Microsoft Cloud Strength FuelsThird Quarter Results
REDMOND, Wash. — April 26, 2022 —Microsoft Corp. today announced the following results for the quarter ended March 31, 2022, as compared to the corresponding period of last fiscal year:
·Revenue was $49.4 billion and increased 18%
·Operating income was $20.4 billion and increased 19%
·Net income was $16.7 billion and increased 8% GAAP (up 13% non-GAAP)
·Diluted earnings per share was $2.22 and increased 9% GAAP (up 14% non-GAAP)
Revenue and diluted earnings per share results include $(302) million and $(0.03) of additional impact from unfavorable foreign exchange rate movement within the quarter and $111 million and $(0.01) from Nuance, which closed on March 4, 2022, neither of which were included in the forward-looking guidance provided on January 25, 2022. Additional details are provided in the Earnings Call Slides.
“Going forward, digital technology will be the key input that powers the world’s economic output,” said Satya Nadella, chairman and chief executive officer of Microsoft. “Across the tech stack, we are expanding our opportunity and taking share as we help customers differentiate, build resilience, and do more with less.”
“Continued customer commitment to our cloud platform and strong sales execution drove better than expected commercial bookings growth of 28% and Microsoft Cloud revenue of $23.4 billion, up 32% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft.
The following table reconciles our financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding ournon-GAAPdefinition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.
Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
($ in millions, except per share amounts) | Revenue | Operating Income | Net Income | Diluted Earnings per Share | ||
2021 As Reported (GAAP) | $41,706 | $17,048 | $15,457 | $2.03 | ||
Net income tax benefit related to India Supreme Court decision on withholding taxes | - | - | (620) | (0.08) | ||
2021 As Adjusted (non-GAAP) | $41,706 | $17,048 | $14,837 | $1.95 | ||
2022 As Reported (GAAP) | $49,360 | $20,364 | $16,728 | $2.22 | ||
Percentage Change Y/Y (GAAP) | 18% | 19% | 8% | 9% | ||
Percentage Change Y/Y (non-GAAP) | 18% | 19% | 13% | 14% | ||
Percentage Change Y/Y (non-GAAP) Constant Currency | 21% | 23% | 17% | 18% | ||
Business Highlights
Revenue in Productivity and Business Processes was $15.8 billion and increased 17%,with the following business highlights:
·Office Commercial products and cloud services revenue increased 12% (up 14% CC) driven by Office 365 Commercial revenue growth of 17% (up 20% CC)
·Office Consumer products and cloud services revenue increased 11% (up 12% CC) and Microsoft 365 Consumer subscribers grew to 58.4 million
·LinkedIn revenue increased 34% (up 35% CC)
·Dynamics products and cloud services revenue increased 22% (up 25% CC) driven by Dynamics 365 revenue growth of 35% (up 38% CC)
Revenue in Intelligent Cloud was $19.1 billion and increased 26%, with the following business highlights:
·Server products and cloud services revenue increased 29% (up 32% CC) driven by Azure and other cloud services revenue growth of 46% (up 49% CC)
Revenue in More Personal Computing was $14.5 billion and increased 11%, with the following business highlights:
·Windows OEM revenue increased 11%
·Windows Commercial products and cloud services revenue increased 14% (up 19% CC)
·Xbox content and services revenue increased 4% (up 6% CC)
·Search and news advertising revenue excluding traffic acquisition costs increased 23% (up 25% CC)
·Surface revenue increased 13% (up 18% CC)
Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2022, an increase of 25% comparedto the third quarter of fiscal year 2021.
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 themajor product releases and other highlightsfor the quarter, organized by product categories, to help illustrate how we are accelerating innovation across our businesses while expanding our market opportunities.
Environmental, Social, and Governance (ESG)
To better execute 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 relationsESG 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 athttp://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on April 26, 2023.
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 $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.
Microsoft has provided non-GAAP financial measures related to the India Supreme Court decision to aid investors in better understanding our performance. Microsoft believes these non-GAAP measures assist investors by providing additional insight into its operational performance and help clarify trends affecting its business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Constant Currency
Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Financial Performance Constant Currency Reconciliation
Three Months Ended March 31, | ||||
|---|---|---|---|---|
($ in millions, except per share amounts) | Revenue | Operating Income | Net Income | Diluted Earnings per Share |
2021 As Reported (GAAP) | $41,706 | $17,048 | $15,457 | $2.03 |
2021 As Adjusted (non-GAAP) | $41,706 | $17,048 | $14,837 | $1.95 |
2022 As Reported (GAAP) | $49,360 | $20,364 | $16,728 | $2.22 |
Percentage Change Y/Y (GAAP) | 18% | 19% | 8% | 9% |
Percentage Change Y/Y (non-GAAP) | 18% | 19% | 13% | 14% |
Constant Currency Impact | $(1,003) | $(677) | $(577) | $(0.08) |
Percentage Change Y/Y (non-GAAP) Constant Currency | 21% | 23% | 17% | 18% |
Segment Revenue Constant Currency Reconciliation
Three Months Ended March 31, | |||
|---|---|---|---|
($ in millions) | Productivity and Business Processes | Intelligent Cloud | More Personal Computing |
2021 As Reported (GAAP) | $13,552 | $15,118 | $13,036 |
2022 As Reported (GAAP) | $15,789 | $19,051 | $14,520 |
Percentage Change Y/Y (GAAP) | 17% | 26% | 11% |
Constant Currency Impact | $(332) | $(418) | $(253) |
Percentage Change Y/Y (non-GAAP) Constant Currency | 19% | 29% | 13% |
Selected Product and Service Revenue Constant Currency Reconciliation
Three Months Ended March 31, 2022 | |||
|---|---|---|---|
Percentage Change Y/Y (GAAP) | Constant Currency Impact | Percentage Change Y/Y (non-GAAP) Constant Currency | |
Office Commercial products and cloud services | 12% | 2% | 14% |
Office 365 Commercial | 17% | 3% | 20% |
Office Consumer products and cloud services | 11% | 1% | 12% |
34% | 1% | 35% | |
Dynamics products and cloud services | 22% | 3% | 25% |
Dynamics 365 | 35% | 3% | 38% |
Server products and cloud services | 29% | 3% | 32% |
Azure and other cloud services | 46% | 3% | 49% |
Windows OEM | 11% | 0% | 11% |
Windows Commercial products and cloud services | 14% | 5% | 19% |
Xbox content and services | 4% | 2% | 6% |
Search and news advertising excluding traffic acquisition costs | 23% | 2% | 25% |
Surface | 13% | 5% | 18% |
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 athttp://www.microsoft.com/en-us/investor.
All information in this release is as of March 31, 2022. 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 Centerathttp://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 athttp://www.microsoft.com/en-us/investor.
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
2022 | 2021 | 2022 | 2021 | ||||
Revenue: | |||||||
Product | $17,366 | $16,873 | $54,776 | $52,136 | |||
Service and other | 31,994 | 24,833 | 91,629 | 69,800 | |||
Total revenue | 49,360 | 41,706 | 146,405 | 121,936 | |||
Cost of revenue: | |||||||
Product | 4,584 | 4,277 | 14,707 | 13,932 | |||
Service and other | 11,031 | 8,768 | 31,514 | 24,309 | |||
Total cost of revenue | 15,615 | 13,045 | 46,221 | 38,241 | |||
Gross margin | 33,745 | 28,661 | 100,184 | 83,695 | |||
Research and development | 6,306 | 5,204 | 17,663 | 15,029 | |||
Sales and marketing | 5,595 | 5,082 | 15,521 | 14,260 | |||
General and administrative | 1,480 | 1,327 | 4,151 | 3,585 | |||
Operating income | 20,364 | 17,048 | 62,849 | 50,821 | |||
Other income (expense), net | (174) | 188 | 380 | 876 | |||
Income before income taxes | 20,190 | 17,236 | 63,229 | 51,697 | |||
Provision for income taxes | 3,462 | 1,779 | 7,231 | 6,884 | |||
Net income | $16,728 | $15,457 | $55,998 | $44,813 | |||
Earnings per share: | |||||||
Basic | $2.23 | $2.05 | $7.46 | $5.93 | |||
Diluted | $2.22 | $2.03 | $7.41 | $5.88 | |||
Weighted average shares outstanding: | |||||||
Basic | 7,493 | 7,539 | 7,504 | 7,554 | |||
Diluted | 7,534 | 7,597 | 7,552 | 7,617 | |||
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
2022 | 2021 | 2022 | 2021 | ||||
Net income | $16,728 | $15,457 | $55,998 | $44,813 | |||
Other comprehensive income (loss), net of tax: | |||||||
Net change related to derivatives | 6 | 18 | 8 | 30 | |||
Net change related to investments | (2,882) | (1,705) | (4,047) | (2,398) | |||
Translation adjustments and other | (37) | (218) | (259) | 634 | |||
Other comprehensive loss | (2,913) | (1,905) | (4,298) | (1,734) | |||
Comprehensive income | $13,815 | $13,552 | $51,700 | $43,079 | |||
March 31, 2022 | June 30, 2021 | ||
|---|---|---|---|
Assets | |||
Current assets: | |||
Cash and cash equivalents | $12,498 | $14,224 | |
Short-term investments | 92,195 | 116,110 | |
Total cash, cash equivalents, and short-term investments | 104,693 | 130,334 | |
Accounts receivable, net of allowance for doubtful | 32,613 | 38,043 | |
Inventories | 3,296 | 2,636 | |
Other current assets | 13,320 | 13,393 | |
Total current assets | 153,922 | 184,406 | |
Property and equipment, net of accumulated | 70,298 | 59,715 | |
Operating lease right-of-use assets | 12,916 | 11,088 | |
Equity investments | 6,907 | 5,984 | |
Goodwill | 67,371 | 49,711 | |
Intangible assets, net | 11,348 | 7,800 | |
Other long-term assets | 21,845 | 15,075 | |
Total assets | $344,607 | $333,779 | |
Liabilities and stockholders' equity | |||
Current liabilities: | |||
Accounts payable | $16,085 | $15,163 | |
Current portion of long-term debt | 1,749 | 8,072 | |
Accrued compensation | 9,067 | 10,057 | |
Short-term income taxes | 4,646 | 2,174 | |
Short-term unearned revenue | 34,027 | 41,525 | |
Other current liabilities | 11,865 | 11,666 | |
Total current liabilities | 77,439 | 88,657 | |
Long-term debt | 48,177 | 50,074 | |
Long-term income taxes | 26,483 | 27,190 | |
Long-term unearned revenue | 2,769 | 2,616 | |
Deferred income taxes | 304 | 198 | |
Operating lease liabilities | 11,357 | 9,629 | |
Other long-term liabilities | 15,154 | 13,427 | |
Total liabilities | 181,683 | 191,791 | |
Commitments and contingencies | |||
Stockholders' equity: | |||
Common stock and paid-in capital - shares authorized | 85,767 | 83,111 | |
Retained earnings | 79,633 | 57,055 | |
Accumulated other comprehensive income (loss) | (2,476) | 1,822 | |
Total stockholders' equity | 162,924 | 141,988 | |
Total liabilities and stockholders' equity | $344,607 | $333,779 |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
2022 | 2021 | 2022 | 2021 | ||||
Operations | |||||||
Net income | $16,728 | $15,457 | $55,998 | $44,813 | |||
Adjustments to reconcile net income to | |||||||
Depreciation, amortization, and other | 3,773 | 2,936 | 10,481 | 8,342 | |||
Stock-based compensation expense | 1,906 | 1,525 | 5,505 | 4,547 | |||
Net recognized losses (gains) on investments and derivatives | 105 | (351) | (566) | (833) | |||
Deferred income taxes | (198) | (88) | (5,985) | (116) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 857 | 290 | 5,800 | 5,125 | |||
Inventories | (279) | (329) | (662) | (349) | |||
Other current assets | 91 | 478 | 1,861 | 1,154 | |||
Other long-term assets | (724) | (885) | (2,230) | (2,446) | |||
Accounts payable | 520 | 833 | 284 | 1,181 | |||
Unearned revenue | (209) | (473) | (7,437) | (6,764) | |||
Income taxes | 1,091 | 1,074 | 1,687 | (2,277) | |||
Other current liabilities | 1,287 | 1,590 | (1,111) | 394 | |||
Other long-term liabilities | 438 | 122 | 781 | 1,259 | |||
Net cash from operations | 25,386 | 22,179 | 64,406 | 54,030 | |||
Financing | |||||||
Cash premium on debt exchange | (1,754) | (1,754) | |||||
Repayments of debt | (4,197) | (500) | (9,023) | (3,750) | |||
Common stock issued | 477 | 396 | 1,380 | 1,243 | |||
Common stock repurchased | (8,822) | (6,930) | (23,939) | (20,208) | |||
Common stock cash dividends paid | (4,645) | (4,221) | (13,503) | (12,307) | |||
Other, net | (158) | (183) | (522) | (339) | |||
Net cash used in financing | (17,345) | (13,192) | (45,607) | (37,115) | |||
Investing | |||||||
Additions to property and equipment | (5,340) | (5,089) | (17,015) | (14,170) | |||
Acquisition of companies, net of cash acquired, and purchases | (18,719) | (7,512) | (20,775) | (8,408) | |||
Purchases of investments | (8,723) | (18,375) | (21,537) | (48,047) | |||
Maturities of investments | 1,099 | 15,016 | 15,214 | 44,546 | |||
Sales of investments | 16,693 | 5,876 | 25,218 | 10,711 | |||
Other, net | (1,181) | 400 | (1,687) | (1,356) | |||
Net cash used in investing | (16,171) | (9,684) | (20,582) | (16,724) | |||
Effect of foreign exchange rates on cash and cash equivalents | 24 | (33) | 57 | (65) | |||
Net change in cash and cash equivalents | (8,106) | (730) | (1,726) | 126 | |||
Cash and cash equivalents, beginning of period | 20,604 | 14,432 | 14,224 | 13,576 | |||
Cash and cash equivalents, end of period | $12,498 | $13,702 | $12,498 | $13,702 | |||
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
2022 | 2021 | 2022 | 2021 | ||||
Revenue | |||||||
Productivity and Business Processes | $15,789 | $13,552 | $46,764 | $39,224 | |||
Intelligent Cloud | 19,051 | 15,118 | 54,342 | 42,705 | |||
More Personal Computing | 14,520 | 13,036 | 45,299 | 40,007 | |||
Total | $49,360 | $41,706 | $146,405 | $121,936 | |||
Operating Income | |||||||
Productivity and Business Processes | $7,184 | $6,029 | $22,453 | $17,916 | |||
Intelligent Cloud | 8,281 | 6,425 | 24,040 | 18,339 | |||
More Personal Computing | 4,899 | 4,594 | 16,356 | 14,566 | |||
Total | $20,364 | $17,048 | $62,849 | $50,821 | |||
As an expert in technology and business, I can provide valuable insights into the Microsoft Cloud's impact on the company's third-quarter results, as reported on April 26, 2022. Let me demonstrate my expertise by breaking down and analyzing the key concepts mentioned in the article.
Revenue Growth and Financial Performance: Microsoft reported impressive financial results for the quarter ended March 31, 2022. The company's revenue reached $49.4 billion, representing an 18% increase compared to the corresponding period in the last fiscal year. Operating income increased by 19%, reaching $20.4 billion, and net income showed growth of 8%, reaching $16.7 billion. Diluted earnings per share increased by 9%, reaching $2.22.
Microsoft Cloud's Contribution: The article highlights the substantial contribution of Microsoft Cloud to the company's overall performance. Microsoft Cloud revenue amounted to $23.4 billion, marking a significant 32% year-over-year increase. This growth is attributed to continued customer commitment to the cloud platform and strong sales execution.
Business Segment Highlights: Microsoft's business is divided into three segments, each showing remarkable performance:
- Productivity and Business Processes: Revenue of $15.8 billion, a 17% increase. This segment includes Office Commercial products, Office Consumer products, LinkedIn, and Dynamics products and cloud services.
- Intelligent Cloud: Revenue of $19.1 billion, a 26% increase. This segment encompasses server products, cloud services, and Azure, Microsoft's cloud computing platform.
- More Personal Computing: Revenue of $14.5 billion, an 11% increase. This segment includes Windows OEM revenue, Windows Commercial products and cloud services, Xbox content and services, and Surface revenue.
Shareholder Returns: Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2022, reflecting a 25% increase compared to the same period in the previous fiscal year.
Non-GAAP Financial Measures: The article introduces non-GAAP financial measures to aid investors in better understanding Microsoft's performance. It specifically mentions the impact of the India Supreme Court decision on withholding taxes, providing context for the $620 million net income tax benefit recorded in the third quarter of fiscal year 2021.
Constant Currency Reporting: Microsoft presents constant currency information to assess underlying business performance excluding the effects of foreign currency rate fluctuations. The company believes this provides a clearer understanding of operational performance. The constant currency impact is presented for various financial metrics, including revenue and operating income.
Forward-Looking Statements: The article includes forward-looking statements discussing Microsoft's future expectations and potential risks. Factors such as intense competition, focus on cloud-based services, investments, acquisitions, cybersecurity, and economic conditions are highlighted as potential risk factors.
In conclusion, Microsoft's strong financial performance, driven by the growth of its cloud services, showcases the company's resilience and ability to meet evolving market demands. The breakdown of business segments and financial metrics provides a comprehensive understanding of Microsoft's success in the specified quarter.
