MSFT New Accounting Standards and FY18 Investor Metrics Conference Call
CHRIS SUH: Good afternoon, everyone. And thanks for joining us on the conference call today.
With me today is Frank Brod, our chief accounting officer, and John Seethoff, deputy general counsel and corporate
Today’s call is being webcast live and recorded. If you ask a question, it will be included in our live transmission,
in the transcript, and any future use of the recording. You can replay the call and view the transcript at
the Microsoft Investor Relations website until August 3, 2018.
During this call, we will be making forward-looking statements, which are predictions, projections, or other
statements about future events. These statements are based on current expectations and assumptions that are
subject to risks and uncertainties. Actual results could materially differ because of factors discussed in
today’s conference call, and in the risk factor section of our Forms 10-K, Forms 10-Q, and other reports and filings
with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.
On our website Microsoft.com/investor is our slide deck, which is intended to follow today’s discussion. Additionally,
you can also find today’s 8-K filing and our restated historical results on our website as well as our fiscal 2017
10K which was filed yesterday in the current revenue standard. We will not be discussing any topics other
than the new accounting standards on the call today.
Moving to slide 3 for our agenda.
We’re holding this call to aid investors in understanding Microsoft’s transition to the new accounting standards
for revenue and for leases. Today, we’ll provide you an overview of the standards, describe the impact to
our reported financial results and investor metrics, and then close with a discussion about FY18. We should
have some time for questions at the end.
Before I turn the call over to Frank, I’d like to clarify some of the terms that we will use in today’s discussion.
We will refer to the accounting standards that were applicable throughout fiscal 17 as ‘the current standard.’
And we will refer to the newly adopted accounting standards as ‘the new standard,’ ‘606,’ or ‘842.’
To start us off, I’m going to turn the call over to Frank.
FRANK BROD: Well thank you, Chris, and good afternoon everyone.
On July 1, 2017, we adopted two new accounting standards that cover revenue recognition and lease accounting. We
chose to adopt the new standards early, primarily to simplify the communication of our results by eliminating the
need for non-GAAP revenue reporting. We have also chosen to early-adopt the new leasing standard in order
to provide one set of restated financial statements to investors. We will report our results under these new
standards beginning with the first quarter of our fiscal year ‘18.
Today, we will walk you through the concepts of these new standards, and discuss the impacts to Microsoft’s financial
statements and metrics.
Starting with slide number 5, let’s begin with the new revenue accounting standard, or ASC 606.
This is a global, cross-industry standard with a principle based framework. Under this standard, companies
recognize revenue when they have transferred control of products and services and have no further obligations to
customers. The software industry is one of the most impacted industries due to the elimination of specific
rules governing revenue deferrals. Under this new standard, software revenue is now recognized upfront, and
revenue related to the value of ongoing obligations, such as software updates, must be estimated and deferred.
Moving on to slide number 6.
Under the new revenue standard, recognition for many areas of Microsoft’s business remains unchanged; this includes
revenue for cloud services, hardware, enterprise services, and advertising revenue. Also, our cost of revenue
does not change. And most importantly, there is no change in our relationships with our customers, sales practices,
our customer billing, or our cash flow.
The most material change to our GAAP financials is the move to upfront recognition for Windows 10 OEM revenue. Since
the launch of Windows 10 in July of 2015, we have been providing non-GAAP measures to exclude the impact from Windows
10 OEM revenue deferrals from our results. Going forward, the new revenue standard will enable us to eliminate
that adjustment and report solely on a GAAP-basis. Another important change to our financials is the shift
to upfront revenue recognition for the license component of our on-premises annuity contracts. This shift
in recognition impacts our commercial business.
There are other changes to revenue recognition under the new standard that are less impactful at the all-up company
level, but drive changes at the segment and investor metric level. These include the change to primarily upfront
revenue recognition for: Office consumer on-premises license revenue in Japan, non-volume based patent licensing
revenue, and gaming content revenue, such as Halo 5. We will discuss these changes and their impact on our
reporting in more detail later in the presentation.
In addition to the revenue changes, there are small changes to our expenses. Operating expenses decrease slightly,
primarily to reflect the deferral of sales incentives over the life of a contract in the few instances where they
were previously recognized entirely in the first year of the contract. Other income increases slightly to
reflect the impact of foreign exchange re-measurement on an increased balance of receivables. And also, our historical
tax rate is higher under the new standard driven by a different geographic mix of our recognized income.
As you will see in our restated financials, we have elected to adopt this standard using the full retrospective method,
restating fiscal years 2017 and 2016, to provide greater comparability for the readers of our financial statements.
So starting with slide number 7, I will talk in more detail about the largest changes to revenue.
As I previously stated, the most material change to our GAAP financials is the move to upfront recognition of Windows
10 OEM revenue. On the left side of slide number 7, you can see an example of this change. Under the
current standard, we provide investors non-GAAP measures that exclude the impact from Windows 10 OEM revenue deferrals
to aid in the understanding of our performance. Under the new standard, we will no longer need to provide
this revenue adjustment and will report revenue solely on a GAAP-basis. And, going forward, 3% of the Windows
10 OEM revenue, will be deferred in the More Personal Computing segment. This relates to our obligation to
customers to deliver ongoing security enhancements and the latest features and updates over the life of their Windows
10 devices. Importantly, and as you can see in the example, there is no impact to customer billing or cash
Now to slide number 8 to discuss another important change to our GAAP financials, recognition for the license component
of our on-premises annuity contracts.
As a reminder, our on-premises annuity contracts are generally three-year agreements with annual billings. There
is no change to this under 606 and, as a result, no changes to our commercial bookings or cash flow. These
on-premises annuity contracts include two components; a software license component and a Software Assurance component,
which includes various benefits, such as support and rights to the latest version of the software. Under the
current standard, we recognize revenue for both components ratably over the contract term. Under the new standard,
recognition for the Software Assurance component will remain ratable while revenue for the license component of
these contracts will be recognized upfront, reflecting completion of the initial software delivery to customers.
This change has three key impacts. First, this change results in some revenue from the license component being
recognized ahead of customer invoicing driving an increase in accounts receivable. Second, the upfront recognition
of this license component revenue drives higher volatility in quarterly revenue and changes the seasonality patterns
of our reported revenue within a given year. And third, revenue from the license component that is recognized
upfront is no longer recorded in unearned revenue. We will discuss these impacts in more detail later in the
Let’s move now to slide number 9.
To aid in the understanding of the differences between the current and new revenue standards, we have provided bridges
for fiscal year 17 and fiscal year 16 revenue and fiscal year 17’s unearned revenue. I’m going to spend a
little time walking through those views now.
We will start with fiscal year 17 revenue. Beginning with the left bar, you will see that our fiscal year 17
GAAP revenue as reported under the current standard is $90 billion. However, we provide non-GAAP measures
to exclude the impact from Windows 10 OEM revenue deferrals and so many analysts and investors are also familiar
with the fiscal year 17 non-GAAP revenue of $96.7 billion, which you will see in the third bar. The next two
bars represent the net impact of moving the license component of our on-premises annuity contracts, Office consumer
on-premises licenses in Japan, non-volume based patent licensing contracts, and some gaming content, such as Halo
5, to upfront revenue recognition under the new standard.
Of these changes, the largest impact is in our commercial on-premises annuity business. Under the current revenue
standard, fiscal year 17 included recognition of license component revenue from contracts signed in prior years.
Under the new revenue standard, all license component revenue from on-premises annuity contracts signed prior
to fiscal year 17 has been restated to prior years or to retained earnings. This is represented by the first
gray bar. Additionally, under the new standard, we will recognize revenue into fiscal year 17 for the license
component of on-premises annuity contracts that were signed in fiscal year 17 but would have been previously recognized
in future years under the current standard. This is represented by the second green bar. As we previously
discussed, there is also a 3% revenue deferral for Windows 10 OEM, related to the value of software updates, represented
by the second gray bar. The net impact of these three amounts compared to our total revenue base is small - roughly
a $100 million decrease to fiscal year 17 revenue when compared to non-GAAP revenue under the current standard.
And now to slide number 10.
This slide shows the walk for fiscal year 16 revenue which includes the same drivers as the prior slide. Under
the new standard, the net impact for fiscal year 16 is a decrease to revenue of approximately $800 million, vs.
non-GAAP revenue under the current standard. In comparing to the prior slide, you see there was less revenue
restated to prior periods in fiscal year 17 than in fiscal year 16 as the mix of our cloud revenue increases year-over-year
and revenue from the license component of our on-premises annuity contracts decreases reflecting the transition
to the cloud.
Finally, on slide number 11, this third bridge walks between the June 30, 2017 unearned revenue balance under the
current standard of $44.5 billion and the June 30, 2017 unearned revenue balance under the new standard of $26.7
billion. The first two gray bars represent revenue restated to fiscal year 16 and 17 and retained earnings
that would have otherwise been recognized in future periods under the current standard. The most impactful
change is Windows 10 OEM, the first gray bar on the chart, driving a $13.3 billion decrease. The second gray
bar represents the license component of on-premises annuity contracts that are no longer recorded to unearned revenue
as well as small amounts related to Office Consumer licenses in Japan, patent licensing and gaming content. And,
lastly, the green bar represents the increase in unearned revenue for the 3% Windows 10 OEM deferral. The
net impact of these changes is a $17.8 billion decrease to the total unearned revenue balance. Again, this
was restated to prior periods and retained earnings. Given these changes, on a go-forward basis, unearned
revenue growth should reflect a higher mix of cloud and Software Assurance revenue.
Now, it’s time to turn the call over to Chris so that he can further expand on the impact the new revenue standard
has on our financial statements and investor metrics. I will rejoin you later to discuss the new lease accounting
CHRIS SUH: Thanks Frank. Let’s move to slide 12.
This slide provides an income summary view for fiscal 16 and fiscal 17 of the changes Frank described. In the
GAAP view on top, the revenue change is primarily driven by the Windows 10 OEM revenue deferral, which we had previously
adjusted for in our non-GAAP reporting.
In the non-GAAP view, the new revenue standard’s impact is relatively small. For fiscal 16, the change is approximately
$800 million, or less than 1 percent lower. For fiscal 17, the revenue impact is only about $100 million.
These revenue changes are due to the factors that Frank described in detail on slides 9 and 10.
Turning to the rest of the P&L. There are no changes to COGS, so the revenue difference is reflected in the gross
margin line. Operating expenses decreased in both fiscal years due to the deferral of sales incentives. These
two factors resulted in an operating income change of $700 million in fiscal 16, and no change in fiscal 17.
Finally, as Frank stated, our non-GAAP historical tax rate is slightly higher based on the geographic mix of recognized
income. As a result, EPS decreased by 11 cents in fiscal 16 and 2 cents in fiscal 17.
And again, these changes had no impact on cash flow, billings or bookings.
Moving to Slide 13.
In this slide, we’ve added fiscal 17 growth rates, under both the current and new standard.
Because the revenue restatement impact is larger in fiscal 16 than in fiscal 17, the growth rates in fiscal 17 are
revised higher due to that lower revenue comparable.
Importantly, since the accounting treatment of our cloud and Software Assurance revenue does not change, as the license
component of our on-premises annuity contracts decreases, over time the growth rates between the current and new
standard should be identical.
For Slide 14, this slide is a quarterly view of fiscal 17. While the full year is minimally impacted, as Frank
mentioned earlier, the new revenue standard results in more variability quarter to quarter, and changes the seasonality
pattern of our reported revenue within a given year. Here, you can clearly see this impact.
Revenue has shifted from our first, second and third quarters, into our fourth quarter. Our fourth quarter typically
experiences the highest volume of on-premises annuity contracts, and you can see that the Q4 impact is the largest
revenue dollar change under the new revenue standard.
The new seasonality pattern in fiscal 17 is indicative of what we’d except in fiscal 18 as well.
Now let’s turn to our investor metrics
On slide 16, we created this trended view to highlight important characteristics of our commercial business and provide
context as we discuss the impact of 606 on our reporting segments and associated investor metrics.
Billings is a useful view, because it is the same under both the current and the new accounting standards. This slide
shows our commercial billings mix at the company level, and then billings mix across four commercial products and
services metrics. Enterprise Services is included in total Microsoft Commercial billings, but not shown separately
because there is no license component for annuity contracts in that business.
We’ve identified three types of billings – transactional, license components of on-premises annuity contracts, and
cloud and Software Assurance components of on-premises annuity contracts. I want to highlight a couple of points
from these charts.
First, our customers’ digital transformation and continued adoption of cloud services as well as healthy annuity
mix has led to a higher billings mix of cloud and Software Assurance at the company level in fiscal 17.
Second, we talk frequently about our transactional business, which is most impacted by the cloud transition, but
also more variable, depending on in-quarter sales. Under the new revenue standard, the license component of
our on-premises annuity contracts will exhibit similar characteristics. Given increased customer preference
for cloud services, both these billings types declined at the total company level.
Now let’s look at each of the product metrics.
In Office Commercial product and services, you can clearly see the more advanced stage of the transition to Office
365, reflected in the changing mix in billings as we continue to shift customers to the cloud and grow the installed
Our Dynamics products and cloud services view shows a similar trend, except that there is no transactional business.
This chart shows how the shift to Dynamics 365 has impacted the billings mix, even in its early stage cloud transition.
For our Server products and cloud services billings, there are two things I’d like to highlight. First, the
continued innovation across the intelligent cloud and intelligent edge means that our on-premises server business
and our Azure cloud both contribute to billings growth. From a mix perspective, Azure billings growth has been tremendous,
far outpacing our on-premises growth, resulting in the mix you see here. And second, because of this continued
growth of on-premises annuity contract billings, we see the highest mix of billings that are impacted by in-quarter
sales and inherently more variable quarter to quarter.
Finally, Windows Commercial products and cloud services. This view reflects healthy growth across transactional,
license component, and cloud and software assurance billings in fiscal 17. As enterprise customers moved to Windows
10, there was both installed base growth and higher adoption of our security solutions, resulting in a slightly
higher transactional and license component mix than the prior year.
Now let’s go to the segment views.
Starting with slide 17,
In Productivity and Business Processes, we have three impacted metrics.
In the Office Commercial product and services KPI, as I just discussed, the Office 365 transition is our most mature.
The growth rate metric is about 1 point higher for the year, which reflects the mix towards the faster growing
Office 365 business.
In Office Consumer product and services, the change in growth rate is related to the changes in revenue recognition
in our consumer Office business in Japan that Frank referenced earlier, from ratable to upfront. As we’ve
discussed in prior calls, Japan is a large market for us, where Office has a high attach to PCs. Accordingly,
growth rates will be impacted by the performance of Japan’s consumer PC market.
I’ve talked about Dynamics on the prior slide. We’ve seen strong adoption of Dynamics 365 since its release
in 2016. I will reiterate that with this change to upfront recognition, our Dynamics product and cloud services
metric now reflects the early stages of this cloud transition.
Slide 18 – Intelligent Cloud
I’ve talked about the billings trends for the Server products and cloud services metric already, but let me add some
This restated metric is higher by about a point for the full year, but there’s more variability quarter to quarter.
The continued double-digit growth is driven by robust Azure cloud revenue growth, combined with growth in the license
revenue component of our on-premises annuity contracts as well. But as discussed on slide 16, the higher mix
of transactional and on-premises license revenue when compared to other businesses can result in more variability
quarter to quarter.
Moving to slide 19, our More Personal Computing segment,
In the More Personal Computing segment, there are impacts in four metrics.
In our OEM business, both Pro and non-Pro metrics are impacted by the 3 percent Windows 10 deferral that Frank referenced
In our Windows Commercial business, as customers upgrade to Windows 10 enterprise, the metric reflects growth driven
primarily by the license component revenue growth as our installed base grows and customers increasingly adopt our
For fiscal 17, gaming revenue has a total negative impact of 24 million dollars as previously deferred gaming revenue,
primarily Halo 5, is now recognized upfront under the new standard.
Moving to slide 20 - our commercial metrics.
First, because there is no change to commercial bookings, customer billings and cash flow with the new revenue standard,
those related metrics are unaffected.
Let’s go through the impacted metrics.
Commercial unearned revenue. Frank has walked you through the mechanics of our unearned revenue changes under 606
on slide 11. With the license component of on-premises annuity contracts removed, the commercial unearned revenue
balances now more closely mirrors the performance of our cloud and software assurance businesses.
Next, commercial revenue annuity mix. This metric has minimal change, as there’s no change to the calculation methodology,
and no changes to customer contracts or billings.
And in fiscal 18, we will make a couple of changes to our commercial metrics. The first is that we’re adding
commercial cloud quarterly revenue as a new KPI. We finished fiscal 17 at nearly 15 billion dollars and we’re
committing to report this quarterly in fiscal 18. This will take the place of the commercial cloud annualized
revenue run rate metric, which we’ll report separately until we reach our 20 billion dollar goal during fiscal
And the last change is that we will retire the commercial contracted not billed metric. With the new standard,
it is less indicative of commercial bookings performance and less helpful in calculating commercial bookings growth
– which we provide to you each quarter directly.
So on slide 21, this is the complete view of our fiscal 18 investor metrics. We have kept them largely unchanged,
except for the two I’ve just talked about. These metrics represent important measures of business performance and
add further transparency into our progress across our ambitions.
And finally before I turn it over to Frank, slide 22, our cash flows - here, we’ve provided a table on our operating
and free cash flow performance in fiscal 17. Operating cash flow, free cash flow and their associated growth rates
remain unchanged under 606.
Now I’ll hand it back to Frank, who will talk to you about the new lease accounting standard.
FRANK BROD: Thanks, Chris. Starting with slide number 24, I will talk briefly about the new lease accounting
standard, ASC 842.
As I previously discussed, we are early adopting this standard in conjunction with the new revenue standard and providing
one set of restated financial statements to reduce the impact on investors. To enable this, we have implemented
the KPMG Leasing Tool hosted on Azure.
Under the lease accounting standard, there are no changes to our income statement, operating cash flow, or free cash
flow. Nor are there impacts to the methodology that we use to determinate whether a lease is categorized as
an operating lease or a finance, or capital, lease. There will also be no impact to our debt covenants.
The new lease standard does drive a change to the balance sheet as operating leases will now be recorded, providing
investors enhanced transparency around our lease-related assets and liabilities. For comparability, we have
restated fiscal years 2017 and 2016.
On slide number 25 we have provided an example of accounting for this new standard. There you can see that
we will now record our operating leases, related to datacenters, offices, research and development facilities, retail
stores, and various equipment, under the operating lease right-of-use assets, other current liabilities, and operating
lease liabilities lines in the balance sheet. This results in a net increase in assets and liabilities of
$6.6 billion as of June 30, 2017 and a net increase in assets and liabilities of $5.2 billion as of June 30, 2016.
As, I previously stated, this change will have no impact on our income statement or cash flows. The
right-of-use assets and operating lease liabilities are shown on the restated balance sheet included in the 8-K
that we filed today, as well as on slide 36 in the supplementary information provided later in this presentation.
And with that, I’ll turn it back to Chris.
CHRIS SUH: Thanks Frank. Now, I’ll discuss how the new revenue standard impacts our Q1 and fiscal 18 guidance.
Starting with Slide 27 and Q1 guidance, we compared guidance under the current standard and under
the new revenue standard. Here, on the left, you can see the exact guidance we provided on our July 20th earnings
On the right, you can see the corresponding translation of that guidance under 606. This is purely a mechanical
and direct translation of guidance to the new revenue standard – not an update on our business in any way.
Based on the changes we’ve walked you through, there are new revenue ranges for our three reporting segments. In
Productivity and Business Processes, we expect revenue under the new standard to be 7.85 to 8.05 billion dollars,
including approximately 1.1 billion dollars of LinkedIn revenue. In Intelligent Cloud, we expect revenue under
the new standard to be 6.55 to 6.75 billion dollars. And in More Personal Computing, under the new standard,
there is no change to our revenue expectation of 8.6 to 8.9 billion dollars.
The new revenue standard does not change our expectations for foreign exchange impact and cost of revenue.
Finally, on this slide, I’d like to draw your attention to the revenue growth rates we have provided for each segment.
As you can see, the year over year growth rates are very similar under either the current or the new standard.
Let’s turn to slide 28
Here, there is only one change and that’s in commercial unearned revenue, which is impacted by the changes previously
discussed. We now expect it to be 20.9 to 21.1 billion dollars, in line with historical seasonality, which remains
the same under the new standard.
Turning to slide 29 for the full-year outlook, the new revenue standard does not change our previous comments about
fiscal 18, including our margin commentary.
As you prepare to update your models, a couple of points. First, we do not believe that the conversion from
the current to the new accounting standard should prompt you to change your full year estimates. So, as you focus
your work to adjusting the quarters, please review the quarterly seasonality patterns, in particular for FY17, as
a helpful guide.
In closing, we hope you have found this presentation helpful in understanding the impact of the new revenue
accounting standard and the new leasing standard. Now, let’s go to Q&A.
KARL KEIRSTEAD, Deutsche Bank: Thank you. Frank or Chris, it seems like one of the net effects of these
changes is to increase the dependency on the fourth quarter, where that’s going to have a higher sort of seasonal
Now, I’m sure inside Microsoft you have got a pretty crack team that’s good at forecasting and setting guidance,
but does the 4Q skew force you to change anything internally in terms of your forecasting methodology, or Chris,
in the way that you guide?
CHRIS SUH: Hi, Karl, thanks for the question. First, I’ll just remind you, there is no change. With
the new accounting standard, it really doesn’t change anything in terms of how we contract, how we invoice, and
how we engage with customers. So from that standpoint, from a sales and go-to-market perspective, there is
no real change at all in terms of that engagement. So it really is a revenue recognition timing question.
From that perspective, again, with the new standard, because more revenue will be reported -- because revenue for
the license component of those on-prem annuity contracts will be reported in the quarter that it’s signed, and the
volume of activity tends to be heavier in Q4, that’s where the revenue will show up.
But the underlying mechanics, there’s no change, and so there really is no difference from that point of view.
KARL KEIRSTEAD, Deutsche Bank: Got it. Okay. Thank you, Chris.
CHRIS SUH: Thanks, Karl. We’ll go to the next question.
MARK MOERDLER, Bernstein Research: Thank you. This has been a very detailed and helpful presentation.
I’ve got two quick questions.
Just to quickly confirm, you’re saying that we shouldn’t change our numbers total year revenue for FY18, rather,
we should move them around between the quarters, and that we should do it -- does that mean is it in line with what
we’ve seen in FY16 and ’17? And then a quick follow up.
CHRIS SUH: Thanks, Mark. Thanks for the question. To answer your question, as we said on the call,
the change in the accounting standard, we do not believe should prompt you to change your full-year estimate. But
the quarterly seasonality or the spread across quarters does change, and FY17 provides a pretty good roadmap, from
our perspective, on how that seasonality would look under the new standard.
MARK MOERDLER, Bernstein Research: Perfect, very helpful. Second quick one, can you give us a sense of
how large the impact of spreading the sales commission is? And does that change as we go forward for the growth
in the subscription revenue going forward?
CHRIS SUH: Just to clarify, Mark, you’re referring to the sales commission expense impact?
MARK MOERDLER, Bernstein Research: SG&A expenses in general, but sales commission.
FRANK BROD: Yeah, Mark, we’re seeing a very small impact in the change -- the standard on sales expenses because
our sales incentives today generally align with the way our revenue is brought in.
There are some slight changes that are driven by some specific programs where we pay incentives that have a benefit
for more than one year. And if the incentives were previously paid for more than one year of a contract, then
we have to defer those and take them over the life of the contract. But most of the programs we have at Microsoft
actually match to each year’s revenue billing. So you’ll see the numbers as you look at the historical changes.
The change is very modest.
MARK MOERDLER, Bernstein Research: Perfect. Thank you very much. And, again, very helpful.
CHRIS SUH: Thanks, Mark. We’ll take the next question.
ROSS MCMILLAN, RBC: Thanks so much for doing this call and all the information, it’s very helpful. Just
one for me. When I look at the Q1 revised outlook, the More PC segment is the same, but I would have thought
because of the large deferral on Windows, that might have had a bigger impact. Is there something that I’m
just not connecting on there? I would have thought that would have had an impact because of the Windows deferral.
CHRIS SUH: That’s a good question, Ross. It’s a good clarifier. Under the current standard, we
did defer Windows 10 revenue, but that did not get reflected in the More Personal Computing segment, if you recall.
The deferral ran through what we called "Corp and Other." And so with the elimination of that non-GAAP
adjustment, that has no impact on the More Personal Computing segment.
Now, under the new accounting standard, there is a new deferral that does hit that segment, but it’s only 3 percent
of the Windows 10 OEM revenue.
ROSS MCMILLAN, RBC: Understood. Thanks for the clarification.
CHRIS SUH: We’ll take the next question.
JAY VLEESCHHOUWER, Griffin Securities: Thank you, good evening. Your change of guidance range for revenues
for PBT and Intelligent Cloud were $250 million and $350 million respectively, which are very similar to the magnitudes
of the restatements for Q1 of ’16 and Q1 of ’17, according to the new table that you provided. Would you expect,
therefore, that the magnitudes of effect for the remainder of ’18, second through fourth quarter, would be similar
to the restatement magnitudes that you show here on your table for second through fourth quarters of ’16 and ’17?
CHRIS SUH: Jay, thanks for the question. I think the best way to think about it, as the guidance that
we gave on the call, was to look at Fiscal ’17 seasonality spread, which we provided in the materials that we posted
on our website, as a good roadmap for how we think the seasonality in ’18 will play itself out.
And, again, just importantly, in terms of the total year, that the full-year number is unchanged from your current
estimate from that point of view. But I do think the ’17 seasonality would probably be your best guidepost
JAY VLEESCHHOUWER, Griffin Securities: Thank you, Chris.
CHRIS SUH: Thanks, Jay. Okay, well, I think that wraps up the Q&A portion of today’s call.
In closing, we hope you found this presentation helpful in understanding the impact of the new revenue accounting
standard and the new leasing standard. Please contact us if you have any additional questions. Thank
you for joining.