Microsoft Earnings Released, Revenue $20.4 Billion

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’ expectation...
Microsoft Earnings Released, Revenue $20.4 Billion
Written by Chris Crum
  • 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,[email protected]

     

    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

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