Update: Press release in extended entry.
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Google Announces Record Revenues for Third Quarter 2004
Company Reports Revenues of $805.9 Million, up 105 Percent Year over
Year in First Post-IPO Quarter
MOUNTAIN VIEW, Calif.–Oct. 21, 2004–Google Inc. (Nasdaq:GOOG)
today announced financial results for the quarter ended Sept.
30, 2004.
– Google reported record revenues of $805.9 million for the quarter
ended Sept. 30, 2004, up 105 percent year over year.
– Income from operations, on a GAAP basis, was $11.1 million, or 1.4
percent of revenue for the quarter ended Sept. 30, 2004 compared to
$66.6 million or 16.9 percent of revenue for the prior year’s
quarter. Income from operations includes the effects of a non-
recurring, non-cash charge of $201.0 million related to the
previously announced settlement of warrant and patent disputes with
Yahoo! Inc.
– Without this non-recurring charge, Google would have realized
income from operations of $212.1 million or 26.3 percent of
revenues for the quarter ended Sept. 30, 2004, compared to $66.6
million or 16.9 percent of revenues in the prior year’s quarter.
Income from operations includes a $68.0 million non-cash stock-based
compensation charge compared to a $73.8 million non-cash, stock-
based compensation charge in the prior year’s quarter.
– Net income on a GAAP basis in the third quarter of 2004 was $52.0
million or $0.19 per share on a diluted basis. Net income before
certain non-recurring items was $125.0 million or $0.45 per share on
a diluted basis. The non-recurring items are the settlement charge
and its associated tax benefit, as well as a reduction to our
provision for income taxes related to certain stock-based
compensation charges recognized prior to the IPO.
– Net cash provided by operating activities for the nine months
ended Sept. 30, 2004 totaled $608.9 million as compared to $308.9
million last year during the same period, an increase of 97.1
percent.
– Adjusted EBITDA, another liquidity measure, increased by
approximately $44 million or 16 percent to $321 million (or 40
percent of revenues) in Q3 from $278 million (or 40 percent of
revenues) in Q2.
“We are very pleased with the results of this quarter. Record
revenues, robust margins and cash generation all illustrated strong
performance and execution over the last quarter,” said Eric Schmidt,
Google chief executive officer. “Our commitment to users and to the
development of quality products and services for them clearly
translated into robust financial results. That dedication to our
users, combined with our relentless technology innovation and market
opportunity make us very optimistic about our company’s future.”
Financial Highlights
Revenue – Revenue in the quarter totaled a record $805.9 million,
representing a 15 percent increase over the second quarter of 2004
and a 105 percent year-over-year gain. This revenue growth reflects
strong traffic and monetization growth in the quarter as well as
advertisers’ growing recognition of the Internet as an effective
advertising medium.
Google-Sites Revenue – Google-owned sites generated $411.7 million
or 51 percent of total revenue. This represents an increase of 99
percent over the third quarter of 2003.
The Google Network – Revenue generated on Google’s partner sites,
through AdSense programs, contributed $384.3 million, or 48 percent
of total revenue, a 120 percent increase over the Network revenue
generated in the same quarter last year.
TAC – Traffic Acquisition Costs or the portion of revenue shared
with Google’s partners increased to $302.9 million or 79 percent of
Google Network revenue. This compares to total payments to partners
of $143.5 million in the third quarter of 2003, or 82 percent of
Google Network revenue.
Income from operations – Income from operations in the quarter, on a
GAAP basis, totaled $11.1 million or 1.4 percent of revenue, and
included a non-cash charge of $68.0 million for stock-based
compensation as well as a non-cash, non-recurring charge of $201.0
million associated with the previously announced settlement of
disputes with Yahoo. Without the non-recurring charge, income from
operations would have been $212.1 million, or 26.3 percent of
revenues as compared to $66.6 million or 16.9 percent of revenue in
the same period of 2003. This improvement in operating margins,
before the settlement of disputes with Yahoo, was primarily due to
proportionately lower advertising revenue from Google Network
members’ sites, which resulted in lower traffic acquisition cost as
a percentage of total revenue. A lower stock-based compensation
charge, on a percentage basis, also contributed to the improvement.
Income Taxes – Google recorded a net income tax benefit of $37.0
million on its income statement in the third quarter compared to a
$90.4 million provision for income taxes and a 53 percent effective
tax rate last quarter, primarily as a result of a $46.0 million
benefit recorded in the third quarter against the provision for
income taxes related to certain stock-based compensation charges
recognized prior to the IPO. This tax benefit was recorded as a
result of our transformation from a private to a public company.
Net Income – Net income on a GAAP basis increased to $52.0 million
or 6.5 percent of revenues in the third quarter as compared to $20.4
million or 5.2 percent of revenue in the third quarter of 2003.
Earnings on a diluted per share basis were $0.19 as compared to
$0.08 in the third quarter of 2003. Net income included the after
tax effect of the non-cash and non-recurring settlement charge of
$119.0 million and a tax benefit of $46.0 million related to certain
stock-based compensation charges recognized prior to the IPO. Net
income before these non-recurring items was $125.0 million, or $0.45
per share.
Operating and Free Cash Flow – Net cash provided by operating
activities totaled $608.9 million for the nine months ended Sept.
30, 2004. Free cash flow is an alternative measure of liquidity to
GAAP net cash provided by operating activities and is calculated as
operating cash flows less capital expenditures. Free cash flow for
the nine months ended Sept. 30, 2004 totaled $349.0 million.
Adjusted EBITDA – Adjusted EBITDA is defined as EBITDA before the
non-cash stock-based compensation charge, the non-cash and non-
recurring settlement charge and in-process R&D. It is another
alternative measure of liquidity to GAAP net cash provided by
operating activities. Adjusted EBITDA increased by approximately $44
million or 16 percent to $321 million (or 40 percent of revenues) in
the third quarter from $278 million (or 40 percent of revenues) in
the second quarter. The reconciliation of adjusted EBITDA to the
GAAP measure of liquidity, net cash provided by operating
activities, is set forth at the back of this release.
Cash – At the end of the quarter, Google had a cash, cash
equivalents and short-term investments balance of $1.86 billion.
On a worldwide basis, Google employed 2,668 full time employees as
of Sept. 30, 2004, up from 2,292 as of June 30, 2004.
Webcast and conference call information
A live audio webcast of Google’s third-quarter earnings release call
will be available at http://investor.google.com/news.html. The call
begins today at 1:30 p.m. (PDT)/ 4:30 (EDT). This press release, the
financial tables as well as other supplemental information including
the reconciliations of certain non-GAAP measures to their nearest
comparable GAAP measures, are also available at that site. A replay
of the call will be available beginning at 7:30 PM EDT through
midnight Monday, Oct. 25 by calling (888) 203-1112 in the United
States or (719) 457-0820 for calls from outside the United States.
The required confirmation code for the replay is 825570.
Forward looking statements
This press release contains forward-looking statements that involve
risks and uncertainties, including statements relating to Google’s
market opportunity and future business prospects. Actual results may
differ materially from the results predicted and reported results
should not be considered as an indication of future performance.
Factors that could cause actual results to differ from the results
predicted are included in Google’s quarterly reports on Form 10-Q
and from time to time in other reports filed by Google with the
Securities and Exchange Commission.
About non-GAAP financial measures.
To supplement Google’s consolidated financial statements presented
in accordance with GAAP, Google uses certain non-GAAP measures of
financial performance and liquidity. These non-GAAP measures are
comprised of income from operations, net income and net income per
share before material non-recurring items, as well as free cash
flows and adjusted EBITDA. Google’s management believes that income
from operations before material non-recurring items and net income
before material non-recurring items provide meaningful supplemental
information regarding the company’s core operating results because
they exclude amounts that are not necessarily related to those core
results and are of a non-recurring nature. Google’s management
believes that free cash flows and adjusted EBITDA provide meaningful
supplemental information regarding liquidity. Google believes that
both management and investors benefit from referring to these non-
GAAP financial measures in assessing the performance of Google’s
ongoing operations and liquidity and when planning and forecasting
future periods. These non-GAAP financial measures also facilitate
management’s internal comparisons to Google’s historical operating
results and liquidity.
Google computes its non-GAAP financial measures using the same
consistent method from quarter to quarter and year to year. The
accompanying tables have more details on the GAAP financial measures
that are most directly comparable to non-GAAP financial measures and
the related reconciliations between these financial measures.
Google Inc.
Unaudited Consolidated Statements of Income
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
——————- ——————–
–
2003 2004 2003 2004
——— ——— ——— ———-
–
Revenues $393,942 $805,887 $953,759 $2,157,722
Costs and expenses:
Cost of revenues 170,390 362,099 374,986 1,003,874
Research and development 32,774 57,409 62,771 138,190
Sales and marketing 36,575 65,512 79,164 170,193
General and administrative 13,853 40,774 36,415 87,857
Stock-based compensation
(a) 73,794 67,981 144,377 219,215
Non-recurring portion of
settlement of disputes
with Yahoo – 201,000 – 201,000
——— ——— ——— ———-
–
Total costs and expenses 327,386 794,775 697,713 1,820,329
——— ——— ——— ———-
–
Income from operations 66,556 11,112 256,046 337,393
Interest income (expense) and
other, net 464 3,866 1,183 2,668
——— ——— ——— ———-
–
Income before income taxes 67,020 14,978 257,229 340,061
Provision (benefit) for
income taxes 46,594 (37,005) 178,835 145,042
——— ——— ——— ———-
–
Net income $20,426 $51,983 $78,394 $195,019
========= ========= =========
===========
Net income per share – basic $0.14 $0.25 $0.58 $1.14
========= ========= =========
===========
Net income per share –
diluted $0.08 $0.19 $0.31 $0.73
========= ========= =========
===========
Shares used in per share
calculation – basic 141,412 205,007 134,820 170,511
========= ========= =========
===========
Shares used in per share
calculation – diluted 257,948 274,735 254,664 268,394
========= ========= =========
===========
(a) Stock-based compensation is
allocated as follows:
Cost of revenues $3,008 $1,996 $5,821 $9,618
Research and development 43,878 42,120 82,115 134,222
Sales and marketing 15,819 11,580 30,530 39,156
General and administrative 11,089 12,285 25,911 36,219
——— ——— ——— ———-
–
$73,794 $67,981 $144,377 $219,215
========= ========= =========
===========
Google Inc.
Consolidated Balance Sheets
(In thousands)
Dec. 31, Sept.
30,
2003 2004
——— ———-
–
(1)
(unaudited)
Assets
Current assets:
Cash and cash equivalents $148,995 $344,469
Short-term investments 185,723 1,513,887
Accounts receivable, net 154,690 233,057
Income taxes receivable – 115,070
Deferred income taxes 22,105 48,455
Prepaid revenue share, expenses and other
assets 48,721 105,273
Total current assets 560,234 2,360,211
Property and equipment, net 188,255 362,609
Goodwill 87,442 101,815
Intangible assets, net 18,114 43,660
Prepaid revenue share, expenses and other
assets, non-current 17,413 20,223
——— ———-
–
Total assets $871,458 $2,888,518
=========
===========
Liabilities, Redeemable Convertible Preferred
Stock Warrant and Stockholders’ Equity
Current liabilities:
Accounts payable 46,175 49,557
Accrued compensation and benefits 33,522 53,841
Accrued expenses and other current liabilities 26,411 44,185
Accrued revenue share 88,672 101,973
Deferred revenue 15,346 21,888
Income taxes payable 20,705 –
Current portion of equipment leases 4,621 3,026
——— ———-
–
Total current liabilities 235,452 274,470
Long-term portion of equipment leases 1,988 63
Deferred revenue, long-term 5,014 6,344
Liabilities for stock option exercised early,
long-term 6,341 7,206
Deferred income taxes 18,510 –
Other long-term liabilities 1,512 11,412
Redeemable convertible preferred stock warrant 13,871 –
Stockholders’ equity:
Convertiable preferred stock 44,346 –
Class A and Class B common stock 161 273
Additional paid-in capital 725,219 2,497,299
Note receivable from officer/stockholder (4,300) –
Deferred stock-based compensation (369,668)
(292,690)
Accumulated other comprehensive income 1,660
(2,230)
Retained earnings 191,352 386,371
Total stockholders’ equity 588,770 2,589,023
——— ———-
–
Total liabilities, redeemable convertible
preferred stock warrant and stockholders’
equity $871,458 $2,888,518
========= ===========
(1) Derived from audited financial statements
GOOGLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
——————–
–
2003 2004
——— ———-
–
(unaudited)
Operating activities
Net income $78,394 $195,019
Adjustments:
Depreciation and amortization of property and
equipment 28,203 85,620
Amortization of intangibles and warrants 8,975 10,393
In-process research and development 11,618 950
Stock-based compensation 144,377 219,215
Tax benefits from exercise of warrants – 144,971
Non-recurring portion of settlement of
disputes with Yahoo – 201,000
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable, net (54,574)
(78,361)
Income taxes, net 8,120
(182,415)
Prepaid expenses and other assets (29,156)
(54,134)
Accounts payable 35,175 3,369
Accrued expenses and other liabilities 15,545 42,148
Accrued revenue share 57,991 13,301
Deferred revenue 4,234 7,871
——— ———-
–
Net cash provided by operating activities 308,902 608,947
——— ———-
–
Investing activities
Purchases of property and equipment (120,310)
(259,915)
Purchases of short-term investments (105,229)
(2,877,309)
Maturities and sales of short-term investments 130,149 1,548,334
Purchases of other investments –
(4,999)
Acquisitions, net of cash acquired (39,958)
(10,833)
——— ———-
–
Net cash used in investing activities (135,348)
(1,604,722)
——— ———-
–
Financing activities
Proceeds from exercise of stock options, net 10,649 10,159
Proceeds from exercise of warrants – 21,944
Net proceeds from initial public offering – 1,161,446
Payment of note receivable from
officer/stockholder – 4,300
Payments of principal on capital leases and
equipment loans (6,435)
(3,521)
——— ———-
–
Net cash provided by financing activities 4,214 1,194,328
——— ———-
–
Effect of exchange rate changes on cash and cash
equivalents (104)
(3,079)
Net increase in cash and cash equivalents 177,664 195,474
Cash and cash equivalents, beginning of the
period 57,752 148,995
——— ———-
–
Cash and cash equivalents, end of the period $235,416 $344,469
=========
===========
Reconciliations of non-GAAP results of operations measures to the
nearest comparable GAAP measures
The following table presents certain non-GAAP results before material
non-recurring items (in thousands, unaudited):
Three months ended September 30,
2004
———————————–
–
Actual Adjustments Non-GAAP
Results
——————– ———–
–
Income from operations $11,112 201,000 (a) $212,112
====================
============
201,000 (a)
(82,036)(b)
(45,950)(c)
———–
Net income $51,983 73,014 $124,997
====================
============
Net income per share – diluted $0.19 $0.45
=========
============
Shares used in per share
calculation – diluted 274,735 274,735
=========
============
Nine months ended September 30,
2004
——————————-
–
Actual Adjustments Non-GAAP
Results
——— ———– ———
–
Income from operations $337,393 201,000 (a) $538,393
========= ========
==========
201,000 (a)
(82,036)(b)
(45,950)(c)
——–
Net income $195,019 73,014 $268,033
========= ========
==========
Net income per share – diluted $0.73 $1.00
=========
==========
Shares used in per share calculation –
diluted 268,394 268,394
=========
==========
(a) To eliminate $201.0 million of charges related to the
non-recurring portion of settlement of disputes with Yahoo.
(b) To eliminate $82.0 million of tax benefit recognized related to
the non-recurring portion of settlement of disputes with Yahoo.
(c) To eliminate $46.0 million of tax benefit recorded in the third
quarter related to certain stock-based compensation charges
recognized prior to the initial public offering.
Reconciliations of non-GAAP liquidity measures to the nearest
comparable GAAP measures
1. Reconciliation from net cash provided by operating activities to
free cash flow (in thousands, unaudited):
Three Three Nine
months months months
ended ended ended
June 30, Sept. 30, Sept.
30,
2004 2004 2004
——— ———- ———
–
Net cash provided by operating
activities $162,559 $238,343 $608,947
Less purchases of property and
equipment (96,246) (77,632)
(259,915)
——— ———- ———
–
Free cash flow $66,313 $160,711 $349,032
========= ==========
==========
2. Reconciliation from net cash provided by operating activities to
adjusted EBITDA(a) (in thousands, unaudited):
Three As a Three As a
months percentage months
percentage
ended of ended of
June 30, revenues Sept. 30, revenues
2004 2004
——— ———– ———- ———-
–
Net cash provided by
operating activities $162,559 23% $238,343
30%
Changes in assets and
liabilities, net of
effects of acquisitions 116,471 17% 175,674
22%
Provision (benefit) for
income taxes 90,397 13% (37,005)
(5)%
Interest income (expense)
and other, net 1,498 0% (3,866)
(1)%
Tax benefits from
exercise of warrants (93,244) (13)% (51,727)
(6)%
——— ———– ———- ———-
–
Adjusted EBITDA $277,681 40% $321,419
40%
========= =========== ==========
===========
Nine months As a
ended
percentage
Sept. 30, of
2004 revenues
———– ———-
–
Net cash provided by operating activities $608,947
28%
Changes in assets and liabilities, net of
effects of acquisitions 248,221
12%
Provision (benefit) for income taxes 145,042
7%
Interest income (expense) and other, net (2,668)
0%
Tax benefits from exercise of warrants (144,971)
(7)%
———– ———-
–
Adjusted EBITDA $854,571
40%
===========
===========
(a) Definition of adjusted EBITDA: Earnings before interest, taxes,
depreciation, amortization, stock-based compensation, in-process
research and development and non-recurring portion of settlement
charge.
———————————————————————
———–
Contact:
Google Inc.
David Krane, 650-623-4096
david@google.com
Steve Langdon, 650-623-4950
slangdon@google.com