Microsoft Earnings Released With Record Revenue For The Quarter

Microsoft just released its earnings for its Fiscal Year 2015 Q1, posting record first-quarter revenue thanks to its cloud and hardware offerings. The company managed to beat Wall Street expectations ...
Microsoft Earnings Released With Record Revenue For The Quarter
Written by Chris Crum
  • Microsoft just released its earnings for its Fiscal Year 2015 Q1, posting record first-quarter revenue thanks to its cloud and hardware offerings.

    The company managed to beat Wall Street expectations with EPS at $0.54 and revenue at $23.2 billion, down 13% and up 25% year-over-year, respectively.

    Device and Consumer revenue grew 47% to $10.96 billion with Office 365 Home and Personal subscribers reaching over 7 million (up 25% from the previous quarter. Surface Pro 3 saw revenue of $908 million while new Windows consumer licensing programs drove positive growth. The company sold 2.4 million Xbox consoles in the quarter, which is up 102% Phone hardware revenue topped $2.6 billion.

    Commercial revenue was up 10% to $12.8 billion. Server products and services revenue was up 13%. Office Commercial products and services revenue grew 5% while commercial cloud revenue grew 128% thanks to Office 365, Azure, and Dynamics CRM. Productivity server offerings (Lync, SharePoint and Exchange) saw growth as did Windows volume licensing revenue.

    CEO Satya Nadella said, “We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth. Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization.”

    Here’s the release in its entirety:

    REDMOND, Wash. — October 23, 2014 — Microsoft Corp. today announced revenue of $23.20 billion for the quarter ended September 30, 2014. Gross margin, operating income and diluted earnings per share (“EPS”) for the quarter were $14.93 billion, $5.84 billion and $0.54 per share, respectively.

    These financial results include $1.14 billion of integration and restructuring expenses, or an $0.11 per share negative impact, related to both Microsoft’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services (“NDS”) business.

    The following table notes the impact of the integration and restructuring expenses on the company’s financial performance (“Noted Items”). This financial information is provided to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

    Three Months Ended September 30,

    ($ in millions, except per share amounts and percentages)

    Revenue

    Gross Margin

    Operating Income

    Diluted EPS

    2013 As Reported (GAAP)

    $18,529

    $13,384

    $6,334

    $0.62

    2014 As Reported (GAAP)

    $23,201

    $14,928

    $5,844

    $0.54

    % Y/Y (GAAP)

    25%

    12%

    (8)%

    (13)%

    2014 Impact of Noted Items

    $(1,140)

    $(0.11)

     

    “We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth,”  said Satya Nadella, chief executive officer of Microsoft. “Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization.”

    “We delivered a strong start to the year, with continued cloud momentum and meaningful progress across our device businesses,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We will continue to invest in high-growth opportunities and drive efficiencies across the organization to deliver long-term shareholder value.”

    Devices and Consumer revenue grew 47% to $10.96 billion, with the following business highlights:

    • Office 365 Home and Personal subscribers totaled more than 7 million, representing more than 25% sequential growth over the previous quarter.
    • Surface Pro 3 momentum drove Surface revenue of $908 million.
    • New Windows consumer licensing programs drove positive unit growth while OEM non-Pro revenue declined 1%.
    • Total Xbox console sales were 2.4 million, growing 102%, and Xbox One launched in 28 new markets.
    • Phone hardware revenue exceeded $2.6 billion with ongoing focus on execution discipline.

    Commercial revenue grew 10% to $12.28 billion, with the following business highlights:

    • Server products and services revenue increased 13%, with double-digit growth for SQL Server, System Center and Windows Server.
    • Office Commercial products and services revenue grew 5% as customers transition to Office 365.
    • Commercial cloud revenue grew 128% driven by Office 365, Azure and Dynamics CRM.
    • Lync, SharePoint and Exchange, our productivity server offerings, collectively grew double-digits.
    • Windows volume licensing revenue increased 10%.

    “Customers are embracing our latest technologies from Surface Pro 3 and Office 365 to Azure and SQL Server,” said Kevin Turner, chief operating officer of Microsoft. “Through great execution by our sales teams and our partners, we have been able to deliver our truly differentiated value to the marketplace.”

    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 October 23, 2015.

    Noted Items Definition

    Integration and restructuring expenses include employee severance expenses and costs associated with the consolidation of facilities and manufacturing operations, including asset write-downs and contract termination costs, resulting from Microsoft’s restructuring plan. Integration and restructuring expenses also include systems consolidation and other business integration expenses, as well as transaction fees and direct acquisition costs, associated with the acquisition of NDS.

    Integration and restructuring expenses were $1.14 billion during the three months ended September 30, 2014, due mainly to restructuring charges of $1.05 billion, including employee severance expenses and the write-down of certain assets in connection with the restructuring plan.

    About Microsoft

    Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services, devices 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 may have an adverse effect on our business;
    • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
    • Microsoft’s continued ability to earn expected revenues from 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 cause 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;
    • potential liability under anti-corruption and trade protection laws resulting from our international operations;
    • Microsoft’s ability to attract and retain talented employees;
    • adverse results in legal disputes;
    • unanticipated tax liabilities;
    • our hardware and software products may experience quality or supply problems;
    • exposure to increased economic and operational uncertainties from operating a global business;
    • catastrophic events or geo-political conditions may disrupt our business; and
    • adverse economic or market conditions may harm 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 October 23, 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 September 30,

     

    2014

     

    2013

    Revenue

     $         23,201

     $    18,529

    Cost of revenue

    8,273

    5,145

       Gross margin

    14,928

    13,384

    Research and development

    3,065

    2,767

    Sales and marketing

    3,728

    3,304

    General and administrative

    1,151

    979

    Integration and restructuring

    1,140

    0

    Operating income

    5,844

    6,334

    Other income, net

    52

    74

    Income before income taxes

    5,896

    6,408

    Provision for income taxes

    1,356

    1,164

    Net income

     $           4,540

     $      5,244

    Earnings per share:
       Basic

     $            0.55

     $       0.63

       Diluted

     $            0.54

     $       0.62

    Weighted average shares outstanding:
       Basic

    8,249

    8,339

       Diluted

    8,351

    8,434

    Cash dividends declared per common
    share

     $            0.31

     

     $       0.28

     

     

     

    MICROSOFT CORPORATION

    COMPREHENSIVE INCOME STATEMENTS

    (In millions)(Unaudited)

    Three Months Ended September 30,

     

    2014

     

    2013

    Net income

     $           4,540

     $      5,244

    Other comprehensive income (loss):
      Net unrealized gains (losses) on derivatives (net of
    tax effects of $4 and $(3))

    319

    (26)

      Net unrealized gains (losses) on investments (net of
    tax effects of $(102) and $492)

    (189)

    952

      Translation adjustments and other (net of tax effects
    of $(47) and $33)

    (81)

    62

           Other comprehensive income

    49

    988

    Comprehensive income

     $           4,589

     $      6,232

     

     

     

    MICROSOFT CORPORATION

    BALANCE SHEETS

    (In millions)(Unaudited)

     

    September 30,
    2014

     

    June 30, 2014

    Assets
    Current assets:
      Cash and cash equivalents

     $            6,302

     $      8,669

      Short-term investments (including securities
    loaned of $180 and $541)

    82,891

    77,040

        Total cash, cash equivalents, and short-term
    investments

    89,193

    85,709

      Accounts receivable, net of allowance for doubtful
    accounts of $269 and $301

    12,887

    19,544

      Inventories

    3,141

    2,660

      Deferred income taxes

    1,784

    1,941

      Other

    5,434

    4,392

        Total current assets

    112,439

    114,246

    Property and equipment, net of accumulated
    depreciation of $15,373 and $14,793

    13,229

    13,011

    Equity and other investments

    13,943

    14,597

    Goodwill

    20,081

    20,127

    Intangible assets, net

    6,693

    6,981

    Other long-term assets

    3,271

    3,422

               Total assets

     $         169,656

     $  172,384

    Liabilities and stockholders’ equity
    Current liabilities:
      Accounts payable

     $            6,769

     $      7,432

      Short-term debt

    3,500

    2,000

      Current portion of long-term debt

    1,748

    0

      Accrued compensation

    3,740

    4,797

      Income taxes

    903

    782

      Short-term unearned revenue

    20,713

    23,150

      Securities lending payable

    191

    558

      Other

    7,130

    6,906

        Total current liabilities

    44,694

    45,625

    Long-term debt

    18,472

    20,645

    Long-term unearned revenue

    1,825

    2,008

    Deferred income taxes

    2,714

    2,728

    Other long-term liabilities

    11,781

    11,594

        Total liabilities

    79,486

    82,600

    Commitments and contingencies
    Stockholders’ equity:
      Common stock and paid-in capital – shares
    authorized 24,000; outstanding 8,255 and 8,239

    68,362

    68,366

      Retained earnings

    18,051

    17,710

      Accumulated other comprehensive income

    3,757

    3,708

        Total stockholders’ equity

    90,170

    89,784

               Total liabilities and stockholders’ equity

     $         169,656

     $  172,384

    MICROSOFT CORPORATION  
     

    CASH FLOWS STATEMENTS

     

    (In millions)(Unaudited)

     
     

    Three Months Ended September 30,

     
     
     

    2014

     

    2013

     
    Operations  
    Net income

     $           4,540

     $      5,244

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

    1,428

    954

     
      Stock-based compensation
    expense

    646

    635

     
      Net recognized losses on
    investments and derivatives

    55

    93

     
      Excess tax benefits from
    stock-based compensation

    (502)

    (205)

     
      Deferred income taxes

    301

    404

     
      Deferral of unearned revenue

    8,022

    7,436

     
      Recognition of unearned revenue

    (10,643)

    (9,677)

     
      Changes in operating assets and
    liabilities:
     
        Accounts receivable

    6,627

    6,617

     
        Inventories

    (483)

    (667)

     
        Other current assets

    (280)

    (556)

     
        Other long-term assets

    279

    (81)

     
        Accounts payable

    (659)

    (276)

     
        Other current liabilities

    (1,166)

    (1,255)

     
        Other long-term liabilities

    189

    (461)

     
            Net cash from operations

    8,354

    8,205

     
    Financing  
    Proceeds from issuance of short-term debt,
    maturities of 90 days or less, net

    2,999

    712

     
    Proceeds from issuance of debt

    0

    588

     
    Repayments of debt

    (1,500)

    (1,000)

     
    Common stock issued

    216

    203

     
    Common stock repurchased

    (2,888)

    (2,188)

     
    Common stock cash dividends paid

    (2,307)

    (1,916)

     
    Excess tax benefits from
    stock-based compensation

    502

    205

     
            Net cash used in financing

    (2,978)

    (3,396)

     
    Investing  
    Additions to property and equipment

    (1,282)

    (1,231)

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

    (141)

    (15)

     
    Purchases of investments

    (24,085)

    (14,768)

     
    Maturities of investments

    1,693

    347

     
    Sales of investments

    16,445

    11,117

     
    Securities lending payable

    (367)

    (64)

     
            Net cash used in investing

    (7,737)

    (4,614)

     
    Effect of exchange rates on cash
    and cash equivalents

    (6)

    24

     
    Net change in cash and cash
    equivalents

    (2,367)

    219

     
    Cash and cash equivalents,
    beginning of period

    8,669

    3,804

     
    Cash and cash equivalents, end of
    period

     $           6,302

     $      4,023

     

     

     

     

    MICROSOFT CORPORATION

     

     

     

    SEGMENT REVENUE AND GROSS MARGIN

    (In millions)(Unaudited)

     

    Three Months Ended September 30,

     
     

    2014

     

    2013

    Revenue

     

     

    Devices and Consumer Licensing

     $           4,093

     

     $      4,484

    Computing and Gaming Hardware

    2,453

     

    1,409

    Phone Hardware

    2,609

     

    0

    Devices and Consumer Other

    1,809

     

    1,554

    Commercial Licensing

    9,873

     

    9,611

    Commercial Other

    2,407

     

    1,602

    Corporate and Other

    (43)

     

    (131)

      Total revenue

     $         23,201

     

     $    18,529

     

     

     

    Gross Margin

     

     

    Devices and Consumer Licensing

     $           3,818

     

     $      3,920

    Computing and Gaming Hardware

    479

     

    205

    Phone Hardware

    478

     

    0

    Devices and Consumer Other

    312

     

    324

    Commercial Licensing

    9,100

     

    8,805

    Commercial Other

    805

     

    274

    Corporate and Other

    (64)

     

    (144)

      Total gross margin

     $         14,928

     

     $    13,384

     

    Image via Microsoft

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