Q3 2023 Results
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PayPal Holdings, Inc.
Non-GAAPMeasures of Financial Performance
To supplement the company’s condensed consolidated financial statements presented in accordance with generally accepted accounting
principles, or GAAP, the company uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include
non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating 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 of all non-GAAP measures to the most directly comparable GAAP measures can be found in the subsequent 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 earnings 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.
Gains and losses on strategic investments. The gains and losses we record on our strategic investments are tied to the performance of the
companies that we invest in.We exclude such gains and losses in full because the operations 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.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 our 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.
Free cash flow represents operating cash flows less purchases of property and equipment. The company uses free cash flow as 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 investments, 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.