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% |
| 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 Ended
June 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 Ended
June 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 Ended
June 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 Ended
June 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 | |||
