Facebook Reports Third Quarter 2012 Results

MENLO PARK, Calif., Oct. 23, 2012 /PRNewswire/ -- Facebook, Inc. (NASDAQ: FB) today reported financial results for the third quarter, which ended September 30, 2012.

"As proud as I am that a billion people use Facebook each month, I'm also really happy that over 600 million people now share and connect on Facebook every month using mobile devices," said Mark Zuckerberg, Facebook founder and CEO. "People who use our mobile products are more engaged, and we believe we can increase engagement even further as we continue to introduce new products and improve our platform. At the same time, we are deeply integrating monetization into our product teams in order to build a stronger, more valuable company."

Third Quarter 2012 Financial Summary





In millions, except percentages and per share amounts

Q3'12


Q3'11





Revenue

$ 1,262


$  954

Income from Operations




   GAAP

$    377


$  414

   Non-GAAP

$    525


$  484

Operating Margin




   GAAP

30%


43%

   Non-GAAP

42%


51%

Net Income (Loss)




    GAAP 

$    (59)


$  227

    Non-GAAP

$    311


$  273

Diluted Earnings (Loss) per Share (EPS)




    GAAP 

$ (0.02)


$ 0.10

   Non-GAAP

$   0.12


$ 0.12

 

Third Quarter 2012 Operational Highlights

  • Monthly active users (MAUs) were 1.01 billion as of September 30, 2012, an increase of 26% year-over-year
  • Daily active users (DAUs) were 584 million on average for September 2012, an increase of 28% year-over-year
  • Mobile MAUs were 604 million as of September 30, 2012, an increase of 61% year-over-year

Recent Business Highlights

Product

  • Completely rebuilt Facebook for iOS for faster and more reliable performance
  • Updated Messenger for Android and iOS and made Facebook Camera available in 18 languages
  • Continued to make it easy for mobile developers to build with Facebook
    • New Software Development Kits (SDKs) for iOS and Android
    • Deep integration into iOS 6.0
  • Launched Facebook Gifts, a way to send gifts to celebrate the special moments millions of people share on Facebook each day

Advertising

  • Launched several new advertising products, such as Custom Audiences, Facebook Exchange, Offers, and mobile app install ads
  • Generated 14% of advertising revenue during the third quarter from mobile

Corporate

  • Connected 1 billion people since founding the company eight years ago
  • Created Facebook Stories, a new website to share the stories of people using Facebook in extraordinary ways at www.facebookstories.com
  • Closed Instagram acquisition
  • Opened first international engineering office in London

Third Quarter 2012 Financial Highlights

Revenue – Revenue for the third quarter totaled $1.26 billion, an increase of 32%, compared with $954 million in the third quarter of 2011. Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased by 38%.

  • Revenue from advertising was $1.09 billion, representing 86% of total revenue and a 36% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, advertising revenue would have increased by 43%. 
  • Payments and other fees revenue for the third quarter was $176 million, a 13% increase over the same quarter in the prior year and a 9% decline sequentially from the second quarter of 2012.

Costs and expenses – Third quarter costs and expenses were $885 million, an increase of 64% from the third quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP costs and expenses were $737 million, an increase of 57%.

Income from operations – For the third quarter, GAAP income from operations was $377 million, compared to income from operations of $414 million for the third quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP income from operations for the third quarter was $525 million, compared to $484 million for the third quarter of 2011.

Operating margin – GAAP operating margin was 30% for the third quarter of 2012, compared to 43% for the third quarter of 2011. Excluding share-based compensation and related payroll tax expenses, non-GAAP operating margin was 42% for the third quarter of 2012, compared to 51% for the third quarter of 2011.

Income tax provision – The GAAP income tax provision for the third quarter was $431 million, representing a 116% effective tax rate, driven by share-based compensation expense, a portion of which is not tax-deductible. Excluding share-based compensation expense and related payroll tax expenses, the non-GAAP effective tax rate would have been approximately 40%.

Net income (loss) – GAAP income before provision for income taxes was $372 million. After the provision for income taxes, GAAP net loss for the third quarter was $59 million, compared to net income of $227 million for the third quarter of 2011.  GAAP EPS for third quarter of 2012 was ($0.02), compared to $0.10 for the same quarter in the prior year. Excluding share-based compensation and related payroll tax expenses and income tax adjustments, non-GAAP net income was $311 million or $0.12 per share, compared to $273 million and $0.12 per share for the same quarter in the prior year.

Capital expenditures – Purchases of property and equipment for the quarter were $171 million. Additionally, $161 million of equipment was procured or financed through capital leases during the third quarter of 2012.

Cash and marketable securities – As of September 30, 2012, cash and marketable securities were $10.5 billion

Webcast and Conference Call Information
Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast can be accessed at the Facebook Investor Relations website at investor.fb.com, along with the company's earnings press release, financial tables and slide presentation.

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (404) 537-3406 or + 1 (855) 859-2056, conference ID 30503033.

About Facebook
Founded in 2004, Facebook's mission is to make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what's going on in the world, and to share and express what matters to them.

Contacts

Investors:
Deborah Crawford
+1 (650) 384-2083
investor@fb.com / investor.fb.com

Press:
Ashley Zandy
press@fb.com / newsroom.fb.com

Forward Looking Statements
This press release contains forward-looking statements regarding our business strategy and plans as well as expectations of future growth and engagement, all of which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels, including mobile engagement and our ability to increase revenues and engagement across a range of geographies; our ability to monetize our mobile products; our ability to expand the Facebook Platform; competition; privacy concerns; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption "Risk Factors" in our Quarterly Report for the quarter ended June 30, 2012 filed with the SEC, which is available on our Investor Relations website at investor.fb.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012. In addition, please note that the date of this press release is October 23, 2012, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: total revenue and advertising revenue excluding foreign exchange effect, non-GAAP costs and expenses, non-GAAP income from operations; non-GAAP net income; non-GAAP diluted shares; non-GAAP diluted earnings per share; non-GAAP operating margin; and non-GAAP effective tax rate. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically share-based compensation expense and payroll tax related to share-based compensation expense and the related income tax effects, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures.

We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.

We exclude the following items from one or more of our non-GAAP financial measures:

Share-based compensation expense. We exclude share-based compensation expense because we believe that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, we believe that providing non-GAAP financial measures that exclude this expense allow investors the ability to make more meaningful comparisons between our operating results and those of other companies. Furthermore, our share-based compensation expense was materially affected in the second quarter of 2012 due to the terms of our RSUs granted prior to 2011, related to which we recognized a cumulative $986 million in share-based compensation expense in the period, despite the fact that these awards were granted and earned over several years. Accordingly, we believe that excluding this expense provides investors and management with greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and may also facilitate comparison with the results of other companies in our industry.

Payroll tax expense related to share-based compensation. We exclude payroll tax expense related to share-based compensation expense because, without excluding these tax expenses, investors would not see the full effect that excluding share-based compensation expense had on our operating results. Furthermore, our payroll tax expense was substantially higher due to the terms of our RSUs granted prior to 2011, where, despite the fact that these awards were granted and earned over several years, we recognized $84 million in payroll tax expense in the nine months ended September 30, 2012, with most of this expense being recognized in the second quarter of 2012 and a partially offsetting credit recognized in third quarter of 2012. In addition, these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise, which factors may vary from period to period independent of the operating performance of our business. Similar to share-based compensation expense, we believe that excluding this payroll tax expense provides investors and management with greater visibility to the underlying performance of our business operations and facilitates comparison with other periods as well as the results of other companies.

Income tax effect of share-based compensation and related payroll tax expenses. We believe excluding the income tax effect of non-GAAP adjustments assists investors and management in understanding the tax provision related to those adjustments and provides useful supplemental information regarding the underlying performance of our business operations.

Assumed preferred stock conversion. As a result of our initial public offering, all outstanding shares of preferred stock were automatically converted into shares of Class B common stock. Consequently, non-GAAP diluted shares and net income per share for periods prior to June 30, 2012 have been calculated assuming this conversion, which we believe facilitates comparison with prior periods.

Dilutive securities and other dilutive equity awards excluded from GAAP. In our calculation of non-GAAP weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders for the three and nine months ended September 30, 2012, we give effect to antidilutive RSUs and stock options that are excluded from GAAP weighted average shares due to our reporting of a net loss. We also include unvested RSUs in the nine months ended September 30, 2012 as well as in the three and nine months ended September 30, 2011, the number of which is substantial due to the terms of RSUs granted prior to 2011. We believe including these awards facilitates comparison between periods.

Foreign exchange effect on total revenue and advertising revenue. We translate current quarter revenues using prior year exchange rates, which we believe is a useful metric that facilitates comparison to our historical performance.

For more information on our non-GAAP financial measures and a reconciliation of such measures to the nearest GAAP measure, please see the "Reconciliation of Non-GAAP Results to Nearest GAAP Measures" table in this press release.  

 

 

 


FACEBOOK, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In millions, except for per share amounts)


(Unaudited)
















Three Months Ended


Nine Months Ended





September 30,


September 30,





2011


2012


2011


2012













 Revenue 

$  954


$  1,262


$  2,580


$  3,504













 Costs and expenses: 










Cost of revenue

236


322


613


967



Research and development

108


244


264


1,102



Marketing and sales

114


168


272


703



General and administrative

82


151


222


717




Total costs and expenses

540


885


1,371


3,489













 Income from operations 

414


377


1,209


15













 Interest and other income (expense), net 










Interest expense

(10)


(11)


(26)


(35)



Other income (expense), net

(25)


6


(7)


9


 Income (loss) before provision for income taxes 

379


372


1,176


(11)


 Provision for income taxes 

152


431


478


-


 Net income (loss) 

$  227


$     (59)


$    698


$     (11)


 Less: Net income attributable to participating securities 

77


-


235


-


 Net income (loss) attributable to Class A and Class B common 

$  150


$     (59)


$    463


$     (11)


 stockholders 




















 Earnings (loss) per share attributable to Class A and Class B 









 common stockholders 










Basic

$ 0.11


$  (0.02)


$   0.36


$  (0.01)



Diluted

$ 0.10


$  (0.02)


$   0.32


$  (0.01)













Weighted-average shares used to compute earnings (loss)









per share attributable to Class A and Class B common stockholders










Basic

1,316


2,420


1,283


1,884



Diluted

1,520


2,420


1,507


1,884













 Share-based compensation expense included in costs & expenses 










Cost of revenue

$      3


$        8


$        6


79



Research and development

33


114


72


719



Marketing and sales

13


28


24


279



General and administrative

21


29


39


311




Total share-based compensation expense

$    70


$    179


$    141


$  1,388













 Payroll tax related to share-based compensation included in costs & expenses 










Cost of revenue

$     -


$       (3)


$       -


$        3



Research and development

-


(12)


2


36



Marketing and sales

-


(9)


1


16



General and administrative

-


(7)


4


67




Total

$     -


$     (31)


$        7


$    122













Share-based compensation expense related to Pre-2011 RSUs included in costs & expenses:










Cost of revenue

$     -


$        1


$       -


$      61



Research and development

-


17


-


490



Marketing and sales

-


4


-


212



General and administrative

-


6


-


251




Total

$     -


$      28


$       -


$  1,014













Payroll tax related to Pre-2011 RSUs included in costs & expenses










Cost of revenue

$     -


$       (3)


$       -


$        3



Research and development

-


(12)


-


34



Marketing and sales

-


(9)


-


15



General and administrative

-


(7)


-


32




Total

$     -


$     (31)


$       -


$      84

 

 

 

FACEBOOK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)










December 31,


September 30,


2011


2012

Assets




Current assets





Cash and cash equivalents

$             1,512


$              2,478


Marketable securities

2,396


7,974


Accounts receivable

547


635


Income tax refundable

-


567


Prepaid expenses and other current assets

149


631



Total current assets

4,604


12,285





Property and equipment, net

1,475


2,289

Goodwill and intangible assets, net

162


1,423

Other assets

90


41

Total assets

$             6,331


$            16,038





Liabilities and stockholders' equity




Current liabilities





Accounts payable

$                 63


$                   59


Platform partners payable

171


155


Accrued expenses and other current liabilities

296


409


Deferred revenue and deposits

90


85


Current portion of capital lease obligations

279


372



Total current liabilities

899


1,080







Capital lease obligations, less current portion

398


530

Other liabilities

135


254



Total liabilities

1,432


1,864













Stockholders' equity





Convertible preferred stock

615


-


Common stock and additional paid-in capital

2,684


12,585


Accumulated other comprehensive loss

(6)


(6)


Retained earnings

1,606


1,595



Total stockholders' equity

4,899


14,174

Total liabilities and stockholders' equity

$             6,331


$            16,038

 

 

 

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)














Three Months Ended


Nine Months Ended




September 30,


September 30,




2011


2012


2011


2012











Cash flows from operating activities









Net income (loss)

$  227


$    (59)


$   698


$    (11)



Adjustments to reconcile net income (loss) to net cash provided by operating activities:










Depreciation and amortization

97


176


220


425



Loss on write-off of equipment

-


4


6


8



Share-based compensation

70


179


141


1,388



Deferred income taxes

(15)


(60)


(29)


(434)



Tax benefit from share-based award activity

50


473


405


854



Excess tax benefit from share-based award activity

(50)


(473)


(405)


(854)


Changes in assets and liabilities:










Accounts receivable

(44)


(50)


(72)


(90)



Income tax refundable

-


-


-


(567)



Prepaid expenses and other current assets

113


31


(113)


24



Other assets

(19)


9


(25)


-



Accounts payable

29


28


36


20



Platform partners payable

53


(1)


91


(16)



Accrued expenses and other current liabilities

12


(27)


(9)


162



Deferred revenue and deposits

24


-


44


(5)



Other liabilities

18


20


51


27

Net cash provided by operating activities

565


250


1,039


931











Cash flows from investing activities









Purchases of property and equipment

(136)


(171)


(421)


(1,037)


Purchases of marketable securities

(850)


(1,633)


(2,742)


(8,590)


Sales of marketable securities

95


443


95


571


Maturities of marketable securities

90


1,307


90


2,413


Investments in non-marketable equity securities

(1)


-


(2)


(3)