Good day, ladies and gentlemen, and welcome to the Alphabet's second quarter 2017 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. [Operator Instructions] I'd now like to turn the conference over to Ellen West, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Alphabet's second quarter 2017 earnings conference call. With us today are Ruth Porat and Sundar Pichai. Now I'll quickly cover the Safe Harbor. Some of the statements that we make today may be considered forward-looking, including statements regarding our future investments, our long-term growth and innovation, the expected performance of our businesses, and our expected level of capital expenditures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our Form 10-K for 2016, filed with the SEC. Any forward-looking statements that we make are based on assumption as of today, and we undertake no obligation to update them. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. As you know, we distribute our earnings release through our Investor Relations website located at abc.xyz/investor. This call is also being webcast from our IR website, where a replay of the call will be available later today. And now I'll turn the call over to Ruth.

Our revenues of $26 billion in the second quarter demonstrate the ongoing momentum in our businesses with broad-based strength globally. Revenues were up 21% year-on-year, and up 23% in constant currency. Advertising revenues benefitted from the strong performance insights, which was led in particular by tremendous results in mobile search with a strong contribution from YouTube. Healthy growth and network revenues was driven by our programmatic business. We also had substantial growth in other revenues from Cloud, Play and hardware. Our outline for today's call is first I'll review the quarter on a consolidated basis for Alphabet focusing on year-over-year changes. I will review our results on a GAAP basis, which include the impact of stock-based compensation. The European commission fine of $2.7 billion is reflected in our GAAP results with the fine displayed as a separate line item for clarity. In order to assist with comparing this quarter's results to prior periods, we are also providing operating income, net income and EPS results that exclude the impact of the fine. The fine is not reflected in our segment results. Second, I will review results for Google and then Other Bets. Finally, I will conclude with our outlook. Sundar will then discuss our business and product highlights for the quarter after which we will take questions. I will start with the summary of Alphabet's consolidated financial performance for the quarter. Total revenues were $26 billion up 21% year-over-year. We realized a negative currency impact on our revenues year-over-year of $364 million or $361 million after the benefits of our hedging program. Holding currency constant to the prior period, our total revenues grew 23% year-over-year. Turning to Alphabet revenues by geography. You can see that our performance was strong in all regions. U.S. revenues were up 23% year-over-year to $12.3 billion.…

Thanks Ruth. We had a phenomenal quarter. Google continues to lead the shift to AI driven computing. We are working to make this incredible technology available to everyone around the world. It's our focus on infusing our products and platforms with power of machine learning and AI that's driving our success. Today, I'll spend time talking about the areas where we are confidently investing for the future. First the incredible momentum we are seeing in some of our core products followed by machine learning. Next an update on three of our most promising bets, YouTube, Cloud and our Hardware businesses. And I will conclude the strong performance of our computing and advertising platforms. To start our core products and the AI powering them. Google has always been about using deep computer science and insights to solve some of the world's most complex problems. People are no longer only using a keyboard, mouse and multi-touch, but are also using emerging inputs like voice and camera to ask questions and get things done in the real world. We are seeing this in the way people interact with the Google Assistant, which is already now available on more than 100 million devices since launching last year and there is more to come. Since we released an Assistant SDK that will enable a wide range of new hardware devices, which will include the Google Assistant. We now have more than 70 home automation partners on the Assistant on Google Home and Phones, including Honeywell, Logitech and LG. So you can do everyday things around the house using your voice. At Google IO, we announced Google Lens available later this year. Lens is a set of vision-based computing capabilities that can understand what you're looking at and help you take action based on that information.…

Thank you, Sundar. We will now take your questions.

[Operator Instructions] And our first question comes from Eric Sheridan of UBS Securities. Your line is now open. Eric Sheridan Thanks for taking the question, maybe a big picture question directed to Sundar. As you think about the Google Assistant and what it can do medium-to-long term, maybe talk a little bit about how the Assistant as a product could now roll the gap between consumption and utility inside your products versus monetization over time with this specific focus I would love to hear about local in particular? Thank you so much. Sundar Pichai It's a good question, when I think about, we have, we are very focused over the long-term to making sure the Assistant can actually help people get things done in the real world. And so obviously when you think about it from that standpoint local becomes important. Over time, just like when the transition happened from desktop to mobile, people's bar for what they expect increased. They wanted more answers, they wanted more immediate gratification, right and that's a continuum and I think you'll see the trends. And so over time we are laser focused on making sure we can deliver against those experiences, and I think local and their particular strength over time both in terms of, the expertise we have built in local as well as our investment in Maps is hopefully paying off.

Thank you. And our next question comes from Doug Anmuth of JPMorgan.

Great, thanks for taking my question. First one for Ruth, I was just hoping you could help us understand at least qualitatively how core margins for the advertising business are trending within the Google segment? And then Sundar just on the Cloud business, I know you talked about four new regions being built out. Can you just talk about your strategy in building out that Cloud infrastructure, how we should think about it in terms of building out extra capacity or whether it's more in line with near-term demand? Thanks. Ruth Porat Thanks. So starting with your margin question like as we've often said, we're focused on revenue and operating income dollar growth and not on operating margins. We have strong positions in healthy growing areas and are adding really exciting additional growth areas and that's what we mean when we discussed driving long-term revenue and earnings growth. To get a little more specific, the gross margin, this quarter obviously reflects our product mix shift and although the cost of sales is higher as a percentage of revenues, these costs are associated with high growth product areas that enable us to create value for all of our stakeholders. And then on the OpEx side, the second quarter reflects a number of factors, first I think really to your question on an overtime point, you can see the impact of the timing shift in the equity refresh which we discussed previously. Now as a reminder that does abate in the back-half of the year, but you can see it here in the second quarter. And then what you are also seeing an OpEx growth is the investments in areas that we've spilled out. So for example in R&D you can see the impact of the headcount increases in our priority areas particularly Cloud and machine learning and marketing spend similarly reflects the strategic priority areas we've delineated particularly hardware and YouTube subscription. But as I said in my opening comments, we're increasing investment in areas where we see the most potential, we are scaling it back in others, we're focused on organizational effectiveness to make the most of all of our resources and all of that really underpins the goal to sustain both revenue and earnings growth over the longer term.

Thanks that's helpful.

Thank you. And our next question comes from Heather Bellini of Goldman Sachs. Your line is now open. Heather Bellini Thank you very much. I was just wondering Sundar, you mentioned some of the strength your seeing in GCP. Now I was just wondering if you could share with us, when you do win is there any commonality around the type of workloads that people are choosing you for? And can you share with us any updates on the go-to-market and kind of how you see all about where you've come over the last year, but even more importantly what you need to do to get it where you needed to be over the next 12 months? Thank you. Sundar Pichai All right, thanks, I would also take Doug's question on the infrastructure too and do it together, since they are related to Cloud. Overall, when we think about our infrastructure obviously we are serving Cloud as well as our internal products which are seeing tremendous growth as well. In terms of serving Cloud customers, we are world-class and available being reliable and those are things we want to stay best-in-class. So, we are clearly planning for that and planning ahead of our infrastructure and we have been consistently doing that. And Heather in terms of your question about workloads and stuff, we are actually seeing quite a diverse set of used cases across sectors and industries and geographies and so, I would say the breadth of what we have seen it's really surprised me. In terms of go-to-market, I shared an update on last, on that last quarter not sure there is much more interesting to add, we are continuing to do it well, we are scaling up and all the teams and the structure Diana has put in place is beginning to work well. And we are continuing to hire and scale all of this up, as quickly as we can. Heather Bellini Thank you.

Thank you. And our next question comes from Mark Mahaney of RBC Capital Markets. Your line is now open. Mark Mahaney Yes, I have two questions please. First, one on TAC, Ruth the factors that cause, have been causing characterizing relatively structural the outsize growth of mobile and the rise of programmatic. So there is no particular reason to think that, we should see anything other than gradual increase in TAC as a percentage of both O&O and network revenue going forward. So are there any reasons why that wouldn't be the case, next year or two? And then Sundar, another one more interesting innovations, that was, that kind of came out of Google IO was Visual Search, and can you just talk about, maybe a little bit roadmap for that or to the extent that which, how long it will take us actually see that broadly in the market, and what you think the appetite or how do you think that will change the way people search for products in the future they build need to also search visually through your phone? Thank you. Ruth Porat So on the first question, there are obviously a number of factors that affect Sites TAC we've talked about them over time. The primary driver again this quarter, as you noted in question was the strong growth in mobile and the fact that more mobile searches are subject to TAC. But the increase in Sites TAC year-over-year, I think what I would stress is it really provides another lens on just how strong our mobile business is. There are other factors that affect the TAC rate including the mix of paid versus organic traffic as well as changes in partner mix and agreement terms. But I think at the, main point of your…

Thank you. And our next question comes from Peter Stabler of Wells Fargo Securities. Your line is now open. Peter Stabler Thanks so much for the question. One for Sundar, at Marketing Next your team unveiled new ways that Google is leveraging consumer intense signals across your billion user plus platforms. It seems that some of the walls between product data silos are being lowered a bit, one of the obvious gains that [Street Harp] [ph] highlighted was search personalization. Wondering if you could speak broadly to the opportunity and looking at data from a targeting perspective more holistically across platforms? Thanks so much. Sundar Pichai I think it's important we have always felt as marketers when they spend and try to reach users, the more we can give them visibility about how their spend is working and they can attribute across all the stages of the funnel. I think that will really help make everything work well. So, we have always taken the long-term view. And everything we do be it store versus which we did a while ago or more recently at Google Marketing Next we talked about Google Attribution as well. So, all that starts adding up and I think pushes in this right long-term deduction. And there is more work to be done. But, I think as users use our -- use everything across multiple products and devices in a thoughtful way, I think making all of this work well, we see it as an opportunity ahead of us. Peter Stabler Thanks Sundar.

Thank you. And our next question comes from Brian Nowak of Morgan Stanley. Your line is now open. Brian Nowak Thanks for taking my questions today. I have two. The first one you talked about micro moments throughout the course of the year and micro moments on mobile. I was wondering, could you give us a couple of examples of micro moments or searching verticals where you have really seen an increase in your monetization over the last year. And Sundar, as you look out across all the search verticals, what are the two biggest one or two used cases you still see to improve the overall relevancy of search results and potential monetization? Sundar Pichai On the first one, I would probably be rather than be very specific, any time people are looking to buy, find, go do things, you could be looking for a local pizza or you could be buying -- we see craze like jeans near me and people are looking for jeans next to them. So these are all very, very specific things and in all of these cases, we have found we have been able to impact the experience for both users and advertisers. So, I think that applies generally broadly, in terms of all the verticals, I think there are a lot of opportunities local has been an area of strength for us. We have seen a lot of traction and continue to think as a vertical given the assets we have built over the years we can continue to invest more and do better for our users. Brian Nowak Thanks.

Thank you. And our next question comes from Ross Sandler of Barclays. Your line is now open. Ross Sandler Great. I have two questions for Sundar. First is, as you mentioned 15% yield improvement on publisher yield for [indiscernible] from machine learning, is there a comparable step inside of Google owned and operated search or YouTube after implementing machine learning you saw yield improvement of x, be curious hear to that. And then, the second question is, if you look out into the future, you guys mentioned 2 billion Android actives I/O and you mentioned 11 apps per user in your prepared remarks. Is Google forced to unbundle their own apps from Android in the future. What's the strategy to ensure that maps and YouTube and search get distribution and Android doesn't kind of go the way of China and other markets, be curious to hear that? Thank you. Sundar Pichai Let me take the first one first. On machine learning, we definitely machine learning we have been using it on search, Rank Brain has become one of the important signals in addition to the many other signals and search. And so, definitely that's had an impact same on YouTube across the board. I don't have any specific metrics to give but we definitely are seeing impact and we think we are in early days of the impact we can see. In terms of Android, we are obviously thoughtfully building Android out and scaling it out and we offer our apps as part of it. OEMs get to distribute other apps as well. We think it's a very open market, open ecosystem works well for everyone involved and I expect that to continue. And a lot of our products which are successful on Android happen to be successful outside of Android as well including on the web. These are products generally used by billions of users and by now we have worked hard to earn that trust and scale and so I'm confident we can continue scaling this up.

Thank you. And our next question comes from Dan Salmon of BMO Capital Markets. Your line is now open. Dan Salmon Hey, good afternoon everyone. Sundar, I think the last update we heard publicly on promoted places on maps was in December when you announced that you would be beginning some limited tests. I don't think there has been any public comment from the company since then quite frankly haven't heard a whole lot anecdotally about it either. So, I was just hoping for a quick update on that product? Thank you. Sundar Pichai Overall, I mean it's in the area where we are still like really focused on improving the consumer experience I think. We are evolving maps to be a lot more beyond just driving directions and users are responding to it. And I think we are in the process of making all that work better. And also, we've also focused in terms of what we see as local opportunity within search as well. But, we will continue testing and evolving, I think we want to make sure we get the consumer experience right before we invest before on promoter opportunities on maps. Dan Salmon Thank you.

Thank you. And our next question comes from Justin Post of Merrill Lynch. Your line is now open. Justin Post Great. A few for Ruth. First, I'm wondering if you could comment at all on the cloud business profitability, medium or long-term, how you are thinking about that. Second, I would go ahead and take a short at the EC decision lately, clearly it is material for financials. How are you thinking about approaching that decision, and does that impact any of your other advertising businesses as far as innovation? And then finally, any thoughts on verticals that were strong this quarter that supported the organic revenue growth? Thank you. Ruth Porat So, on -- as you know, we don't break out by product, just adding a bit more color on cloud. We are clearly excited about the opportunity we have here and it does continue to drive sizable revenue growth as I said in my opening comments as did Sundar and we are seeing momentum in the business. I think the comment that Sundar made about the number of new deals over 500,000 increasing 3x year-on-year gives you an indication of the momentum in the business. It's obviously not a financial forecast but it does display the traction we are having with cloud in the market and GCP remains one of the fastest growing businesses across Alphabet, G-suite continues to have strong growth. So, we are really pleased with what that means for both the longer term trends in the profitability. We do believe that from -- the many years of investment we have already made and things like technical infrastructure and security which operate with tremendous efficiency that provides us with a benefit, but near term we are investing meaningfully in sales and engineering service support -- continuing…

Thank you. And our next question comes from Mark May of Citi. Your line is now open. Mark May Thanks for taking my questions. I think this first one is for Sundar. Data of course is a key differentiator and there is a lot of advertising, so maybe you could talk about how you've changed your use of Google search data and recently in areas outside of search and how that is or might impact the effectiveness of advertising on channels like YouTube and others outside of search? And then, Ruth, in your prepared remarks you mentioned tremendous growth in mobile search in the quarter, I think that's a more emphatic statement in recent quarters, hoping that maybe you could provide more color on some of the areas where you are seeing the change and quite trajectory coming from within mobile search? Thanks. Sundar Pichai On your first question, obviously, we do these things with the foremost thing being making sure, we do the right things for user privacy. But, within our own products we are trying to help users get a better experience across on the consumer side and the advertising side and I think there is opportunity there. And so, we will be thoughtful as we move forward. Ruth Porat And then on mobile search, I think what you are hearing is, we are really pleased with the ongoing efforts there and as I just said there was not one change that really drove this, what extraordinary about the team is, with the focus on users and advertisers, what is it that is most useful Sundar has spoke about some of them with local, but it's really again -- it's a lot of small incremental efforts that in the aggregate continue to enable us to benefit from what’s a really nice underlying secular trend here. And that's what we are seeing in the results again.

Thank you. And our next question comes from -- Mark May Nothing around, are you listening to this? It's something around like geography or platforms or… Ruth Porat Not sure, if that was directed to me or but in terms of geography I think hopefully one of the benefits the way we recast the data here last quarter was, so you can actually get a bit more insight into what's going on around the globe. And that's why I made the comment that we are having a really broad strength globally. You can see it in each one of the regions here. U.S. continues to deliver strong growth engagement across products, if you look at EMEA on a fixed FX basis up 21%, you can see the same in APAC, the same in other Americas. So, yes, there is broad based strength across geographies and I think -- I'm not calling out one particular area because the -- what you are seeing here is the secular trend I have used that term a couple of times now. And we are continuing to benefit from that around the globe. And we are continuing to benefit from on top of that the efforts of our team.

Thank you. And our next question comes from Steven Ju of Credit Suisse. Your line is now open. Steven Ju Okay. Thank you. Sundar, I was just wondering if you could give us some sense of advertiser option particularly among your retail appliance the store visit product, as it seems like there has been a large opportunity to drive offline purchasing. And Ruth, can you give us some sense of any headwinds you might be seeing in your streams of your revenue away from Play or GCP in the LNO revenue line as we have just knocked that across and just seeing a sequentially flat revenue line there. Thanks. Sundar Pichai I think I spoke about it in my opening remarks. But, since [indiscernible] measurement was announced three years ago advertisers have mentioned over 5 billion store visits globally. And I think we are just doing -- we have just badly scratched the surface. But, our marketing next in May we announced that the store visit measurement will also rollout for YouTube TrueView campaigns and we will be rolling out store sales measurement in the coming months. So, advertisers can actually measure in-store revenue, store visits delivered by search and shopping apps. So, we have had good proof points advertisers who have used it, for example, Virgin Holidays used it, factored in store sales measurements and they realized their search campaigns generate double the profit comparatively looking at online KPIs alone. So, I think there is a lot of opportunity there. And so, we will do more by over time. Ruth Porat And then, you asked on the other revenue line it was up nicely again this quarter 42% year-on-year and that obviously includes the impact of FX. It's obviously a mix of businesses including some of our bigger investment areas, most notably cloud and hardware and as I said at the outset Play continues to perform really well. I think if you are asking about the quarter-on-quarter sequentially you noted, we are talking about a mix of businesses that have different characteristics and just state the obvious Play is more hit driven. It's highly seasonal, hardware is also seasonal. So, the year-on-year provides a better sense to the dynamics of the business and that's where you can see in this line up year-on-year really nicely this quarter. Steven Ju Okay. Thank you. Ruth Porat Thank you.

Thank you. And our next question comes from Colin Sebastian of Robert Baird. Your line is now open. Colin Sebastian Thank you. Maybe just one question for Sundar. I wonder if you could update us on your thoughts regarding the conversions of Chrome and Android operating systems. And in particular I'm curious whether the emergence of Google Assistant and Voice as a corollary across devices is a reason to move forward more integration between the two platforms. Thanks. Sundar Pichai Look I'm -- I mean we have been thoughtfully doing it in putting users first and I'm excited at how Android apps are coming to Chromebooks and we see that as a great opportunity and I think that will help us deliver a very compelling experience. And we just have started doing at this year and I expected to really get momentum as we go through to the next year. So, that's an example of conversions and I think that will work really well and so. And in terms of products like Google Assistant and Voice, I think we will make sure for users it doesn't matter and they work across every platform they use including our platforms as well as other people's platform. So, we think about making sure our services free as many users as possible and so we are working on that as well. Colin Sebastian Thank you.

Thank you. And our final question comes from the line of John Blackledge of Cowen & Company. Your line is now open. John Blackledge Great. Two questions, so for Sundar or Ruth, within cloud could you talk about your view of G Suites enterprise penetration right now, kind of key drivers of the adoption longer term. And if you view it as a potential differentiator for Google Cloud versus other large competitors. And then, within YouTube 60 minutes per day of viewing on phones and tablets obviously incredible at that scale. Any thoughts on kind of what could drive further material viewing or engagement growth over time? Thank you. Sundar Pichai And maybe on YouTube I would say, YouTube is one of those products which is scaling really well globally just like search did and we are seeing real strong growth on mobile. And we are seeing real strong growth for YouTube on emerging markets as well. And we are seeing real strong growth on television. So, if I look at YouTube on mobile on emerging markets on larger screens, they all look like newer opportunities and so I think there is a lot more growth ahead. And on cloud, I think we have kind of answered it. Obviously, we see differentiated strengths and machine learning, data analytics, security and reliability. And the combination of not just GCP, G Suite working together with GCP, we are seeing increasing win rates and option across enterprise customers. And I also think all the investments we are doing in terms of broadening our ecosystem including the newer partnerships with the companies I mentioned earlier that should begin to payoff. And overall, the return on investment from the hiring and region expansion we are doing. So, I think we are set-up incredibly well and look forward to the momentum ahead.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to Ellen West for any closing remarks.

Thanks everyone for joining us today. We look forward to speaking with you again on our third quarter 2017 call. Thank you and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.