Microsoft: Earnings Release FY20 Q3 (Xbox up 2%)

[Tek]

Earnings Release FY20 Q3

• · Revenue was $35.0 billion and increased 15%
  • · Office Commercial products and cloud services revenue increased 13% (up 15% in constant currency) driven by Office 365 Commercial revenue growth of 25% (up 27% in constant currency)
    • · Server products and cloud services revenue increased 30% (up 32% in constant currency) driven by Azure revenue growth of 59% (up 61% in constant currency)
      • · Windows OEM revenue was relatively unchanged year over year
      • · Windows Commercial products and cloud services revenue increased 17% (up 18% in constant currency)
      • · Search advertising revenue excluding traffic acquisition costs increased 1%
      • · Xbox content and services revenue increased 2%
      • · Surface revenue increased 1% (up 2% in constant currency)
    • Return to Shareholders
      Microsoft returned $9.9 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2020, an increase of 33% compared to the third quarter of fiscal year 2019.
      Business Outlook
      Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.
      Responding to COVID-19
      At Microsoft, our focus remains on ensuring the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology and resources to our customers and partners to help them do their best work while remote. Additional information about Microsoft’s COVID-19 response can be found here.
      Quarterly 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.
      Environmental, Social, and Governance (ESG)
      
      To better execute on Microsoft’s mission, we focus our Environmental, Social, and Governance (ESG) efforts where we can have the most positive impact. To learn more about our latest initiatives and priorities, please visit our investor relations ESG website.​
      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 Microsoft Investor Relations - Home Page. The webcast will be available for replay through the close of business on April 29, 2021.
      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​
      2019 As Reported	$30,571_​	$10,341_​	$8,809_​	$1.14_​
      2020 As Reported	$35,021_​	$12,975_​	$10,752_​	$1.40_​
      Percentage Change Y/Y	15%_​	25%_​	22%_​	23%_​
      Constant Currency Impact	$(404)​	$(296)​	$(375)​	$(0.05)​
      Percentage Change Y/Y Constant Currency	16%_​	28%_​	26%_​	27%_​

      Segment Revenue Constant Currency Reconciliation
      

      	Three Months Ended March 31,​
      ($ in millions)	Productivity and Business Processes​	Intelligent Cloud​	More Personal Computing​
      2019 As Reported	$10,242_​	$9,649_​	$10,680_​
      2020 As Reported	$11,743_​	$12,281_​	$10,997_​
      Percentage Change Y/Y	15%_​	27%_​	3%_​
      Constant Currency Impact	$(162)​	$(164)​	$(78)​
      Percentage Change Y/Y Constant Currency	16%_​	29%_​	4%_​

      
      Selected Product and Service Revenue Constant Currency Reconciliation
      

      	Three Months Ended March 31, 2020​
      	Percentage Change Y/Y (GAAP)​	Constant Currency Impact​	Percentage Change Y/Y Constant Currency​
      Office Commercial products and cloud services	13%​	2%​	15%​
      Office 365 Commercial	25%​	2%​	27%​
      Office Consumer products and cloud services	15%​	2%​	17%​
      LinkedIn	21%​	1%​	22%​
      Dynamics products and cloud services	17%​	3%​	20%​
      Dynamics 365	47%​	2%​	49%​
      Server products and cloud services	30%​	2%​	32%​
      Azure	59%​	2%​	61%​
      Enterprise Services	6%​	1%​	7%​
      Windows OEM	0%​	0%​	0%​
      Windows Commercial products and cloud services	17%​	1%​	18%​
      Search advertising excluding traffic acquisition costs	1%​	0%​	1%​
      Surface	1%​	1%​	2%​
      Xbox content and services	2%​	0%​	2%​

      
      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 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;
      · 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;
      · 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;
      · excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
      · quality or supply problems;
      · the possibility that we may fail to protect our source code;
      · 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;
      · claims against us that may result in adverse outcomes in legal disputes;
      · 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;
      · additional tax liabilities;
      · damage to our reputation or our brands that may harm our business and operating results;
      · exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;
      · uncertainties relating to our business with government customers;
      · adverse economic or market conditions that may harm our business;
      · catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business; and
      · the dependence of our business on our ability to attract and retain talented employees.
      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 Microsoft Investor Relations - Home Page.
      All information in this release is as of March 31, 2020. 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,[email protected]
      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 Stories | Microsoft news, features, events, and press materials. 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 Microsoft Investor Relations - Home Page.
      
      MICROSOFT CORPORATION
      
      INCOME STATEMENTS
      (In millions, except per share amounts) (Unaudited)​

      	Three Months Ended March 31,​		Nine Months Ended March 31,​
      	2020​	​	2019​	​	2020​	​	2019​
      Revenue:
      Product	$15,871​		$15,448​		$49,894​		$48,966​
      Service and other	19,150​		15,123​		55,088​		43,160​
      Total revenue	35,021​		30,571​		104,982​		92,126​
      Cost of revenue:
      Product	3,376​		3,441​		11,647​		12,975​
      Service and other	7,599​		6,729​		22,092​		19,523​
      Total cost of revenue	10,975​		10,170​		33,739​		32,498​
      Gross margin	24,046​		20,401​		71,243​		59,628​
      Research and development	4,887​		4,316​		14,055​		12,363​
      Sales and marketing	4,911​		4,565​		14,181​		13,251​
      General and administrative	1,273​		1,179​		3,455​		3,460​
      Operating income	12,975​		10,341​		39,552​		30,554​
      Other income (expense), net	(132)​		145​		62​		538​
      Income before income taxes	12,843​		10,486​		39,614​		31,092​
      Provision for income taxes	2,091​		1,677​		6,535​		5,039​
      Net income	$10,752​		$8,809​		$33,079​		$26,053​
      Earnings per share:
      Basic	$1.41​		$1.15​		$4.34​		$3.39​
      Diluted	$1.40​		$1.14​		$4.30​		$3.36​
      Weighted average shares outstanding:
      Basic	7,602​		7,672​		7,619​		7,679​
      Diluted	7,675​	​	7,744​	​	7,693​	​	7,759​

      
      
      
      COMPREHENSIVE INCOME STATEMENTS
      (In millions) (Unaudited)​

      	Three Months Ended March 31,​		Nine Months Ended March 31,​
      	2020​	​	2019​	​	2020​	​	2019​
      Net income	$10,752​		$8,809​		$33,079​		$26,053​
      Other comprehensive income (loss), net of tax:
      Net change related to derivatives	(36)​		(33)​		(42)​		(93)​
      Net change related to investments	3,508​		714​		3,665​		1,334​
      Translation adjustments and other	(541)​		67​		(607)​		(252)​
      Other comprehensive income	2,931​		748​		3,016​		989​
      Comprehensive income	$13,683​		$9,557​		$36,095​		$27,042​

      
      
      
      BALANCE SHEETS
      (In millions) (Unaudited)​

      	March 31, 2020​	​	June 30, 2019​
      Assets
      Current assets:
      Cash and cash equivalents	$11,710​		$11,356​
      Short-term investments	125,916​		122,463​
      Total cash, cash equivalents, and short-term investments	137,626​		133,819​
      Accounts receivable, net of allowance for doubtful accounts of $446 and $411	22,699​		29,524​
      Inventories	1,644​		2,063​
      Other current assets	8,536​		10,146​
      Total current assets	170,505​		175,552​
      Property and equipment, net of accumulated depreciation of $41,512 and $35,330	41,221​		36,477​
      Operating lease right-of-use assets	8,448​		7,379​
      Equity investments	2,660​		2,649​
      Goodwill	42,064​		42,026​
      Intangible assets, net	6,855​		7,750​
      Other long-term assets	13,696​		14,723​
      Total assets	$285,449​		$286,556​
      Liabilities and stockholders' equity
      Current liabilities:
      Accounts payable	$9,246​		$9,382​
      Current portion of long-term debt	3,748​		5,516​
      Accrued compensation	6,254​		6,830​
      Short-term income taxes	3,296​		5,665​
      Short-term unearned revenue	27,012​		32,676​
      Other current liabilities	9,151​		9,351​
      Total current liabilities	58,707​		69,420​
      Long-term debt	62,862​		66,662​
      Long-term income taxes	28,888​		29,612​
      Long-term unearned revenue	3,385​		4,530​
      Deferred income taxes	185​		233​
      Operating lease liabilities	7,248​		6,188​
      Other long-term liabilities	9,673​		7,581​
      Total liabilities	170,948​		184,226​
      Commitments and contingencies
      Stockholders' equity:
      Common stock and paid-in capital - shares authorized 24,000; outstanding 7,590 and 7,643	79,813​		78,520​
      Retained earnings	32,012​		24,150​
      Accumulated other comprehensive income (loss)	2,676​		(340)​
      Total stockholders' equity	114,501​		102,330​
      Total liabilities and stockholders' equity	$285,449​		$286,556​

      
      
      CASH FLOWS STATEMENTS
      (In millions) (Unaudited)​

      	Three Months Ended March 31,​		Nine Months Ended March 31,​
      	2020​	​	2019​	​	2020​	​	2019​
      Operations
      Net income	$10,752​		$8,809​		$33,079​		$26,053​
      Adjustments to reconcile net income to net cash from operations:
      Depreciation, amortization, and other	3,118​		2,926​		9,292​		8,758​
      Stock-based compensation expense	1,338​		1,172​		3,940​		3,462​
      Net recognized losses (gains) on investments and derivatives	52​		(95)​		(140)​		(470)​
      Deferred income taxes	(206)​		(320)​		(436)​		(740)​
      Changes in operating assets and liabilities:
      Accounts receivable	891​		460​		6,778​		7,258​
      Inventories	181​		12​		419​		710​
      Other current assets	94​		(14)​		(179)​		(864)​
      Other long-term assets	124​		(517)​		(726)​		(969)​
      Accounts payable	546​		(197)​		(8)​		(1,032)​
      Unearned revenue	(736)​		20​		(6,564)​		(4,543)​
      Income taxes	765​		276​		(3,042)​		(879)​
      Other current liabilities	695​		649​		(1,136)​		(1,017)​
      Other long-term liabilities	(110)​		339​		725​		350​
      Net cash from operations	17,504​		13,520​		42,002​		36,077​
      Financing
      Repayments of debt	(3,000)​		0​		(5,518)​		(3,000)​
      Common stock issued	342​		274​		1,003​		834​
      Common stock repurchased	(7,059)​		(4,753)​		(17,177)​		(14,910)​
      Common stock cash dividends paid	(3,876)​		(3,526)​		(11,272)​		(10,290)​
      Other, net	(1,052)​		404​		(805)​		(835)​
      Net cash used in financing	(14,645)​		(7,601)​		(33,769)​		(28,201)​
      Investing
      Additions to property and equipment	(3,767)​		(2,565)​		(10,697)​		(9,874)​
      Acquisition of companies, net of cash acquired, and purchases of intangible and other assets	(329)​		(269)​		(871)​		(2,107)​
      Purchases of investments	(15,910)​		(5,846)​		(58,311)​		(42,255)​
      Maturities of investments	17,247​		5,893​		47,559​		14,889​
      Sales of investments	2,810​		1,424​		14,559​		30,831​
      Net cash from (used in) investing	51​		(1,363)​		(7,761)​		(8,516)​
      Effect of foreign exchange rates on cash and cash equivalents	(64)​		18​		(118)​		(94)​
      Net change in cash and cash equivalents	2,846​		4,574​		354​		(734)​
      Cash and cash equivalents, beginning of period	8,864​		6,638​		11,356​		11,946​
      Cash and cash equivalents, end of period	$11,710​		$11,212​		$11,710​		$11,212​

      
      
      SEGMENT REVENUE AND OPERATING INCOME
      (In millions) (Unaudited)​

      ​	Three Months Ended March 31,​	​	Nine Months Ended March 31,​
      	​
      	2020​	​	2019​	​	2020​	​	2019​
      Revenue	​		​		​		​
      Productivity and Business Processes	$11,743​		$10,242​		$34,646​		$30,113​
      Intelligent Cloud	12,281​	​	9,649​		34,995​	​	27,594​
      More Personal Computing	10,997​	​	10,680​		35,341​	​	34,419​
      Total	$35,021​		$30,571​		$104,982​		$92,126​
      Operating Income	​		​		​		​
      Productivity and Business Processes	$4,788​	​	$3,979​		$14,752​	​	$11,875​
      Intelligent Cloud	4,560​	​	3,208​		12,980​	​	9,418​
      More Personal Computing	3,627​		3,154​		11,820​		9,261​
      Total	$12,975​		$10,341​		$39,552​		$30,554​

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.

FY20 Q3 - Press Releases - Investor Relations - Microsoft

www.microsoft.com

 

[Nova]

That much increase in the recession times is pretty good. I think they are definitely going on the right track. I am sure the earnings would be good in near times even after the console launches.