MOUNTAIN VIEW, Calif. – July 21, 2005 – LAWFUEL – The Law News Network – Google Inc. (Nasdaq: GOOG) today announced financial results for the quarter ended June 30, 2005.
“We had an excellent quarter. We continued to innovate, we continued
to execute and we stayed focused on our users,” said Eric Schmidt,
Google chief executive officer. “Google had another solid
performance.”
Google reported record revenues of $1.384 billion for the quarter ended
June 30, 2005, up 98% year over year. Google reports its revenues,
consistent with GAAP, on a gross basis without deducting traffic
acquisition costs or TAC, the portion of revenues shared with partners.
· Income from operations, on a GAAP basis, was $476 million, or 34.4%
of revenues for the quarter ended June 30, 2005 compared to $171
million or 24.4% of revenues for the second quarter of 2004.
· Income from operations included a $47 million non-cash, stock-based
compensation charge compared to a $75 million non-cash, stock-based
compensation charge in the prior year’s second quarter.
· Net income on a GAAP basis for the quarter ended June 30, 2005 was
computed based on the following income statement or condensed income
statement line items: Revenues of $1.384 billion less TAC of $494
million, less both other costs and expenses before stock-based
compensation of $367 million and stock-based compensation of $47
million, increased by other income of $20 million and then reduced by a
provision for income taxes of $153 million.
· Net income on a GAAP basis in the second quarter of 2005 was $343
million, (reflecting a 31% tax rate in contrast to last quarter’s 19%
rate, which reflected tax accounting associated with stock option
activity), or $1.19 per share on a diluted basis 287.2 million weighted
average shares outstanding. This compared to net income for the second
quarter of 2004 of $79 million or $0.30 per share on a diluted basis
266.3 million weighted average shares outstanding.
· Some Wall Street analysts use non-GAAP measures to analyze our
operating results. For instance, they may subtract TAC of $494 million
from revenues of $1.384 billion to arrive at a net revenues amount.
Also, certain analysts may arrive at net income before stock-based
compensation by subtracting traffic acquisition costs of $494 million,
other costs and expenses before stock-based compensation of $367
million, adding back other income of $20 million and subtracting our
provision for income taxes of $153 million from revenues of $1.384
billion.
· Net cash provided by operating activities for the three months
ended June 30, 2005 totaled $625 million as compared to $163 million
for the second quarter of 2004, an increase of 283%.
· Adjusted EBITDA (a non-GAAP measure) which is an alternative
measure of liquidity to GAAP net cash provided by operating activities
(and is defined as income before interest, taxes, depreciation,
amortization, the non-cash stock-based compensation charge and
in-process R&D), increased by $312 million or 112% to $590 million (or
43% of revenues) in the second quarter of 2005 from $278 million in the
second quarter of 2004 (or 40% of revenues).
Financial Highlights
Revenues – Revenues in the second quarter totaled a record $1.384
billion, representing a 10% increase over the first quarter of 2005 and
a 98% year-over-year increase. This revenue increase 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 Revenues – Google-owned sites generated $737 million or
53% of total revenues. This represents an increase of 115% over the
second quarter of 2004.
The Google Network – Revenues generated on Google’s partner sites,
through AdSense programs, contributed $630 million, or 46% of total
revenues, an 82% increase over the Network revenues generated in the
same quarter last year.
TAC – Traffic Acquisition Costs, the portion of revenues shared with
Google’s partners, increased to $494 million. This compares to total
payments to partners of $277 million in the second quarter of 2004.
Income from Operations – Income from operations in the second quarter,
on a GAAP basis, was $476 million or 34.4% of revenues, and included a
non-cash charge of $47 million for stock-based compensation. This
compares to income from operations of $171 million or 24.4% of revenues
in the second quarter of 2004, when the stock-based compensation charge
was $75 million. This improvement in operating margins was primarily
because of decreases in TAC, Sales and Marketing expense and
stock-based compensation expense as a percentage of revenues, offset by
increases in R&D, other cost of revenues and G&A expense.
Income Taxes – Google recorded a provision for income taxes of $153
million in the second quarter of 2005, an effective tax rate of 31% as
compared to a $90 million provision for income taxes and a 53%
effective tax rate in the second quarter of 2004. We continue to
expect that the effective tax rate for 2005 will be less than 30%.
However if future revenues recognized by Google’s Irish subsidiary
are not as proportionately significant as expected, Google’s
effective tax rate will be higher than expected.
Net Income – Net income on a GAAP basis increased to $343 million or
24.8% of revenues in the second quarter of 2005 as compared to $79
million or 11.3% of revenues in the second quarter of 2004. Earnings
on a per share diluted basis were $1.19 in the second quarter of 2005
as compared to $0.30 in the second quarter of 2004.
Cash Flow – Net cash provided by operating activities increased 283%
to $625 million for the three months ended June 30, 2005 from $163
million for the three months ended June 30, 2004. Free cash flow is an
alternative non-GAAP measure of liquidity to GAAP net cash provided by
operating activities and is calculated as operating cash flows less
capital expenditures. Capital expenditures were approximately $158
million in the three months ended June 30, 2005 as compared to $96
million in the three months ended June 30, 2004. Free cash flow for
the three months ended June 30, 2005 totaled $467 million as compared
to $67 million for the same period in 2004, an increase of
approximately 600%.
Adjusted EBITDA – Adjusted EBITDA is defined as income before
interest, taxes, depreciation, amortization, the non-cash stock-based
compensation charge and in-process R&D. It is another alternative
measure of liquidity to GAAP net cash provided by operating activities.
Adjusted EBITDA increased to approximately $590 million in the second
quarter of 2005 (or 43% of revenues) from $278 million (or 40% of
revenues) in the second quarter of 2004.
The reconciliations of free cash flow and adjusted EBITDA to net cash
provided by operating activities, the GAAP measure of liquidity, is set
forth at the back of this release.
Cash – As of June 30, 2005, Google had a cash, cash equivalents and
marketable securities balance of $2.9 billion.
On a worldwide basis, Google employed 4,183 full time employees as of
June 30, 2005, up from 3,482 as of March 31, 2005.
Webcast and conference call information
A live audio webcast of Google’s second-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, August 1, 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 4665218.
Forward looking statements
This press release contains forward-looking statements that involve
risks and uncertainties, including statements relating to Google’s
future business prospects and our anticipated effective tax rate.
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, our ability to compete with new or existing competitors, risks
related to our ability to innovate and grow, risks related to our
international operations, our ability to maintain and enhance our
brand, and the fact that we may have exposure to greater than expected
tax liabilities, as well as those risks and uncertainties included
under the captions “Factors That Could Affect Future Results” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” in our report on Form 10-Q for the quarter
ended March 31, 2005, which is on file with the SEC and is available on
our investor relations website at investor.google.com and on the
SEC’s website at www.sec.gov. Additional information will also be
set forth in our quarterly report on Form 10-Q for the quarter ended
June 30, 2005, which will be filed with the SEC in August 2005. All
information provided in this release and in the attachments is as of
July 21, 2005 and Google undertakes no duty to update this information.
About non-GAAP financial measures
To supplement Google’s consolidated financial statements presented in
accordance with GAAP, Google uses the following measures defined as
non-GAAP financial measures by the SEC: free cash flow and adjusted
EBITDA. The presentation of this financial information is not intended
to be considered in isolation or as a substitute for the financial
information prepared and presented in accordance with GAAP. For more
information on these non-GAAP financial measures, please see the tables
captioned “Reconciliations of Non-GAAP Liquidity Measures to the
Nearest Comparable GAAP Measures” set forth at the back of this
release.
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 liquidity and when planning and forecasting
future periods. These non-GAAP financial measures also facilitate
management’s internal comparisons to Google’s historical 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.
