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Microsoft Earnings Released, Revenue $20.4 Billion

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Microsoft Earnings Released, Revenue $20.4 Billion
[ Finance]

Microsoft just released its earnings report for its fiscal year 2014 Q3. Revenue was $20.4 billion for the quarter ended March 31st. The company managed to pretty much meet analysts’ expectations.

New CEO Satya Nadella said, “This quarter’s results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world. We are making good progress in our consumer services like Bing and Office 365 Home, and our commercial customers continue to embrace our cloud solutions. Both position us well for long-term growth,” said Satya Nadella, chief executive officer at Microsoft. “We are focused on executing rapidly and delivering bold, innovative products that people love to use.”

For you search enthusiasts, the company said Bing U.S. search share grew to 18.6%, and search advertising revenue grew 38%.

Here’s the release in its entirety:

REDMOND, Wash. — April 24, 2014 — Microsoft Corp. today announced revenue of $20.40 billion for the quarter ended March 31, 2014. Gross margin, operating income, net income, and diluted earnings per share for the quarter were $14.46 billion, $6.97 billion, $5.66 billion, and $0.68 per share, respectively.

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results for the prior year. We have provided this non-GAAP financial information to aid investors in better understanding the company’s performance. Management commentary regarding performance and growth refers to non-GAAP financial results.

 

Three Months Ended March 31,

 
($ in millions, except per share amounts)

2013 As Reported (GAAP)

Net revenue recognition for Windows Upgrade Offer, Office Deferral, and Video Game Deferral

European Commission Fine

2013 As Adjusted (Non-GAAP)

2014 As Reported (GAAP)

%Y/Y (GAAP)

%Y/Y (Non-GAAP)

Revenue

$20,489

($1,658)

 

    $18,831

$20,403

(0)%

8%

Gross Margin

$15,702

($1,658)

$14,044

$14,462

(8)%

3%

Operating Income

$7,612

($1,658)

$733

$6,687

$6,974

(8)%

4%

Diluted EPS

$0.72

($0.16)

$0.09

$0.65

$0.68

(6)%

5%

 

“This quarter’s results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world. We are making good progress in our consumer services like Bing and Office 365 Home, and our commercial customers continue to embrace our cloud solutions. Both position us well for long-term growth,” said Satya Nadella, chief executive officer at Microsoft. “We are focused on executing rapidly and delivering bold, innovative products that people love to use.”

“We delivered solid, broad-based financial results driven by strong execution and continued cost discipline,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “We are focusing our resources to drive growth and long-term shareholder value.”

Devices and Consumer revenue grew 12% to $8.30 billion.

  • Windows OEM revenue grew 4%, driven by strong 19% growth in Windows OEM Pro revenue.
  • Office 365 Home now has 4.4 million subscribers, adding nearly 1 million subscribers in just three months.
  • Microsoft sold in 2.0 million Xbox console units, including 1.2 million Xbox One consoles.
  • Surface revenue grew over 50% to approximately $500 million.
  • Bing U.S. search share grew to 18.6% and search advertising revenue grew 38%.

Commercial revenue grew 7% to $12.23 billion.

  • Office 365 revenue grew over 100%, and commercial seats nearly doubled, demonstrating strong enterprise momentum for Microsoft’s cloud productivity solutions.
  • Azure revenue grew over 150%, and the company has announced more than 40 new features that make the Azure platform more attractive to cloud application developers.
  • Windows volume licensing revenue grew 11%, as business customers continue to make Windows their platform of choice.
  • Lync, SharePoint, and Exchange, our productivity server offerings, collectively grew double-digits.

“Our products and services continue to deliver differentiated business value to our customers, and we continue to win share in areas like cloud services, data platform, and infrastructure management,” said Kevin Turner, chief operating officer at Microsoft. “Our SQL Server business grew double-digits again this quarter, and with the announcements of SQL 2014 and Power BI for Office 365, we offer a unique, comprehensive, end-to-end data and analytics solution.”

Nokia

Microsoft expects to close the acquisition of the Nokia Devices and Services business on April 25, 2014.

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed athttp://www.microsoft.com/investor. The webcast will be available for replay through the close of business on April 24, 2015.

Adjusted Financial Results and Non-GAAP Measures

During the third quarter of fiscal year 2013, GAAP revenue, gross margin, operating income, and diluted earnings per share included the net revenue recognition for the Windows Upgrade Offer, the Office Deferral, the Video Game Deferral, and the European Commission Fine. These items are defined below. In addition to these financial results reported in accordance with GAAP, we have provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these measures without the impact of these items gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definitions

Revenue deferred on sales of Windows 7 with an option to upgrade to Windows 8 Pro at a discounted price (“Windows Upgrade Offer”).

Revenue deferred on sales of the previous version of the Microsoft Office system with a guarantee to be upgraded to the new Office at minimal or no cost and pre-sales of the new Office to OEMs and retailers before general availability (collectively, the “Office Deferral”).

Revenue deferred on sales of video games with the right to receive specified software upgrades/enhancements (“Video Game Deferral”).

Fine of €561 million ($733 million) assessed by the European Commission in 2013 for violation of an order to provide a browser choice screen with Internet Explorer on PCs sold in Europe (“European Commission Fine”).

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services, and solutions that help people and businesses realize their full potential.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

  • intense competition in all of Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances, including our acquisition of the Nokia Devices and Services business, may have an adverse effect on our business;
  • Microsoft’s continued ability to protect its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;
  • disclosure of personal data that could result in liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • Microsoft’s ability to attract and retain talented employees;
  • delays in product development and related product release schedules;
  • adverse economic or market conditions may harm our business;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • our hardware and software products may experience quality or supply problems;
  • impairment of goodwill or amortizable intangible assets causing a charge to earnings;
  • exposure to increased economic and regulatory uncertainties from operating a global business; and
  • catastrophic events or geo-political conditions may disrupt our business.

For more information about risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/investor.

All information in this release is as of April 24, 2014. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

For more information, press only:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070,rrt@waggeneredstrom.com

 

For more information, financial analysts and investors only:

Chris Suh, general manager, Investor Relations, (425) 706-4400

 

Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news/. Web links, telephone numbers, and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. PDT conference call with investors and analysts, is available at http://www.microsoft.com/investor.

MICROSOFT CORPORATION

INCOME STATEMENTS

(In millions, except per share amounts)(Unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

 

2014

 

2013

 

2014

 

2013

Revenue

 $   20,403

 $20,489

 $    63,451

 $57,953

Cost of revenue

5,941

4,787

19,339

14,647

   Gross margin

14,462

15,702

44,112

43,306

Operating expenses:
   Research and development

2,743

2,640

8,258

7,628

   Sales and marketing

3,542

3,794

11,129

11,048

   General and administrative

1,203

1,656

3,448

3,939

     Total operating expenses

7,488

8,090

22,835

22,615

Operating income

6,974

7,612

21,277

20,691

Other income (expense)

(17)

(9)

(34)

216

Income before income taxes

6,957

7,603

21,243

20,907

Provision for income taxes

1,297

1,548

3,781

4,009

Net income

 $     5,660

 $  6,055

 $    17,462

 $16,898

Earnings per share:
   Basic

 $      0.68

 $    0.72

 $        2.10

 $    2.02

   Diluted

 $      0.68

 $    0.72

 $        2.08

 $    1.99

Weighted average shares outstanding:
   Basic

8,284

8,364

8,317

8,385

   Diluted

8,367

8,429

8,411

8,472

Cash dividends declared per
common share

 $      0.28

 

 $    0.23

 $        0.84

 

 $    0.69

 

MICROSOFT CORPORATION

COMPREHENSIVE INCOME STATEMENTS

(In millions)(Unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

 

2014

 

2013

 

2014

 

2013

Net income

 $     5,660

 $  6,055

 $    17,462

 $16,898

Other comprehensive income (loss):
   Net unrealized gains (losses) on
derivatives (net of tax effects
of $1, $19, $(1)
and $(10))

(31)

35

(14)

(19)

   Net unrealized gains on
investments (net of tax
effects of $37, $150,
$774 and $401)

68

278

1,502

744

   Translation adjustments and
other (net of tax effects
of $9, $(61), $53
and $31)

18

(114)

101

58

      Other comprehensive income

55

199

1,589

783

Comprehensive income

 $     5,715

 $  6,254

 $    19,051

 $17,681

 

MICROSOFT CORPORATION

BALANCE SHEETS

(In millions)(Unaudited)

 

March 31,
2014

 

June 30, 2013

Assets
Current assets:
  Cash and cash equivalents

 $         11,572

 $      3,804

  Short-term investments (including securities
loaned of $707 and $579)

76,853

73,218

    Total cash, cash equivalents, and short-term
investments

88,425

77,022

  Accounts receivable, net of allowance for doubtful
accounts of $255 and $336

13,497

17,486

  Inventories

1,920

1,938

  Deferred income taxes

1,424

1,632

  Other

3,740

3,388

    Total current assets

109,006

101,466

Property and equipment, net of accumulated
depreciation of $14,441 and $12,513

11,771

9,991

Equity and other investments

14,792

10,844

Goodwill

14,751

14,655

Intangible assets, net

2,901

3,083

Other long-term assets

2,898

2,392

           Total assets

 $       156,119

 $  142,431

Liabilities and stockholders’ equity
Current liabilities:
  Accounts payable

 $           4,583

 $      4,828

  Current portion of long-term debt

2,000

2,999

  Accrued compensation

3,887

4,117

  Income taxes

694

592

  Short-term unearned revenue

17,670

20,639

  Securities lending payable

794

645

  Other

4,275

3,597

    Total current liabilities

33,903

37,417

Long-term debt

20,679

12,601

Long-term unearned revenue

1,842

1,760

Deferred income taxes

2,318

1,709

Other long-term liabilities

9,953

10,000

    Total liabilities

68,695

63,487

Commitments and contingencies
Stockholders’ equity:
  Common stock and paid-in capital – shares
authorized 24,000; outstanding 8,260 and 8,328

67,803

67,306

  Retained earnings

16,289

9,895

  Accumulated other comprehensive income

3,332

1,743

    Total stockholders’ equity

87,424

78,944

           Total liabilities and stockholders’ equity

 $       156,119

 $  142,431

 

MICROSOFT CORPORATION

CASH FLOW STATEMENTS

(In millions)(Unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

 

2014

 

2013

 

2014

 

2013

Operations
Net income

 $     5,660

 $  6,055

 $    17,462

 $16,898

Adjustments to reconcile net
income to net cash from
operations:
   Depreciation, amortization, and
other

1,255

1,053

3,470

2,772

   Stock-based compensation
expense

602

599

1,828

1,805

   Net recognized losses (gains)
on investments and
derivatives

(40)

(52)

100

(19)

   Excess tax benefits from
stock-based compensation

(22)

(6)

(247)

(192)

   Deferred income taxes

(190)

226

38

404

   Deferral of unearned revenue

10,175

9,686

27,456

28,632

   Recognition of unearned
revenue

(10,139)

(11,599)

(30,394)

(30,852)

   Changes in operating assets
and liabilities:
      Accounts receivable

2,501

2,191

4,243

3,859

      Inventories

(324)

(483)

38

(989)

      Other current assets

340

139

(311)

(96)

      Other long-term assets

(73)

(13)

(469)

(326)

      Accounts payable

(716)

(67)

(390)

51

      Other current liabilities

870

1,238

3

119

      Other long-term liabilities

200

699

(110)

864

         Net cash from operations

10,099

9,666

22,717

22,930

Financing
Proceeds from issuance of debt

0

0

8,850

2,232

Repayments of debt

(300)

0

(1,888)

0

Common stock issued

141

203

461

765

Common stock repurchased

(1,845)

(1,028)

(6,146)

(4,318)

Common stock cash dividends paid

(2,322)

(1,925)

(6,570)

(5,534)

Excess tax benefits from
stock-based compensation

22

6

247

192

Other

0

0

(39)

(16)

         Net cash used in financing

(4,304)

(2,744)

(5,085)

(6,679)

Investing
Additions to property and
equipment

(1,192)

(930)

(4,155)

(2,463)

Acquisition of companies, net of
cash acquired, and purchases of
intangible and other assets

(157)

(108)

(311)

(1,564)

Purchases of investments

(21,323)

(18,160)

(49,217)

(48,372)

Maturities of investments

2,336

1,265

4,134

4,513

Sales of investments

16,006

9,730

39,477

30,163

Securities lending payable

46

543

149

(249)

         Net cash used in investing

(4,284)

(7,660)

(9,923)

(17,972)

Effect of exchange rates on cash
and cash equivalents

2

(39)

59

23

Net change in cash and cash
equivalents

1,513

(777)

7,768

(1,698)

Cash and cash equivalents,
beginning of period

10,059

6,017

3,804

6,938

Cash and cash equivalents, end of
period

 $   11,572

 $  5,240

 $    11,572

 $  5,240

 

MICROSOFT CORPORATION

 

 

 

 

 

 

 

SEGMENT REVENUE AND GROSS MARGIN

(In millions)(Unaudited)

 

Three Months Ended March 31,

 

Nine Months Ended March 31,

 

 

 

2014

 

2013

 

2014

 

2013

Revenue

 

 

 

 

 

Devices and Consumer Licensing

 $     4,382

 

 $  4,352

 

 $   14,109

 

 $14,733

Devices and Consumer Hardware

1,973

 

1,402

 

8,187

 

5,294

Devices and Consumer Other

1,950

 

1,656

 

5,378

 

5,055

Commercial Licensing

10,323

 

9,979

 

30,805

 

29,059

Commercial Other

1,902

 

1,449

 

5,285

 

4,086

Corporate and Other

(127)

 

1,651

 

(313)

 

(274)

  Total revenue

 $   20,403

 

 $20,489

 

 $   63,451

 

 $57,953

 

 

 

 

 

 

Gross Margin

 

 

 

 

 

Devices and Consumer Licensing

 $     3,906

 

 $  3,929

 

 $   12,809

 

 $13,163

Devices and Consumer Hardware

258

 

393

 

875

 

1,603

Devices and Consumer Other

541

 

430

 

1,324

 

1,678

Commercial Licensing

9,430

 

9,085

 

28,308

 

26,594

Commercial Other

475

 

264

 

1,165

 

585

Corporate and Other

(148)

 

1,601

 

(369)

 

(317)

  Total gross margin

 $   14,462

 

 $15,702

 

 $   44,112

 

 $43,306


Image via Microsoft

Microsoft Earnings Released, Revenue $20.4 Billion
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