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Google: Mountain View, Calif. –

The following excerpt is from the company's SEC filing.

April 21, 2016

– Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the

quarter ended

"Our Q1 results represent a tremendous start to the year with 17% revenue growth year on year and 23% growth on a constant currency basis. We’re thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long term growth,” said Ruth Porat, CFO of Alphabet.

financial highlights

The following summarizes our consolidated financial results for the quarters ended

March 31, 2015< br>
(in millions, except for per share information; unaudited):

Three Months Ended March 31, 2015

Three Months Ended March 31, 2016

Revenues

$17,258

$20,257

Increase in revenues year over year

Increase in constant currency revenues year over year

GAAP operating income

$4,447

$5,342

GAAP operating margin

Non-GAAP operating income

$5,650

$6,836

Non-GAAP operating margin

GAAP net income

$3,515

$4,207

Non-GAAP net income

$4,461

$5,248

GAAP diluted EPS for Class A and B common stock and

Class C capital stock

Non-GAAP diluted EPS for Class A and B common stock and

Diluted shares (in thousands)

689,498

699,311

Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense. Non-GAAP net income and non-GAAP diluted EPS exclude SBC expense, net of the

SBC related tax benefits. These non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, and non-GAAP constant currency revenues and growth, are described and reconciled to the corresponding GAAP measures at the end of this release.

The following summarizes our segment results where Google is presented as a single segment and all other Alphabet businesses are combined as Other Bets (in millions; unaudited):

Google segment revenues

$17,178

$20,091

Google operating income

$5,188

$6,272

Other Bets revenues

Other Bets operating loss

consolidated financial summary

Revenues

Change from Q1 2015 to Q1 2016 (YoY)

Change from Q4 2015 to Q1 2016 (QoQ)

Constant currency revenues (YoY)

$20,850

Constant currency revenues (QoQ)

$20,238

Our revenues and constant currency revenues are reconciled in the financial tables following this release.

Costs and expenses

Cost of revenues, operating expenses, SBC expense, and depreciation, amortization, and impairment charges (in millions; unaudited):

$6,356

$7,648

Cost of revenues as % of revenues

Operating expenses (other than cost of revenues)

$6,455

$7,267

Operating expenses as % of revenues

SBC expense*

$1,203

$1,494

Depreciation, amortization, and impairment charges

$1,177

$1,371

*Excludes the expense for awards accounted for as stock-based compensation that will ultimately settle in cash.

Supplemental information

(in millions, except for headcount data; unaudited)

Cash, cash equivalents, and marketable securities

$65,436

$75,264

Net cash provided by operating activities*

$6,722

$7,658

Capital expenditures

$2,927

$2,428

Free cash flow*

$3,795

$5,230

Effective tax rate (ETR)*

Headcount

55,419

64,115

*In Q1 2016, we adopted Accounting Standards Update No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which addresses, among other items, updates to the presentation and treatment of certain tax benefits related to SBC. Prior period balances related to the consolidated statements of cash flows as well as free cash flow have been adjusted accordingly for comparative purposes. The impact from the changes in the treatment of such tax benefits in Q1 2016 resulted in a favorable ETR impact of 4%.

Google segment summary

Revenues and monetization

Google segment revenues by source (in millions; unaudited):

Google websites

$11,932

$14,328

Google Network Members' websites

Google advertising revenues

15,508

18,020

Google other revenues

Paid clicks and cost-per-click information (unaudited):

Aggregate paid clicks

Paid clicks on Google websites

Paid clicks on Google Network Members' websites

Aggregate cost-per-click

Cost-per-click on Google websites

Cost-per-click on Google Network Members' websites

Traffic acquisition costs (TAC) and operating income

TAC to Google Network Members and distribution partners, operating income, and SBC expense (in millions; unaudited):

$2,432

$2,571

TAC to Google Network Members as % of Google Network Members' revenues

TAC to distribution partners

$1,217

TAC to distribution partners as % of Google website revenues

Total TAC

$3,345

$3,788

Total TAC as % of Google advertising revenues

Operating income, excluding SBC expense

$6,243

$7,588

$1,055

$1,316

$2,678

$2,036

$1,137

$1,317

Other Bets summary

Revenues and operating results

Other Bets revenues, operating loss, and SBC expense (in millions; unaudited):

Operating loss, excluding SBC expense

Stock repurchase

In Q1 2016, we repurchased

3.2 million

shares of Alphabet Class C capital stock for an aggregate amount of

$2.3 billion

, of which

$2.1 billion

was paid during the quarter. The total remaining authorization for future repurchases is approximately

$1.4 billion

. The authorization has no expiration date.

Adoption of new accounting guidance

In Q1 2016, we early adopted Accounting Standards Update No. 2016-09 "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which changes several aspects of the accounting for share-based payments, including income tax consequences and classification on the consolidated statement of cash flows. Starting this quarter, certain tax benefits are reflected in our consolidated statement of income, whereas they were previously recognized in equity. Additionally, our consolidated statements of cash flows now present such tax benefits as an operating activity and the prior period is adjusted accordingly.

Webcast and conference call information

A live audio webcast of our

first quarter

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 announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events and our press and earnings releases, 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, 2015

, which

on file with the SEC and

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

Quarterly Report on Form 10-Q

for the quarter ended

. All information provided in this release and in the attachments is as of

, and 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: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted EPS, free cash flow, non-GAAP constant currency revenues, and non-GAAP 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. Our management believes 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 for foreign currency fluctuations or our operating performance excluding not only non-cash charges, such as SBC expense, but also discrete cash 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.

For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP results of operations 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

investor-relations@abc.xyz

press@abc.xyz

CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts which are reflected in thousands and par value)

As of December 31, 2015

Assets

Current assets:

Cash and cash equivalents

16,549

15,111

Marketable securities

56,517

60,153

Total cash, cash equivalents, and marketable securities (including securities loaned of $4,531 and $3,851)

73,066

Accounts receivable, net of allowance of $296 and $276

11,556

10,818

Receivable under reverse repurchase agreements

Income taxes receivable, net

Prepaid revenue share, expenses and other assets

Total current assets

90,114

90,955

Prepaid revenue share, expenses and other assets, non-current

Non-marketable investments

Deferred income taxes

Property and equipment, net

29,016

30,162

Intangible assets, net

Goodwill

15,869

15,866

Total assets

147,461

149,747

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

Short-term debt

Accrued compensation and benefits

Accrued expenses and other current liabilities

Accrued revenue share

Securities lending payable

Deferred revenue

Income taxes payable, net

Total current liabilities

19,310

17,684

Long-term debt

Deferred revenue, non-current

Income taxes payable, non-current

Other long-term liabilities

Total liabilities

27,130

26,178

Commitments and contingencies

Stockholders’ equity:

Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding

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); 687,348 (Class A 292,297, Class B 50,295, Class C 344,756) and 686,792 (Class A 293,573, Class B 49,536, Class C 343,683) shares issued and outstanding

32,982

33,695

Accumulated other comprehensive loss

(1,874

(1,294

Retained earnings

89,223

91,168

Total stockholders’ equity

120,331

123,569

Total liabilities and stockholders’ equity

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

Costs and expenses:

Research and development

Sales and marketing

General and administrative

Total costs and expenses

12,811

14,915

Income from operations

Other income (expense), net

Income before income taxes

Provision for income taxes

Net income

Basic net income per share of Class A and B common stock and Class C capital stock

Diluted net income per share of Class A and B common stock and Class C capital stock

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Operating activities

Adjustments:

Depreciation and impairment of property and equipment

Amortization and impairment of intangible assets

Stock-based compensation expense

Loss on marketable and non-marketable investments, net

Changes in assets and liabilities, net of effects of acquisitions:

Income taxes, net

Accrued expenses and other liabilities

(1,064

Investing activities

Purchases of property and equipment

(2,927

(2,428

Purchases of marketable securities

(12,558

(20,748

Maturities and sales of marketable securities

10,389

17,443

Purchases of non-marketable investments

(1,074

Cash collateral related to securities lending

(1,120

Investments in reverse repurchase agreements

Acquisitions, net of cash acquired, and purchases of intangible assets

Net cash used in investing activities

(7,304

(6,245

Financing activities

Net payments related to stock-based award activities

Repurchases of capital stock

(2,098

Proceeds from issuance of debt, net of costs

Repayments of debt

(3,308

(3,962

Net cash used in financing activities

(2,911

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

(1,371

(1,438

Cash and cash equivalents at beginning of period

18,347

Cash and cash equivalents at end of period

16,976

The following table presents certain non-GAAP consolidated results before certain items (in millions, except share amounts which are reflected in thousands and per share amounts, unaudited):

GAAP Actual

Non-GAAP Results

Operating margin

Diluted net income per share for Class A and B common stock and Class C capital stock

Shares used in per share calculation - diluted

(a) Operating margin is defined as income from operations divided by revenues.

Non-GAAP operating margin is defined as non-GAAP income from operations divided by revenues.

(b) To eliminate SBC expense, excluding expense related to awards that will ultimately settle in cash.

(c) To eliminate income tax effects related to SBC, which includes the incremental benefits recognized resulting from the adoption of new accounting guidance beginning in Q1 2016.

Non-GAAP operating income and operating margin.

We define non-GAAP operating income as income from operations excluding expenses related to SBC, and, as applicable, other special items. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenues. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of SBC expense, and as applicable, other special items so that Alphabet's management and investors can compare Alphabet's recurring core business operating results over multiple periods. For purposes of determining non-GAAP operating income, we define SBC as awards accounted for under FASB ASC Topic 718 that we expect to settle in stock. SBC expense does not include expenses related to awards that will ultimately settle in cash. Alphabet's management believes that providing a non-GAAP financial measure that excludes SBC expense allows investors to make meaningful comparisons between Alphabet's recurring core business operating results and those of other companies, as well as providing Alphabet's management with an important tool for financial and operational decision making and for evaluating Alphabet's own recurring core business operating results over different periods of time. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes some costs, namely, SBC expense, that are recurring. SBC expense has been and will continue to be for the foreseeable future a significant recurring expense in Alphabet's business. Second, SBC is an important part of our employees' compensation. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.

Non-GAAP net income and diluted EPS.

We define non-GAAP net income as net income excluding SBC expense, net of the SBC related tax benefits, and, as applicable, other special items less the related tax effects. The tax effects of such items are calculated based on the tax deductible portion related to SBC and, as applicable, other special items, and applying the entity-specific, U.S. federal and blended state tax rates. We define non-GAAP diluted EPS as non-GAAP net income divided by total weighted average outstanding shares, on a fully-diluted basis. We consider these non-GAAP financial measures to be useful metrics for management and investors for the same reasons that Alphabet uses non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP diluted EPS the SBC related tax benefits, and, as applicable, the tax effects of other special items. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on our operating results. The same limitations described above regarding Alphabet's use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP diluted EPS. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP diluted EPS and evaluating non-GAAP net income and non-GAAP diluted EPS together with net income and diluted EPS calculated in accordance with GAAP.

Reconciliation from net cash provided by operating activities to free cash flow (in millions, unaudited):

Less: purchases of property and equipment

Net cash used in investing activities

(a) Includes purchases of property and equipment.

. We define free cash flow as net cash provided by operating activities less capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology assets and land and buildings, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow also facilitates management's comparisons of our operating results to competitors' operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Alphabet is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it reflects the cash used for capital expenditures during the period. Our management compensates for this limitation by providing information about our capital expenditures on the face of the statement of cash flows and under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Alphabet has computed free cash flow using the same consistent method from quarter to quarter and year to year.

Reconciliation from GAAP revenues to non-GAAP constant currency revenues (in millions, unaudited):

(using Q1'15's FX rates)

(using Q4'15's FX rates)

United Kingdom revenues (GAAP)

Exclude foreign exchange impact on Q1'16 revenues using Q1'15 rates

Exclude foreign exchange impact on Q1'16 revenues using Q4'15 rates

Exclude hedging gains recognized in Q1'16

United Kingdom revenues excluding foreign exchange and hedging impact (Non-GAAP)

Rest of the world revenues (GAAP)

Rest of the world revenues excluding foreign exchange and hedging impact (Non-GAAP)

United States revenues (GAAP)

Constant currency revenues (Non-GAAP)

Prior period revenues, excluding hedging gains (Non-GAAP)

16,947

20,997

Constant currency revenue growth (Non-GAAP)

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 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 gains recognized in the current quarter. Constant currency revenue growth (expressed as a percentage) is calculated by determining the increase in current quarter revenues over prior period revenues, where current quarter international revenues are translated using prior period exchange rates and hedging benefits are excluded from revenues of both periods. We consider non-GAAP constant currency revenues and growth as useful metrics as they facilitate management's internal comparison to our historical performance because they exclude the effects of foreign currency volatility that are not indicative of our core operating results.

The following table presents our other income (expense), net, (in millions, unaudited):

Interest income

Interest expense

Foreign currency exchange losses, net

Gain (loss) on marketable securities, net

Loss on non-marketable investments, net

Segment results

The following tables present our revenues, operating income, stock-based compensation, capital expenditures, and depreciation, amortization, and impairment by segment (in millions, unaudited):

Revenues:

Total revenues

Operating income (loss), excluding stock-based compensation

Reconciling items

Total income from operations, excluding stock-based compensation

Total stock-based compensation

Operating income (loss):

Capital expenditures:

Total capital expenditures

Depreciation, amortization and impairment:

Total depreciation, amortization and impairment

For purposes of determining SBC for segment reporting, we define SBC as awards accounted for under FASB ASC Topic 718 that we expect to settle in stock. SBC does not include expenses related to awards that we will ultimately settle in cash.

Reconciling items are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments.

Reconciling items are related to timing differences of payments as segment capital expenditures are on accrual basis while total capital expenditures shown on Consolidated Statements of Cash Flow are on cash basis and other miscellaneous differences.

Revenues by source

The following tables present our revenues by revenue source (in millions, unaudited):

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

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