Microsoft Cloud Strength Fuels Fourth Quarter Results
REDMOND, Wash. — July 27, 2021 — Microsoft Corp. today announced the following results for the quarter ended June 30, 2021, as compared to the corresponding period of last fiscal year:
· Revenue was $46.2 billion and increased 21%
· Operating income was $19.1 billion and increased 42%
· Net income was $16.5 billion and increased 47%
· Diluted earnings per share was $2.17 and increased 49%
“We are innovating across the technology stack to help organizations drive new levels of tech intensity across their business,” said Satya Nadella, chairman and chief executive officer of Microsoft. “Our results show that when we execute well and meet customers’ needs in differentiated ways in large and growing markets, we generate growth, as we’ve seen in our commercial cloud – and in new franchises we’ve built, including gaming, security, and LinkedIn, all of which surpassed $10 billion in annual revenue over the past three years.”
“As we closed out the fiscal year, our sales teams and partners delivered a strong quarter with over 20% top and bottom-line growth, highlighted by commercial bookings growth of 30% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “Our commercial cloud revenue grew 36% year over year to $19.5 billion.”
Business Highlights
Revenue in Productivity and Business Processes was $14.7 billion and increased 25% (up 21% in constant currency), with the following business highlights:
· Office Commercial products and cloud services revenue increased 20% (up 15% in constant currency) driven by Office 365 Commercial revenue growth of 25% (up 20% in constant currency)
· Office Consumer products and cloud services revenue increased 18% (up 15% in constant currency) and Microsoft 365 Consumer subscribers increased to 51.9 million
· LinkedIn revenue increased 46% (up 42% in constant currency) driven by Marketing Solutions growth of 97% (up 91% in constant currency)
· Dynamics products and cloud services revenue increased 33% (up 26% in constant currency) driven by Dynamics 365 revenue growth of 49% (up 42% in constant currency)
Revenue in Intelligent Cloud was $17.4 billion and increased 30% (up 26% in constant currency), with the following business highlights:
· Server products and cloud services revenue increased 34% (up 29% in constant currency) driven by Azure revenue growth of 51% (up 45% in constant currency)
Revenue in More Personal Computing was $14.1 billion and increased 9% (up 6% in constant currency), with the following business highlights:
· Windows OEM revenue decreased 3%
· Windows Commercial products and cloud services revenue increased 20% (up 14% in constant currency)
· Xbox content and services revenue decreased 4% (down 7% in constant currency)
· Search advertising revenue excluding traffic acquisition costs increased 53% (up 49% in constant currency)
· Surface revenue decreased 20% (down 23% in constant currency)
Microsoft returned $10.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2021, an increase of 16% compared to the fourth quarter of fiscal year 2020.
Fiscal Year 2021 Results
Microsoft Corp. today announced the following results for the fiscal year ended June 30, 2021, as compared to the corresponding period of last fiscal year:
· Revenue was $168.1 billion and increased 18%
· Operating income was $69.9 billion and increased 32%
· Net income was $61.3 billion GAAP and $60.7 billion non-GAAP, and increased 38% and 37%, respectively
· Diluted earnings per share was $8.05 GAAP and $7.97 non-GAAP, and increased 40% and 38%, respectively
· GAAP results include a $620 million net income tax benefit 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.
Responding to COVID-19
At Microsoft, our focus remains on ensuring the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology and resources to our customers and partners to help them build resilience and do their best work from anywhere. Additional information about Microsoft’s COVID-19 response can be found here.
Environmental, Social, and Governance (ESG)
To better execute on Microsoft’s mission, we focus our Environmental, Social, and Governance (ESG) efforts where we can have the most positive impact. To learn more about our latest initiatives and priorities, please visit our investor relations ESG website.
Webcast Details
Satya Nadella, chairman and chief executive officer, Amy Hood, executive vice president and chief financial officer, Alice Jolla, chief accounting officer, Keith Dolliver, deputy general counsel, and Brett Iversen, 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 27, 2022.
Non-GAAP Definition
The India Supreme Court Decision Impact. In March 2021, the India Supreme Court issued a decision on withholding taxes in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax. Microsoft has historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. The India Supreme Court ruled favorably for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although Microsoft was not a party to the appeals, Microsoft’s software sales in India were determined to be not subject to withholding taxes. Therefore, Microsoft recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.
Microsoft has provided non-GAAP financial measures related to the India Supreme Court decision to aid investors in better understanding our performance. Microsoft believes these non-GAAP measures assist investors by providing additional insight into its operational performance and help clarify trends affecting its business. For comparability of reporting, management considers non-GAAP measures in conjunction with generally accepted accounting principles (GAAP) financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
The following table reconciles our financial results for the fiscal year ended June 30, 2021, reported in accordance with GAAP to non-GAAP financial results. All growth comparisons relate to the corresponding period in the last fiscal year.
Twelve Months Ended June 30,
($ in millions, except per share amounts)
Revenue
Operating Income
Net Income
Diluted Earnings per Share
2020 As Reported (GAAP)
$143,015
$52,959
$44,281
$5.76
2021 As Reported (GAAP)
$168,088
$69,916
$61,271
$8.05
Net income tax benefit related to India Supreme Court decision on withholding taxes
–
–
(620)
(0.08)
2021 As Adjusted (non-GAAP)
$168,088
$69,916
$60,651
$7.97
Percentage Change Y/Y (GAAP)
18%
32%
38%
40%
Percentage Change Y/Y (non-GAAP)
18%
32%
37%
38%
Percentage Change Y/Y (non-GAAP) Constant Currency
15%
28%
33%
34%
Constant Currency
Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Financial Performance Constant Currency Reconciliation
Three Months Ended June 30,
($ in millions, except per share amounts)
Revenue
Operating Income
Net Income
Diluted Earnings per Share
2020 As Reported
$38,033
$13,407
$11,202
$1.46
2021 As Reported
$46,152
$19,095
$16,458
$2.17
Percentage Change Y/Y (GAAP)
21%
42%
47%
49%
Constant Currency Impact
$1,465
$982
$749
$0.10
Percentage Change Y/Y (non-GAAP) Constant Currency
17%
35%
40%
42%
Twelve Months Ended June 30,
($ in millions, except per share amounts)
Revenue
Operating Income
Net Income
Diluted Earnings per Share
2020 As Reported
$143,015
$52,959
$44,281
$5.76
2021 As Reported
$168,088
$69,916
$61,271
$8.05
2021 As Adjusted (non-GAAP)
$168,088
$69,916
$60,651
$7.97
Percentage Change Y/Y (GAAP)
18%
32%
38%
40%
Percentage Change Y/Y (non-GAAP)
18%
32%
37%
38%
Constant Currency Impact
$3,039
$2,070
$1,974
$0.26
Percentage Change Y/Y (non-GAAP) Constant Currency
15%
28%
33%
34%
Segment Revenue Constant Currency Reconciliation
Three Months Ended June 30,
($ in millions)
Productivity and Business Processes
Intelligent Cloud
More Personal Computing
2020 As Reported
$11,752
$13,371
$12,910
2021 As Reported
$14,691
$17,375
$14,086
Percentage Change Y/Y (GAAP)
25%
30%
9%
Constant Currency Impact
$523
$594
$348
Percentage Change Y/Y (non-GAAP) Constant Currency
21%
26%
6%
Selected Product and Service Revenue Constant Currency Reconciliation
Three Months Ended June 30, 2021
Percentage Change Y/Y (GAAP)
Constant Currency Impact
Percentage Change Y/Y Constant Currency
Office Commercial products and cloud services
20%
(5)%
15%
Office 365 Commercial
25%
(5)%
20%
Office Consumer products and cloud services
18%
(3)%
15%
46%
(4)%
42%
LinkedIn Marketing Solutions
97%
(6)%
91%
Dynamics products and cloud services
33%
(7)%
26%
Dynamics 365
49%
(7)%
42%
Server products and cloud services
34%
(5)%
29%
Azure
51%
(6)%
45%
Windows OEM
(3)%
0%
(3)%
Windows Commercial products and cloud services
20%
(6)%
14%
Xbox content and services
(4)%
(3)%
(7)%
Search advertising excluding traffic acquisition costs
53%
(4)%
49%
Surface
(20)%
(3)%
(23)%
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;
· excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
· quality or supply problems;
· government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;
· potential consequences under trade, 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;
· claims against us that may result in adverse outcomes in legal disputes;
· uncertainties relating to our business with government customers;
· additional tax liabilities;
· 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;
· damage to our reputation or our brands that may harm our business and operating results;
· adverse economic or market conditions that may harm our business;
· catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business;
· exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange and
· the dependence of our business on our ability to attract and retain talented employees.
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, 2021. 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:
Brett Iversen, 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.
MICROSOFT CORPORATION
INCOME STATEMENTS
(In millions, except per share amounts) (Unaudited)
Three Months Ended
June 30,
Twelve Months Ended
June 30,
2021
2020
2021
2020
Revenue:
Product
$18,938
$18,147
$71,074
$68,041
Service and other
27,214
19,886
97,014
74,974
Total revenue
46,152
38,033
168,088
143,015
Cost of revenue:
Product
4,287
4,370
18,219
16,017
Service and other
9,704
7,969
34,013
30,061
Total cost of revenue
13,991
12,339
52,232
46,078
Gross margin
32,161
25,694
115,856
96,937
Research and development
5,687
5,214
20,716
19,269
Sales and marketing
5,857
5,417
20,117
19,598
General and administrative
1,522
1,656
5,107
5,111
Operating income
19,095
13,407
69,916
52,959
Other income, net
310
15
1,186
77
Income before income taxes
19,405
13,422
71,102
53,036
Provision for income taxes
2,947
2,220
9,831
8,755
Net income
$16,458
$11,202
$61,271
$44,281
Earnings per share:
Basic
$2.19
$1.48
$8.12
$5.82
Diluted
$2.17
$1.46
$8.05
$5.76
Weighted average shares outstanding:
Basic
7,527
7,580
7,547
7,610
Diluted
7,581
7,650
7,608
7,683
COMPREHENSIVE INCOME STATEMENTS
(In millions) (Unaudited)
Three Months Ended
June 30,
Twelve Months Ended
June 30,
2021
2020
2021
2020
Net income
$16,458
$11,202
$61,271
$44,281
Other comprehensive income (loss), net of tax:
Net change related to derivatives
(11)
4
19
(38)
Net change related to investments
132
325
(2,266)
3,990
Translation adjustments and other
239
181
873
(426)
Other comprehensive income (loss)
360
510
(1,374)
3,526
Comprehensive income
$16,818
$11,712
$59,897
$47,807
BALANCE SHEETS
(In millions) (Unaudited)
June 30, 2021
June 30,
2020
Assets
Current assets:
Cash and cash equivalents
$14,224
$13,576
Short-term investments
116,110
122,951
Total cash, cash equivalents, and short-term investments
130,334
136,527
Accounts receivable, net of allowance for doubtful accounts of $751 and $788
38,043
32,011
Inventories
2,636
1,895
Other current assets
13,393
11,482
Total current assets
184,406
181,915
Property and equipment, net of accumulated depreciation of $51,351 and $43,197
59,715
44,151
Operating lease right-of-use assets
11,088
8,753
Equity investments
5,984
2,965
Goodwill
49,711
43,351
Intangible assets, net
7,800
7,038
Other long-term assets
15,075
13,138
Total assets
$333,779
$301,311
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$15,163
$12,530
Current portion of long-term debt
8,072
3,749
Accrued compensation
10,057
7,874
Short-term income taxes
2,174
2,130
Short-term unearned revenue
41,525
36,000
Other current liabilities
11,666
10,027
Total current liabilities
88,657
72,310
Long-term debt
50,074
59,578
Long-term income taxes
27,190
29,432
Long-term unearned revenue
2,616
3,180
Deferred income taxes
198
204
Operating lease liabilities
9,629
7,671
Other long-term liabilities
13,427
10,632
Total liabilities
191,791
183,007
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,519 and 7,571
83,111
80,552
Retained earnings
57,055
34,566
Accumulated other comprehensive income
1,822
3,186
Total stockholders’ equity
141,988
118,304
Total liabilities and stockholders’ equity
$333,779
$301,311
CASH FLOWS STATEMENTS
(In millions) (Unaudited)
Three Months Ended
June 30,
Twelve Months Ended
June 30,
2021
2020
2021
2020
Operations
Net income
$16,458
$11,202
$61,271
$44,281
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other
3,344
3,504
11,686
12,796
Stock-based compensation expense
1,571
1,349
6,118
5,289
Net recognized gains on investments and derivatives
(416)
(79)
(1,249)
(219)
Deferred income taxes
(34)
447
(150)
11
Changes in operating assets and liabilities:
Accounts receivable
(11,606)
(9,355)
(6,481)
(2,577)
Inventories
(388)
(251)
(737)
168
Other current assets
(2,086)
(2,151)
(932)
(2,330)
Other long-term assets
(1,013)
(311)
(3,459)
(1,037)
Accounts payable
1,617
3,026
2,798
3,018
Unearned revenue
11,397
8,776
4,633
2,212
Income taxes
(32)
(589)
(2,309)
(3,631)
Other current liabilities
3,755
2,482
4,149
1,346
Other long-term liabilities
143
623
1,402
1,348
Net cash from operations
22,710
18,673
76,740
60,675
Financing
Cash premium on debt exchange
0
(3,417)
(1,754)
(3,417)
Repayments of debt
0
0
(3,750)
(5,518)
Common stock issued
450
340
1,693
1,343
Common stock repurchased
(7,177)
(5,791)
(27,385)
(22,968)
Common stock cash dividends paid
(4,214)
(3,865)
(16,521)
(15,137)
Other, net
(430)
471
(769)
(334)
Net cash used in financing
(11,371)
(12,262)
(48,486)
(46,031)
Investing
Additions to property and equipment
(6,452)
(4,744)
(20,622)
(15,441)
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets
(501)
(1,650)
(8,909)
(2,521)
Purchases of investments
(14,877)
(18,879)
(62,924)
(77,190)
Maturities of investments
7,246
18,890
51,792
66,449
Sales of investments
3,297
3,162
14,008
17,721
Other, net
434
(1,241)
(922)
(1,241)
Net cash used in investing
(10,853)
(4,462)
(27,577)
(12,223)
Effect of foreign exchange rates on cash and cash equivalents
36
(83)
(29)
(201)
Net change in cash and cash equivalents
522
1,866
648
2,220
Cash and cash equivalents, beginning of period
13,702
11,710
13,576
11,356
Cash and cash equivalents, end of period
$14,224
$13,576
$14,224
$13,576
SEGMENT REVENUE AND OPERATING INCOME
(In millions) (Unaudited)
Three Months Ended
June 30,
Twelve Months Ended
June 30,
2021
2020
2021
2020
Revenue
Productivity and Business Processes
$14,691
$11,752
$53,915
$46,398
Intelligent Cloud
17,375
13,371
60,080
48,366
More Personal Computing
14,086
12,910
54,093
48,251
Total
$46,152
$38,033
$168,088
$143,015
Operating Income
Productivity and Business Processes
$6,435
$3,972
$24,351
$18,724
Intelligent Cloud
7,787
5,344
26,126
18,324
More Personal Computing
4,873
4,091
19,439
15,911
Total
$19,095
$13,407
$69,916
$52,959
