Slide1 :
Microsoft Corporation : Microsoft Corporation Second Quarter – Fiscal Year 2007
January 25, 2007
Slide3 : This presentation may contain statements that are forward looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially because of factors in this presentation or discussed in today’s press release, in the management’s discussion and analysis section of the company’s 2006 Form 10-K or in other reports and filings with the Securities and Exchange Commission. We undertake no duty to update or revise any forward looking statements, whether as a results of new information, future events or otherwise.
Agenda : Agenda Quarterly Overview andamp; Second Quarter Results
Business Segment Financial Overview
Guidance
Appendix
Agenda : Agenda Quarterly Overview andamp; Second Quarter Results
Business Segment Financial Overview
Guidance
Appendix
Quarterly Overview : Quarterly Overview Good close to first half of the fiscal year
Financial performance at or above high end of guidance
Strength in PC hardware market
Launch of flagship products to business customers during the quarter
Robust consumer demand for PCs and Xbox 360 consoles and games
Operating income and EPS benefited from strong revenue growth and lower than expected spending, which shifted from Q2 to the rest of the year
Fiscal Year 2007 Overview : Fiscal Year 2007 Overview Consumer launches of Windows Vista and the 2007 Office system next week
Continue to expect double digit revenue growth
Excluding legal charges and tax benefit, EPS expected to grow faster than revenue
Financial Summary – FY07 Q2 : Financial Summary – FY07 Q2 Revenue: $12.5 billion
6% growth over the comparable period last year
Guidance was $11.8 – $12.4 billion
Revenue was $14.2 billion when adjusted for the impact of the technology guarantee and pre-shipment deferrals
Operating income: $3.5 billion
Guidance was $2.9 - $3.1 billion
Operating income was $5.1 billion when adjusted for the impact of the technology guarantee and pre-shipment deferrals
Diluted earnings per share: $0.26
Guidance was $0.22 - $0.24
Diluted earnings per share were $0.38 when adjusted for the impact of the technology guarantee and pre-shipment deferrals
Cash returned to shareholders
The company repurchased $6 billion worth of stock and paid $980 million in dividends to shareholders during the quarter
FY07 – Q2 Key Data Points : FY07 – Q2 Key Data Points PC market growth estimate: 8% - 10%
Approximate billing mix
OEM: 30%
Multi-year licensing agreements: 25%
License only: 20%
Unearned balance of $11.9 billion, including $1.7 billion of deferrals, primarily related to the technology guarantee
Contracted, not billed balance exceeds $9.5 billion
9
Agenda : Agenda Quarterly Overview andamp; Second Quarter Results
Business Segment Financial Overview
Guidance
Appendix 10
Client Revenue : 11 Client Revenue 25% Y/Y Decline Windows Vista ships to business customers $3.43 $2.59 $3.35 $3.15 Q2 Summary
OEM license unit growth of 10%
OEM premium mix increased 18% pts. over prior year on strength of Media Center
Includes impact of $1.1 billion of revenue deferrals related to the technology guarantee programs and pre-shipments
$3.30
Server & Tools Revenue : 12 Server andamp; Tools Revenue Broad based revenue growth driven by continued strength in SQL Server 2005 17% Y/Y Growth $2.44 $2.40 $2.69 $2.50 Q2 Summary
SQL Server revenue growth exceeds 30% Y/Y on strength of SQL Server™ 2005
18th consecutive quarter of double digit revenue growth
$2.85
Online Services Business Revenue : 13 Online Services Business Revenue 5%
Y/Y Growth $0.59 $0.56 $0.58 $0.54 $0.62 Q2 Summary
Advertising revenue was up 20% driven by growth in display advertising offset by an expected decline in access and subscription revenue
OSB ended the quarter with:
Over 268M active Hotmail accounts
Over 263M active Messenger accounts
Advertising revenue benefits from growth in both Display and Search
Microsoft Business Division Revenue : 14 Microsoft Business Division Revenue $3.69 5% Y/Y Decline $3.61 $3.91 $3.42 Q2 Summary
2007 Microsoft Office system and Exchange 2007 released to volume licensing customers
Strong annuity growth and earlier than expected uptake in license only business drive revenue growth
Q2 revenue impacted by $500M of revenue deferrals for technology guarantee programs and pre-shipments
Dynamics customer billings grew 19% Y/Y
$3.51 November 30th marked availability of 2007 Microsoft Office system and Exchange 2007 to business customers
Entertainment & Devices Division Revenue : 15 Entertainment andamp; Devices Division Revenue Xbox 360 console and game sales drive strong holiday season growth 76% Y/Y Growth $1.69 $1.18 $1.28 $1.03 Q2 Summary
10.4M life to date Xbox 360 console sales
Gears of War sold over 2.7M units in its first 8 weeks in market
Strong growth in MED
Licenses for Windows Mobile based phones up over 90% Y/Y
Launched Zune digital media player and service in the U.S.
$2.96
Agenda : Agenda Quarterly Overview andamp; Second Quarter Results
Business Segment Financial Overview
Guidance
Appendix 16
Guidance : Guidance Guidance $ Billions (except EPS) *as a percentage of revenue 17
Reporting Segment Guidance : Reporting Segment Guidance Revenue Guidance 11% - 12% 18
FY07-Q3 financial impact of technology guarantee : FY07-Q3 financial impact of technology guarantee Guidance FY07-Q3 *Excludes legal charges 19
Agenda : Agenda Quarterly Overview andamp; Second Quarter Results
Business Segment Financial Overview
Guidance
Appendix 20
Reconciliation Slidesand Appendix : 21 Reconciliation Slides and Appendix
Slide22 : 22 Reconciliation of differences between GAAP
and Non-GAAP financial measures We may from time to time discuss second quarter performance using the non-GAAP financial measures presented on the following five slides. The following tables provide a reconciliation of the differences between the non-GAAP financial measures presented and the most directly comparable financial measures calculated and presented in accordance with GAAP. The following five slides include reconciliations for:
Revenue adjusted for technology guarantee andamp; pre-shipments
Operating expenses
Operating income adjusted for technology guarantee andamp; pre-shipments
Earnings per share adjusted for technology guarantee andamp; pre-shipments
Unearned Revenue adjusted for technology guarantee andamp; pre-shipments
OEM revenue growth adjusted for technology guarantee andamp; pre-shipments and Commercial andamp; Retail (Candamp;R) revenue growth adjusted for technology guarantee andamp; pre-shipments
Client, Server andamp; Tools, and Microsoft Business Division revenue adjusted for technology guarantee andamp; pre-shipments
Slide23 : 23 Reconciliation of differences between GAAP and Non-GAAP financial measures: Revenue andamp; Operating expense The non-GAAP measures provided above, which removes the technology guarantee and pre-shipments from the most directly comparable GAAP measures are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's second quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. 23
Reconciliation of differences between GAAP and Non-GAAP financial measures: Operating income and Earnings per share : 24 Reconciliation of differences between GAAP and Non-GAAP financial measures: Operating income and Earnings per share The non-GAAP measures provided above, which removes the technology guarantee and pre-shipments and tax benefit from the most directly comparable GAAP measures are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's second quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. *Guidance may not add due to rounding.
Reconciliation of differences between GAAP and Non-GAAP financial measures: Unearned revenue : 25 Reconciliation of differences between GAAP and Non-GAAP financial measures: Unearned revenue The non-GAAP measures provided above, which remove the technology guarantee and pre-shipments from the most directly comparable GAAP measures are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's second quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Reconciliation of differences between GAAP and Non-GAAP financial measures: Client OEM Revenue growth and Client Commercial & Retail revenue growth : 26 Reconciliation of differences between GAAP and Non-GAAP financial measures: Client OEM Revenue growth and Client Commercial andamp; Retail revenue growth The non-GAAP measures provided above, which remove the technology guarantee and pre-shipments from the most directly comparable GAAP measures are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's second quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Reconciliation of differences between GAAP and Non-GAAP financial measures: Client, Server & Tools, and Microsoft Business Division revenue : 27 Reconciliation of differences between GAAP and Non-GAAP financial measures: Client, Server andamp; Tools, and Microsoft Business Division revenue The non-GAAP measures provided above, which removes the technology guarantee and pre-shipments from the most directly comparable GAAP measures are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's second quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Slide28 : 28 Reconciliation of Differences Between GAAP and Non-GAAP FY07 guidance The following slide includes reconciliations for:
FY07 operating income guidance
FY07 earnings per share guidance We may from time to time discuss fiscal year 2007 guidance using the non-GAAP financial measures presented on the following slide. The following tables provide a reconciliation of the difference between the non-GAAP financial measures presented and the most directly comparable financial measures calculated and presented in accordance with GAAP.
Reconciliation of differences between GAAP and Non-GAAP financial measures: FY07 operating income and earnings per share : 29 Reconciliation of differences between GAAP and Non-GAAP financial measures: FY07 operating income and earnings per share *Guidance may not add due to rounding.
The non-GAAP measures provided above, which remove certain settlement charges, and the tax benefit from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's fiscal year 2007 guidance and the impact that certain items and events had on the financial guidance. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Slide30 : 30 Technology Guarantee
The following slides include tables reconciling the FY07-Q3 financial impact of the technology guarantee for Windows Vista and the 2007 Office release:
Windows Client and Microsoft Business Division revenue guidance
Microsoft revenue, operating income, and EPS guidance
FY07 – Q3 Financial impact of technology guarantee: Client and Microsoft Business Division (MBD) revenue growth : 31 FY07 – Q3 Financial impact of technology guarantee: Client and Microsoft Business Division (MBD) revenue growth *Guidance may not add due to rounding.
The non-GAAP measures provided above, which remove the technology guarantee and pre-shipments from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's fiscal year 2007 third quarter guidance and the impact that certain items and events had on the financial guidance. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
FY07 – Q3 Financial impact of technology guarantee: Total revenue and operating income : 32 FY07 – Q3 Financial impact of technology guarantee: Total revenue and operating income *Guidance may not add due to rounding.
The non-GAAP measures provided above, which remove certain settlement charges and technology guarantee and pre-shipments from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's fiscal year 2007 third quarter guidance and the impact that certain items and events had on the financial guidance. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
FY07 – Q3 Financial impact of technology guarantee: EPS : 33 FY07 – Q3 Financial impact of technology guarantee: EPS *Guidance may not add due to rounding.
The non-GAAP measures provided above, which remove certain settlement charges and technology guarantee and pre-shipments from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's fiscal year 2007 third quarter guidance and the impact that certain items and events had on the financial guidance. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Slide34 : 34 Operating Segment History The following slide includes tables for:
Unaudited 2006 pro forma results for changes to the FY07 operating segments
Unaudited 2006 pro forma results for changes to the FY07 operating segments : 35 Unaudited 2006 pro forma results for changes to the FY07 operating segments
Slide36 : 36 Fiscal Q2 Results
Fiscal Q2 Results : Fiscal Q2 Results 37
Slide38 : 38 2006 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries. The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.
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