Microsoft Cloud powers record fourth quarter results

REDMOND, Wash. — July 18, 2019 — Microsoft Corp. today announced the following results for the quarter ended June 30, 2019, as compared to the corresponding period of last fiscal year:

  • Revenue was $33.7 billion and increased 12%
  • Operating income was $12.4 billion and increased 20%
  • Net income was $13.2 billion GAAP and $10.6 billion non-GAAP, and increased 49% and 21%, respectively
  • Diluted earnings per share was $1.71 GAAP and $1.37 non-GAAP, and increased 50% and 21%, respectively
  • GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below

“It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry,” said Satya Nadella, chief executive officer of Microsoft. “Every day we work alongside our customers to help them build their own digital capability – innovating with them, creating new businesses with them, and earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

Three Months Ended June 30,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2018 As Reported (GAAP) $30,085 $10,379 $8,873_ $1.14_
Net Impact of the Tax Cuts and Jobs Act (TCJA) (104) (0.01)
2018 As Adjusted (non-GAAP) $30,085 $10,379 $8,769_ $1.13_
2019 As Reported (GAAP) $33,717 $12,405 $13,187_ $1.71_
Net Tax Impact of Transfer of Intangible Properties (2,567) (0.34)
2019 As Adjusted (non-GAAP) $33,717 $12,405 $10,620_ $1.37_
Percentage Change Y/Y (GAAP) 12% 20% 49% 50%
Percentage Change Y/Y (non-GAAP) 12% 20% 21% 21%
Percentage Change Y/Y (non-GAAP) Constant Currency 14% 24% 24% 24%

The current quarter effective tax rate was (5)% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion for the fourth quarter of fiscal year 2019 and a net income tax benefit of $104 million for the fourth quarter of fiscal year 2018. These net tax benefits are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below.

Microsoft returned $7.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2019.

“Q4 commercial cloud revenue increased 39% year-over-year to $11.0 billion, driving our strongest commercial quarter ever,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes was $11.0 billion and increased 14% (up 17% in constant currency), with the following business highlights:

  • Office Commercial products and cloud services revenue increased 14% (up 16% in constant currency) driven by Office 365 Commercial revenue growth of 31% (up 34% in constant currency)
  • Office Consumer products and cloud services revenue increased 6% (up 8% in constant currency) and Office 365 Consumer subscribers increased to 34.8 million
  • LinkedIn revenue increased 25% (up 28% in constant currency) with record levels of engagement highlighted by LinkedIn sessions growth of 22%
  • Dynamics products and cloud services revenue increased 12% (up 15% in constant currency) driven by Dynamics 365 revenue growth of 45% (up 48% in constant currency)

Revenue in Intelligent Cloud was $11.4 billion and increased 19% (up 21% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 22% (up 24% in constant currency) driven by Azure revenue growth of 64% (up 68% in constant currency)
  • Enterprise Services revenue increased 4% (up 6% in constant currency)

Revenue in More Personal Computing was $11.3 billion and increased 4% (up 6% in constant currency), with the following business highlights:

  • Windows OEM revenue increased 9% (up 9% in constant currency)
  • Windows Commercial products and cloud services revenue increased 13% (up 16% in constant currency)
  • Surface revenue increased 14% (up 17% in constant currency)
  • Search advertising revenue excluding traffic acquisition costs increased 9% (up 10% in constant currency)
  • Gaming revenue declined 10% (down 8% in constant currency) with Xbox software and services revenue down 3% (down 1% in constant currency)

Fiscal Year 2019 Results

Microsoft Corp. today announced the following results for the fiscal year ended June 30, 2019, as compared to the corresponding period of last fiscal year:

  • Revenue was $125.8 billion and increased 14%
  • Operating income was $43.0 billion and increased 23%
  • Net income was $39.2 billion GAAP and $36.8 billion non-GAAP, and increased 137% and 22%, respectively
  • Diluted earnings per share was $5.06 GAAP and $4.75 non-GAAP, and increased 138% and 22%, respectively
  • GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below

The following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

 

Twelve Months Ended June 30,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2018 As Reported (GAAP) $110,360 $35,058 $16,571_ $2.13_
Net Impact of the TCJA 13,696_ 1.75_
2018 As Adjusted (non-GAAP) $110,360 $35,058 $30,267_ $3.88_
2019 As Reported (GAAP) $125,843 $42,959 $39,240_ $5.06_
Net Tax Impact of Transfer of Intangible Properties (2,567) (0.33)
Net Impact of the TCJA 157_ 0.02_
2019 As Adjusted (non-GAAP) $125,843 $42,959 $36,830_ $4.75_
Percentage Change Y/Y (GAAP) 14% 23% 137% 138%
Percentage Change Y/Y (non-GAAP) 14% 23% 22% 22%
Percentage Change Y/Y (non-GAAP) Constant Currency 15% 24% 22% 23%

The current year effective tax rate was 10% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion and a net income tax charge of $157 million for the twelve months ended June 30, 2019. GAAP results include a net income tax charge of $13.7 billion for the twelve months ended June 30, 2018. These net tax impacts are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below.

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.

Quarterly Highlights, 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.

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 http://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on July 18, 2020.

Non-GAAP Definition

Transfer of Intangible Properties. In the fourth quarter of fiscal year 2019, in response to the TCJA and recently issued regulations, we transferred certain intangible properties held by our foreign subsidiaries to the United States and Ireland. The transfers of intangible properties resulted in a net $2.6 billion tax benefit recorded in the fourth quarter of fiscal year 2019, as the value of future tax deductions exceeded the current tax liability from foreign jurisdictions and United States Global Intangible Low-Taxed Income (GILTI) tax.

The TCJA Impact. We recorded a net charge of $157 million during the twelve months ended June 30, 2019 related to the TCJA. We recorded a net benefit of $104 million during the three months ended June 30, 2018 and a net charge of $13.7 billion during the twelve months ended June 30, 2018 related to the TCJA.

We have provided non-GAAP financial measures related to the transfer of intangible properties and the TCJA to aid investors in better understanding our performance. We believe these non-GAAP measures assist investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business 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 GAAP.

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 GAAP.

 

Financial Performance Constant Currency Reconciliation

Three Months Ended June 30,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2018 As Reported (GAAP) $30,085_ $10,379_ $8,873_ $1.14_
2018 As Adjusted (non-GAAP) $30,085_ $10,379_ $8,769_ $1.13_
2019 As Reported $33,717_ $12,405_ $13,187_ $1.71_
2019 As Adjusted (non-GAAP) $33,717_ $12,405_ $10,620_ $1.37_
Percentage Change Y/Y (GAAP) 12%_ 20%_ 49%_ 50%_
Percentage Change Y/Y (non-GAAP) 12%_ 20%_ 21%_ 21%_
Constant Currency Impact $(639) $(444) $(250) $(0.03)
Percentage Change Y/Y (non-GAAP) Constant Currency 14%_ 24%_ 24%_ 24%_
 

 

 

 

Twelve Months Ended June 30,

($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2018 As Reported (GAAP) $110,360_ $35,058_ $16,571_ $2.13_
2018 As Adjusted (non-GAAP) $110,360_ $35,058_ $30,267_ $3.88_
2019 As Reported $125,843_ $42,959_ $39,240_ $5.06_
2019 As Adjusted (non-GAAP) $125,843_ $42,959_ $36,830_ $4.75_
Percentage Change Y/Y (GAAP) 14%_ 23%_ 137%_ 138%_
Percentage Change Y/Y (non-GAAP) 14%_ 23%_ 22%_ 22%_
Constant Currency Impact $(1,116) $(505) $(147) $(0.02)
Percentage Change Y/Y (non-GAAP) Constant Currency 15%_ 24%_ 22%_ 23%_

 

Segment Revenue Constant Currency Reconciliation

Three Months Ended June 30,
($ in millions) Productivity and Business Processes Intelligent Cloud More Personal Computing
2018 As Reported $9,668_ $9,606_ $10,811_
2019 As Reported $11,047_ $11,391_ $11,279_
Percentage Change Y/Y 14%_ 19%_ 4%_
Constant Currency Impact $(249) $(229) $(161)
Percentage Change Y/Y Constant Currency 17%_ 21%_ 6%_

 

 

 

Selected Product and Service Revenue Constant Currency Reconciliation           

Three Months Ended June 30, 2019
Percentage Change Y/Y (GAAP) Constant Currency Impact Percentage Change Y/Y Constant Currency
Office Commercial products and cloud services 14% 2% 16%
Office 365 Commercial 31% 3% 34%
Office Consumer products and cloud services 6% 2% 8%
LinkedIn 25% 3% 28%
Dynamics products and cloud services 12% 3% 15%
Dynamics 365 45% 3% 48%
Server products and cloud services 22% 2% 24%
Azure 64% 4% 68%
Enterprise Services 4% 2% 6%
Windows OEM 9% 0% 9%
Windows Commercial products and cloud services 13% 3% 16%
Search advertising excluding traffic acquisition costs 9% 1% 10%
Surface 14% 3% 17%
Gaming (10)% 2% (8)%
Xbox software and services (3)% 2% (1)%

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; and
  • 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;
  • adverse economic or market conditions that may harm our business;
  • catastrophic events or geo-political conditions that may disrupt our business;
  • the dependence of our business on our ability to attract and retain talented employees; and
  • changes in our sales organization that may impact revenues.

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 http://www.microsoft.com/en-us/investor.

All information in this release is as of June 30, 2019. 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, rrt@we-worldwide.com

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 http://www.microsoft.com/news. 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 http://www.microsoft.com/en-us/investor.

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