EX-99.1 2 googexhibit991q42017.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

Alphabet Announces Fourth Quarter and Fiscal Year 2017 Results
MOUNTAIN VIEW, Calif. – February 1, 2018 – Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter and fiscal year ended December 31, 2017.
"Our business is driving great growth, with 2017 revenues of $110.9 billion, up 23% year on year, and fourth quarter revenues of $32.3 billion, up 24% year on year. Our full year operating income growth continues to underscore our core strength, and on top of this, we continue to make substantial investments for the long-term in exciting new businesses," said Ruth Porat, CFO of Alphabet.
Q4 2017 financial highlights
In order to facilitate comparison of current quarter performance to prior periods, this summary table highlights the impact of the U.S. Tax Cuts and Jobs Act (Tax Act):
Q4 2017 summary results reflecting the impact of the Tax Act
 
Including
(GAAP) .

 
Excluding

Revenues

$32,323

 

$32,323

Operating income

$7,664

 

$7,664

Provision for income taxes

$11,038

 

$1,181

Net (loss) income

($3,020
)
 

$6,837

Effective tax rate
138
%
 
15
%
Diluted EPS

($4.35
)
 

$9.70

The following summarizes our consolidated financial results for the quarters ended December 31, 2016 and 2017 (in millions, except for per share information, effective tax rate, and number of employees; unaudited), reported on a GAAP basis including the impact of the Tax Act (except for constant currency revenues information):
 
Three Months Ended December 31, 2016
 
Three Months Ended December 31, 2017
Revenues

$26,064

 

$32,323

Increase in revenues year over year
22
%
 
24
%
Increase in constant currency revenues year over year
24
%
 
24
%
 
 
 
 
Operating income

$6,639

 

$7,664

Operating margin
25
%
 
24
%
 
 
 
 
Net income (loss)

$5,333

 

($3,020
)
Diluted EPS

$7.56

 

($4.35
)
Diluted shares (in thousands)
700,221

 
694,604

 
 
 
 
Effective tax rate
22
%
 
138
%
Number of employees
72,053

 
80,110




Q4 2017 supplemental information
Segment revenues and operating results (in millions; unaudited):
 
Three Months Ended December 31, 2016
 
Three Months Ended December 31, 2017
Google properties revenues

$17,968

 

$22,237

Google Network Members' properties revenues
4,431

 
4,990
Google advertising revenues
22,399

 
27,227
Google other revenues
3,403

 
4,687
Google segment revenues

$25,802

 

$31,914

Other Bets revenues

$262

 

$409

 
 
 
 
Google operating income

$7,883

 

$8,763

Other Bets operating loss

($1,088
)
 

($916
)
Traffic acquisition costs (TAC) to Google Network Members and distribution partners (in millions; unaudited):
 
Three Months Ended December 31, 2016
 
Three Months Ended December 31, 2017
TAC to Google Network Members

$3,082

 

$3,674

TAC to Google Network Members as % of Google Network Members' properties revenues
70
%
 
74
%
TAC to distribution partners

$1,766

 

$2,776

TAC to distribution partners as % of Google properties revenues
10
%
 
12
%
Total TAC

$4,848

 

$6,450

Total TAC as % of Google advertising revenues
22
%
 
24
%
Paid clicks and cost-per-click information (unaudited):
 
Change from Q4 2016 to Q4 2017 (YoY)
 
Change from Q3 2017 to Q4 2017 (QoQ)
Aggregate paid clicks
43
 %
 
18
 %
Paid clicks on Google properties
48
 %
 
19
 %
Paid clicks on Google Network Members' properties
13
 %
 
9
 %
 
 
 
 
Aggregate cost-per-click
(14
)%
 
(6
)%
Cost-per-click on Google properties
(16
)%
 
(7
)%
Cost-per-click on Google Network Members' properties
(4
)%
 
1
 %
Impact of the Tax Act
The Tax Act was enacted on December 22, 2017 and resulted in additional tax expense of $9.9 billion in the fourth quarter of 2017 primarily due to the one-time transition tax on accumulated foreign subsidiary earnings and deferred tax impacts.
Other announcements
On January 31, 2018, the Board of Directors (Board) of Alphabet authorized the company to repurchase up to an additional $8,589,869,056 of its Class C capital stock. The repurchase is expected to be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans.
On January 31, 2018, the Board appointed John L. Hennessy to serve as Chair of Alphabet’s Board. Mr. Hennessy has served as a member of the Board since April 2004 and Lead Independent Director since April 2007.



Webcast and conference call information
A live audio webcast of our fourth quarter 2017 earnings release call will be available at http://abc.xyz/investor. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, is also available on that site.
We also provide announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs, on our investor relations website (http://abc.xyz/investor).
Forward-looking statements
This press release may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016 and our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, which are on file with the SEC and are available on our investor relations website at http://abc.xyz/investor and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2017. All information provided in this release and in the attachments is as of February 1, 2018. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to the company on the date hereof. We undertake no duty to update this information unless required by law.
About 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: operating income, excluding the impact of the Q2 2017 European Commission fine (EC fine); provision for income taxes, excluding the impact of the Tax Act; net income, excluding the impact of the Tax Act; effective tax rate, excluding the impact of the Tax Act; diluted earnings per share, excluding the impact of the Tax Act; free cash flow; constant currency revenues; and constant currency revenue growth. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain items that may not be indicative of our recurring core business operating results, such as our revenues excluding the impact of foreign exchange rate movements and hedging activities or our financial performance excluding one-time charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.
There are a number of limitations related to the use of non-GAAP financial measures, such as the components of the expenses that we exclude in our calculation of non-GAAP financial measures may differ from our peer companies. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their relevant financial measures in accordance with GAAP.
For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures,” "Reconciliation from net cash provided by operating activities to free cash flow," and "Reconciliation from GAAP revenues to non-GAAP constant currency revenues" included at the end of this release.
Contact
Investor relations                    Media
investor-relations@abc.xyz                press@abc.xyz




Alphabet Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts which are reflected in thousands and par value per share amounts)
 
December 31, 2016
 
December 31,
2017
 
 
 
(unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
12,918

 
$
10,715

Marketable securities
73,415

 
91,156

Total cash, cash equivalents, and marketable securities
86,333

 
101,871

Accounts receivable, net of allowance of $467 and $674
14,137

 
18,336

Income taxes receivable, net
95

 
369

Inventory
268

 
749

Other current assets
4,575

 
2,983

Total current assets
105,408

 
124,308

Non-marketable investments
5,878

 
7,813

Deferred income taxes
383

 
680

Property and equipment, net
34,234

 
42,383

Intangible assets, net
3,307

 
2,692

Goodwill
16,468

 
16,747

Other non-current assets
1,819

 
2,672

Total assets
$
167,497

 
$
197,295

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,041

 
$
3,137

Accrued compensation and benefits
3,976

 
4,581

Accrued expenses and other current liabilities
6,144

 
10,177

Accrued revenue share
2,942

 
3,975

Deferred revenue
1,099

 
1,432

Income taxes payable, net
554

 
881

Total current liabilities
16,756

 
24,183

Long-term debt
3,935

 
3,969

Deferred revenue, non-current
202

 
340

Income taxes payable, non-current
4,677

 
12,812

Deferred income taxes
226

 
430

Other long-term liabilities
2,665

 
3,059

Total liabilities
28,461

 
44,793

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding
0

 
0

Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 691,293 (Class A 296,992, Class B 47,437, Class C 346,864) and 694,783 (Class A 298,470, Class B 46,972, Class C 349,341) shares issued and outstanding
36,307

 
40,247

Accumulated other comprehensive loss
(2,402
)
 
(992
)
Retained earnings
105,131

 
113,247

Total stockholders’ equity
139,036

 
152,502

Total liabilities and stockholders’ equity
$
167,497

 
$
197,295






Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2016
 
2017
 
2016
 
2017
 
(unaudited)
 
 
 
(unaudited)
Revenues
$
26,064

 
$
32,323

 
$
90,272

 
$
110,855

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
10,661

 
14,267

 
35,138

 
45,583

Research and development
3,622

 
4,306

 
13,948

 
16,625

Sales and marketing
3,118

 
4,310

 
10,485

 
12,893

General and administrative
2,024

 
1,776

 
6,985

 
6,872

European Commission fine
0

 
0

 
0

 
2,736

Total costs and expenses
19,425

 
24,659

 
66,556

 
84,709

Income from operations
6,639

 
7,664

 
23,716

 
26,146

Other income (expense), net
218

 
354

 
434

 
1,047

Income before income taxes
6,857

 
8,018

 
24,150

 
27,193

Provision for income taxes
1,524

 
11,038

 
4,672

 
14,531

Net income (loss)
$
5,333

 
$
(3,020
)
 
$
19,478

 
$
12,662

 
 
 
 
 
 
 
 
Basic earnings per share of Class A and B common stock and Class C capital stock
$
7.73

 
$
(4.35
)
 
$
28.32

 
$
18.27

Diluted earnings per share of Class A and B common stock and Class C capital stock
$
7.56

 
$
(4.35
)
 
$
27.85

 
$
18.00






Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2016
 
2017
 
2016
 
2017
 
(unaudited)
 
 
 
(unaudited)
Operating activities
 
 
 
 
 
 
 
Net income (loss)
$
5,333

 
$
(3,020
)
 
$
19,478

 
$
12,662

Adjustments:
 
 
 
 
 
 
 
Depreciation and impairment of property and equipment
1,464

 
1,831

 
5,267

 
6,103

Amortization and impairment of intangible assets
223

 
195

 
877

 
812

Stock-based compensation expense
1,846

 
1,847

 
6,703

 
7,679

Deferred income taxes
(157
)
 
16

 
(38
)
 
258

Loss on marketable and non-marketable investments, net
71

 
34

 
275

 
194

Other
57

 
38

 
174

 
137

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
Accounts receivable
(2,279
)
 
(3,049
)
 
(2,578
)
 
(3,768
)
Income taxes, net
972

 
9,076

 
3,125

 
8,211

Other assets
198

 
(78
)
 
312

 
(2,164
)
Accounts payable
(128
)
 
673

 
110

 
731

Accrued expenses and other liabilities
1,177

 
1,770

 
1,515

 
4,891

Accrued revenue share
455

 
773

 
593

 
955

Deferred revenue
181

 
162

 
223

 
390

Net cash provided by operating activities
9,413

 
10,268

 
36,036

 
37,091

Investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(3,078
)
 
(4,307
)
 
(10,212
)
 
(13,184
)
Proceeds from disposals of property and equipment
14

 
18

 
240

 
99

Purchases of marketable securities
(13,550
)
 
(13,486
)
 
(84,509
)
 
(92,195
)
Maturities and sales of marketable securities
12,516

 
11,371

 
66,895

 
73,959

Purchases of non-marketable investments
(247
)
 
(874
)
 
(1,109
)
 
(1,745
)
Maturities and sales of non-marketable investments
305

 
318

 
494

 
533

Cash collateral related to securities lending
0

 
0

 
(2,428
)
 
0

Investments in reverse repurchase agreements
0

 
0

 
450

 
0

Acquisitions, net of cash acquired, and purchases of intangible assets
(662
)
 
(14
)
 
(986
)
 
(287
)
Proceeds from collection of notes receivable
0

 
0

 
0

 
1,419

Net cash used in investing activities
(4,702
)
 
(6,974
)
 
(31,165
)
 
(31,401
)
Financing activities
 
 
 
 
 
 
 
Net payments related to stock-based award activities
(879
)
 
(1,055
)
 
(3,304
)
 
(4,166
)
Repurchases of capital stock
0

 
(2,101
)
 
(3,693
)
 
(4,846
)
Proceeds from issuance of debt, net of costs
0

 
1,593

 
8,729

 
4,291

Repayments of debt
(13
)
 
(1,615
)
 
(10,064
)
 
(4,377
)
Proceeds from sale of subsidiary shares
0

 
0

 
0

 
800

Net cash used in financing activities
(892
)
 
(3,178
)
 
(8,332
)
 
(8,298
)
Effect of exchange rate changes on cash and cash equivalents
(307
)
 
18

 
(170
)
 
405

Net increase (decrease) in cash and cash equivalents
3,512

 
134

 
(3,631
)
 
(2,203
)
Cash and cash equivalents at beginning of period
9,406

 
10,581

 
16,549

 
12,918

Cash and cash equivalents at end of period
$
12,918

 
$
10,715

 
$
12,918

 
$
10,715






Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures
The following table presents non-GAAP financial measures, excluding the impact of the Tax Act (in millions, except share amounts which are reflected in thousands and per share amounts, unaudited):
 
Three Months Ended December 31, 2017
Provision for income taxes (GAAP)
$
11,038

Exclude impact of the Tax Act
(9,857
)
Provision for income taxes, excluding the impact of the Tax Act (Non-GAAP)
$
1,181

Effective tax rate (GAAP)
138
%
Effective tax rate, excluding the impact of the Tax Act (Non-GAAP)
15
%
 
 
Net loss (GAAP)
$
(3,020
)
Exclude impact of the Tax Act
9,857

Net income, excluding the impact of the Tax Act (Non-GAAP)
$
6,837

 
 
Diluted earnings per share (GAAP)
$
(4.35
)
Diluted earnings per share, excluding the impact of the Tax Act (Non-GAAP)
$
9.70

Shares used in GAAP diluted per share calculation (in thousands)
694,604

Shares used in non-GAAP diluted per share calculation (in thousands)
705,079

The following table presents non-GAAP financial measures, excluding the impact of the EC fine (in millions, unaudited):
 
Twelve Months Ended December 31, 2017
Operating income (GAAP)
$
26,146

Exclude impact of the EC fine
2,736

Operating income, excluding the impact of the EC fine (Non-GAAP)
$
28,882


Non-GAAP financial measures: Effective tax rate, excluding the impact of the Tax Act, is calculated by using provision for income taxes, excluding the impact of the Tax Act, divided by income before income taxes. Diluted earnings per share, excluding the impact of the Tax Act, is calculated by using net income, excluding the impact of the Tax Act, divided by total weighted average outstanding shares, on a fully-diluted basis for non-GAAP net income.





Reconciliation from net cash provided by operating activities to free cash flow (in millions, unaudited):
We provide free cash flow because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in our business and acquisitions, and to strengthen our balance sheet.
 
Three Months Ended December 31, 2017
Net cash provided by operating activities
$
10,268

Less: purchases of property and equipment
(4,307
)
Free cash flow
$
5,961

Free cash flow: We define free cash flow as net cash provided by operating activities less capital expenditures.





Reconciliation from GAAP revenues to non-GAAP constant currency revenues (in millions, unaudited):
We provide non-GAAP constant currency revenues and growth because they facilitate the comparison of current results to historic performance by excluding the impact of foreign exchange rate movements and hedging activities, which are not indicative of our core operating results.
 
Three Months Ended December 31, 2017
 
Three Months Ended December 31, 2017
 
YoY
(using Q4'16's FX rates)
 
QoQ
(using Q3'17's FX rates)
EMEA revenues (GAAP)
$
10,313

 
$
10,313

Exclude foreign exchange impact on Q4'17 revenues using Q4'16 rates
(562
)
 
N/A

Exclude foreign exchange impact on Q4'17 revenues using Q3'17 rates
N/A

 
(38
)
Exclude hedging impact recognized in Q4'17
175

 
175

EMEA constant currency revenues (non-GAAP)
$
9,926

 
$
10,450

Prior period EMEA revenues, excluding hedging impact (non-GAAP)
$
8,111

 
$
9,258

EMEA revenue growth (GAAP)
24
%
 
13
%
EMEA constant currency revenue growth (non-GAAP)
22
%
 
13
%
 
 
 
 
APAC revenues (GAAP)
$
4,687

 
$
4,687

Exclude foreign exchange impact on Q4'17 revenues using Q4'16 rates
59

 
N/A

Exclude foreign exchange impact on Q4'17 revenues using Q3'17 rates
N/A

 
41

Exclude hedging impact recognized in Q4'17
9

 
9

APAC constant currency revenues (non-GAAP)
$
4,755

 
$
4,737

Prior period APAC revenues, excluding hedging impact (non-GAAP)
$
3,608

 
$
4,217

APAC revenue growth (GAAP)
30
%
 
12
%
APAC constant currency revenue growth (non-GAAP)
32
%
 
12
%
 
 
 
 
Other Americas revenues (GAAP)
$
1,895

 
$
1,895

Exclude foreign exchange impact on Q4'17 revenues using Q4'16 rates
(37
)
 
N/A

Exclude foreign exchange impact on Q4'17 revenues using Q3'17 rates
N/A

 
12

Exclude hedging impact recognized in Q4'17
14

 
14

Other Americas constant currency revenues (non-GAAP)
$
1,872

 
$
1,921

Prior period Other Americas revenues, excluding hedging impact (non-GAAP)
$
1,442

 
$
1,558

Other Americas revenue growth (GAAP)
31
%
 
23
%
Other Americas constant currency revenue growth (non-GAAP)
30
%
 
23
%
 
 
 
 
United States revenues (GAAP)
$
15,428

 
$
15,428

United States revenue growth (GAAP)
21
%
 
19
%
 
 
 
 
Revenues (GAAP)
$
32,323

 
$
32,323

Constant currency revenues (non-GAAP)
$
31,981

 
$
32,536

Prior period revenues, excluding hedging impact (non-GAAP)
$
25,877

 
$
27,963

Revenue growth (GAAP)
24
%
 
16
%
Constant currency revenue growth (non-GAAP)
24
%
 
16
%
Non-GAAP constant currency revenues and growth: We define non-GAAP constant currency revenues as total revenues excluding the impact of foreign exchange rate movements and hedging activities, and we use it to determine the constant currency revenue growth on year-on-year and quarter-on-quarter bases. Non-GAAP constant currency revenues are calculated by translating current quarter revenues using prior period exchange rates and excluding any hedging impact recognized in the current quarter. Constant currency revenue growth (expressed as a percentage) is calculated by determining the increase in current quarter non-GAAP constant currency revenues over prior period revenues, excluding any hedging impact recognized in the prior period.





Other income (expense), net
The following table presents our other income (expense), net (in millions, unaudited):
 
Three Months Ended
 
December 31,
 
2016
 
2017
Interest income
$
325

 
$
400

Interest expense
(33
)
 
(36
)
Foreign currency exchange losses, net
(38
)
 
(20
)
Gain (loss) on marketable securities, net
(84
)
 
1

Gain (loss) on non-marketable investments, net
13

 
(35
)
Other
35

 
44

Other income (expense), net
$
218

 
$
354






Segment results
The following table presents our revenues, operating income (loss), stock-based compensation, capital expenditures, and depreciation, amortization, and impairment by segment (in millions, unaudited):
 
Three Months Ended
 
December 31,
 
2016
 
2017
Revenues:
 
 
 
Google
$
25,802

 
$
31,914

Other Bets
262

 
409

Total revenues
$
26,064

 
$
32,323

 
 
 
 
Operating income (loss):
 
 
 
Google
$
7,883

 
$
8,763

Other Bets
(1,088
)
 
(916
)
Reconciling items(1)
(156
)
 
(183
)
Total income from operations
$
6,639

 
$
7,664

 
 
 
 
Stock-based compensation(2):
 
 
 
Google
$
1,653

 
$
1,676

Other Bets
161

 
138

Reconciling items(1)
32

 
33

Total stock-based compensation
$
1,846

 
$
1,847

 
 
 
 
Capital expenditures:
 
 
 
Google
$
2,888

 
$
3,805

Other Bets
504

 
109

Reconciling items(3)
(314
)
 
393

Total capital expenditures
$
3,078

 
$
4,307

 
 
 
 
Depreciation, amortization, and impairment:
 
 
 
Google
$
1,586

 
$
1,914

Other Bets
101

 
112

Total depreciation, amortization, and impairment
$
1,687

 
$
2,026

(1) 
Reconciling items are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments.
(2) 
For purposes of segment reporting, SBC represents awards that we expect to settle in Alphabet stock.
(3) 
Reconciling items are related to timing differences of payments, as segment capital expenditures are on accrual basis while total capital expenditures shown on the Consolidated Statements of Cash Flows are on cash basis, and other miscellaneous differences.