FY18 Q1 - Press Releases - Investor Relations - Microsoft

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Earnings Release FY18 Q3

Microsoft Cloud Powers Third Quarter Results

REDMOND, Wash. — April 26, 2018 — Microsoft Corp. today announced the following results for the quarter ended March 31, 2018, as compared to the corresponding period of last fiscal year:

·         Revenue was $26.8 billion and increased 16%

·         Operating income was $8.3 billion and increased 23%

·         Net income was $7.4 billion and increased 35%

·         Diluted earnings per share was $0.95 and increased 36%

“Our results this quarter reflect the trust people and organizations are placing in the Microsoft Cloud,” said Satya Nadella, chief executive officer of Microsoft. “We are innovating across key growth categories of infrastructure, AI, productivity, and business applications to deliver differentiated value to customers.”

Microsoft returned $6.3 billion to shareholders in the form of dividends and share repurchases in the third quarter of fiscal year 2018, an increase of 37%.

“With consistent investment and strong sales execution, this quarter we achieved better than expected performance across all segments,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “We delivered double-digit revenue and operating income growth driven by 58% growth in our commercial cloud revenue.”

Revenue in Productivity and Business Processes was $9.0 billion and increased 17% (up 14% in constant currency), with the following business highlights:

·         Office commercial products and cloud services revenue increased 14% (up 12% in constant currency) driven by Office 365 commercial revenue growth of 42% (up 40% in constant currency)

·         Office consumer products and cloud services revenue increased 12% (up 9% in constant currency) and Office 365 consumer subscribers increased to 30.6 million

·         LinkedIn revenue increased 37% (up 33% in constant currency) with continued acceleration in engagement highlighted by LinkedIn sessions growth of over 30%

·         Dynamics products and cloud services revenue increased 17% (up 14% in constant currency) driven by Dynamics 365 revenue growth of 65% (up 62% in constant currency)

Revenue in Intelligent Cloud was $7.9 billion and increased 17% (up 15% in constant currency), with the following business highlights:

·         Server products and cloud services revenue increased 20% (up 17% in constant currency) driven by Azure revenue growth of 93% (up 89% in constant currency)

·         Enterprise Services revenue increased 8% (5% in constant currency)

Revenue in More Personal Computing was $9.9 billion and increased 13% (up 11% in constant currency), with the following business highlights:

·         Windows OEM revenue increased 4% (up 4% in constant currency) driven by OEM Pro revenue growth of 11%

·         Windows commercial products and cloud services revenue increased 21% (up 17% in constant currency) driven by an increased volume of multi-year agreements and the mix of products that carry higher in-quarter revenue recognition

·         Gaming revenue increased 18% (up 16% in constant currency) driven by Xbox software and services revenue growth of 24% (up 21% in constant currency) mainly from third party title strength

·         Surface revenue increased 32% (up 27% in constant currency) against a prior year comparable impacted by product end-of-life-cycle dynamics

·         Search advertising revenue excluding traffic acquisition costs increased 16% (up 14% in constant currency) driven by higher revenue per search and search volume

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, Carolyn Frantz, deputy general counsel and corporate secretary, and Michael Spencer, general manager of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on April 26, 2019.

New Accounting Standards

We adopted new accounting standards related to revenue recognition and leases effective July 1, 2017. The prior periods presented here have been restated to reflect adoption of these new standards.

Constant Currency

Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with generally accepted accounting principles (GAAP).

 

 

Financial Performance Constant Currency Reconciliation

 

Three Months Ended March 31,

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2017 As Reported

$23,212

$6,723

$5,486

$0.70

2018 As Reported

$26,819

$8,292

$7,424

$0.95

Percentage Change Y/Y

16%

23%

35%

36%

Constant Currency Impact

$506

$216

$254

$0.03

Percentage Change Y/Y Constant Currency

13%

20%

31%

31%

Segment Revenue Constant Currency Reconciliation

 

Three Months Ended March 31,

 ($ in millions)

Productivity and Business Processes

Intelligent Cloud

More Personal Computing

2017 As Reported

$7,707

$6,730

$8,775

2018 As Reported

$9,006

$7,896

$9,917

Percentage Change Y/Y

17%

17%

13%

Constant Currency Impact

$193

$162

$151

Percentage Change Y/Y Constant Currency

14%

15%

11%

Selected Product and Service Revenue Constant Currency Reconciliation       

 

Three Months Ended March 31, 2018

Percentage Change Y/Y (GAAP)

Constant Currency Impact

Percentage Change Y/Y Constant Currency

Office commercial products and cloud services

14%

(2)%

12%

Office 365 commercial

42%

(2)%

40%

Office consumer products and cloud services

12%

(3)%

9%

LinkedIn

37%

(4)%

33%

Dynamics products and cloud services

17%

(3)%

14%

Dynamics 365

65%

(3)%

62%

Server products and cloud services

20%

(3)%

17%

Azure

93%

(4)%

89%

Enterprise Services

8%

(3)%

5%

Windows OEM

4%

0%

4%

Windows commercial products and cloud services

21%

(4)%

17%

Search advertising excluding traffic acquisition costs

16%

(2)%

14%

Surface

32%

(5)%

27%

Gaming

18%

(2)%

16%

Xbox software and services

24%

(3)%

21%

 

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.

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 our markets that may lead to lower revenue or operating margins;

·         increasing focus on services presenting execution and competitive risks;

·         significant investments in new products and services that may not achieve expected returns;

·         acquisitions, joint ventures, and strategic alliances that may have an adverse effect on our business;

·         impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;

·         a change in our ability to earn expected revenues from our intellectual property rights;

·         claims that Microsoft has infringed the intellectual property rights of others;

·         the possibility that we may fail to protect our source code;

·         the possibility that we may not be able to protect information on our products and services from use by others;

·         cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position;

·         disclosure and misuse of personal data that could cause liability and harm to our reputation;

·         abuse of our advertising or social platforms that may harm our reputation or user engagement;

·         excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;

·         government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;

·         potential liability under trade protection, anti-corruption, and other laws resulting from our global operations;

·         laws and regulations relating to the handling of personal data that may impede the adoption of our services or result in increased costs, legal claims, or fines against us;

·         the dependence of our business on our ability to attract and retain talented employees;

·         claims against us that may result in adverse outcomes in legal disputes;

·         additional tax liabilities;

·         quality or supply problems;

·         exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;

·         catastrophic events or geo-political conditions that may disrupt our business;

·         adverse economic or market conditions that may harm our business; and

·         changes in our sales organization that may impact revenues.

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/en-us/investor.

All information in this release is as of April 26, 2018. 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:

Microsoft Media Relations, WE Communications for Microsoft, (425) 638-7777,rrt@we-worldwide.com

For more information, financial analysts and investors only:

Michael Spencer, 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. Pacific time conference call with investors and analysts, is available at http://www.microsoft.com/en-us/investor.


 

MICROSOFT CORPORATION


INCOME STATEMENTS

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


Three Months Ended

 March 31,

Nine Months Ended

 March 31,

 

2018

 

2017

 

2018

 

2017

Revenue:

Product

 $15,114

 $14,513

 $47,338

 $47,754

Service and other

11,705

8,699

32,937

23,212

Total revenue

26,819

23,212

80,275

70,966

Cost of revenue:

Product

3,425

3,075

11,903

12,034

Service and other

5,844

4,985

16,708

13,771

Total cost of revenue

9,269

8,060

28,611

25,805

Gross margin

17,550

15,152

51,664

45,161

Research and development

3,715

3,355

10,793

9,523

Sales and marketing

4,335

3,872

12,709

11,169

General and administrative

1,208

1,202

3,483

3,126

Operating income

8,292

6,723

24,679

21,343

Other income, net

349

371

1,115

600

Income before income taxes

8,641

7,094

25,794

21,943

Provision for income taxes

1,217

1,608

18,096

4,523

Net income

 $7,424

 $5,486

 $7,698

 $17,420

Earnings per share:

Basic

 $0.96

 $0.71

 $1.00

 $2.25

Diluted

 $0.95

 $0.70

 $0.99

 $2.22

Weighted average shares outstanding:

Basic

7,698

7,725

7,706

7,756

Diluted

7,794

7,813

7,798

7,840

Cash dividends declared per common share

 $0.42

 

 $0.39

 

 $1.26

 

 $1.17


 

COMPREHENSIVE INCOME STATEMENTS

(In millions)(Unaudited)


Three Months Ended

 March 31,

Nine Months Ended

 March 31,

 

2018

 

2017

 

2018

 

2017

Net income

 $7,424

 $5,486

 $7,698

 $17,420

Other comprehensive income (loss), net of tax:

Net change related to derivatives

7

(225)

(106)

18

Net change related to investments

(1,016)

65

(2,182)

(846)

Translation adjustments and other

255

349

508

(125)

Other comprehensive income (loss)

(754)

189

(1,780)

(953)

Comprehensive income

 $6,670

 $5,675

 $5,918

 $16,467

 


 

BALANCE SHEETS

(In millions)(Unaudited)


 

March 31,

2018

 

June 30,

 2017

Assets

Current assets:

Cash and cash equivalents

 $9,221

 $7,663

Short-term investments

123,049

125,318

Total cash, cash equivalents, and short-term investments

132,270

132,981

Accounts receivable, net of allowance for doubtful accounts of $311 and $345

17,208

22,431

Inventories

2,084

2,181

Other

5,097

5,103

Total current assets

156,659

162,696

Property and equipment, net of accumulated depreciation of $28,377 and $24,179

27,929

23,734

Operating lease right-of-use assets

6,859

6,555

Equity and other investments

2,818

6,023

Goodwill

35,582

35,122

Intangible assets, net

8,544

10,106

Other long-term assets

7,106

6,076

Total assets

 $245,497

 $250,312

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

 $7,623

 $7,390

Short-term debt

230

9,072

Current portion of long-term debt

3,447

1,049

Accrued compensation

5,149

5,819

Short-term income taxes

814

718

Short-term unearned revenue

21,370

24,013

Other

7,500

7,684

Total current liabilities

46,133

55,745

Long-term debt

73,480

76,073

Long-term income taxes

30,669

13,485

Long-term unearned revenue

2,585

2,643

Deferred income taxes

2,417

5,734

Operating lease liabilities

5,751

5,372

Other long-term liabilities

5,223

3,549

Total liabilities

166,258

162,601

Commitments and contingencies

Stockholders' equity:

Common stock and paid-in capital - shares authorized 24,000; outstanding 7,690 and 7,708

70,418

69,315

Retained earnings

9,974

17,769

Accumulated other comprehensive income (loss)

(1,153)

627

Total stockholders' equity

79,239

87,711

Total liabilities and stockholders' equity

 $245,497

 $250,312

 


 

CASH FLOWS STATEMENTS

(In millions)(Unaudited)


Three Months Ended

 March 31,

Nine Months Ended

 March 31,

 

2018

 

2017

 

2018

 

2017

Operations

Net income

 $7,424

 $5,486

 $7,698

 $17,420

Adjustments to reconcile net income to net cash from operations:

Depreciation, amortization, and other

2,710

2,453

7,745

6,435

Stock-based compensation expense

969

883

2,928

2,353

Net recognized gains on investments and derivatives

(438)

(590)

(1,645)

(1,553)

Deferred income taxes

(396)

(284)

(2,754)

261

Changes in operating assets and liabilities:

Accounts receivable

1,285

1,415

5,326

5,813

Inventories

(75)

(16)

107

249

Other current assets

(149)

(31)

(113)

304

Other long-term assets

(213)

(387)

(835)

(680)

Accounts payable

(393)

(425)

138

(769)

Unearned revenue

91

(45)

(2,780)

(2,929)

Income taxes

645

1,247

17,280

2,654

Other current liabilities

546

671

(975)

(1,057)

Other long-term liabilities

145

283

346

1

Net cash from operations

12,151

10,660

32,466

28,502

Financing

Repayments of short-term debt, maturities of 90 days or less, net

(7,373)

(1,302)

(7,324)

(8,447)

Proceeds from issuance of debt

0

547

7,183

42,593

Repayments of debt

(4,883)

(211)

(9,379)

(4,554)

Common stock issued

251

179

747

551

Common stock repurchased

(3,781)

(2,062)

(8,359)

(10,023)

Common stock cash dividends paid

(3,232)

(3,012)

(9,473)

(8,836)

Other, net

(640)

(375)

(946)

(175)

Net cash from (used in) financing

(19,658)

(6,236)

(27,551)

11,109

Investing

Additions to property and equipment

(2,934)

(1,695)

(7,652)

(5,846)

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

(248)

(802)

(454)

(25,586)

Purchases of investments

(26,885)

(43,918)

(105,000)

(147,874)

Maturities of investments

7,674

4,860

19,252

22,234

Sales of investments

26,256

36,444

90,553

117,754

Securities lending payable

(19)

(1,080)

(90)

(94)

Net cash from (used in) investing

3,844

(6,191)

(3,391)

(39,412)

Effect of foreign exchange rates on cash and cash equivalents

25

12

34

4

Net change in cash and cash equivalents

(3,638)

(1,755)

1,558

203

Cash and cash equivalents, beginning of period

12,859

8,468

7,663

6,510

Cash and cash equivalents, end of period

 $9,221

 $6,713

 $9,221

 $6,713

 


 

SEGMENT REVENUE AND OPERATING INCOME

(In millions)(Unaudited)

 

Three Months Ended

 March 31,

 

Nine Months Ended

 March 31,

 

 

 

2018

 

2017

 

2018

 

2017

Revenue

 

 

 

 

 

 

 

Productivity and Business Processes

 $9,006

 

 $7,707

 

 $26,197

 

 $21,322

Intelligent Cloud

7,896

 

6,730

 

22,613

 

19,585

More Personal Computing

9,917

 

8,775

 

31,465

 

30,059

Total

 $26,819

 

 $23,212

 

 $80,275

 

 $70,966

Operating Income

 

 

 

 

 

 

 

Productivity and Business Processes

 $3,115

 

 $2,540

 

 $9,458

 

 $8,498

Intelligent Cloud

2,654

 

2,148

 

7,623

 

6,216

More Personal Computing

2,523

 

2,035

 

7,598

 

6,629

Total

 $8,292

 

 $6,723

 

 $24,679

 

 $21,343 

IMPORTANT NOTICE TO USERS (summary only, click here  for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our  Forms 10-Q and 10-K.

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  • Q4-Thursday, July 19

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