FY19 Q3 - Press Releases - Investor Relations - Microsoft

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Earnings Release FY19 Q3

 

Microsoft Cloud Strength Drives Third Quarter Results

REDMOND, Wash. — April 24, 2019 — Microsoft Corp. today announced the following results for the quarter ended March 31, 2019, as compared to the corresponding period of last fiscal year:

·        Revenue was $30.6 billion and increased 14%

·        Operating income was $10.3 billion and increased 25%

·        Net income was $8.8 billion and increased 19%

·        Diluted earnings per share was $1.14 and increased 20%

“Leading organizations of every size in every industry trust the Microsoft cloud. We are accelerating our innovation across the cloud and edge so our customers can build the digital capability increasingly required to compete and grow,” said Satya Nadella, CEO of Microsoft.

 

Microsoft returned $7.4 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2019.

“Demand for our cloud offerings drove commercial cloud revenue to $9.6 billion this quarter, up 41% year-over-year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We continue to drive growth in revenue and operating income with consistent execution from our sales teams and partners and targeted strategic investments.”

Revenue in Productivity and Business Processes was $10.2 billion and increased 14% (up 15% in constant currency), with the following business highlights:

·        Office Commercial products and cloud services revenue increased 12% (up 14% in constant currency) driven by Office 365 Commercial revenue growth of 30% (up 31% in constant currency)

·        Office Consumer products and cloud services revenue increased 8% (up 10% in constant currency) and Office 365 Consumer subscribers increased to 34.2 million

·        LinkedIn revenue increased 27% (up 29% in constant currency) with record levels of engagement highlighted by LinkedIn sessions growth of 24%

·        Dynamics products and cloud services revenue increased 13% (up 15% in constant currency) driven by Dynamics 365 revenue growth of 43% (up 44% in constant currency)

Revenue in Intelligent Cloud was $9.7 billion and increased 22% (up 24% in constant currency), with the following business highlights:

·        Server products and cloud services revenue increased 27% (up 29% in constant currency) driven by Azure revenue growth of 73% (up 75% in constant currency)

·        Enterprise Services revenue increased 4% (up 5% in constant currency)

Revenue in More Personal Computing was $10.7 billion and increased 8% (up 9% in constant currency), with the following business highlights:

·        Windows OEM revenue increased 9% (up 9% in constant currency)

·        Windows Commercial products and cloud services revenue increased 18% (up 20% in constant currency)

·        Surface revenue increased 21% (up 25% in constant currency)

·        Gaming revenue increased 5% (up 7% in constant currency) driven by Xbox software and services revenue growth of 12% (up 15% in constant currency)

·        Search advertising revenue excluding traffic acquisition costs increased 12% (up 14% in constant currency)

Business Outlook

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

Quarterly Highlights, Product Releases, and Enhancements 

Every quarter Microsoft delivers hundreds of products, either as new releases, services, or enhancements to current products and services. These releases are a result of significant research and development investments, made over multiple years, designed to help customers be more productive and secure and to deliver differentiated value across the cloud and the edge.

 

Here are the major product releases and other highlights for the quarter, organized by product categories, to help illustrate how we are accelerating innovation across our businesses while expanding our market opportunities.

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, Keith Dolliver, deputy general counsel, 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 24, 2020.

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 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

2018 As Reported

$26,819

$8,292

$7,424

$0.95

2019 As Reported

$30,571

$10,341

$8,809

$1.14

Percentage Change Y/Y

14%

25%

19%

20%

Constant Currency Impact

$(420)

$(208)

$(126)

$(0.02)

Percentage Change Y/Y Constant Currency

16%

27%

20%

22%

 

Segment Revenue Constant Currency Reconciliation

 

Three Months Ended March 31,

 ($ in millions)

Productivity and Business Processes

Intelligent Cloud

More Personal Computing

2018 As Reported

$9,006

$7,896

$9,917

2019 As Reported

$10,242

$9,649

$10,680

Percentage Change Y/Y

14%

22%

8%

Constant Currency Impact

$(133)

$(144)

$(143)

Percentage Change Y/Y Constant Currency

15%

24%

9%

 

Selected Product and Service Revenue Constant Currency Reconciliation           

 

Three Months Ended March 31, 2019

Percentage Change Y/Y (GAAP)

Constant Currency Impact

Percentage Change Y/Y Constant Currency

Office Commercial products and cloud services

12%

2%

14%

Office 365 Commercial

30%

1%

31%

Office Consumer products and cloud services

8%

2%

10%

LinkedIn

27%

2%

29%

Dynamics products and cloud services

13%

2%

15%

Dynamics 365

43%

1%

44%

Server products and cloud services

27%

2%

29%

Azure

73%

2%

75%

Enterprise Services

4%

1%

5%

Windows OEM

9%

0%

9%

Windows Commercial products and cloud services

18%

2%

20%

Search advertising excluding traffic acquisition costs

12%

2%

14%

Surface

21%

4%

25%

Gaming

5%

2%

7%

Xbox software and services

12%

3%

15%

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 cloud-based 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;

·        legal changes, our evolving business model, piracy, and other factors may decrease the value of our intellectual property;

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

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

·        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;

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

·        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, fines, or reputational damage;

·        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;

·        changes in our sales organization that may impact revenues;

·        the development of the internet of things presenting security, privacy, and execution risks;

·        issues about the use of artificial intelligence in our offerings that may result in competitive harm, legal liability, or reputational harm; and

·        damage to our reputation or our brands that may harm our business and operating results.

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 March 31, 2019. 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,

 

2019

 

2018

 

2019

 

2018

Revenue:

Product

 $15,448

 $15,114

 $48,966

 $47,338

Service and other

15,123

11,705

43,160

32,937

Total revenue

30,571

26,819

92,126

80,275

Cost of revenue:

Product

3,441

3,425

12,975

11,903

Service and other

6,729

5,844

19,523

16,708

Total cost of revenue

10,170

9,269

32,498

28,611

Gross margin

20,401

17,550

59,628

51,664

Research and development

4,316

3,715

12,363

10,793

Sales and marketing

4,565

4,335

13,251

12,709

General and administrative

1,179

1,208

3,460

3,483

Operating income

10,341

8,292

30,554

24,679

Other income, net

145

349

538

1,115

Income before income taxes

10,486

8,641

31,092

25,794

Provision for income taxes

1,677

1,217

5,039

18,096

Net income

 $8,809

 $7,424

 $26,053

 $7,698

Earnings per share:

Basic

 $1.15

 $0.96

 $3.39

 $1.00

Diluted

 $1.14

 $0.95

 $3.36

 $0.99

Weighted average shares outstanding:

Basic

7,672

7,698

7,679

7,706

Diluted

7,744

 

7,794

 

7,759

 

7,798

 


 

COMPREHENSIVE INCOME STATEMENTS

(In millions)(Unaudited)


Three Months Ended

 March 31,

Nine Months Ended

 March 31,

 

2019

 

2018

 

2019

 

2018

Net income

 $8,809

 $7,424

 $26,053

 $7,698

Other comprehensive income (loss), net of tax:

Net change related to derivatives

(33)

7

(93)

(106)

Net change related to investments

714

(1,016)

1,334

(2,182)

Translation adjustments and other

67

255

(252)

508

Other comprehensive income (loss)

748

(754)

989

(1,780)

Comprehensive income

 $9,557

 $6,670

 $27,042

 $5,918

 


 

BALANCE SHEETS

(In millions)(Unaudited)


 

March 31,

2019

 

June 30,

 2018

Assets

Current assets:

Cash and cash equivalents

 $11,212

 $11,946

Short-term investments

120,406

121,822

Total cash, cash equivalents, and short-term investments

131,618

133,768

Accounts receivable, net of allowance for doubtful accounts of $336 and $377

19,269

26,481

Inventories

1,951

2,662

Other

7,049

6,751

Total current assets

159,887

169,662

Property and equipment, net of accumulated depreciation of $35,431 and $29,223

33,648

29,460

Operating lease right-of-use assets

7,121

6,686

Equity investments

2,403

1,862

Goodwill

41,861

35,683

Intangible assets, net

8,103

8,053

Other long-term assets

10,258

7,442

Total assets

 $263,281

 $258,848

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

 $7,544

 $8,617

Current portion of long-term debt

6,515

3,998

Accrued compensation

5,764

6,103

Short-term income taxes

1,950

2,121

Short-term unearned revenue

24,251

28,905

Other

7,837

8,744

Total current liabilities

53,861

58,488

Long-term debt

66,585

72,242

Long-term income taxes

29,514

30,265

Long-term unearned revenue

3,884

3,815

Deferred income taxes

1,838

541

Operating lease liabilities

5,972

5,568

Other long-term liabilities

6,763

5,211

Total liabilities

168,417

176,130

Commitments and contingencies

Stockholders' equity:

Common stock and paid-in capital - shares authorized 24,000; outstanding 7,666 and 7,677

77,791

71,223

Retained earnings

18,338

13,682

Accumulated other comprehensive loss

(1,265)

(2,187)

Total stockholders' equity

94,864

82,718

Total liabilities and stockholders' equity

 $263,281

 $258,848

 


 

CASH FLOWS STATEMENTS

(In millions)(Unaudited)


Three Months Ended

 March 31,

Nine Months Ended

 March 31,

 

2019

 

2018

 

2019

 

2018

Operations

Net income

 $8,809

 $7,424

 $26,053

 $7,698

Adjustments to reconcile net income to net cash from operations:

Depreciation, amortization, and other

2,926

2,710

8,758

7,745

Stock-based compensation expense

1,172

969

3,462

2,928

Net recognized gains on investments and derivatives

(95)

(438)

(470)

(1,645)

Deferred income taxes

(320)

(396)

(740)

(2,754)

Changes in operating assets and liabilities:

Accounts receivable

460

1,285

7,258

5,326

Inventories

12

(75)

710

107

Other current assets

(14)

(149)

(864)

(113)

Other long-term assets

(517)

(213)

(969)

(835)

Accounts payable

(197)

(393)

(1,032)

138

Unearned revenue

20

91

(4,543)

(2,780)

Income taxes

276

645

(879)

17,280

Other current liabilities

649

546

(1,017)

(975)

Other long-term liabilities

339

145

350

346

Net cash from operations

13,520

12,151

36,077

32,466

Financing

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

0

(7,373)

0

(7,324)

Proceeds from issuance of debt

0

0

0

7,183

Repayments of debt

0

(4,883)

(3,000)

(9,379)

Common stock issued

274

251

834

747

Common stock repurchased

(4,753)

(3,781)

(14,910)

(8,359)

Common stock cash dividends paid

(3,526)

(3,232)

(10,290)

(9,473)

Other, net

404

(640)

(835)

(946)

Net cash used in financing

(7,601)

(19,658)

(28,201)

(27,551)

Investing

Additions to property and equipment

(2,565)

(2,934)

(9,874)

(7,652)

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

(269)

(248)

(2,107)

(454)

Purchases of investments

(5,846)

(26,885)

(42,255)

(105,000)

Maturities of investments

5,893

7,674

14,889

19,252

Sales of investments

1,424

26,256

30,831

90,553

Securities lending payable

0

(19)

0

(90)

Net cash from (used in) investing

(1,363)

3,844

(8,516)

(3,391)

Effect of foreign exchange rates on cash and cash equivalents

18

25

(94)

34

Net change in cash and cash equivalents

4,574

(3,638)

(734)

1,558

Cash and cash equivalents, beginning of period

6,638

12,859

11,946

7,663

Cash and cash equivalents, end of period

 $11,212

 $9,221

 $11,212

 $9,221

 


 

SEGMENT REVENUE AND OPERATING INCOME

(In millions)(Unaudited)

 

Three Months Ended

 March 31,

 

Nine Months Ended

 March 31,

 

 

 

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

Productivity and Business Processes

 $10,242

 

 $9,006

 

 $30,113

 

$26,197

Intelligent Cloud

9,649

 

7,896

 

27,594

 

22,613

More Personal Computing

10,680

 

9,917

 

34,419

 

31,465

Total

 $30,571

 

$26,819

 

 $92,126

 

$80,275

Operating Income

 

 

 

 

 

 

 

Productivity and Business Processes

 $3,979

 

 $3,115

 

 $11,875

 

 $9,458

Intelligent Cloud

3,208

 

2,654

 

9,418

 

7,623

More Personal Computing

3,154

 

2,523

 

9,261

 

7,598

Total

 $10,341

 

 $8,292

 

 $30,554

 

$24,679

 

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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