This summary is based on the third quarter fiscal 2007 earnings call conducted by Microsoft Corp. (MSFT) on April 26, 2007.
Key Investors Issues
- EPS were 50 cents a share compared to 29 cents a share last year.
- Net income was $4.93 billion compared to $2.98 billion a year ago.
- Revenue was $14.4 billion compared to $10.9 billion a year ago.
Third Quarter Highlights
Revenue grew 32% to $14.4 billion which includes $1.7 billion in recognition primarily from technology guarantee programs.
Excluding the recognition of these deferrals, revenue growth would have been 17%.
- Growth was driven by sales in Client and Microsoft Business Division, following the general availability of Windows Vista and the 2007 Microsoft Office System in January. Server & Tools had another solid quarter. These three core businesses turned in notable performance, each growing at a double digit rate and collectively growing revenues 22% or over $2 billion in absolute growth before the recognition of the tech guarantees.
The 4 of 5 businesses delivered double-digit growth and the company saw broad strength across all customers segments and channels.
Excluding 1 cent per share in legal charges and 2 cents per share tax benefit, the revenue upside flowed through the operating income and earnings per share which came in at 3 cents to 4 cents higher than guidance in January.
Cash flow from operations was over $7 billion, indicative of the underlying strength of business, and was a record for the company.
The company continued to execute on financial strategy.
- The company repurchased over $6.7 billion in company stock and paid out just under $1 billion in dividends. This brings combined year-to-date repurchases and dividends to over $22.5 billion, which represents over 150% of cash flow from operations over that same period.
The company saw continued strength in the underlying PC hardware market which it estimates grew 10% to 12%, faster than expected.
Growth in emerging markets continues to outpace that mature markets and the consumer PC shipment growth outpaced business shipments. Europe, Asia excluding Japan, and Latin America maintained double digit growth rates while the remaining regions grew at single digits.
Mix of product billings was approximately 30% from OEMs, over 25% from multi-year licensing agreements, over 20% from license-only sales and the balance from other businesses.
The mix versus the same period in the prior year is higher in license-only sales, primarily due to retail sales following the consumer launches of Windows Vista and the 2007 Microsoft Office System, and lower in other businesses due to core products making up a higher mix of revenue as it would be expected, given where the company is in various product lifecycles.
Field sales force saw broad strength across customer segments and regions. Small, mid-market and retail sales groups actively engaged with customers and partners readying the market for the product launches.
The Entertainment sales force drove robust volume, license sales and entertainment and enterprise agreement renewal rates at the high end of historical range of 66% to 75%. The company is delighted that the benefits and value proposition offered in the recent releases of flagship products are resonating with customers.
As a result of the strong annuity licensing results, unearned revenue balance ended the quarter at $10.3 billion, up 16% over the same period in the prior year.
Contracted, not billed balance at the end of March was sequentially higher and continues to exceed $9.5 billion. Taking into account recorded revenue and changes in the unearned and contracted not billed balances, bookings growth totaled 20% with bookings in core business of Clients, Microsoft Business Division and Server & Tools growing 25%.
