1 Alphabet Announces 2019 Results First Quarter AIN VIEW Calif. – April 29, 2019 – Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial MOUNT , the . ended March 31, 2019 for results quarter and e robust growth led by W search, Y ouT ube, delivered Cloud with Alphabet revenues of $36.3 billion, up " mobile versus last year , or 19% on a constant currency basis ," said Ruth Porat, Chief 17% Of ficer of Alphabet and Financial Google. W e remain focused on, and excited by , the significant growth opportunities across our businesses ." " financial highlights Q1 2019 table below provides summary data to facilitate comparison of current quarter performance to prior The given period the on March 20, 2019 by the European announcement (EC) of its decision that certain contractual Commission provisions in agreements that Google had with AdSense for Search partners infringed European competition law and the associated billion ($1.7 billion as of March 31, 2019 ) fine. €1.5 Q1 2019 summary results Including Fine Excluding Fine (GAAP) $36,339 $36,339 Revenues $8,305 $6,608 Operating income % 23 % Operating margin 18 $6,657 $8,339 Net income $9.50 1.90 Diluted EPS $1 ended following our consolidated financial results for The quarters summarizes March 31, 2018 and 2019 (in the millions, except for per share information, percentages, and number of employees; unaudited), reported on a GAAP basis including ef fect of the EC fine: the Three Months Ended Three Months Ended March 31, 2018 March 31, 2019 $31,146 $36,339 Revenues 26 Increase in revenues year over year 17 % % Increase in constant currency revenues year over year 23 % 19 % Operating income $7,633 $6,608 Operating margin 25 18 % % Other income (expense), net $1,538 $2,910 Net income $9,401 $6,657 Diluted EPS $13.33 $9.50 Diluted shares (in thousands) 700,879 705,134 Ef fective tax rate 1 1 % 18 % Number of employees 85,050 103,459
2 Q1 supplemental information (in millions, except for percentages; unaudited) 2019 revenues and results Segment operating Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 Google properties revenues $21,998 $25,682 Google Network Members' properties revenues 5,038 4,644 Google advertising revenues 26,642 30,720 Google other revenues 4,354 5,449 $36,169 Google segment revenues $30,996 Other Bets revenues $150 $170 Google operating income* $8,368 $9,325 ) ($868 ) Other Bets operating loss ($571 2019 fine included in reconciling items for the three months ended March 31, is as it is not allocated to Google *The EC segment reporting purposes. for raf fic acquisition costs (T AC) to Google Network Members and distribution T partners Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 $3,386 $3,477 T AC to Google Network Members T AC to Google Network Members as % of Google Network Members' properties revenues % 73 % 69 $3,383 $2,902 T AC to distribution partners T AC to distribution partners as % of Google properties % 13 % revenues 13 otal AC $6,288 $6,860 T T otal T AC as % of Google advertising revenues 24 % 22 T % Monetization information metrics Change from Q1 2018 Change from Q4 2018 to Q1 2019 (Y to Q1 2019 (QoQ) oY) % (9 )% Paid clicks on Google properties 39 (19 )% 5 % Cost-per-click on Google properties Impressions on Google Network Members' properties 6 5 % % 1 )% (14 Cost-per-impression on Google Network Members' properties % W and conference call information ebcast A live audio webcast of our first quarter 2019 earnings release call will be available at http://abc.xyz/investor . The call begins today 1:30 PM (PT) / 4:30 PM (ET). This press release, including the reconciliations of certain non-GAAP at to that nearest comparable GAAP measures, is also available on measures site. their e performance, provide announcements regarding our financial W including SEC filings, investor events, press also investor earnings and blogs, on our releases, relations website (http://abc.xyz/investor). and Forward-looking statements This press release may contain forward-looking statements that involve risks and uncertainties. Actual results may should dif from the results predicted, and reported results materially not be considered as an indication of future fer performance. The potential risks and uncertainties that could cause actual results to dif fer from the results predicted the include, those risks and uncertainties included under others, captions “Risk Factors” and “Management’ s among Discussion the Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for and
3 year ended 31, 2018 , as amended, which is on file with the SEC and is available on our investor relations December at http://abc.xyz/investor on the SEC website at www .sec.gov . Additional information will also be set forth website and 31, Quarterly Form 10-Q for the quarter ended March on 2019 . All information provided in this release our Report in the attachments is as of April 29, 2019 . Undue reliance should not be placed on the and statements in forward-looking this release, which are based on information available to us on the date hereof. W e undertake press duty to in no this unless required by law . information update financial measures non-GAAP About o supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP , T use we following non-GAAP financial measures: operating income, excluding the EC fine; operating margin, the cash the net income, excluding the EC fine; diluted earnings per share, excluding the EC fine; free fine; excluding EC constant revenues; and constant currency revenue growth. currency presentation of this financial information flow; The not intended to be considered in isolation or as a substitute for is or superior to, the financial information prepared , and in accordance with GAAP . presented to e these non-GAAP financial measures for financial and operational decision-making W as a means use evaluate and period-to-period W e believe that these comparisons. financial measures provide meaningful supplemental non-GAAP information regarding our performance and liquidity by excluding certain items that may not be indicative of our recurring core business results, such as our revenues excluding the ef fect of foreign exchange rate movements and operating activities or operating performance excluding extraordinary fines . W e believe that both management and hedging our in from to these non-GAAP financial measures referring assessing our performance and when investors benefit forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's planning, comparisons our internal historical performance and liquidity as well as comparisons to our competitors' operating to greater W believe these non-GAAP financial measures are useful results. investors both because (1) they allow for e to transparency respect to key metrics used by with in its financial and operational decision-making and management (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business. There a number of limitations related to the use of non-GAAP financial measures. W e compensate for these are by specific information regarding the GAAP limitations amounts excluded from these non-GAAP financial providing their and these non-GAAP financial measures together with measures relevant financial measures in evaluating accordance with GAAP . For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of GAAP non-GAAP of operations to the nearest comparable results measures," "Reconciliation from net cash provided by operating activities to free cash flow" and "Reconciliation from GAAP revenues to non-GAAP constant currency revenues" at the end of this release. included Contact Investor relations Media [email protected] [email protected]
4 Alphabet Inc. CONSOLIDA TED BALANCE SHEETS (In millions, except share amounts which are reflected in thousands and par value per share amounts) December 31, March 31, 2018 2019 (unaudited) Assets Current assets: $ 19,148 $ Cash and cash equivalents 16,701 94,340 92,439 Marketable securities 109,140 1 13,488 T otal cash, cash equivalents, and marketable securities 19,149 20,838 Accounts receivable, net of allowance of $729 and $761 1 1 Income taxes receivable, net 1 355 Inventory 1,107 1,053 4,236 4,406 Other current assets otal current assets 135,676 138,207 T 13,859 Non-marketable investments 14,474 737 750 Deferred income taxes 60,528 Property and equipment, net 59,719 0 8,837 Operating lease assets Intangible assets, net 2,220 2,063 17,888 17,943 Goodwill 2,693 2,547 Other non-current assets otal assets T 232,792 $ 245,349 $ Equity Liabilities and Stockholders’ Current liabilities: $ 4,378 Accounts payable 3,710 $ Accrued compensation and benefits 6,839 5,072 Accrued expenses and other current liabilities 16,958 19,382 Accrued revenue share 4,592 4,318 1,784 1,667 Deferred revenue 761 Income taxes payable, net 69 otal current liabilities 34,620 34,910 T 4,066 Long-term debt 4,012 396 391 Deferred revenue, non-current 1 1,327 Income taxes payable, non-current 1,605 1 Deferred income taxes 1,282 1,264 0 Operating lease liabilities 8,206 3,545 1,417 Other long-term liabilities T 55,164 61,877 otal liabilities Commitments and contingencies Stockholders’ equity: Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no 0 0 shares issued and outstanding A Class 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, A 299,242, Class B 46,636, Class B 3,000,000, Class C 3,000,000); 695,556 (Class A 299,444, Class B 46,527, Class C 348,81 1) Class C 349,678) and 694,782 (Class 45,049 46,532 shares issued and outstanding Accumulated other comprehensive loss (2,306 ) (1,780 ) Retained earnings 138,720 134,885 T otal stockholders’ equity 177,628 183,472 T otal liabilities and stockholders’ equity $ 232,792 $ 245,349
5 Alphabet Inc. CONSOLIDA A TEMENTS OF INCOME TED ST (In millions, except per share amounts; unaudited) Three Months Ended March 31, 2018 2019 Revenues $ $ 36,339 31,146 Costs and expenses: 13,467 16,012 Cost of revenues 5,039 Research and development 6,029 3,604 3,905 Sales and marketing General and administrative 2,088 1,403 European Commission fine 0 1,697 T otal costs and expenses 23,513 29,731 Income from operations 7,633 6,608 2,910 1,538 Other income (expense), net Income before income taxes 8,146 10,543 Provision for income taxes 1,142 1,489 Net income $ 9,401 $ 6,657 Basic earnings per share of Class and B common stock and Class C capital stock $ 13.53 $ 9.58 A 9.50 A and B common stock and Class C capital stock $ 13.33 $ Diluted earnings per share of Class
6 Alphabet Inc. CONSOLIDA A TEMENTS OF CASH FLOWS TED ST (In millions; unaudited) Three Months Ended March 31, 2019 2018 Operating activities $ 6,657 Net income $ 9,401 Adjustments: 2,416 1,791 Depreciation and impairment of property and equipment 197 Amortization and impairment of intangible assets 195 2,769 2,457 Stock-based compensation expense ) (73 ) Deferred income taxes (18 (2,992 ) (1,081 ) Gain on debt and equity securities, net (257 ) 22 Other Changes in assets and liabilities, net of ef fects of acquisitions: 1,700 1,172 Accounts receivable 1,068 Income taxes, net 782 ) (265 ) Other assets (241 (425 ) 122 Accounts payable (1,142 ) Accrued expenses and other liabilities ) (229 Accrued revenue share ) (147 ) (286 130 Deferred revenue ) (81 Net cash provided by operating activities 1 1,642 12,000 Investing activities Purchases of property and equipment (7,299 ) (4,638 ) Proceeds from disposals of property and equipment 30 34 (8,849 ) ) Purchases of marketable securities (20,883 21,006 9,351 Maturities and sales of marketable securities (327 ) (907 ) Purchases of non-marketable investments 498 99 Maturities and sales of non-marketable investments Acquisitions, net of cash acquired, and purchases of intangible assets (1,250 (99 ) ) (7,846 ) (5,388 Net cash used in investing activities ) Financing activities (1,158 ) (1,175 ) Net payments related to stock-based award activities Repurchases of capital stock (2,173 ) (3,025 ) Proceeds from issuance of debt, net of costs 4,691 315 (3,378 ) Repayments of debt ) (345 Proceeds from sale of subsidiary shares 0 47 Net cash used in financing activities (2,018 ) (4,183 ) Ef 165 18 fect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents 1,943 2,447 Cash and cash equivalents at beginning of period 10,715 16,701 Cash and cash equivalents at end of period $ 12,658 $ 19,148
7 Reconciliations of results of operations to the nearest comparable GAAP measures (in millions, non-GAAP percentages, share which are reflected in thousands and per share amounts, unaudited) except amounts because provide consolidated results excluding certain charges e they allow investors to make meaningful W non-GAAP between Alphabet's recurring core business operating results and those of other companies, as comparisons as well providing management with an important tool for financial and operational decision making and for evaluating Alphabet's own operating core business Alphabet's results over dif ferent periods of time. recurring Three Months Ended March 31, 2019 Operating income (GAAP) $ 6,608 * Add: European Commission (EC) fine 1,697 Operating income, excluding the EC fine (Non-GAAP) $ 8,305 Operating margin (GAAP) 18 % Operating margin, excluding the EC fine (Non-GAAP) 23 % $ 6,657 Net income (GAAP) * 1,682 Add: EC fine, net of the foreign exchange gain $ 8,339 Net income, excluding the EC fine (Non-GAAP) 9.50 Diluted net income per share (GAAP) $ 1 1.90 $ Diluted net income per share, excluding the EC fine (Non-GAAP) Shares used in diluted per share calculation (in thousands) 700,879 is no *There ef fect as this charge is not tax deductible. tax Non-GAAP operating income : we define non-GAAP operating income as operating income excluding certain charges. Non-GAAP operating margin : we define non-GAAP operating margin as non-GAAP operating income divided by revenues. Non-GAAP net income and diluted EPS : W e define non-GAAP net income as net income excluding certain charges, less the related the tax fects as applicable and non-GAAP diluted EPS as net income excluding certain charges, less ef related tax ef fects as outstanding applicable, by total weighted average divided shares, on a fully-diluted basis.
8 Reconciliation from cash provided by operating activities to free cash flow (in millions; unaudited): net liquidity e W cash flow because it is a provide measure that provides useful information to management and free investors about the amount of cash generated by the business that can be used for strategic opportunities, including sheet. investing business and acquisitions, and to strengthen our balance our in Three Months Ended March 31, 2019 Net cash provided by operating activities $ 12,000 Less: purchases of property and equipment (4,638 ) Free cash flow $ 7,362 as Free flow: W e define free cash flow cash net cash provided by operating activities less capital expenditures.
9 Reconciliation from revenues to non-GAAP constant currency revenues (in millions; unaudited): GAAP e provide constant currency revenues and growth because they facilitate the comparison of current W non-GAAP exchange historic excluding the ef fect of foreign by rate movements and hedging activities, to results performance not indicative of our core operating results. which are Three Months Ended Three Months Ended March 31, 2019 March 31, 2019 oY QoQ Y (using Q1'18's FX rates) (using Q4'18's FX rates) $ 1 1,791 $ 1 EMEA revenues (GAAP) 1,791 fect on Q1'19 revenues using Q1'18 rates 762 N/A Exclude foreign exchange ef Exclude foreign exchange ef fect on Q1'19 revenues using Q4'18 rates N/A 40 fect recognized in Q1'19 (123 ) (123 ) Exclude hedging ef constant currency revenues (non-GAAP) 1,708 12,430 $ 1 EMEA $ revenues, excluding hedging ef fect (non-GAAP) 10,691 $ 12,251 Prior period EMEA $ 13 EMEA )% % revenue growth (GAAP) (5 16 (4 )% constant currency revenue growth (non-GAAP) EMEA % $ 6,1 AP $ 6,1 12 AC revenues (GAAP) 12 fect on Q1'19 revenues using Q1'18 rates 199 N/A Exclude foreign exchange ef Exclude foreign exchange ef fect on Q1'19 revenues using Q4'18 rates N/A (66 ) fect recognized in Q1'19 (16 ) Exclude hedging ef ) (16 AP $ 6,295 $ 6,030 AC constant currency revenues (non-GAAP) AP fect (non-GAAP) $ 4,819 $ 6,031 Prior period AC revenues, excluding hedging ef AC revenue growth (GAAP) 27 % 1 % AP AC constant currency revenue growth (non-GAAP) 31 % 0 % AP Americas revenues (GAAP) $ Other $ 1,904 1,904 Exclude foreign exchange ef fect on Q1'19 revenues using Q1'18 rates 192 N/A Exclude foreign exchange ef fect on Q1'19 revenues using Q4'18 rates N/A (1 ) Exclude hedging ef fect recognized in Q1'19 2 2 Americas constant currency revenues (non-GAAP) $ $ 1,905 Other 2,098 fect (non-GAAP) Prior period Other $ 2,201 $ Americas revenues, excluding hedging ef 1,731 % (13 )% Americas revenue growth (GAAP) Other 10 21 % Other )% Americas constant currency revenue growth (non-GAAP) (13 $ $ 16,532 United States revenues (GAAP) 16,532 17 (1 1 )% United States revenue growth (GAAP) % $ 36,339 $ 36,339 Revenues (GAAP) $ Constant currency revenues (non-GAAP) $ 36,175 37,355 fect (non-GAAP) $ $ 39,152 Prior period revenues, excluding hedging ef 31,385 % (7 17 Revenue growth (GAAP) )% Constant currency revenue growth (non-GAAP) 19 % (8 )% Non-GAAP currency revenues and growth: W e define non-GAAP constant currency revenues as total revenues excluding constant the ef fect of foreign exchange rate movements and hedging activities, and we use it to determine the constant currency revenue currency growth and quarter-on-quarter bases. Non-GAAP constant year-on-year revenues are calculated by translating current on quarter revenues using prior period exchange rates and excluding any hedging ef fect recognized in the current quarter . Constant currency growth (expressed as a percentage) is calculated by determining the increase in current quarter non-GAAP revenue any constant revenues over prior period revenues, excluding currency hedging ef fect recognized in the prior period.
10 Other income net (expense), following table our other income (expense), net (in millions, except for EPS; unaudited): The presents Three Months Ended March 31, 2019 2018 Interest income $ 399 $ 522 ) (35 ) Interest expense (30 ) (24 Foreign currency exchange gain (loss), net 74 ) (2 ) Loss on debt securities, net (39 (1)(2) 3,031 Gain on equity securities, net 1,083 (3) (632 (1 17 ) Performance fees ) (7 ) (40 ) Loss and impairment from equity method investments, net 212 Other 53 $ $ 1,538 Other income (expense), net 2,910 (1) $1.1 billion gain on equity securities for Q1 2019 includes $1.0 billion of net unrealized gains The equity investments that on we and which may not ultimately be realized. Fluctuations hold the value of these investments could contribute to the in volatility of other income (expense), net (OI&E) in future periods. (2) ASU 2016-01, ef fective January 1, 2018, requires that all gains and losses, unrealized and realized, on equity security the are in OI&E. For Q1 2019, the net ef fect of investments gain on equity securities of $1.1 billion and the recognized performance fees of $1 17 million increased income tax, net income, and diluted EPS by $203 million , $763 million , and $1.09 respectively . (3) from Performance fees were reclassified for the prior general and administrative expenses to OI&E to conform with period current period presentation. Additional information on the reclassification can be found in our blog post on April 15, 2019 and our Q1 2019 10-Q.
11 Segment results following table our revenues, operating income (loss), stock-based compensation (SBC), capital The presents depreciation, amortization, impairment by segment (in millions, unaudited): and expenditures, and Three Months Ended March 31, 2018 2019 Revenues: 30,996 $ 36,169 Google $ 170 150 Other Bets $ 31,146 $ 36,339 otal revenues T Operating income (loss): $ $ 9,325 Google 8,368 ) (868 Other Bets (571 ) (1) (164 ) (1,849 ) Reconciling items otal income from operations T 7,633 $ 6,608 $ (2) : Stock-based compensation $ 2,304 2,612 Google $ 12 1 123 Other Bets (1) Reconciling items 41 34 $ 2,457 T 2,769 otal stock-based compensation $ Capital expenditures: Google $ 7,669 $ 4,534 55 59 Other Bets (3) Reconciling items ) 45 (425 otal capital expenditures 7,299 $ 4,638 T $ Depreciation, amortization, and impairment: $ 1,901 $ 2,529 Google 85 84 Other Bets T otal depreciation, amortization, and impairment $ 1,986 $ 2,613 (1) Reconciling items are primarily comprised of the European Commission fine for the three months ended March 31, 2019 as well as administrative costs and other miscellaneous items that are not allocated to individual segments for all corporate presented. items fees previously included in reconciling periods were reclassified for the prior period from general Performance to administrative to other income (expense), net expenses conform with current period presentation. and (2) For purposes of segment reporting, SBC represents awards that we expect to settle in Alphabet stock. (3) Reconciling are related to timing dif ferences of payments, items segment capital expenditures are on an accrual basis as while total capital expenditures shown on the Consolidated Statements of Cash Flows are on a cash basis, and other miscellaneous dif ferences.