Microsoft release Financial Results for quarter ended December 31, 2015

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Commercial cloud annualized revenue run rate exceeds $9.4 billion; Windows 10 active on over 200 million devices

Microsoft today announced the following results for the quarter ended December 31, 2015:

  • Revenue was $23.8 billion GAAP, and $25.7 billion non-GAAP
  • Operating income was $6.0 billion GAAP, and $7.9 billion non-GAAP
  • Net income was $5.0 billion GAAP, and $6.3 billion non-GAAP
  • Earnings per share was $0.62 GAAP, and $0.78 non-GAAP

During the quarter, Microsoft returned $6.5 billion to shareholders in the form of share repurchases and dividends.

“Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas,” said Satya Nadella, chief executive officer at Microsoft.

“Businesses are also piloting Windows 10, which will drive deployments beyond 200 million active devices.”

The following table reconciles financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.
[table style=”table-hover”]

Three Months Ended December 31,
 ($ in millions, except per share amounts)RevenueOperating IncomeNet IncomeEarnings per Share
2014 As Reported (GAAP)$26,470$7,776$5,863$0.71
  Net Impact from Revenue Deferrals(326)(326)(248)(0.03)
  Integration and Restructuring Charges2431750.02
2014 As Adjusted (non-GAAP)$26,144$7,693$5,790$0.70
2015 As Reported (GAAP)$23,796$6,026$4,998$0.62
  Net Impact from Revenue Deferrals1,8971,8971,2770.16
2015 As Adjusted (non-GAAP)$25,693$7,923$6,275$0.78
Percentage Change Y/Y (GAAP)(10)%(23)%(15)%(13)%
Percentage Change Y/Y (non-GAAP)(2)%3%8%11%
Percentage Change Y/Y (non-GAAP) Constant Currency3%13%20%23%

[/table]

“We delivered double-digit operating income growth in non-GAAP constant currency while investing in key strategic areas that position Microsoft for continued long term growth,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes declined 2% (up 5% in constant currency) to $6.7 billion, with the following business highlights:

  • Office commercial products and cloud services revenue grew 5% in constant currency driven by Office 365 revenue growth of nearly 70% in constant currency
  • Office 365 consumer subscribers increased to 20.6 million
  • Dynamics revenue grew 11% in constant currency with Dynamics CRM Online seat adds more than doubling year-over-year for the fifth consecutive quarter

Revenue in Intelligent Cloud grew 5% (up 11% in constant currency) to $6.3 billion, with the following business highlights:

  • Server products and cloud services revenue grew 10% in constant currency
  • Azure revenue grew 140% in constant currency with revenue from Azure premium services growing nearly 3x year-over-year
  • Over one third of the Fortune 500 have chosen our Enterprise Mobility solutions, up nearly 3x year-over-year

Revenue in More Personal Computing declined 5% (down 2% in constant currency) to $12.7 billion, with the following business highlights:

  • Windows OEM revenue declined 5% in constant currency, outperforming the PC market, driven by higher consumer premium and mid-range device mix
  • Surface revenue increased 29% in constant currency driven by the launch of Surface Pro 4 and Surface Book
  • Phone revenue declined 49% in constant currency reflecting our strategy change announced in July 2015
  • Search advertising revenue excluding traffic acquisition costs grew 21% in constant currency with continued benefit from Windows 10 usage
  • Xbox Live monthly active users grew 30% year-over-year to a record 48 million

“It was a strong holiday season for Microsoft highlighted by Surface and Xbox,” said Kevin Turner, chief operating officer at Microsoft.

“Our commercial business executed well as our sales teams and partners helped customers realize the value of Microsoft’s cloud technologies across Azure, Office 365 and CRM Online.”

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 corporate secretary, and Chris Suh, 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.com/investor. The webcast will be available for replay through the close of business on January 28, 2017.

Adjusted Financial Results and non-GAAP Measures

During the second quarter of fiscal year 2016, GAAP revenue, operating income, net income, and earnings per share include the net impact from revenue deferrals. For the second quarter of fiscal year 2015, GAAP revenue, operating income, net income, and earnings per share include the recognition of previously deferred net revenue and charges related to integration and restructuring expenses. These items are defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these non-GAAP measures gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definitions

Revenue Deferrals. Microsoft recorded a net $1.9 billion revenue deferral during the three months ended December 31, 2015, primarily related to Windows 10 and Halo 5.

Microsoft recognized a net $326 million of previously deferred revenue during the three months ended December 31, 2014, primarily related to sales of bundled products and services.

Integration and Restructuring Charges. Integration and restructuring expenses were $243 million during the three months ended December 31, 2014. Integration and restructuring expenses include employee severance expenses and costs associated with the consolidation of facilities and manufacturing operations related to restructuring activities, and systems consolidation and other business integration expenses associated with the acquisition of Nokia’s Devices and Services business.

Constant Currency

Microsoft presents constant currency information to provide a non-GAAP 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 non-GAAP 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.  The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

Financial Performance Constant Currency Reconciliation
[table style=”table-hover”]

Three Months Ended December 31,
 ($ in millions, except per share amounts)RevenueOperating IncomeNet IncomeEarnings per Share
2014 As Reported (GAAP)$26,470$7,776$5,863$0.71
2014 As Adjusted (non-GAAP)$26,144$7,693$5,790$0.70
2015 As Reported (GAAP)$23,796$6,026$4,998$0.62
2015 As Reported (non-GAAP)$25,693$7,923$6,275$0.78
Percentage Change Y/Y (GAAP)(10)%(23)%(15)%(13)%
Percentage Change Y/Y (non-GAAP)(2)%3%8%11%
Constant Currency Impact$(1,212)$(766)$(676)$(0.08)
Percentage Change Y/Y (non-GAAP) Constant Currency3%13%20%23%

[/table]
Segment Revenue Constant Currency Reconciliation
[table style=”table-hover”]

Three Months Ended December 31,
 ($ in millions)Productivity and Business ProcessesIntelligent CloudMore Personal Computing
2014 As Reported (GAAP)$6,822$6,041$13,282
2015 As Reported (GAAP)$6,690$6,343$12,660
Percentage Change Y/Y (GAAP)(2)%5%(5)%
Constant Currency Impact$(439)$(369)$(404)
Percentage Change Y/Y (GAAP) Constant Currency5%11%(2)%

[/table]

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