PAYPAL HOLDINGS, INC. (NASDAQ: PYPL)
Third Quarter 2020 Results
San Jose, California, November 2, 2020
Q3’20: Strongest growth in total payment volume and revenue in PayPal’s history • Total Payment Volume (TPV) of $247 billion, growing 38%, and 36% on an FX-neutral basis (FXN); revenue of $5.46 billion, growing 25% on a spot and FXN basis • GAAP EPS of $0.86, up 121% and non-GAAP EPS of $1.07, up 41% • 15.2 million Net New Active Accounts (NNAs) added; ended the quarter with 361 million active accounts
FY’20: Raising TPV and earnings guidance; delivering record NNAs • FY’20 TPV growth now expected to be approximately 30%; revenue growth now expected in the range of 20%–21%, and 21%–22% FXN • FY’20 GAAP EPS growth now expected in the range of 37%–38% and non-GAAP EPS growth in the range of 27%–28% • Approximately 70 million NNAs expected to be added to PayPal’s platform in FY’20
Q3’20 Highlights
PayPal’s third quarter was one of the GAAP Non-GAAP strongest in our history. Our growth YoY YoY reinforces the essential role we play in USD $ Change USD $ Change our customers’ daily lives during this pandemic. Going forward, we are investing
Net Revenues $5.46B 25% $5.46B 25%* to create the most compelling and expansive digital wallet that embraces all forms of digital currencies and payments, Operating Income $0.98B 40% $1.49B 45% and operates seamlessly in both the physical and online worlds.”
EPS $0.86 121% $1.07 41% Dan Schulman President and CEO
* On an FXN basis Q3 2020 Results 2 -
YoY (48%) $479M 25% Q3’20 $5.46B Q3’20 3 (34%) $720M 25% Q2’20 $5.26B YoY
112% $2.19B Q2’20 4 13% Q1’20 $4.62B 103% $2.38B $3.97B 43% $3.97B / 18% 60% Q4’19 $1.30B $4.96B YoY Q1’20 46% $1.50B 19% Q3’19 $4.38B Net Revenues +25% $5.46B 20% $1.09B Free Cash Flow Cash Flow ■ Free ■ Free ■ Operating■ Operating Cash Flow Cash Flow Q4’19 John Rainey and EVP CFO Global Customer Operations Our business again outperformedOur with the through momentum sustained we results strong The quarter. third reportingare today the demonstrate platform, diversified of our strength and our business, scalability of our the power.” earnings 11% $1.26B 5 36% Q3’20 $247B 20% $4.61B 40% $4.61B $923M 3 Q3’19 ** 30% Q2’20 $222B (TPV) $1.10B Operating Cash Flow / Free Cash Flow / Free Operating Flow Cash YTD YoY
19% Q1’20 $191B 41% $1.07 22% Q4’19 $199B Q3’20 YoY YoY 121% $0.86 27% Q3’19 $179B Total Payment Volume Volume Payment Total +36% $247B 49% $1.07 Q2’20 86% $1.29 55% Q3’20 15.2M 0% $1.07 +41% $0.66 Q1’20 (NNAs) 137% Q2’20 $0.07 21.3M (87%) 4 ■ GAAP ■ Non-GAAP YoY / YoY 2 YoY 27% $0.83 118% Q1’20 20.2M Q4’19 1 $0.43 (13%) 9.3M Q4’19 (33%)
31% $0.76
7% Revenue of $5.46 billion; growing 25% on a spot and FXN basis. of $5.46 billion; growing Revenue GAAP operating 198 basis points; of 17.9%, expanding margin non- GAAP operating 377 basis points. of 27.2%, expanding margin GAAP EPS of $0.86, up 121%; non-GAAP EPS of $1.07, up 41%. GAAP EPS includes a net gain of $0.13 on strategic investments, (NASDAQ: MercadoLibre MELI). primarily by driven
Q3’19 9.8M Q3’19 7% $0.39 GAAP / Non-GAAP EPS +121% +121% $0.86
Net New Active Accounts Accounts Net New Active +55% 15.2M Key Operating and Financial Metrics Operating Financial and Key 1. NNAs in Q4’18 (13.8M) included 2.9M NNAs from the acquisitions of Hyperwallet and iZettle 2. Includes one-time addition of 10.2M accounts in January 2020 from the acquisition of Honey 3. On an FXN basis 4. For a reconcilia For 4. basis On an FXN 3. the acquisition of Honey from accounts in January included 2020 2.9M the acquisitions of Hyperwallet NNAs from and iZettle 2. Includes one-time addition of 10.2M (13.8M) NNAs in Q4’18 1. tion of Non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section titled “Non-GAAP Measures of Financial Performance” and the subsequent tables at the end of this press release press subsequent tables at the end of this and the Performance” please see the section titled “Non-GAAP Financial tion of Non-GAAP GAAP financial measures, comparable of to the most directly Measures financial measures Financial portfolio credit consumer to Synchrony sale of U.S. for Adjusted 5. ** Not meaningful • • • Sustained outperformance across key financial metrics Sustained outperformance key across Q3’20 Financial Highlights Q3’20 Financial Q3 2020 Results 3 Merchant ServicesMerchant 93% of TPV. 40% on a spot and represented basis and 38% FXN, grew volume 61%. growing $44 billion in TPV, approximately processed Venmo
PayPal expanded its ‘Buy Now Pay Later’PayPal expanded its ‘Buy Now in the U.S. of short-term installment products suite with the introduction product or without taking on additional risk and customer loyalty revenue conversion, drive and U.K. help merchants products These installments. interest-free and pay over a purchase to make paying any additional fees, and enable consumers the Visa network, by and powered SYF) (NYSE: Synchrony Card, issued by Credit the Venmo introduced Venmo In October, experience, and the ability to rewards a personalized customers automatic cash back on every eligible purchase, which gives app. in the Venmo directly manage the card from hold and sell cryptocurrency directly PayPal also announced the launch of a new service enabling its customers to buy, by making it available as a utility cryptocurrency’s their PayPal accounts, and signaled its plans to significantly increase worldwide. at its 28 million merchants for purchases funding source PayPal’s cash, cash equivalents, and investments totaled $17.6 billion as of September equivalents, and investments cash, cash 30, 2020. PayPal’s $8.9 billion as of September debt totaled 30, 2020. PayPal’s of $479 million, declining operations cash flow of $720 million, declining 34%, and free from PayPal generated cash flow of cash flow 40%, and free operations of $4.6 billion, growing from PayPal has generated cash flow 48%. Year-to-date, 43%. $4.0 billion, growing stock, of common 1.8 million shares $350 million to stockholders. returning approximately In Q3’20, PayPal repurchased 15.2 million NNAs to 361 million accounts, up 22%. accounts total active added, bringing transactions, up 30%. 4.0 billion payment up 38% on a spot basis and 36% FXN. $247 billion in TPV, • • 1%. Adjusting growing months basis, acquisition for the account on a trailing twelve per40.1 payment transactions active of Honey in Januaryup 5%. months basis, transactions per 2020, 41.7 payment account on a trailing twelve active
• • • Advancing our priorities Advancing • • • • Strong balance sheet growth and cash-flow generation and cash-flow balance sheetStrong growth • • • Double-digit driving continued engagement and strong momentum growth customer • Strategic Initiatives and Business Updates Strategic Initiatives
Balance Sheet and Liquidity Balance Sheet and Q3’20 OperatingQ3’20 Highlights Q3 2020 Results 4 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 25% 25% 36% FXN YoY Growth YoY 41% 25% 25% 38% 42% 121% 121% (34%) (48%) 621bps 198bps 377bps (190bps) YoY Growth YoY ** ** ** ** $375 $559 $0.31 $0.47 $1,081 $1,081 ($376) ($444) $68,021 4.5% $923 $462 $900 $0.76 13.5% $0.39 15.9% 23.4% $1,096 $4,378 $4,378 Q3 2019 $178,670 PayPal’s Working Capital loan helped my jumpstart PayPal’s I was I needed to grow. inventory business and get the empowering terms and it felt so able to set my own was there. that PayPal know and comforting to Tiffini Gatlin Latched & Hooked Beauty Founder, GA Atlanta, $479 $720 $1.07 11.6% 17.9% $0.86 27.2% 10.8% $1,021 $1,275 $5,459 $5,459 Q3 2020 $246,691
Net revenues Operating margin rate tax Effective Net income perEarnings diluted share cash flow Free Net revenues Operating margin rate tax Effective Net income perEarnings diluted share Net cash provided by operating by activities Net cash provided
PayPal helped Latched & Hooked Founder Founder PayPal helped Latched & Hooked Tiffini her childhood Gatlin turn of styling hustle beauty hair into a lifestyle and brand, people’s and online selling from a website developing her home in Atlanta, GA. As Latched & Hooked access to PayPal provided began taking off, a PayPal Working Capital loan to help Tiffini her truly unique and share expand her business the globe. across with customers product Non-GAAP Total Payment Volume (TPV) Payment Volume Total GAAP ** Not meaningful
Presented in millions, except per share data and percentages per share in millions, except Presented Q3’20 Financial and Operating Highlights Q3’20 Financial Q3 2020 Results 5
approximately $2.08 billion, including estimated stock-based compensation expense and related payroll taxes taxes compensation payroll expense and related $2.08 billion, including estimated stock-based approximately $1.47 billion. of approximately and $0.64 on GAAP earnings per diluted share, impact of acquisitions is estimated to beThe dilutive approximately $0.13 on non-GAAP earnings per diluted share. approximately GAAP and non-GAAP earnings per diluted share exclude the impact of incremental credit loss reserves due to due loss reserves credit the impact of incremental GAAP and non-GAAP exclude earnings per share diluted projections. macroeconomic in the first recognized gains and unrealized guidance includes $0.64 of net realized GAAP earnings per diluted share portfolio. investment strategic to PayPal’s quarters of 2020 related three to PayPal’s related gains $0.14 of net unrealized included approximately In 2019, GAAP earnings per diluted share portfolio. strategic investment months ending DecemberEstimated non-GAAP adjustments of amounts for the twelve reflect 31, 2020 GAAP and non-GAAP earnings per diluted share exclude the impact of incremental credit loss reserves due to loss reserves credit the impact of incremental GAAP and non-GAAP exclude earnings per diluted share projections. macroeconomic gains and unrealized the impact of net realized of 2020, GAAP earnings perIn the fourth quarter excludes diluted share portfolio. investment strategic and losses on PayPal’s gains $0.03 of net unrealized perIn the fourth quarter of 2019, GAAP earnings included approximately diluted share portfolio. investment strategic PayPal’s from Estimated non-GAAP months ending December amounts for the three adjustments of approximately 31, 2020 reflect $385 of approximately taxes compensation payroll expense and related $525 million, including estimated stock-based million. and GAAP earnings per $0.10 on diluted share, impact of acquisitions is estimated to beThe dilutive approximately non-GAAP $0.03 on earnings per diluted share. approximately
• PayPal expects TPV growth to be approximately 30%. to be approximately PayPal expects TPV growth spot in the range of 20%–21% at current rates and 21%–22% on an FXN basis. to grow PayPal expects revenue in the range of 37%–38%, and non-GAAPPayPal expects to grow earnings per GAAP earnings per diluted diluted share in the range of 27%–28%. to grow share • • • • PayPal expects TPV growth on a percentage basis to be on a percentage to mid 30%. the range of low in PayPal expects TPV growth spot 20%–25% at current in the range of on an FXN basis. rates and 20%–25% to grow PayPal expects revenue of 45%–47% and non-GAAP in the range PayPal expects to grow per earnings per GAAP earnings diluted diluted share in the range of 17%–18%. to grow share • • • • •
PayPal Holdings, Inc. will host a conference call to discuss third quarter 2020 results at 2:00 p.m. Pacific Time today. A Pacific Time today. at 2:00 p.m. quarter 2020 results call to discuss third PayPal Holdings, Inc. will host a conference that includes supplemental financial information and a slide presentation call, together with webcast of the conference live the can be comparable GAAP measures, accessed through of certain non-GAAP to their most directly reconciliations measures of the webcast will be accessible for In addition, an archive at https://investor.pypl.com. Relations website Investor company’s same link. the through 90 days Conference Call and Webcast Please see “Non-GAAP Measures” Financial and “Non-GAAP Measures for important of Financial Performance” additional information. Full Year 2020 Revenue and Earnings Guidance and Earnings Revenue 2020 Year Full • • • • • Fourth Quarter 2020 Revenue and Earnings Guidance and Earnings Revenue 2020 Quarter Fourth • Financial Guidance Financial Q3 2020 Results 6
Forward-Looking Statements Forward-Looking of operations, results among other things, the future contains forward-looking to, statements relating release This press financial condition, expectations,reflect PayPal’s and its consolidated subsidiaries that and plans of PayPal Holdings, Inc. “should,” “would,” “will,” such as “may,” words by statements can be identified Forward-looking and forecasts. projections current and “forecast,” “project,” “plan,” “opportunity,” “future,” “strategy,” “intend,” “estimate,” “believe,” “anticipate,” “expect,” “could,” guidance and statements regarding to, not limited may include, but are statements Forward-looking other similar expressions. impact and cryptocurrency initiatives, of PayPal’s year 2020, the timing fourth quarter and full results for the financial projected based upon various statements are businesses. Forward-looking of PayPal’s growth future timing of acquisitions, and projected inherently and are release, this press to PayPal as of the date of as information known estimates and assumptions, as well or implied those predicted could differ materially from actual results uncertainties. Accordingly, risks and subject to numerous the not limited to: include, but are differences that could cause or contribute to such forward-looking statements. Factors by results of operations as business, financial condition and impact of the COVID-19 and indirect pandemic on PayPal’s direct and other business partners; the effect of political, business, customers, suppliers, vendors operations as the well of PayPal’s or crisis and any conditions that or general economic downturn and trade conditions, including any regional economic, market, payment regulatory, exchange rates; the competitive, currency affect payments or e-commerce fluctuations in foreign growth; Braintree, PayPal, PayPal Credit, payment platform, including core and other risks specific association-related to PayPal’s card Xoom, iZettle, Hyperwallet Honey platform, especially and the and other products, as PayPal continues to expand Venmo, and payment methods technologies and support new products across and as new laws and regulations introduce geographically, including on customer choice initiatives, to payments and financial servicesrelated come into effect; the impact of PayPal’s environment ability to successfully compete competitive in an increasingly its funding mix and transaction expense; PayPal’s and services, importancefor its businesses, products, and the increasing including competition for consumers and merchants need and the outcome of legal and regulatory and PayPal’s of digital and mobile payments and mobile commerce; proceedings jurisdictions and applicable in more and services offered tax and litigation risks as its products are ability to manage regulatory, capital allocation or management of operating cash; uncertainty surrounding changes to PayPal’s restrictive; laws become more Union; cyberattacks the European and security withdrawal from the implementation and impact of the United Kingdom’s costs, harm our competitive increase and services revenue, vulnerabilities in PayPal products that could disrupt business, reduce any changes PayPal or lead to liability; the effect of management changes and business initiatives; position or our reputation, and service product to its offerings; the effect of any natural disasters and other business interruptions on PayPal or may make and customer service its technology infrastructure, ability to timely upgrade and develop systems, customers; PayPal’s PayPal’s and performance of its Payments Platform security, ability to maintain the stability, cost; PayPal’s capabilities at reasonable
Non-GAAP Measures Financial defined as “non-GAAP non-GAAP by the SEC including: financial measures includes financial measures” net release This press income, non-GAAP non-GAAPearnings per diluted share, operating income, non-GAAP operating non-GAAP margin, effective non-GAAP please see For an explanation of the foregoing measures, cash flow. and adjusted free cash flow, tax rate, free non- from may be different These measures “Non-GAAP release. Measures of Financial Performance” included in this press under prepared information, which is not of this financial by other companies. The presentation used GAAP financial measures or as a substitute for, intended to be set of accounting rules or principles, is not in isolation of, considered any comprehensive For a principles (GAAP). with generally accepted accounting in accordance and presented the financial information prepared “Non-GAAP see GAAP measures, comparable of these non-GAAP to the most directly reconciliation financial measures Measures “Reconciliation of GAAP “Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin,” of Financial Performance,” Tax Rate to Non-GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS to Non-GAAP Diluted EPS and GAAP Effective “Reconciliation of Operating and and Free Cash Flow Free Cash Flow.” to Cash Flow Adjusted Tax Rate,” Effective Presentation translating by calculated as otherwise are noted. FXN results comparisons, except year-over-year represent rates All growth the comparing by calculated rates are growth rate. FXN prior period the period by exchange the current results local currency amounts in tables are hedging activities. All the impact from period with the prior period excluding current results FXN results, as otherwise Asnoted. millions, except to the nearest certain amounts and rates may dollars, rounded a result, in U.S. presented provided. dollar amounts using the rounded not sum or recalculate Q3 2020 Results 7
Media Relations Contacts Media Relations Amanda Miller amandacmiller@paypal.com 408.219.0563 Josh Criscoe [email protected] 646.667.5065
© 1999-2020 PayPal Holdings, Inc. All rights reserved. Other company and product names may be trademarks of their respective owners. names may be Other company and product © 1999-2020 PayPal Holdings, Inc. All rights reserved. trademarks of their respective Akila Moorthy [email protected] Investor Relations Contacts Relations Investor Gabrielle Rabinovitch [email protected]
Disclosure Channels Disclosure (https://newsroom. the PayPal Newsroom (https://investor.pypl.com), website Relations PayPal Holdings, Inc. uses its Investor handles (@PayPal and @PayPalNews), Twitter (https://www.paypal.com/stories/us), paypal-corp.com/), PayPal Stories Blog YouTube page (https://www.facebook.com/PayPalUSA/), Facebook page (https://www.linkedin.com/company/paypal), LinkedIn in/dan-schulman/), (https://www.linkedin.com/ profile LinkedIn Dan Schulman’s channel (https://www.youtube.com/paypal), Facebook page (https://www. Dan Schulman’s (www.linkedin.com/in/john-rainey-pypl), profile LinkedIn John Rainey’s as a facebook.com/DanSchulmanPayPal/) Instagram page (https://www.instagram.com/dan_schulman/) Dan and Schulman’s means of disclosing information about obligations under Regulation FD. complying with its disclosure the company and for should monitor these investors be these channels may The information that is posted Accordingly, deemed material. through filings with the Commission (“SEC”), releases, press Securities and Exchange public conference channels in addition to PayPal’s calls, and webcasts. More information about factors that could adversely affect PayPal’s results of operations, financial condition and prospects,results of operations, financial condition and information aboutMore affect PayPal’s factors that could adversely or implied in forward-looking statements is included under those expressed to differ from results or that could cause actual and Honey Platform while adding new products and features in a timely fashion; risks that planned acquisitions will not be acquisitions will not risks that planned in a timely fashion; and features new products Platform while adding and Honey may not perform with PayPal may acquire any businesses or at all, and that on contemplated terms, completed in accordance or may be been acquired that have businesses manage, and grow integrate, profitably ability to its expectations; and PayPal’s potential do not include the forward-looking The in this release statements acquisitions or impact of any in the future. acquired hereof. after the date completed that may be and/or announced divestitures of Operations” and Results of Financial Condition Analysis Discussion and in “Management’s and the captions “Risk Factors” 10-Q, copies of which may on Form subsequent quarterly reports 10-K and its on Form annual report most recent PayPal’s at www.sec.gov. website or the SEC’s at https://investor.pypl.com website Relations Investor visiting PayPal’s be by obtained not place undue should you discussed above, the reasons 2, 2020. For speaks as of November release All information in this no obligation to update PayPal assumes on the forward-looking such forward-looking release. in this press statements reliance statements. Q3 2020 Results 8 2019 December 31, $ 7,349 3,412 435 3,972 22,527 800 38,495 2,863 1,693 6,212 $ 778 1,292 51,333 $ 232 24,527 2,087 26,919 73 2,520 4,965 34,404 — — (6,872) 15,588 8,342 (173) 16,885 $ 16,929 44 51,333 2020 (In millions, except par value) (In millions, September 30, September $ 6,112 8,046 482 2,597 30,530 937 48,704 3,439 1,757 9,119 $ 1,146 1,417 65,582 $ 159 32,530 2,457 100 35,246 2,872 8,937 47,055 — — (8,242) 16,248 10,809 (332) 18,483 $ 18,527 44 65,582 PayPal Holdings, Inc. Holdings, PayPal Unaudited Condensed Consolidated Balance Sheets Consolidated Condensed Unaudited Total current assets Total assets Total current liabilities Total liabilities equity Stockholders’ PayPal Total Total equity Total liabilities and equity Cash and cash equivalents cash and Cash investments Short-term net receivable, Accounts net receivable, interest and Loans accounts customer and Funds receivable assets current other and expenses Prepaid payable Accounts customers to due amounts and Funds payable liabilities current other and expenses Accrued payable taxes Income Long-term investments net equipment, and Property Goodwill net assets, Intangible assets Other AND EQUITY LIABILITIES Current liabilities: Deferred tax liability and other long-term liabilities debt Long-term Equity: 1,173 shares 1,172 and authorized; 4,000 shares value; $0.0001 par stock, Common , 31, 2019 respectively December 30, 2020 and September of as outstanding unissued authorized, 100 shares value; $0.0001 par stock, Preferred 31, December 30, 2020 and September of as 105 shares 116 and cost, at stock Treasury 2019, respectively Additional paid-in-capital Retained earnings (loss) income comprehensive other Accumulated interest Noncontrolling ASSETS assets: Current
Q3 2020 Results 9 95 71 144 292 226 999 224 192 2019 $ 757
$ 12,811 4,877 1,177 1,001 1,527 1,239 10,891 1,920 $ 2,144 1,952 $ $ 1.66 1.64 1,174 1,188 95 179 131 384 330 880 571 2020 Nine Months Ended September 30, Nine Months $ 1,024
$ 15,338 5,604 1,375 1,271 1,256 1,910 1,501 13,012 2,326 $ 3,206 2,635 $ $ 2.25 2.22 1,173 1,186 51 31 72 — 22 119 340 390 316 533 401 697 484 2019 (In millions, except per share data) (In millions, $ 273
$ 4,378 1,701 3,681 $ (213) $ 462 $ 0.39 0.39 1,175 1,188 63 45 19 138 127 344 449 471 674 503 977 167 123 2020 Three Months Ended September 30, Three Months PayPal Holdings, Inc. Holdings, PayPal $ 373
$ 5,459 2,022 4,482 $ 1,144 1,021 $ $ 0.87 0.86 1,172 1,190 (1) (1) Unaudited Condensed Consolidated Statements of Income Statements Consolidated Condensed Unaudited (1) (1) Total operating expenses operating Total Transaction expense Transaction losses credit and Transaction Customer support and operations and support Customer Sales and marketing development and Technology General and administrative charges other and Restructuring Basic Diluted Basic Diluted Sales and marketing development and Technology General and administrative Customer support and operations and support Customer Includes stock-based compensation as follows: as compensation stock-based Includes (1) Operating expenses: Operating Net revenues Net
Operating income Operating net (expense), income Other taxes income before Income expense tax Income Net income share: per income Net shares: average Weighted Q3 2020 Results 10 4 76 — 78 — 17 (49) (51) (33) 999 685 736 (473) (530) (122) (170) (130) (103) (470) 2019 $ 220 $ $ 14,984 13,233 1,751
3,837
2,376 (2,509) 5,471
(1,106)
(5,334) (1,292)
17,390 (19,808) (1,111)
3,297
$ 1,952 7 (6) 91 26 72 10 — (15) (93) 523 120 888 999 (463) (640) (973) (115) (120) 2020 Nine Months Ended September 30, Nine Months $ 444 $ $ 17,122 15,743 1,379
10,012
7,822 (3,000) 6,966
(1,370)
(13,266) (1,060) (3,609) 19,733 (28,333)
4,607 1,375
$ 2,635 4 (2) 44 31 — — 17 — (48) (24) (37) (38) (26) 623 922 340 227 266 228 (753) (350) (379) (173) (157) (167) (In millions) 2019 $ $ $ 14,984 11,974 3,010
1,339
(2,509) 4,971
6,853 (6,617)
1,096
$ 462 1 3 13 98 — — — 74 — 12 — (42) (37) (40) (45) 520 720 344 298 364 (882) (370) (241) (209) (229) (759) 2020 Three Months Ended September 30, Three Months $ 374 $ $ 17,122 18,004
1,493
1,904
(3,193)
9,940 (13,489)
$ 1,021 PayPal Holdings, Inc. Holdings, PayPal Unaudited Condensed Consolidated Statements of Cash Flows of Cash Statements Consolidated Condensed Unaudited Transaction and credit losses Depreciation and amortization Stock-based compensation Deferred income taxes investments (Gains) losses on strategic Other Accounts receivable sale, net Changes in loans and interest receivable held for Accounts payable Income taxes payable Other assets and liabilities Changes in assets and liabilities: Cash paid for income taxes, net Cash paid for interest Other financing activities Funds payable and amounts due to customers Repayments under financing arrangements Borrowings under financing arrangements Tax withholdings related to net share settlements of equity awards Tax withholdings related to net share settlements Purchases of treasury stock Proceeds from issuance of common stock Funds receivable Acquisitions, net of cash and restricted cash acquired Maturities and sales of investments Purchases of investments Changes in principal loans receivable, net Proceeds from sales of property and equipment Purchases of property and equipment Adjustments: Net income Supplemental cash flow disclosures: Cash, cash equivalents, and restricted cash at end of period Cash, cash equivalents, and restricted cash at beginning of period Net change in cash, cash equivalents, and restricted cash Effect of exchange rate changes on cash, cash equivalents, and restricted cash Net cash provided by financing activities Cash flows from financing activities: Net cash (used in) provided by investing activities Cash flows from investing activities: Net cash provided by operating activities operating activities: Cash flows from
Q3 2020 Results 11 1 % 2 % 2 % 2 % 2 % 19 % 53 % 19 % 20 % 47 % 19 % 19 % (1) % (1) 18 % 90 % 24 % 10 % 19 % 2019 2019 September 30, $ 2,327 2,051 $ 4,378 September 30, $ 3,955 423 $ 4,378 1 % 9 % 12 % 19 % 53 % 15 % 16 % 17 % 47 % 13 % 17 % 18 % 15 % 18 % 91 % 14 % 13 % 17 % 2019 2019 December 31, $ 2,606 2,355 December 31, $ 4,961 $ 4,535 426 $ 4,961 2 % 9 % (5) % (5) (9) % (9) (7) % (7) 13 % 53 % 11 % 14 % 47 % 12 % 13 % (7) % (7) (5) % (5) (7) % (7) 13 % 91 % 12 % 2020 2020 March 31, March 31, $ 2,469 2,149 $ 4,618 $ 4,215 403 $ 4,618 Three Months Ended Three Months Ended 7 % 6 % 15 % 50 % 21 % 30 % 36 % 50 % 14 % 22 % 25 % 17 % 28 % 94 % 14 % 22 % (26) % (26) (22) % (22) (In millions, except percentages) (In millions, except percentages) 2020 2020 June 30, June 30, $ 4,945 316 $ 5,261 $ 2,651 2,610 $ 5,261 3 % 7 % 4 % 6 % 1 % 4 % (9) % (9) 28 % 93 % 21 % 25 % 21 % 52 % 29 % 30 % 48 % 25 % 25 % 2020 2020 September 30, $ 5,076 383 $ 5,459 September 30, $ 2,820 2,639 $ 5,459 PayPal Holdings, Inc. Holdings, PayPal : Net revenues derived primarily from revenue earned through partnerships, referral fees, subscription Unaudited Summary of Consolidated Net Revenues of Consolidated Summary Unaudited : Net transaction fees charged to merchants and consumers on a transaction basis primarily based on the volume of activity, or Transaction revenues Total Payment Volume (“TPV”), completed on our Payments Platform, including our core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and Hyperwallet products and services. We earn additional fees on border transactions transactions (i.e., where transactions where we the merchant perform and consumer currency are in different conversion, countries), to when facilitate the we instant transfer enable of funds cross- for miscellaneous fees. or Venmo account to their debit card or bank account, and other customers from their PayPal our Revenues from other value added services fees, gateway fees, and other services we provide to our merchants and consumers. We also earn revenues from interest and fees earned primarily on balances. and interest earned on certain assets underlying customer our portfolio of loans receivable, • • Current quarter vs prior quarter Current quarter vs prior year quarter Percentage of total Current quarter vs prior year quarter Current quarter vs prior quarter Percentage of total Current quarter vs prior quarter Current quarter vs prior year quarter Current quarter vs prior quarter Current quarter vs prior year quarter Percentage of total Current quarter vs prior quarter Current quarter vs prior year quarter (FXN) Current quarter vs prior year quarter Percentage of total Current quarter vs prior quarter Current quarter vs prior year quarter (FXN) Current quarter vs prior year quarter Net Revenues by Type Transaction revenues Revenues from other value added services Total net revenues U.S. net revenues Net Revenues by Geography International net revenues Total net revenues
Our revenues are classified into the following two categories: two categories: are classified into the following Our revenues Q3 2020 Results 12 4 % 2 % 4 % 3 % 9 % 25 % 25 % 16 % 27 % 0.95 % 0.19 % 53.4 % 2019 September 30, September 295 3,090 39.8 $ 178,670 2 % 3 % 12 % 12 % 21 % 22 % 10 % 14 % 22 % 0.96 % 0.19 % 53.8 % 2019 December 31, 305 3,461 40.6 $ 199,404 7 % 4 % (6) % (6) % (3) % (4) 15 % 18 % 17 % 19 % 0.91 % 0.31 % 49.5 % 2020 March 31, 325 3,261 39.4 $ 190,567 Three Months Ended Three Months 7 % (1) % (1) — % 15 % 26 % 16 % 29 % 21 % 30 % (In millions, except percentages) (In millions, 0.83 % 0.20 % 56.6 % 2020 June 30, 346 3,742 39.2 $ 221,731 4 % 7 % 2 % 1 % 30 % 11 % 38 % 22 % 36 % 0.82 % 0.14 % 56.7 % 2020 PayPal Holdings, Inc. Holdings, PayPal September 30, September $ 246,691 361 4,013 40.1 Unaudited Supplemental Operating Data Operating Supplemental Unaudited (3) (2) (6) (5) (4) (7) (1) Number of payment transactions per active account reflects the total number of payment transactions within the previous 12-month period, divided by An active account is an account registered directly with PayPal or a platform access partner that has completed a transaction on our Payments Platform or Number of payment transactions are the total number of payments, net of payment reversals, successfully completed on our Payments Platform or enabled Transaction margin is total revenue less transaction expense and transaction and credit loss, divided by total revenue. Transaction expense rate is calculated by dividing transaction expense by TPV. Transaction expense rate is calculated by dividing Transaction and credit loss rate is calculated by dividing transaction and credit loss by TPV. Total Payment Volume (TPV) is the value of payments, net of payment reversals, successfully completed on our Payments Platform or enabled by PayPal Current quarter vs prior quarter Current quarter vs prior quarter Current quarter vs prior year quarter Current quarter vs prior quarter Current quarter vs prior Current quarter vs prior year quarter Current quarter vs prior quarter Current quarter vs prior year quarter Current quarter vs prior year quarter Current quarter vs prior (FXN) Current quarter vs prior year quarter transactions. via a partner payment solution, not including gateway-exclusive active accounts at the end of the period. (6) (7) (4) (5) through our Honey Platform, not including gateway-exclusive transactions, within the past 12 months. through our Honey Platform, not including gateway-exclusive (2) (3) Amounts in the table are rounded to the nearest million, amounts provided. except as otherwise noted. As a result, certain amounts (1) may not recalculate using the rounded by PayPal via a partner payment solution, not including gateway-exclusive transactions. by PayPal via a partner payment solution, not including Active accounts Transaction and Credit Loss Rate Transaction Margin Payment transactions per active account Payment transactions Total Payment Volume Number of payment transactions Number of payment Transaction Expense Rate Q3 2020 Results 13 These are
. This consists of expenses for equity awards under our equity This consists of expenses for equity awards PayPal Holdings, Inc. Holdings, PayPal . We record gains and losses on our strategic investments related to our interest in companies . We record gains and losses on our strategic Non-GAAP Measures of Financial Performance of Financial Measures Non-GAAP This adjustment is made to present stock-based compensation and the other amounts described ts and goodwill in connection with acquisitions intangible assets and goodwill in connection with acquisitions We incur amortization or impairment of acquired
t and disposal costs. The company excludes significant and other exit and disposal costs. The company excludes These consist of expenses for employee severance om our non-GAAP measures primarily because they are non-cash expense from our non-GAAP measures primarily because incentive plans. We exclude stock-based compensation of exercises and ve are dependent on our stock price and the timing and size sting of expenses. The related employer payroll taxes it correlates to the limited to no control, and as such management does not believe equity awards, over which management has operation of our business. from the acquisiti assets, impairment of goodwill, and transaction expenseson or Amortization or impairment of acquired intangible disposal of a business. h have not significant gains, losses, benefits, or charges during a period that are the result of isolated events or transactions whic its occurred frequently in the past and are not expected to occur regularly in the future. The company excludes these amounts from non-GAAP results because management does not believe they are indicative of our current or ongoing operating results. Tax effect of non-GAAP adjustments. above on an after-tax basis consistent with the presentation of non-GAAP net income Stock-based compensation expense and related employer payroll taxes. Stock-based compensation expense and related and theref transactional expenses from the acquisition or disposal of a businessore exclude and may incur significant gains or losses or are reflective of our We exclude these items because management does not believe they these amounts from our non-GAAP measures. ongoing operating results. Restructuring. results. does not believe they are reflective of ongoing operating restructuring charges primarily because management Gains and losses on strategic investments uch gains and losses in full because we lack control over the We exclude such gains and losses in full because we lack operations over which we have limited control and visibility. of the investee and the related gains and losses are not indicative of our ongoing operating results. Certain other significant gains, losses, benefits, or charges that are not indicative of the company’s core operating results. nd operating In addition to the non-GAAP measures discussed above, the company also analyzes certain measures, including net revenues a ves that expenses, on an FX-neutral basis to better measure the comparability of operating results between periods. The company belie nues and changes in foreign currency exchange rates are not indicative of the company’s operations and evaluating growth in net reve h operating expenses on an FX-neutral basis provides an additional meaningful and comparable assessment of these measures to bot th the prior period’s management and investors. FX-neutral results are calculated by translating the current period’s local currency results wi od’s results, exchange rate. FX-neutral growth rates are calculated by comparing the current period’s FX-neutral results by the prior peri excluding the impact from hedging activities. operty and The company also uses free cash flow, a non-GAAP measure. Free cash flow represents operating cash flows less purchases of pr nvestors equipment. The company considers free cash flow to be a liquidity measure that provides useful information to management and i n be used to, about the amount of cash generated by the business after the purchases of property, buildings, and equipment, which can the itation of the among other things, invest in the company’s business, make strategic acquisitions and investments, and repurchase stock. A lim n the company’s cash utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease i balance for the period. atements presented in accordance with generally accepted accounting with generally accepted in accordance financial statements presented consolidated the company’s condensed To supplement measures These non-GAAP of financial performance. of certain components uses non-GAAP measures or GAAP, the company principles, margin, non- non-GAAP operating operating income, per share, non-GAAP non-GAAP diluted earnings net income, include non-GAAP free cash flow. flow, and adjusted tax rate, free cash GAAP effective and may be with GAAP prepared in accordance or an alternative to, measures in accordance with, measures are not These non-GAAP measures are not based on any comprehensive set addition, these non-GAAP measures used by other companies. In different from non-GAAP not reflect all of the amounts associated with the ations in that they do principles. Non-GAAP measures have limit of accounting rules or should only be used to evaluate the company’s h GAAP. These measures as determined in accordance wit company’s results of operations P measures. conjunction with the corresponding GAA results of operations in included in this press release can be found in the all non-GAAP measures directly comparable GAAP measure of Reconciliation to the most press release. tables included in this company’s current financial performance and its all understanding of the are provided to enhance investors’ over These non-GAAP measures ent and provide useful information to both managem Specifically, the company believes the non-GAAP measures prospects for the future. ng results and not be indicative of its core operati certain expenses, gains and losses, as the case may be, that may investors by excluding ny believes that results to investors, the compa because the company has historically reported certain non-GAAP business outlook. In addition, reporting. company’s financial measures provides consistency in the the inclusion of non-GAAP measures that further below, the company’s management uses financial do not include For its internal budgeting process, and as discussed of acquire payroll taxes on stock-based compensation, amortization or impairmentd intangible stock-based compensation expense, employer that are charges, certain other gains, losses, benefits, or charges not indicative of the assets, impairment of goodwill, restructuring-related GAAP measures, the taxes associated with the foregoing. In addition to the corresponding company’s core operating results, and the income non-GAAP measures in reviewing the financial results of the company. company’s management also uses the foregoing non-GAAP operating from non-GAAP net income, non-GAAP diluted earnings per share, The company excludes the following items non-GAAP effective tax rate: income, non-GAAP operating margin, and
Q3 2020 Results 14
December 31, 2018. 31, December
June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018 include (gains) losses related to the sale of our U.S. consumer credit receivables portfolio executed during the year ended ended year the during executed portfolio receivables credit consumer U.S. our of sale the to related losses (gains) include 2018 30, September and 2018, 31, December 2019, 31, March 2019, 30, June •
December 31, 2019 includes an award for a legal proceeding. proceeding. legal a for award an includes 2019 31, December •
for a legal proceeding based on the final settlement. settlement. final the on based proceeding legal a for
March 31, 2020 includes $15 million of expenses related to pre-acquisition contingencies of an acquired company identified outside of the measurement period and an adjustment of $4 million to an award award an to million $4 of adjustment an and period measurement the of outside identified company acquired an of contingencies pre-acquisition to related expenses of million $15 includes 2020 31, March •
ovements in conjunction with exiting certain leased properties. leased certain exiting with conjunction in ovements impr leasehold related and asset lease right-of-use for charges
June 30, 2020 includes $7 million of additional expenses related to pre-acquisition contingencies of an acquired company identified outside of the measurement period and $21 million of asset impairment impairment asset of million $21 and period measurement the of outside identified company acquired an of contingencies pre-acquisition to related expenses additional of million $7 includes 2020 30, June •
, include the following: following: the include , applicable as presented, periods the for ended months three The
(1) (1)
Non-GAAP operating margin operating Non-GAAP 21 % 21 % 22 % 23 % 23 % 23 % 24 % 20 % 28 % 27
Non-GAAP operating income operating Non-GAAP $ 787 787 $ 913 $ 934 $ 998 $ 1,026 $ 1,173 $ 908 $ 1,485 $ 1,485 $
adjustments 297 297 315 416 293 329 374 510 534 508
Total non-GAAP operating income income operating non-GAAP Total
Acquisition related transaction expense transaction related Acquisition 17 17 7 — — — 3 20 — —
28 28 12 (5) (2) — 23 11 28 — Other
(1)
Restructuring — — — 78 — — — 29 26 19
Amortization of acquired intangible assets intangible acquired of Amortization 33 33 59 57 51 52 51 114 115 113
related employer payroll taxes payroll employer related 219 219 237 286 244 277 297 336 365 376
Stock-based compensation expense and and expense compensation Stock-based
GAAP operating income operating GAAP $ 490 490 $ 598 $ 518 $ 705 $ 697 $ 799 $ 398 $ 951 $ 977 $
(unaudited)
(In millions, except percentages) except millions, (In
2020 2020 2019 2019 2020 2019 2018 2018 2019
September 30, 30, September June 30, 30, June September 30, 30, September 31, December 31, March June 30, 30, June September 30, 30, September 31, December 31, March
Three Months Ended Months Three
argin M Operating Non-GAAP to Margin Operating GAAP of Reconciliation PayPal Holdings, Inc. Holdings, PayPal Q3 2020 Results 14 14 Results 2020 Q3
Q3 2020 Results 15
of intellectual property. intellectual of transfer intra-group to related million $11 and Act Tax the o t related million $3 of expense tax includes 2018 30, September •
y. propert intellectual of transfer intra-group to related illion m $9 of expense tax and Act") ("Tax Act Jobs and Cuts Tax the o t related million $15 of benefit tax includes 2018 31, December •
tual property. tual intellec of transfer intra-group to related expense (benefit) x ta include 2019 31, December and 2020, 31, March 2020, 30, June •
, include the following: following: the include , applicable as presented, periods the for ended months three The
(2) (2)
m 8-K filed with the SEC on April 9, 2020. 9, April on SEC the with filed 8-K m For our in described as reclassification of impact the Reflects
(1) (1)
Non-GAAP effective tax rate tax effective Non-GAAP 16 % 16 % 17 % 18 % 17 % 14 % 17 % 12 % 13 % 12
income (2) % (2) % 2 % 11 % 4 % 9 % (24) % (56) % (2) % 1
Tax effect of non-GAAP adjustments to net net to adjustments non-GAAP of effect Tax
GAAP effective tax rate tax effective GAAP 18 % 18 % 15 % 7 % 13 % 5 % 41 % 68 % 15 % 11
calculation 1,199 1,199 1,196 1,188 1,187 1,188 1,187 1,185 1,184 1,190
Shares used in non-GAAP diluted share share diluted non-GAAP in used Shares
Shares used in GAAP diluted share calculation share diluted GAAP in used Shares 1,199 1,199 1,196 1,188 1,187 1,188 1,187 1,185 1,184 1,190
Non-GAAP Non-GAAP $ 0.58 0.58 $ 0.65 $ 0.66 $ 0.71 $ 0.76 $ 0.83 $ 0.66 $ 1.07 $ 1.07 $
GAAP GAAP $ 0.36 0.36 $ 0.49 $ 0.56 $ 0.69 $ 0.39 $ 0.43 $ 0.07 $ 1.29 $ 0.86 $
Diluted net income per share: per income net Diluted
Non-GAAP net income net Non-GAAP $ 695 695 $ 783 $ 786 $ 848 $ 900 $ 988 $ 786 $ 1,263 $ 1,275 $
(52) (52) (54) (117) (50) (119) (85) (191) 104 (45) Tax effect of non-GAAP adjustments non-GAAP of effect Tax
(1)
14 14 (6) — — — 230 259 (17) — Other
(2)
— — (56) (180) (218) 228 (38) 124 (888) (209) (Gains) losses on strategic investments strategic on losses (Gains)
(1)
508 508 297 297 315 416 293 329 374 510 534 (see table above) table (see
Non-GAAP operating income adjustments adjustments income operating Non-GAAP
Non-GAAP adjustments to net income: net to adjustments Non-GAAP
GAAP net income net GAAP 436 436 584 667 823 462 507 84 1,530 1,021
123 123 97 97 102 50 120 22 347 179 269 GAAP income tax expense tax income GAAP
GAAP income before income taxes income before income GAAP $ 533 533 $ 686 $ 717 $ 943 $ 484 $ 854 $ 263 $ 1,799 $ 1,144 $
(unaudited)
(In millions, except per share data and percentages) and data share per except millions, (In
2020 2019 2019 2020 2020 2019 2018 2018 2019
September 30, 30, September September 30, 30, September 31, December 31, March 30, June June 30, 30, June September 30, 30, September 31, December 31, March
Three Months Ended Months Three
and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate Tax Effective Non-GAAP to Rate Tax Effective GAAP and
GAAP Diluted EPS to Non-GAAP Diluted EPS, EPS, Diluted Non-GAAP to EPS Diluted GAAP
Reconciliation of GAAP Net Income to Non-GAAP Ne Non-GAAP to Income Net GAAP of Reconciliation t Income, Income, t Q3 2020 Results 15 15 Results 2020 Q3
Q3 2020 Results 16
Adjusted free cash flow cash free Adjusted $ 772 772 $ 910 $ 809 $ 1,035 $ 923 $ 1,090 $ 1,298 $ 2,190 $ 479 $
portfolio on cash flow from operating activities operating from flow cash on portfolio (3,675) (3,675) — — — — — — — —
related to our U.S. consumer credit receivables receivables credit consumer U.S. our to related
Impact of held for sale accounting presentation presentation accounting sale for held of Impact
Free cash flow cash Free 4,447 4,447 910 809 1,035 923 1,090 1,298 2,190 479
Less: Purchases of property and equipment and property of Purchases Less: (223) (223) (224) (218) (139) (173) (174) (206) (193) (241)
Net cash provided by operating activities operating by provided cash Net 4,670 4,670 1,134 1,027 1,174 1,096 1,264 1,504 2,383 720
(In millions/unaudited) (In
2020 2020 2019 2019 2020 2019 2018 2018 2019
September 30, 30, September June 30, 30, June September 30, 30, September 31, December 31, March June 30, 30, June September 30, 30, September 31, December 31, March
Three Months Ended Months Three
usted Free Cash Flow Cash Free usted Adj and Flow Cash Free to Flow Cash Operating of Reconciliation PayPal Holdings, Inc. Holdings, PayPal Q3 2020 Results 16 16 Results 2020 Q3