Microsoft today reported earnings for its fourth fiscal quarter of 2019, including revenue of $33.7 billion, net income of $13.2 billion, and earnings per share of $1.71 (compared to revenue of $30.1 billion, net income of $8.9 billion, and earnings per share of $1.14 in Q4 2018). All three of the company’s operating groups saw year-over-year growth.
Diluted earnings per share was $1.71 GAAP and $1.37 non-GAAP, and increased 50% and 21%, respectively, GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below
“It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry,” said Satya Nadella, chief executive officer of Microsoft.
“Every day we work alongside our customers to help them build their own digital capability – innovating with them, creating new businesses with them, and earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.”
The following table reconciles financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.
Three Months Ended June 30, ($ 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 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 $11.3 billion and increased 4% (up 6% in constant currency), with the following business highlights:
Windows OEM revenue increased 9% (up 9% in constant currency) Windows Commercial products and cloud services revenue increased 13% (up 16% in constant currency) Surface revenue increased 14% (up 17% in constant currency) Search advertising revenue excluding traffic acquisition costs increased 9% (up 10% in constant currency) Gaming revenue declined 10% (down 8% in constant currency) with Xbox software and services revenue down 3% (down 1% in constant currency)Twelve Months Ended June 30, ($ 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 $13.7 billion for the twelve months ended June 30, 2018. These net tax impacts are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below.
Business Outlook
Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.
Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, Keith Dolliver, deputy general counsel, and Michael Spencer, general manager of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) today to discuss details of the company’s performance for the quarter and certain forward-looking information.
The session may be accessed at http://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on July 18, 2020.
Financial Performance Constant Currency Reconciliation
Three Months Ended June 30, ($ 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)%
MICROSOFT CORPORATION INCOME STATEMENTS (In millions, except per share amounts) (Unaudited)
Three Months EndedJune 30, Twelve Months Ended
June 30, 2019 2018 2019 2018 Revenue: Product $17,103 $17,159 $66,069 $64,497 Service and other 16,614 12,926 59,774 45,863 Total revenue 33,717 30,085 125,843 110,360 Cost of revenue: Product 3,298 3,517 16,273 15,420 Service and other 7,114 6,225 26,637 22,933 Total cost of revenue 10,412 9,742 42,910 38,353 Gross margin 23,305 20,343 82,933 72,007 Research and development 4,513 3,933 16,876 14,726 Sales and marketing 4,962 4,760 18,213 17,469 General and administrative 1,425 1,271 4,885 4,754 Operating income 12,405 10,379 42,959 35,058 Other income, net 191 301 729 1,416 Income before income taxes 12,596 10,680 43,688 36,474 Provision for (benefit from) income taxes (591) 1,807 4,448 19,903 Net income $13,187 $8,873 $39,240 $16,571 Earnings per share: Basic $1.72 $1.15 $5.11 $2.15 Diluted $1.71 $1.14 $5.06 $2.13 Weighted average shares outstanding: Basic 7,655 7,683 7,673 7,700 Diluted 7,730 7,775 7,753 7,794
COMPREHENSIVE INCOME STATEMENTS (In millions) (Unaudited)
Three Months EndedJune 30, Twelve Months Ended
June 30, 2019 2018 2019 2018 Net income $13,187 $8,873 $39,240 $16,571 Other comprehensive income (loss), net of tax: Net change related to derivatives (80) 145 (173) 39 Net change related to investments 1,071 (535) 2,405 (2,717) Translation adjustments and other (66) (686) (318) (178) Other comprehensive income (loss) 925 (1,076) 1,914 (2,856) Comprehensive income $14,112 $7,797 $41,154 $13,715
BALANCE SHEETS (In millions) (Unaudited)
June 30,2019 June 30,
2018 Assets Current assets: Cash and cash equivalents $11,356 $11,946 Short-term investments 122,463 121,822 Total cash, cash equivalents, and short-term investments 133,819 133,768 Accounts receivable, net of allowance for doubtful accounts of $411 and $377 29,524 26,481 Inventories 2,063 2,662 Other 10,146 6,751 Total current assets 175,552 169,662 Property and equipment, net of accumulated depreciation of $35,330 and $29,223 36,477 29,460 Operating lease right-of-use assets 7,379 6,686 Equity and other investments 2,649 1,862 Goodwill 42,026 35,683 Intangible assets, net 7,750 8,053 Other long-term assets 14,723 7,442 Total assets $286,556 $258,848 Liabilities and stockholders’ equity Current liabilities: Accounts payable $9,382 $8,617 Current portion of long-term debt 5,516 3,998 Accrued compensation 6,830 6,103 Short-term income taxes 5,665 2,121 Short-term unearned revenue 32,676 28,905 Other 9,351 8,744 Total current liabilities 69,420 58,488 Long-term debt 66,662 72,242 Long-term income taxes 29,612 30,265 Long-term unearned revenue 4,530 3,815 Deferred income taxes 233 541 Operating lease liabilities 6,188 5,568 Other long-term liabilities 7,581 5,211 Total liabilities 184,226 176,130 Commitments and contingencies Stockholders’ equity: Common stock and paid-in capital — shares authorized 24,000; outstanding 7,643 and 7,677 78,520 71,223 Retained earnings 24,150 13,682 Accumulated other comprehensive loss (340) (2,187) Total stockholders’ equity 102,330 82,718 Total liabilities and stockholders’ equity $286,556 $258,848
CASH FLOWS STATEMENTS (In millions) (Unaudited)
Three Months EndedJune 30, Twelve Months Ended
June 30, 2019 2018 2019 2018 Operations Net income $13,187 $8,873 $39,240 $16,571 Adjustments to reconcile net income to net cash from operations: Depreciation, amortization, and other 2,924 2,516 11,682 10,261 Stock-based compensation expense 1,190 1,012 4,652 3,940 Net recognized gains on investments and derivatives (322) (567) (792) (2,212) Deferred income taxes (5,723) (2,389) (6,463) (5,143) Changes in operating assets and liabilities: Accounts receivable (10,070) (9,188) (2,812) (3,862) Inventories (113) (572) 597 (465) Other current assets (854) (839) (1,718) (952) Other long-term assets (865) 550 (1,834) (285) Accounts payable 1,264 1,010 232 1,148 Unearned revenue 9,005 8,702 4,462 5,922 Income taxes 3,808 903 2,929 18,183 Other current liabilities 2,436 1,773 1,419 798 Other long-term liabilities 241 (366) 591 (20) Net cash from operations 16,108 11,418 52,185 43,884 Financing Repayments of short-term debt, maturities of 90 days or less, net 0 0 0 (7,324) Proceeds from issuance of debt 0 0 0 7,183 Repayments of debt (1,000) (681) (4,000) (10,060) Common stock issued 308 255 1,142 1,002 Common stock repurchased (4,633) (2,362) (19,543) (10,721) Common stock cash dividends paid (3,521) (3,226) (13,811) (12,699) Other, net 160 (25) (675) (971) Net cash used in financing (8,686) (6,039) (36,887) (33,590) Investing Additions to property and equipment (4,051) (3,980) (13,925) (11,632) Acquisition of companies, net of cash acquired, and purchases of intangible and other assets (281) (434) (2,388) (888) Purchases of investments (15,442) (32,380) (57,697) (137,380) Maturities of investments 5,154 7,108 20,043 26,360 Sales of investments 7,363 27,024 38,194 117,577 Securities lending payable 0 (8) 0 (98) Net cash used in investing (7,257) (2,670) (15,773) (6,061) Effect of foreign exchange rates on cash and cash equivalents (21) 16 (115) 50 Net change in cash and cash equivalents 144 2,725 (590) 4,283 Cash and cash equivalents, beginning of period 11,212 9,221 11,946 7,663 Cash and cash equivalents, end of period $11,356 $11,946 $11,356 $11,946
SEGMENT REVENUE AND OPERATING INCOME (In millions)(Unaudited)
Three Months EndedJune 30, Twelve Months Ended
June 30, 2019 2018 2019 2018 Revenue Productivity and Business Processes $11,047 $9,668 $41,160 $35,865 Intelligent Cloud 11,391 9,606 38,985 32,219 More Personal Computing 11,279 10,811 45,698 42,276 Total $33,717 $30,085 $125,843 $110,360 Operating Income Productivity and Business Processes $4,344 $3,466 $16,219 $12,924 Intelligent Cloud 4,502 3,901 13,920 11,524 More Personal Computing 3,559 3,012 12,820 10,610 Total $12,405 $10,379 $42,959 $35,058
