Source: Seeking Alpha
Microsoft Corporation (NASDAQ:MSFT)
Q4 2014 Earnings Conference Call
July 22, 2014 5:30 PM ET
Chris Suh – General Manager, IR
Amy Hood – EVP and CFO
Satya Nadella – CEO
Mark Moerdler – Sanford Bernstein
Brent Thill – UBS
Keith Weiss – Morgan Stanley
Phil Winslow – Credit Suisse
Rick Sherlund – Nomura
Walter Pritchard – Citigroup
Heather Bellini – Goldman Sachs
Ed Maguire – CLSA
Karl Keirstead – Deutsche Bank
Jim Moore – FBR Capital
Brad Reback – Stifel
Greetings and welcome to Microsoft’s Fourth Quarter Fiscal Year 2014 Earnings. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.
I would now like to turn the conference over to your host, Chris Suh, General Manager, Investor Relations for Microsoft. Thank you, Chris. You may begin.
Thank you, Roya. Good afternoon and thank you for joining us today. On the call with me are Satya Nadella, Chief Executive Officer; Amy Hood, Chief Financial Officer; Frank Brod, Chief Accounting Officer; and John Seethoff, Deputy General Counsel.
On our website, microsoft.com/investor, we have posted a slide deck which provides summary of our financial results, a reconciliation of differences between GAAP and non-GAAP financial measures and the table of noted items to aid in understanding our results this quarter. Additionally, the slide deck contains detailed information regarding the impact of the Nokia devices and services acquisition on our financial results. Our press release is also on the website and includes an addendum with additional information about our fourth quarter performance.
Microsoft is reporting the financial performance and acquired Nokia devices and services business in a new segment called Phone Hardware. Additionally, the devices and consumer hardware segment was renamed the Computing and Gaming Hardware. The products included in this renamed segment remain the same.
Current year information reflects the financial performance of the acquired business beginning on April 25, 2014. Any reference to operating expense includes research and development, sales and marketing and general and administrative, but excludes integration and restructuring charges.
Please keep in mind that all growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise specified all impacted numbers have been adjusted for non-GAAP and noted items which are detailed in our press release in slide deck. We will post the prepared remarks to our website immediately following the call until the complete transcript is available.
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 in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website, until July 22, 2015.
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 earnings press release and the comments made during this conference call and in the risk factor section of our Form 10-K, Form 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.
And with that, I’ll turn the call over to Amy.
Thanks Chris, and good afternoon everyone. This month is an important time for Microsoft, as the leadership team we’re taking bold and decisive action to evolve our organization and culture. This includes difficult steps, but they are necessary to position Microsoft for future growth and industry leadership. Today, we’ll spend more time talking about the significant changes we’re driving. However, let me first start with this quarter’s results, after that Satya will talk more about our past forward and then I’ll share our financial outlook before we take your questions.
As I think about our strong execution this quarter, there are three things that stand out to me, significant momentum with our cloud services, progress in a number of our consumer businesses and continued cost discipline.
Our total fourth quarter revenue was $23 billion including $2 billion from the phone hardware segment. As you know our Q4 guidance did not include the impact of the acquisition of Nokia’s devices and services business. Excluding that we grew revenue 10% exceeding the high-end of our guidance range.
Moving on to earnings per share. Before the impact of the acquisition and the noted items Chris highlighted earlier EPS grew 12% to $0.66. These details can be found in the earnings slide deck on our Investor Relations website. Geographically, performance was strong across most markets, particularly in North America and in Europe. We did, however, see challenging conditions in China or like many other multinationals we’re experiencing a weak business environment which we do not expect to change in the near term.
Our commercial cloud revenue grew 147% this quarter, driven by both Office 365 and Azure. Our commercial cloud annual revenue run rate more than doubled this year and now exceeds $4.4 billion and with this rapidly growing scale we continue to expand our cloud gross margins.
We saw strong commercial C growth across Office 365 particularly with SMB customers. Additionally, we added over 1 million new subscribers to Office 365, Home and Personal and we ended the quarter with 5.6 million users. Azure has also grown dramatically, the storage doubling and compute tripling this year.