenues and operating expenses, on an FX-neutral basis to better measure the comparability of operating results between periods. The company believes that changes in foreign currency exchange rates are not indicative of the company's operations and evaluating growth in net revenues and operating expenses on an FX-neutral basis provides an additional meaningful and comparable assessment of these measures to both management and investors. FX-neutral results are calculated by translating the current period's local currency results with the prior period's exchange rate. FX-neutral growth rates are calculated by comparing the current period's FX-neutral results by the prior period's results, excluding the impact from hedging activities.
PayPal Holdings, Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin
Three Months Ended June 30,
2019 2018
---
(In millions, except percentages)
(unaudited)
GAAP operating income $
705 $
572
Stock-based compensation
expense and related
employer payroll taxes 244 223
Amortization of acquired
intangible assets 51 25
Other(1) (2)
Total non-GAAP operating
income adjustments 293 248
Non-GAAP operating income $
998 $
820
Non-GAAP operating margin 23 21
% %
---
(1) Gain of $2 million related
to the sale of our U.S.
consumer credit receivables
portfolio executed during the
year ended December 31, 2018.
Reconciliation of GAAP Net Income to Non-GAAP Net Income,
GAAP Diluted EPS to Non-GAAP Diluted EPS,
and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate
Three Months Ended June 30,
2019 2018
---
(In millions, except per share data
and percentages)
(unaudited)
GAAP income before
income taxes $
943 $
609
GAAP income tax
expense 120 83
GAAP net income 823 526
Non-GAAP adjustments to net income:
Non-GAAP operating
income adjustments
(see table above) 293 248
Other(1) - 32
Tax effect of non-
GAAP adjustments (98) (103)
Non-GAAP net income $
1,018 $
703
Diluted net income per share:
GAAP $
0.69 $
0.44
Non-GAAP $
0.86 $
0.58
Shares used in GAAP
diluted share
calculation 1,187 1,202
Shares used in non-
GAAP diluted share
calculation 1,187 1,202
GAAP effective tax 13
% 14
rate %
Tax effect of non-
GAAP adjustments to %
net income 5
% 4
---
Non-GAAP effective 18
% 18
tax rate %
---
(1) Tax expense related
to the Tax Cuts and
Jobs Act.
PayPal Holdings, Inc.
Reconciliation of Operating Cash Flow to Free Cash Flow and Adjusted Free Cash Flow
Three Months Ended June 30,
2019 2018
---
(In millions/unaudited)
Net cash provided by
operating activities $
1,174 $
28
Less: Purchases of
property and
equipment (139) (198)
Free cash flow $
1,035 $
(170)
Impact of held for
sale accounting
presentation related
to our U.S. consumer
credit receivables
portfolio on cash
flow from operating
activities - 907
Adjusted free cash
flow $
1,035 $
737
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SOURCE PayPal Holdings, Inc.
