Going Beyond core Treasury Brent Callinicos, CPA VP, Treasurer & Chief Accountant Google Inc. 1
Going Beyond core Treasury
Brent Callinicos, CPA VP, Treasurer & Chief Accountant Google Inc.
1
Agenda
• Company financial information • Company culture and impact on build-out velocity/strategy • Treasury: a five-year journey • Goal: world-class everywhere • Building on the base
2
Historical financial performance
3
Gross Revenue GAAP Operating Profit
GAAP EPS (Diluted) Operating Cash Flow
$86 $440 $1,466 $3,189
$6,139
$10,605
$16,594
$21,795 $23,651
$29,321
$37,905
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ in
mill
ions
$11 $186 $342 $640
$2,017
$3,550
$5,084
$6,632
$8,313
$10,382
$11,742
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ in
mill
ions
$0.45 $0.41 $1.46
$5.02
$9.94
$13.29 $13.31
$20.41
$26.30
$29.76
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ in
mill
ions
$31 $155 $395 $977
$2,459 $3,581
$5,775
$10,002 $9,650
$11,081
$14,565
$0
$2,500
$5,000
$7,500
$10,000
$12,500
$15,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ in
mill
ions
U.S. vs. International revenues
4 Google Proprietary and Confidential
2004 2005 2006 2007 2008 2009 2010 2011 2012
65% 65% 61% 61% 61%62% 58% 58% 56%
56% 53% 52%52%
52% 49% 48% 49% 50%48% 47%
47%47% 47% 48%
48%
48% 47% 46%45%
47% 46%
47%
35%35% 39% 39% 39%
38% 42% 42% 44%44% 47% 48%
48%48% 51% 52% 51% 50%
52% 53%53%
53% 53% 52%52%
52% 53% 54%55%
53% 54%
53%
806 1,032
1,257 1,384
1,578 1,919
2,254 2,456 2,690
3,205 3,664 3,872
4,231
4,827 5,186
5,367 5,541 5,701 5,509 5,523
5,945
6,674 6,775 6,820
7,286
8,440 8,575
9,026
9,720
10,584 10,645
12,214
$0
$2,500
$5,000
$7,500
$10,000
$12,500
Q3 04
Q4 04
Q1 05
Q2 05
Q3 05
Q4 05
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11
Q1 12
Q2 12
($ in
mill
ions
)
US International
Cash and marketable securities
5
$2.9
$7.6 $8.0 $8.4$9.8 $10.4
$11.2 $11.9 $12.5 $13.1$14.2
$12.1$13.0
$14.4$15.8
$17.8$19.3
$22.0
$24.5
$26.5
$30.1
$33.4$35.0
$36.68
$39.1
$42.6
$44.6
$49.3
$43.1
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
$50.0
Q2 05
Q3 05
Q4 05
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11
Q1 12
Q2 12
Cash
($ in
Bill
ions
)
October 2006 Youtube Acquisition
$1.6 Billion
March 2006 Secondary offering:
$2.1 Billion
March 2008 DoubleClick Acquisition
$3.2 Billion
September 2005 Secondary Offering:
$4.3 Billion
May 2012 Motorola Acquisition
$12.5 Billion
From big bets to hockey sticks
6 Google Proprietary and Confidential
Mobile Chrome Display
YouTube Android Enterprise
• Mobile ad revenue run-rate • Chrome usage has nearly doubled each of past 2 yrs
• Display ad revenue run-rate has doubled in ~1 yr
Google I/O 2010
Google I/O 2011
Google I/O 2012
Chr
ome
Use
rs (m
m)
70
160
310
Q3 10 Q3 11
$1.0B
$2.5B
Q3 10 Q4 11
$2.5B
$5.0B
• 4B hours of video watched per month
• 72 hours of video uploaded every minute
• 800M unique users visit YouTube each month
• 1 million+ Android devices activated each day
• 400 million+ Android devices activated worldwide
• >600,000 apps
• 5 million businesses now using Google Apps
• Tens of millions of active users
• 66 of the top 100 universities in the US have chosen Google Apps
Google Cultural Impact
7
Share everything
8
Ideas come from anywhere
9
Experiment…then decide with data
10
Establish a culture of yes
11
12
Google culture
13 Google Proprietary and Confidential
Strategic Goals
14
• Aim high • Take a deeply analytical approach to everything
– A sophisticated approach doesn’t have to be scary – Risk management as a foundation for forecasting, strategies etc. – Strive for as-close-to-as-possible visibility into exposures, market values
of positions, risk metrics, etc. • Diversify your portfolio • All insurance should be strategic • Use systems wherever possible
– Straight-through processing is critical • Look at entire transactions and processes from start to finish and use real-
time numbers • Don’t confuse activity with results – benchmark everything • Build a world class, technological intense Treasury base and then leverage
skillsets to add value outside of normal Treasury activities
Treasury circa January 2007
15
• People
• Focus Areas
• Systems
Google Treasury Organization Status in 2007
16
Brent Callinicos VP, Treasurer
Portfolio Manager (1 HC)
Assistant Treasurer (1 HC)
Operations & Cash Management
(1 HC)
Stock Services (4 HC)
Treasury Focus Areas Status in 2007
17
• Foreign Exchange – Didn’t exist
• Portfolio Management – 1 FTE, 90% outsourced to 4 managers, Treasuries & municipal bonds ($11B)
• Corporate Finance – Didn’t exist
• Financial Risk Management – Didn’t exist
• Cash Management/Operations – Before: 1 FTE, largely manual processes, visibility into ~50% of worldwide cash daily. No
operations group.
• Risk Management – Before: 1 temp, tactical 3rd party insurance purchases
• Stock Services – Before: 4 FTE, 1 broker, Transferrable Stock Option (TSO) program pending
Treasury Systems Architecture Status in 2007
18
Banks (Cash positions)
CitiDirect
Bloomberg
Ext. Money Mgrs
State Street (Custodian)
Portfolio Processes
Cash Mgmt Processes
Manual data entry to create cash visibility
Banks (FX BS txns)
FX Processes
In the middle of difficulty lies opportunity
Albert Einstein
19
Personnel Focus
20
• Take a long-term focus • Hire for strategy
‒ High level strategy drives hires
‒ Personnel drive bottoms-up strategy validation and details
‒ Don’t rush hiring
‒ Hire expertise + adaptive intelligence + desire to build
‒ Bar should be to be as good as counterparties
Google Treasury Organization – Q1 ‘07
21
Brent Callinicos VP, Treasurer
Portfolio Manager (1 HC)
Assistant Treasurer (1 HC)
Operations & Cash Management
(1 HC)
Stock Services (4 HC)
Google Treasury Organization – Q3 ‘12
22 Google Proprietary and Confidential
VP, Treasurer
Assistant Treasurer Cash Mgmt, Insurance &
Stock Services
Assistant Treasurer, Stock
Services
Stock Manager Stock Manager
Sr. Stock Analyst Sr. Stock Analyst
Sr. Stock Analyst Stock Analyst
Stock Analyst
Treasury Manager, Cash
Mgmt
Sr. Cash Analyst Sr. Cash Analyst
Cash Analyst Cash Analyst
Cash Analyst Cash Analyst
Treasury Ops Manager
Treasury Ops Manager
Treasury Ops Analyst
Business Risk Manager
(Insurance)
Business Risk Manager
(Insurance)
Treasury Manager
Treasury Manager Cash Manager
Sr. Treasury Analyst Treasury Analyst
Treasury Analyst
Assistant Treasurer PMG, FX, Corp Fin, Green
Energy & GFS
Assistant Treasurer, PMG
Director, Portfolio Manager
Portfolio Analyst Portfolio Analyst
Director, Portfolio Manger
Portfolio Analyst
Portfolio Manager (ex.
Mgrs)
Sr. Portfolio Analyst Portfolio Analyst
Director, FX & GFS
FX Manager
Sr. FX Analyst FX Analyst
FX Analyst
Treasury Manager
Sr. Treasury Analyst
Sr. Treasury Analyst
Treasury Analyst Treasury Analyst
Treasury Analyst Treasury Analyst
Corp Fin Manager
Sr. Capital Markets Analyst
RE Lead Associate
Capital Markets Analyst
Capital Markets Associate
Financial Analyst
Capital Markets Manager
Executive Assistant
Executive Assistant
Foreign Exchange
23
• Risk-based approach • Deep quantitative analysis
‒ Statistical, scenario, backtesting
• Decision based on “where do we want to go?” ‒ Not “where have others gone?”
‒ Not “incremental tweak to current approach”
‒ Data drives the decision
• Quantitative insurance appropriate benchmarks
The time to repair the roof is when the sun is shining.
John F. Kennedy
24
Foreign Exchange
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Year
EURU
SDSp
ot R
ate
EURUSD: 2000 to Present
25
Inception of EUR CashFlow Hedging Program
Source: Bloomberg, rates data from 3-Jan-2000 to 29-Aug-2012
Quarterly Realized Hedge Benefit
26 Source: Google public filings, 2008 - 2012
$- $5
$34
$129
$154
$124
$39
$8 $10
$79 $89
$25 $14
$4 $1
$25 $37
$81
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2008 2009 2010 2011 2012
Real
ized
Reve
nue
Hedg
e Be
nefit
($ in
MM
) Cashflow Hedging Program (EUR, GBP, CAD) has led to
nearly $1bn in realized revenue hedge benefit since inception
Portfolio Management
27
• Risk-based approach • Deep quantitative analysis
‒ Statistical, scenario, backtesting
• Decision based on “where do we want to go?” ‒ Not “where have others gone?”
‒ Not “incremental tweak to current approach”
‒ Data drives the decision
• Standard market performance benchmarks
Credit Spreads
28
Began transition to diversified portfolio
Financial Crisis
Completed diversified portfolio analysis
Many of life's failures are people who did not realize how close they were to success when they gave up (Thomas Edison)
-500
0
500
1000
1500
2000
2500
HIGH YIELD
EMERGING MARKET
INVESTMENT GRADE
AGENCY MBS INDEX
2-YEAR AGENCY BOND
Cumulative PMG Value-Added vs Cash (Sep 2007 – present)
Portfolio Results
29
*Proxied by 1-yr US T-Bill
Traditional Cash Mgmt Approach* PMG Incremental Interest Income
PMG Realized Gains PMG Change in Unrealized G/L and Tax Benef its
Adopted Total Rate of Return Approach Roll-out of New PMG Strategy
Treasury Systems Architecture Status in 2007
30
Banks (Cash positions)
CitiDirect
Bloomberg
Ext. Money Mgrs
State Street (Custodian)
Portfolio Processes
Cash Mgmt Processes
Manual data entry to create cash visibility
Banks (FX BS txns)
FX Processes
Treasury Systems Architecture
31
32
Treasury Areas of Initial Focus Progress Made
33
• Foreign Exchange – Before: didn’t exist – After: risk-based policy, $ multi-billion hedging programs (3), group led by Director with 20+ years of F/X experience. Multiple systems. – ~$1B revenue benefit from hedging in past 4+ years
• Portfolio Management – Before: 1 FTE, 90% outsourced to 4 managers, Treasuries & munis ($11B) – After: risk-based policy, 70%+ in-house, 14 external managers, wide-range of fixed income assets, experienced (and growing) team. World
class systems – Consistently outperformed industry standard benchmarks
• Corporate Finance – Before: didn’t exist – After: work on areas like affordable housing tax credit investing, green energy, capital structure (e.g. recent Commercial Paper issuance
and debt ratings), acquisitions/strategic investments
• Financial Risk Management – Before: didn’t exist – After: small group of mostly Phd’s, who are checks and balances for F/X and portfolio and work as consultants with each group
• Cash Management/Operations – Before: 1 FTE, largely manual processes, visibility into ~50% of worldwide cash daily. No operations group. – Now: very automated, visibility into 98% of cash on demand, and a newly formed operations group
• Risk Management – Before: 1 temp, tactical 3rd party insurance purchases – Now: strategic risk analysis to ensure optimal coverage methodologies
• Stock Services – Before: 4 FTE, 1 broker, Transferrable Stock Option (TSO) program pending – Now: 2 brokers, TSO program up and running
Far better is it to dare mighty things, to win glorious triumphs, even though
checkered by failure... than to rank with those poor spirits who...know not victory
nor defeat. Theodore Roosevelt
34
Going Beyond the Base
35
• Corporate Finance
• Green Energy
• GFS
• Insurance
Corporate Finance
36
• Where can we add most value at Google ‒ Capital structure ($3B CP program then $3B in long-term debt)
‒ Affordable Housing tax credit portfolio
‒ Green Energy investments / contracts
‒ Google Financial Services
‒ M&A / Strategic investment support
Managing the Capital Structure Increasing Options & Reducing Risk
37
$3,000,000,000 Debt IPO
$1,000,000,000 1.250% Notes due 2014
$1,000,000,000 2.125% Notes due 2016
$1,000,000,000 3.625% Notes due 2021
Joint Book-Running Managers
Citi Goldman, Sachs & Co. J.P. Morgan
Bank of America Merrill Lynch Credit Suisse Morgan Stanley
May 16, 2011
Debt Outstanding ($ in millions)
Historical 10yr US Treasury Yields
LT Issuer Rating: AA- / Aa2 0.75%
1.50%
2.25%
3.00%
3.75%
1.65%
$2,122
$3,465 $3,216
$1,217 $1,218 $1,218 $2,468
$3,218
$2,985 $2,986 $2,986
$2,987
$2,987
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12
($m
m)
Commercial Paper LT Debt
$4,202 $4,204 $4,204
$5,455
$6,205
Google's Electricity Consumption in 2011
Electricity Generated by Projects When Built
• Over $915M invested in two years
• Will generate 174% of Google’s annual energy consumption
• Energy to power ~350,000 homes
4.7 MILLION MWh
2.7 MILLION MWh 174%
ATLANTIC WIND$17M | Oct 2010
BRANDENBERG, GERMANY$5M | May 2011
SOLARCITY$280M | May 2011CLEAN POWER FINANCE
$75M | Aug 2011
ALTA WIND$158M | Jun 2011
RECURRENT ENERGY$94M | Dec 2011
BRIGHTSOURCE$168M | Apr 2011
SHEPERD’S FLAT$103M | Apr 2011
PEACE GARDEN$39M | Apr 2010
Renewable Energy Investment Impact
38
• Google has facilitated the construction of over 3000 affordable housing units
Sunnyvale, CA
Fresno, CA
Fontana, CA
Palm Springs, CA
Inglewood, CA
Waukegan, IL
Boston, MA
Milwaukee, WIMinneapolis, MN
Apple Valley, MN
Des Moines, IA
Santa Fe, NM
Honolulu, HI
Mt. View, CA
Waterloo, IA
Salinas, CA
Low Income Housing Investment Impact TBU: Checking with Jim Prosser
39
Making Money and Doing Good are not Mutually Exclusive
40
Google Financial Services AdWords Business Credit (“ABC”) Overview
41
ABC addresses customer credit constraints SMB Advertisers are credit constrained
• Many of Google’s SMB advertisers are unable to maximize benefits of AdWords advertising due to:
⁻ Limited advertising budgets
⁻ Expensive financing costs
⁻ Seasonality
⁻ Inadequate cash flow and / or credit line constraints
• ABC is a Google branded credit card, for AdWords advertising only, that eases credit constraints with:
⁻ Large credit line (~1 year of spend)
⁻ Competitive interest rate (8.99%)
⁻ Flexible payment terms and no annual fees
• Launched pilot in Q3’11; strong SMB interest & significant revenue uplift for Google
Positive feedback from ABC cardholders
• “Thank you guys for helping my small business with affordable credit access and helping me to expand my ad budget and sales. It is a very major help to my business.”
• “We have grown three fold this year because of Google AdWords Business Credit.”
• “Please ensure that this business credit program is grown! It's one of the greatest assets that Google has provided!”
• “Hats off to who thought of this, this is why we prefer Google advertising, forward thinking.”
• “If it were not for the AdWords Business credit card, I would not have spent as much in Google advertising and would have scaled back advertising spend in my off season months.”
• “It's great! Keep doing it! I now need one less line of credit thanks to the AdWords Business Credit card... and a decent line of credit is hard to get these days.”
The Future
42
• Raise the bar in every area in every year – i.e. make the trains go faster, run better
• Figure out new areas of innovation – i.e. which wildernesses do we want to build new tracks through
• Continue to drive system solutions wherever logical
• Don’t be afraid of failure
Thank you.
43 Google Proprietary and Confidential