Posts Tagged ‘strength’

postheadericon Microsoft Cloud strength highlights second quarter results

REDMOND, Wash. — January 26, 2017 — Microsoft Corp. today announced the following results for the quarter ended December 31, 2016:

  • Revenue was $ 24.1 billion GAAP, and $ 26.1 billion non-GAAP
  • Operating income was $ 6.2 billion GAAP, and $ 8.2 billion non-GAAP
  • Net income was $ 5.2 billion GAAP, and $ 6.5 billion non-GAAP
  • Diluted earnings per share was $ 0.66 GAAP, and $ 0.83 non-GAAP

Microsoft completed the acquisition of LinkedIn Corporation (“LinkedIn”) on December 8, 2016. Financial results from the acquired business are reported in the Productivity and Business Processes segment. For the second quarter of fiscal year 2017, the results of LinkedIn, including amortization of acquired intangible assets, contributed revenue, operating income, net income, and diluted earnings per share of $ 228 million, $ (201) million, $ (100) million, and $ (0.01), respectively.

“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” said Satya Nadella, chief executive officer at Microsoft. “Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. 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 December 31,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Reported (GAAP) $ 23,796 $ 6,026 $ 5,018 $ 0.62
Net Impact from Windows 10 Revenue Deferrals 1,710 1,710 1,128 0.14
2015 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 25,506 $ 7,736 $ 6,146 $ 0.76
2016 As Reported (GAAP) $ 24,090 $ 6,177 $ 5,200 $ 0.66
Net Impact from Windows 10 Revenue Deferrals 1,976 1,976 1,315 0.17
2016 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 26,066 $ 8,153 $ 6,515 $ 0.83
Percentage Change Y/Y (GAAP) 1% 3% 4% 6%
Percentage Change Y/Y (non-GAAP) 2% 5% 6% 9%
Percentage Change Y/Y (non-GAAP) Constant Currency 4% 8% 10% 13%

 

Microsoft is providing the following table to help investors compare results for the second quarter of fiscal year 2017 to the guidance previously provided for the quarter, which excluded LinkedIn.

Three Months Ended December 31,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) from Table Above $ 25,506 $ 7,736 $ 6,146 $ 0.76
2016 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) from Table Above $ 26,066 $ 8,153 $ 6,515 $ 0.83
LinkedIn Results Including Amortization of Acquired Intangible Assets 228 (201) (100) (0.01)
2016 As Further Adjusted for Windows 10 Revenue Deferrals, Excluding LinkedIn Results (non-GAAP) $ 25,838 $ 8,354 $ 6,615 $ 0.84
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) 1% 8% 8% 11%
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) Constant Currency 3% 11% 12% 15%

Microsoft returned $ 6.5 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2017.

“I am pleased with our results this quarter. We see strong demand for our cloud-based services and are executing well on our long-term growth strategy,” said Amy Hood, executive vice president and chief financial officer at Microsoft.

Revenue in Productivity and Business Processes was $ 7.4 billion and increased 10% (up 12% in constant currency), with the following business highlights:

  • Office commercial products and cloud services revenue increased 5% (up 7% in constant currency) driven by Office 365 commercial revenue growth of 47% (up 49% in constant currency)
  • Office consumer products and cloud services revenue increased 22% (up 21% in constant currency) and Office 365 consumer subscribers increased to 24.9 million
  • Dynamics products and cloud services revenue increased 7% (up 9% in constant currency) driven by Dynamics 365 revenue growth
  • LinkedIn contributed revenue of $ 228 million for the period beginning on December 8, 2016

Revenue in Intelligent Cloud was $ 6.9 billion and increased 8% (up 10% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 12% (up 14% in constant currency) driven by double-digit annuity revenue growth
  • Azure revenue increased 93% (up 95% in constant currency) with Azure compute usage more than doubling year-over-year
  • Enterprise Services revenue decreased 4% (down 2% in constant currency) with declines in custom support agreements offset by growth in Premier Support Services and consulting

Revenue in More Personal Computing was $ 11.8 billion and decreased 5% (down 4% in constant currency) driven primarily by lower phone revenue, with the following business highlights:

  • Windows OEM revenue increased 5% (up 5% in constant currency)
  • Windows commercial products and cloud services revenue increased 5% (up 6% in constant currency) driven by annuity revenue growth
  • Search advertising revenue excluding traffic acquisition costs increased 10% (up 11% in constant currency) driven by increased revenue per search and search volume
  • Gaming revenue decreased 3% (down 1% in constant currency) with lower Xbox console revenue offset by Xbox software and services revenue growth

Acquisitions and Divestitures

Microsoft completed the acquisition of LinkedIn on December 8, 2016 and the sale of its feature phone business in November 2016.

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel and corporate secretary, and Chris Suh, 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 January 26, 2018.

“As Adjusted” Financial Results and non-GAAP Measures

During the second quarter of fiscal years 2017 and 2016, GAAP revenue, operating income, net income, and diluted earnings per share include the net impact from Windows 10 revenue deferrals. During the second quarter of fiscal year 2017, GAAP revenue, operating income, net income, and diluted earnings per share include the results of LinkedIn. These items are defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these non-GAAP measures gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance.

Net Impact from Windows 10 Revenue Deferrals. With respect to our non-GAAP measures related to Windows 10 revenue, we believe these measures bridge investor information and minimize potential confusion during the brief period between the time Windows 10 revenue recognition moved from upfront to ratable, and the adoption of the new revenue standard, when Windows 10 will again be recognized predominantly upfront. The net change in Windows 10 revenue from period to period is indicative of the net change in revenue we expect from adoption of the new revenue standard.

LinkedIn Results. With respect to our non-GAAP measure related to LinkedIn results, we believe this measure will help investors compare actual results for the second quarter of fiscal year 2017 to the guidance previously provided for the quarter, which excluded LinkedIn. We do not anticipate providing this non-GAAP measure in the future as our guidance will incorporate expected results for LinkedIn.

These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definitions

Net Impact from Windows 10 Revenue Deferrals. Microsoft recorded net revenue deferrals of $ 2.0 billion during the second quarter of fiscal year 2017 and net revenue deferrals of $ 1.7 billion during the second quarter of fiscal year 2016, related to Windows 10.

With the launch of Windows 10 in July 2015, Windows 10 customers receive future versions and updates at no additional charge. Under current revenue recognition accounting guidance, when standalone software is sold with future upgrade rights, revenue must be deferred over the life of the computing device on which it is installed. This is different from prior versions of Windows, which were sold without upgrade rights, where all revenue from original equipment manufacturer (“OEM”) customers was recognized at the time of billing, i.e., upfront.

When Microsoft adopts the new revenue standard, predominantly all Windows OEM revenue will be recognized at the time of billing, which is similar to the revenue recognition for prior versions of Windows. Additional information regarding the new revenue standard is provided in the “Recent Accounting Guidance Not Yet Adopted” section of Microsoft’s Form 10-Q for the quarter ended December 31, 2016 (Notes to Financial Statements). Microsoft reflects the recognition of Windows 10 revenue at the time of billing in “As Adjusted for Windows 10 Revenue Deferrals (non-GAAP)” revenue to provide comparability during the short period where Windows 10 will be recognized over the estimated life of a device, i.e., ratable, rather than at the time of billing.

LinkedIn Results. For the second quarter of fiscal year 2017, LinkedIn contributed revenue, operating income, net income, and diluted earnings per share of $ 228 million, $ (201) million, $ (100) million, and $ (0.01), respectively. Microsoft excludes the results of LinkedIn and reflects the recognition of Windows 10 revenue at the time of billing in “As Further Adjusted for Windows 10 Revenue Deferrals, Excluding LinkedIn Results (non-GAAP)” to help investors compare results for the second quarter of fiscal year 2017 to the guidance previously provided for the quarter, which excluded LinkedIn.

Constant Currency

Microsoft presents constant currency information to provide a non-GAAP 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 non-GAAP 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. The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

Financial Performance Constant Currency Reconciliation

Three Months Ended December 31,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Reported (GAAP) $ 23,796 $ 6,026 $ 5,018 $ 0.62
2015 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 25,506 $ 7,736 $ 6,146 $ 0.76
2016 As Reported (GAAP) $ 24,090 $ 6,177 $ 5,200 $ 0.66
2016 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 26,066 $ 8,153 $ 6,515 $ 0.83
2016 As Further Adjusted for Windows 10 Revenue Deferrals, Excluding LinkedIn Results (non-GAAP) $ 25,838 $ 8,354 $ 6,615 $ 0.84
Percentage Change Y/Y (GAAP) 1% 3% 4% 6%
Percentage Change Y/Y (non-GAAP) 2% 5% 6% 9%
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) 1% 8% 8% 11%
Constant Currency Impact $ (339) $ (228) $ (260) $ (0.03)
Constant Currency Impact Excluding LinkedIn $ (333) $ (223) $ (251) $ (0.03)
Percentage Change Y/Y (non-GAAP) Constant Currency 4% 8% 10% 13%
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) Constant Currency 3% 11% 12% 15%

Segment Revenue Constant Currency Reconciliation

Three Months Ended December 31,
($ in millions) Productivity and Business Processes Intelligent Cloud More Personal Computing
2015 As Reported (GAAP) $ 6,690 $ 6,343 $ 12,473
2016 As Reported (GAAP) $ 7,382 $ 6,861 $ 11,823
Percentage Change Y/Y (GAAP) 10% 8% (5)%
Constant Currency Impact $ (108) $ (112) $ (119)
Percentage Change Y/Y (non-GAAP) Constant Currency 12% 10% (4)%

Selected Product and Service Revenue Constant Currency Reconciliation       

Three Months Ended December 31,
Percentage Change Y/Y (GAAP) Constant Currency Impact Percentage Change Y/Y (non-GAAP) Constant Currency
Office commercial products and cloud services 5% 2% 7%
Office 365 commercial 47% 2% 49%
Office consumer products and cloud services 22% (1)% 21%
Dynamics products and cloud services 7% 2% 9%
Server products and cloud services 12% 2% 14%
Azure 93% 2% 95%
Enterprise Services (4)% 2% (2)%
Windows OEM 5% 0% 5%
Windows commercial products and cloud services 5% 1% 6%
Search advertising excluding traffic acquisition costs 10% 1% 11%
Gaming (3)% 2% (1)%

 Commercial Cloud Annualized Revenue Run Rate

Commercial cloud annualized revenue run rate is calculated by taking revenue in the final month of the quarter multiplied by twelve for Office 365 commercial, Azure, Dynamics 365, and other cloud properties.

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) is the leading platform and productivity company for the mobile-first, cloud-first world and 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 Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft’s continued ability to protect and earn revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under trade protection and anti-corruption laws resulting from our international operations;
  • laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, or fines against us;
  • Microsoft’s ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • Microsoft’s hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

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 January 26, 2017. 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.

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.

News Center

postheadericon Microsoft Cloud strength highlights second quarter results

REDMOND, Wash. — January 26, 2017 — Microsoft Corp. today announced the following results for the quarter ended December 31, 2016:

  • Revenue was $ 24.1 billion GAAP, and $ 26.1 billion non-GAAP
  • Operating income was $ 6.2 billion GAAP, and $ 8.2 billion non-GAAP
  • Net income was $ 5.2 billion GAAP, and $ 6.5 billion non-GAAP
  • Diluted earnings per share was $ 0.66 GAAP, and $ 0.83 non-GAAP

Microsoft completed the acquisition of LinkedIn Corporation (“LinkedIn”) on December 8, 2016. Financial results from the acquired business are reported in the Productivity and Business Processes segment. For the second quarter of fiscal year 2017, the results of LinkedIn, including amortization of acquired intangible assets, contributed revenue, operating income, net income, and diluted earnings per share of $ 228 million, $ (201) million, $ (100) million, and $ (0.01), respectively.

“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” said Satya Nadella, chief executive officer at Microsoft. “Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. 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 December 31,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Reported (GAAP) $ 23,796 $ 6,026 $ 5,018 $ 0.62
Net Impact from Windows 10 Revenue Deferrals 1,710 1,710 1,128 0.14
2015 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 25,506 $ 7,736 $ 6,146 $ 0.76
2016 As Reported (GAAP) $ 24,090 $ 6,177 $ 5,200 $ 0.66
Net Impact from Windows 10 Revenue Deferrals 1,976 1,976 1,315 0.17
2016 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 26,066 $ 8,153 $ 6,515 $ 0.83
Percentage Change Y/Y (GAAP) 1% 3% 4% 6%
Percentage Change Y/Y (non-GAAP) 2% 5% 6% 9%
Percentage Change Y/Y (non-GAAP) Constant Currency 4% 8% 10% 13%

 

Microsoft is providing the following table to help investors compare results for the second quarter of fiscal year 2017 to the guidance previously provided for the quarter, which excluded LinkedIn.

Three Months Ended December 31,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) from Table Above $ 25,506 $ 7,736 $ 6,146 $ 0.76
2016 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) from Table Above $ 26,066 $ 8,153 $ 6,515 $ 0.83
LinkedIn Results Including Amortization of Acquired Intangible Assets 228 (201) (100) (0.01)
2016 As Further Adjusted for Windows 10 Revenue Deferrals, Excluding LinkedIn Results (non-GAAP) $ 25,838 $ 8,354 $ 6,615 $ 0.84
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) 1% 8% 8% 11%
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) Constant Currency 3% 11% 12% 15%

Microsoft returned $ 6.5 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2017.

“I am pleased with our results this quarter. We see strong demand for our cloud-based services and are executing well on our long-term growth strategy,” said Amy Hood, executive vice president and chief financial officer at Microsoft.

Revenue in Productivity and Business Processes was $ 7.4 billion and increased 10% (up 12% in constant currency), with the following business highlights:

  • Office commercial products and cloud services revenue increased 5% (up 7% in constant currency) driven by Office 365 commercial revenue growth of 47% (up 49% in constant currency)
  • Office consumer products and cloud services revenue increased 22% (up 21% in constant currency) and Office 365 consumer subscribers increased to 24.9 million
  • Dynamics products and cloud services revenue increased 7% (up 9% in constant currency) driven by Dynamics 365 revenue growth
  • LinkedIn contributed revenue of $ 228 million for the period beginning on December 8, 2016

Revenue in Intelligent Cloud was $ 6.9 billion and increased 8% (up 10% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 12% (up 14% in constant currency) driven by double-digit annuity revenue growth
  • Azure revenue increased 93% (up 95% in constant currency) with Azure compute usage more than doubling year-over-year
  • Enterprise Services revenue decreased 4% (down 2% in constant currency) with declines in custom support agreements offset by growth in Premier Support Services and consulting

Revenue in More Personal Computing was $ 11.8 billion and decreased 5% (down 4% in constant currency) driven primarily by lower phone revenue, with the following business highlights:

  • Windows OEM revenue increased 5% (up 5% in constant currency)
  • Windows commercial products and cloud services revenue increased 5% (up 6% in constant currency) driven by annuity revenue growth
  • Search advertising revenue excluding traffic acquisition costs increased 10% (up 11% in constant currency) driven by increased revenue per search and search volume
  • Gaming revenue decreased 3% (down 1% in constant currency) with lower Xbox console revenue offset by Xbox software and services revenue growth

Acquisitions and Divestitures

Microsoft completed the acquisition of LinkedIn on December 8, 2016 and the sale of its feature phone business in November 2016.

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel and corporate secretary, and Chris Suh, 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 January 26, 2018.

“As Adjusted” Financial Results and non-GAAP Measures

During the second quarter of fiscal years 2017 and 2016, GAAP revenue, operating income, net income, and diluted earnings per share include the net impact from Windows 10 revenue deferrals. During the second quarter of fiscal year 2017, GAAP revenue, operating income, net income, and diluted earnings per share include the results of LinkedIn. These items are defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these non-GAAP measures gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance.

Net Impact from Windows 10 Revenue Deferrals. With respect to our non-GAAP measures related to Windows 10 revenue, we believe these measures bridge investor information and minimize potential confusion during the brief period between the time Windows 10 revenue recognition moved from upfront to ratable, and the adoption of the new revenue standard, when Windows 10 will again be recognized predominantly upfront. The net change in Windows 10 revenue from period to period is indicative of the net change in revenue we expect from adoption of the new revenue standard.

LinkedIn Results. With respect to our non-GAAP measure related to LinkedIn results, we believe this measure will help investors compare actual results for the second quarter of fiscal year 2017 to the guidance previously provided for the quarter, which excluded LinkedIn. We do not anticipate providing this non-GAAP measure in the future as our guidance will incorporate expected results for LinkedIn.

These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definitions

Net Impact from Windows 10 Revenue Deferrals. Microsoft recorded net revenue deferrals of $ 2.0 billion during the second quarter of fiscal year 2017 and net revenue deferrals of $ 1.7 billion during the second quarter of fiscal year 2016, related to Windows 10.

With the launch of Windows 10 in July 2015, Windows 10 customers receive future versions and updates at no additional charge. Under current revenue recognition accounting guidance, when standalone software is sold with future upgrade rights, revenue must be deferred over the life of the computing device on which it is installed. This is different from prior versions of Windows, which were sold without upgrade rights, where all revenue from original equipment manufacturer (“OEM”) customers was recognized at the time of billing, i.e., upfront.

When Microsoft adopts the new revenue standard, predominantly all Windows OEM revenue will be recognized at the time of billing, which is similar to the revenue recognition for prior versions of Windows. Additional information regarding the new revenue standard is provided in the “Recent Accounting Guidance Not Yet Adopted” section of Microsoft’s Form 10-Q for the quarter ended December 31, 2016 (Notes to Financial Statements). Microsoft reflects the recognition of Windows 10 revenue at the time of billing in “As Adjusted for Windows 10 Revenue Deferrals (non-GAAP)” revenue to provide comparability during the short period where Windows 10 will be recognized over the estimated life of a device, i.e., ratable, rather than at the time of billing.

LinkedIn Results. For the second quarter of fiscal year 2017, LinkedIn contributed revenue, operating income, net income, and diluted earnings per share of $ 228 million, $ (201) million, $ (100) million, and $ (0.01), respectively. Microsoft excludes the results of LinkedIn and reflects the recognition of Windows 10 revenue at the time of billing in “As Further Adjusted for Windows 10 Revenue Deferrals, Excluding LinkedIn Results (non-GAAP)” to help investors compare results for the second quarter of fiscal year 2017 to the guidance previously provided for the quarter, which excluded LinkedIn.

Constant Currency

Microsoft presents constant currency information to provide a non-GAAP 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 non-GAAP 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. The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

Financial Performance Constant Currency Reconciliation

Three Months Ended December 31,
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Reported (GAAP) $ 23,796 $ 6,026 $ 5,018 $ 0.62
2015 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 25,506 $ 7,736 $ 6,146 $ 0.76
2016 As Reported (GAAP) $ 24,090 $ 6,177 $ 5,200 $ 0.66
2016 As Adjusted for Windows 10 Revenue Deferrals (non-GAAP) $ 26,066 $ 8,153 $ 6,515 $ 0.83
2016 As Further Adjusted for Windows 10 Revenue Deferrals, Excluding LinkedIn Results (non-GAAP) $ 25,838 $ 8,354 $ 6,615 $ 0.84
Percentage Change Y/Y (GAAP) 1% 3% 4% 6%
Percentage Change Y/Y (non-GAAP) 2% 5% 6% 9%
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) 1% 8% 8% 11%
Constant Currency Impact $ (339) $ (228) $ (260) $ (0.03)
Constant Currency Impact Excluding LinkedIn $ (333) $ (223) $ (251) $ (0.03)
Percentage Change Y/Y (non-GAAP) Constant Currency 4% 8% 10% 13%
Percentage Change Y/Y Excluding LinkedIn Results (non-GAAP) Constant Currency 3% 11% 12% 15%

Segment Revenue Constant Currency Reconciliation

Three Months Ended December 31,
($ in millions) Productivity and Business Processes Intelligent Cloud More Personal Computing
2015 As Reported (GAAP) $ 6,690 $ 6,343 $ 12,473
2016 As Reported (GAAP) $ 7,382 $ 6,861 $ 11,823
Percentage Change Y/Y (GAAP) 10% 8% (5)%
Constant Currency Impact $ (108) $ (112) $ (119)
Percentage Change Y/Y (non-GAAP) Constant Currency 12% 10% (4)%

Selected Product and Service Revenue Constant Currency Reconciliation       

Three Months Ended December 31,
Percentage Change Y/Y (GAAP) Constant Currency Impact Percentage Change Y/Y (non-GAAP) Constant Currency
Office commercial products and cloud services 5% 2% 7%
Office 365 commercial 47% 2% 49%
Office consumer products and cloud services 22% (1)% 21%
Dynamics products and cloud services 7% 2% 9%
Server products and cloud services 12% 2% 14%
Azure 93% 2% 95%
Enterprise Services (4)% 2% (2)%
Windows OEM 5% 0% 5%
Windows commercial products and cloud services 5% 1% 6%
Search advertising excluding traffic acquisition costs 10% 1% 11%
Gaming (3)% 2% (1)%

 Commercial Cloud Annualized Revenue Run Rate

Commercial cloud annualized revenue run rate is calculated by taking revenue in the final month of the quarter multiplied by twelve for Office 365 commercial, Azure, Dynamics 365, and other cloud properties.

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) is the leading platform and productivity company for the mobile-first, cloud-first world and 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 Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft’s continued ability to protect and earn revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under trade protection and anti-corruption laws resulting from our international operations;
  • laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, or fines against us;
  • Microsoft’s ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • Microsoft’s hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

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 January 26, 2017. 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.

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.

News Center

postheadericon Microsoft Cloud strength highlights first quarter results

REDMOND, Wash. — October 20, 2016 — Microsoft Corp. today announced the following results for the quarter ended September 30, 2016:

  • Revenue was $ 20.5 billion GAAP, and $ 22.3 billion non-GAAP
  • Operating income was $ 5.2 billion GAAP, and $ 7.1 billion non-GAAP
  • Net income was $ 4.7 billion GAAP, and $ 6.0 billion non-GAAP
  • Diluted earnings per share was $ 0.60 GAAP, and $ 0.76 non-GAAP

“We are helping to lead a profound digital transformation for customers, infusing intelligence across all of our platforms and experiences,” said Satya Nadella, chief executive officer at Microsoft. “We continue to innovate, grow engagement, and build our total addressable market.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. 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 September 30
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Reported (GAAP) $ 20,379 $ 5,793 $ 4,902 $ 0.61
Net Impact from Windows 10 Revenue Deferrals 1,281 1,281 759 0.09
2015 As Adjusted (non-GAAP) $ 21,660 $ 7,074 $ 5,661 $ 0.70
2016 As Reported (GAAP) $ 20,453 $ 5,225 $ 4,690 $ 0.60
Net Impact from Windows 10 Revenue Deferrals 1,881 1,881 1,299 0.16
2016 As Adjusted (non-GAAP) $ 22,334 $ 7,106 $ 5,989 $ 0.76
Percentage Change Y/Y (GAAP) 0% (10)% (4)% (2)%
Percentage Change Y/Y (non-GAAP) 3% 0% 6% 9%
Percentage Change Y/Y (non-GAAP) Constant Currency 5% 4% 10% 13%

Microsoft returned $ 6.6 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2017. During the quarter, the company announced an 8% increase in its quarterly dividend to $ 0.39 per share, a new share repurchase program authorizing up to $ 40 billion in share repurchases, and reaffirmed it is on track to complete its current $ 40 billion share repurchase program by December 31, 2016.

“Our first quarter results showed continued demand for our cloud-based services,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “We continue to invest, position ourselves for long-term growth, and execute well across our businesses.”

Revenue in Productivity and Business Processes grew 6% (up 8% in constant currency) to $ 6.7 billion, with the following business highlights:

  • Office commercial products and cloud services revenue grew 5% (up 8% in constant currency) driven by Office 365 commercial revenue growth of 51% (up 54% in constant currency)
  • Office consumer products and cloud services revenue grew 8% (up 8% in constant currency) and Office 365 consumer subscribers increased to 24.0 million
  • Dynamics products and cloud services revenue grew 11% (up 13% in constant currency) driven by Dynamics online revenue growth

Revenue in Intelligent Cloud grew 8% (up 10% in constant currency) to $ 6.4 billion, with the following business highlights:

  • Server products and cloud services revenue increased 11% (up 13% in constant currency) driven by double-digit annuity revenue growth
  • Azure revenue grew 116% (up 121% in constant currency) with Azure compute usage more than doubling year-over-year
  • Enterprise Services revenue increased 1% (up 2% in constant currency) with growth in Premier Support Services and consulting offset by declines in custom support agreements

Revenue in More Personal Computing declined 2% (down 1% in constant currency) to $ 9.3 billion, with the following business highlights:

  • Windows OEM revenue was flat year-over-year (flat in constant currency), slightly ahead of the PC market
  • Windows commercial products and cloud services revenue was flat year-over-year (up 2% in constant currency) driven by annuity revenue
  • Phone revenue declined 72% (down 71% in constant currency)
  • Gaming revenue declined 5% (down 4% in constant currency) driven by lower Xbox console revenue offset by higher Xbox software and services revenue
  • Search advertising revenue excluding traffic acquisition costs grew 9% (up 10% in constant currency) driven by increased revenue per search and search volume

Acquisitions and Divestitures

Microsoft expects to close the acquisition of LinkedIn Corporation and the sale of our entry-level feature phone business in the second quarter of fiscal year 2017, subject to regulatory approvals and other closing conditions.

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel and corporate secretary, and Chris Suh, 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 October 20, 2017.

“As Adjusted” Financial Results and non-GAAP Measures

During the first quarter of fiscal year 2017 and the first quarter of fiscal year 2016, GAAP revenue, operating income, net income, and diluted earnings per share include the net impact from Windows 10 revenue deferrals. This item is defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these non-GAAP measures gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. With respect to our non-GAAP measures related to Windows 10 revenue, we believe these measures bridge investor information and minimize potential confusion during the brief period between the time Windows 10 revenue recognition moved from upfront to ratable, and the adoption of the new revenue standard, when Windows 10 will again be recognized predominantly upfront. The net change in Windows 10 revenue from period to period is indicative of the net change in revenue we expect from adoption of the new revenue standard. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definition

Net Impact from Windows 10 Revenue Deferrals. Microsoft recorded net revenue deferrals of $ 1.9 billion during the three months ended September 30, 2016 and net revenue deferrals of $ 1.3 billion during the three months ended September 30, 2015, related to Windows 10.

With the launch of Windows 10 in July 2015, Windows 10 customers receive future versions and updates at no additional charge. Under current revenue recognition accounting guidance, when standalone software is sold with future upgrade rights, revenue must be deferred over the life of the computing device on which it is installed. This is different from prior versions of Windows, which were sold without upgrade rights, where all revenue from original equipment manufacturer (“OEM”) customers was recognized at the time of billing, i.e., upfront.

When Microsoft adopts the new revenue standard, predominantly all Windows OEM revenue will be recognized at the time of billing, which is similar to the revenue recognition for prior versions of Windows. Additional information regarding the new revenue standard is provided below. Microsoft reflects the recognition of Windows 10 revenue at the time of billing in “As Adjusted (non-GAAP)” revenue to provide comparability during the short period where Windows 10 will be recognized over the estimated life of a device, i.e., ratable, rather than at the time of billing.

New Revenue Standard

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued several amendments to the standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We currently anticipate adopting the standard using the full retrospective method to restate each prior reporting period presented.

The new standard will be effective for us beginning July 1, 2018, and adoption as of the original effective date of July 1, 2017 is permitted. We currently anticipate early adoption of the new standard effective July 1, 2017. Our ability to early adopt using the full retrospective method is dependent on system readiness, including software procured from third-party providers, and the completion of our analysis of information necessary to restate prior period financial statements.

We anticipate this standard will have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for software license revenue. We expect revenue related to hardware, cloud offerings, and professional services to remain substantially unchanged. Specifically, under the new standard we expect to recognize Windows 10 revenue predominantly upfront rather than ratably over the life of the related device. We also expect to recognize license revenue upfront rather than over the subscription period from certain multi-year commercial software subscriptions that include both software licenses and software assurance. Due to the complexity of certain of our commercial license subscription contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms, and may vary in some instances from upfront recognition.

We currently believe the net change in Windows 10 revenue from period to period is indicative of the net change in revenue we expect from the adoption of the new standard.

Constant Currency

Microsoft presents constant currency information to provide a non-GAAP 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 non-GAAP 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. The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

Financial Performance Constant Currency Reconciliation

Three Months Ended September 30
($ in millions, except per share amounts) Revenue Operating Income Net Income Diluted Earnings per Share
2015 As Reported (GAAP) $ 20,379 $ 5,793 $ 4,902 $ 0.61
2015 As Adjusted (non-GAAP) $ 21,660 $ 7,074 $ 5,661 $ 0.70
2016 As Reported (GAAP) $ 20,453 $ 5,225 $ 4,690 $ 0.60
2016 As Adjusted (non-GAAP) $ 22,334 $ 7,106 $ 5,989 $ 0.76
Percentage Change Y/Y (GAAP) 0% (10)% (4)% (2)%
Percentage Change Y/Y (non-GAAP) 3% 0% 6% 9%
Constant Currency Impact $ (341) $ (256) $ (209) $ (0.03)
Percentage Change Y/Y (non-GAAP) Constant Currency 5% 4% 10% 13%

Segment Revenue Constant Currency Reconciliation

Three Months Ended September 30
($ in millions) Productivity and Business Processes Intelligent Cloud More Personal Computing
2015 As Reported (GAAP) $ 6,306 $ 5,892 $ 9,462
2016 As Reported (GAAP) $ 6,658 $ 6,382 $ 9,294
Percentage Change Y/Y (GAAP) 6% 8% (2)%
Constant Currency Impact $ (125) $ (119) $ (97)
Percentage Change Y/Y (non-GAAP) Constant Currency 8% 10% (1)%

 


 

Selected Product and Service Revenue Constant Currency Reconciliation

Three Months Ended September 30
Percentage Change Y/Y (GAAP) Constant Currency Impact Percentage Change Y/Y (non-GAAP) Constant Currency
Office commercial products and cloud services 5% 3% 8%
Office 365 commercial 51% 3% 54%
Office consumer products and cloud services 8% 0% 8%
Dynamics products and cloud services 11% 2% 13%
Server products and cloud services 11% 2% 13%
Azure 116% 5% 121%
Enterprise Services 1% 1% 2%
Windows OEM 0% 0% 0%
Windows commercial products and cloud services 0% 2% 2%
Phone (72)% 1% (71)%
Gaming (5)% 1% (4)%
Search advertising excluding traffic acquisition costs 9% 1% 10%

Commercial Cloud Annualized Revenue Run Rate

Commercial cloud annualized revenue run rate is calculated by taking revenue in the final month of the quarter multiplied by twelve for Office 365 commercial, Azure, Dynamics Online, and other cloud properties.

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) is the leading platform and productivity company for the mobile-first, cloud-first world and 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 Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft’s continued ability to protect and earn revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under trade protection and anti-corruption laws resulting from our international operations;
  • laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, or fines against us;
  • Microsoft’s ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • Microsoft’s hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

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 October 20, 2016. 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.

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.

News Center

postheadericon Microsoft Cloud strength highlights fourth quarter results

REDMOND, Wash. — July 19, 2016 — Microsoft Corp. today announced the following results for the quarter ended June 30, 2016:

  • Revenue was $ 20.6 billion GAAP, and $ 22.6 billion non-GAAP
  • Operating income was $ 3.1 billion GAAP, and $ 6.2 billion non-GAAP
  • Net income was $ 3.1 billion GAAP, and $ 5.5 billion non-GAAP
  • Diluted earnings per share was $ 0.39 GAAP, and $ 0.69 non-GAAP

“This past year was pivotal in both our own transformation and in partnering with our customers who are navigating their own digital transformations,” said Satya Nadella, chief executive officer at Microsoft. “The Microsoft Cloud is seeing significant customer momentum and we’re well positioned to reach new opportunities in the year ahead.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. Additional information regarding non-GAAP definitions 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 (Loss) Net Income (Loss) Diluted Earnings (Loss) per Share
2015 As Reported (GAAP) $ 22,180 $ (2,053) $ (3,195) $ (0.40)
Impairment, Integration, and Restructuring Expenses 8,438 8,262 1.02
2015 As Adjusted (non-GAAP) $ 22,180 $ 6,385 $ 5,067 $ 0.62
2016 As Reported (GAAP) $ 20,614 $ 3,080 $ 3,122 $ 0.39
Net Impact from Windows 10 Revenue Deferrals 2,028 2,028 1,467 0.19
Impairment, Integration, and Restructuring Expenses 1,110 895 0.11
2016 As Adjusted (non-GAAP) $ 22,642 $ 6,218 $ 5,484 $ 0.69
Percentage Change Y/Y (GAAP) (7)% * * *
Percentage Change Y/Y (non-GAAP) 2% (3)% 8% 11%
Percentage Change Y/Y (non-GAAP) Constant Currency 5% 6% 23% 27%
* Not meaningful        

During the quarter, Microsoft returned $ 6.4 billion to shareholders in the form of share repurchases and dividends.

The current quarter effective tax rate reflected a favorable mix of our income between the U.S. and foreign countries, as well as benefits associated with distributions from foreign affiliates. As such, the GAAP and non-GAAP tax rates were 7% and 15%, respectively.

“This fiscal year we invested in innovation and expanded our market presence in key product areas and geographies,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “I am pleased with the execution from our sales teams and partners this quarter who delivered a strong finish to the fiscal year.”

Revenue in Productivity and Business Processes grew 5% (up 8% in constant currency) to $ 7.0 billion, with the following business highlights:

  • Office commercial products and cloud services revenue grew 5% (up 9% in constant currency) driven by Office 365 commercial revenue growth of 54% (up 59% in constant currency)
  • Office consumer products and cloud services revenue grew 19% (up 18% in constant currency) with Office 365 consumer subscribers increasing to 23.1 million
  • Dynamics products and cloud services revenue grew 6% (up 7% in constant currency) with Dynamics CRM Online paid seats growing more than 2.5x year-over-year

Revenue in Intelligent Cloud grew 7% (up 10% in constant currency) to $ 6.7 billion, with the following business highlights:

  • Server products and cloud services revenue increased 5% (up 8% in constant currency) driven by double-digit annuity revenue growth
  • Azure revenue grew 102% (up 108% in constant currency) with Azure compute usage more than doubling year-over-year
  • Enterprise Mobility customers nearly doubled year-over-year to over 33,000, and the installed base grew nearly 2.5x year-over-year

Revenue in More Personal Computing declined 4% (down 2% in constant currency) to $ 8.9 billion, with the following business highlights:

  • Windows OEM non-Pro revenue grew 27% (up 27% in constant currency), outpacing the consumer PC market, and Windows OEM Pro revenue grew 2% (up 2% in constant currency)
  • Surface revenue increased 9% (up 9% in constant currency) driven by Surface Pro 4 and Surface Book
  • Phone revenue declined 71% (down 70% in constant currency)
  • Xbox Live monthly active users grew 33% year-over-year to 49 million
  • Search advertising revenue excluding traffic acquisition costs grew 16% (up 17% in constant currency) with continued benefit from Windows 10 usage

Fiscal Year 2016 Results

Microsoft Corp. today announced the following results for the fiscal year ended June 30, 2016:

  • Revenue was $ 85.3 billion GAAP, and $ 92.0 billion non-GAAP
  • Operating income was $ 20.2 billion GAAP, and $ 27.9 billion non-GAAP
  • Net income was $ 16.8 billion GAAP, and $ 22.3 billion non-GAAP
  • Diluted earnings per share was $ 2.10 GAAP, and $ 2.79 non-GAAP

The following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. The items included in our non-GAAP presentation have changed this quarter to reflect the recent Securities and Exchange Commission (“SEC”) Compliance & Disclosure Interpretations (“C&DIs”). Additional information regarding non-GAAP definitions 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
2015 As Reported (GAAP) $ 93,580 $ 18,161 $ 12,193 $ 1.48
Impairment, Integration, and Restructuring Expenses 10,011 9,494 $ 1.15
2015 As Adjusted (non-GAAP) $ 93,580 $ 28,172 $ 21,687 $ 2.63
2016 As Reported (GAAP) $ 85,320 $ 20,182 $ 16,798 $ 2.10
Net Impact from Windows 10 Revenue Deferrals 6,643 6,643 4,635 0.58
Impairment, Integration, and Restructuring Expenses 1,110 895 0.11
2016 As Adjusted (non-GAAP) $ 91,963 $ 27,935 $ 22,328 $ 2.79
Percentage Change Y/Y (GAAP) (9)% 11% 38% 42%
Percentage Change Y/Y (non-GAAP) (2)% (1)% 3% 6%

The current year GAAP and non-GAAP effective tax rates were 15% and 19%, respectively.

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel and corporate secretary, and Chris Suh, 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 19, 2017.

“As Adjusted” Financial Results and non-GAAP Measures

During fiscal year 2016, GAAP revenue, operating income, net income, and diluted earnings per share include the net impact from Windows 10 revenue deferrals. During fiscal year 2016 and fiscal year 2015, GAAP operating income, net income, and diluted earnings per share include impairment, integration, and restructuring expenses. These items are defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these non-GAAP measures gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. With respect to our non-GAAP measures related to Windows 10 revenue we believe these measures bridge investor information and minimize potential confusion during the brief period between the time Windows 10 revenue recognition moved from upfront to ratable, and the adoption of the new revenue standard, when Windows 10 will again be recognized predominantly upfront. The net change in Windows 10 revenue from period to period is indicative of the net change in revenue we expect from adoption of the new revenue standard. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definitions

Net Impact from Windows 10 Revenue Deferrals. Microsoft recorded net revenue deferrals of $ 2.0 billion during the three months ended June 30, 2016 and net revenue deferrals of $ 6.6 billion during the twelve months ended June 30, 2016, related to Windows 10.

With the launch of Windows 10 in July 2015, Windows 10 customers receive future versions and updates at no additional charge. Under current revenue recognition accounting guidance, when standalone software is sold with future upgrade rights, revenue must be deferred over the life of the computing device on which it is installed. This is different from prior versions of Windows, which were sold without upgrade rights, where all revenue from original equipment manufacturer (“OEM”) customers was recognized at the time of billing, i.e., upfront.

When Microsoft adopts the new revenue standard, predominately all Windows OEM revenue will be recognized at the time of billing, which is similar to the revenue recognition for prior versions of Windows. Additional information regarding the new revenue standard is provided below. Microsoft reflects the recognition of Windows 10 revenue at the time of billing in “As Adjusted (non-GAAP)” revenue to provide comparability during the short period of time where Windows 10 will be recognized over the estimated life of a device, i.e., ratable, rather than at the time of billing.

Impairment, Integration and Restructuring Expenses. During the fourth quarter of fiscal year 2016, restructuring and related impairment expenses were $ 1.1 billion. Microsoft recorded $ 630 million of asset impairment charges which reflected the performance of our phone business, and $ 480 million of restructuring charges primarily related to our previously announced phone business restructuring plans.

During the fourth quarter of fiscal year 2015, impairment, integration, and restructuring expenses were $ 8.4 billion. Microsoft recorded $ 7.5 billion of goodwill and asset impairment charges related to our phone business, and $ 940 million of integration and restructuring expenses primarily related to our phone business restructuring plans.

For fiscal year 2015, impairment, integration, and restructuring expenses were $ 10.0 billion. Microsoft recorded $ 7.5 billion of goodwill and asset impairment charges related to the phone business, and $ 2.5 billion of integration and restructuring expenses primarily related to our phone business restructuring plans.

New Revenue Standard

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued several amendments to the standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We currently anticipate adopting the standard using the full retrospective method to restate each prior reporting period presented.

The new standard will be effective for us beginning July 1, 2018, and adoption as of the original effective date of July 1, 2017 is permitted. We currently anticipate early adoption of the new standard effective July 1, 2017. Our ability to early adopt using the full retrospective method is dependent on system readiness, including software procured from third-party providers, and the completion of our analysis of information necessary to restate prior period financial statements.

We anticipate this standard will have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for software license revenue. We expect revenue related to hardware, cloud offerings, and professional services to remain substantially unchanged. Specifically, under the new standard we expect to recognize Windows 10 revenue predominantly upfront rather than ratably over the life of the related device. We also expect to recognize license revenue upfront rather than over the subscription period from certain multi-year commercial software subscriptions that include both software licenses and software assurance. Due to the complexity of certain of our commercial license subscription contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms, and may vary in some instances from upfront recognition.

We currently believe the net change in Windows 10 revenue from period to period is indicative of the net change in revenue we expect from the adoption of the new standard.

Constant Currency

Microsoft presents constant currency information to provide a non-GAAP 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 non-GAAP 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. The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

Financial Performance Constant Currency Reconciliation

  Three Months Ended June 30,
($ in millions, except per share amounts) Revenue Operating Income (Loss) Net Income (Loss) Diluted Earnings (Loss) per Share
2015 As Reported (GAAP) $ 22,180 $ (2,053) $ (3,195) $ (0.40)
2015 As Adjusted (non-GAAP) $ 22,180 $ 6,385 $ 5,067 $ 0.62
2016 As Reported (GAAP) $ 20,614 $ 3,080 $ 3,122 $ 0.39
2016 As Adjusted (non-GAAP) $ 22,642 $ 6,218 $ 5,484 $ 0.69
Percentage Change Y/Y (GAAP) (7)% * * *
Percentage Change Y/Y (non-GAAP) 2% (3)% 8% 11%
Constant Currency Impact $ (596) $ (575) $ (764) $ (0.10)
Percentage Change Y/Y (non-GAAP) Constant Currency 5% 6% 23% 27%
* Not meaningful        

Segment Revenue Constant Currency Reconciliation

  Three Months Ended June 30,
($ in millions) Productivity and Business Processes Intelligent Cloud More Personal Computing
2015 As Reported (GAAP) $ 6,661 $ 6,296 $ 9,243
2016 As Reported (GAAP) $ 6,969 $ 6,711 $ 8,897
Percentage Change Y/Y (GAAP) 5% 7% (4)%
Constant Currency Impact $ (249) $ (215) $ (133)
Percentage Change Y/Y (non-GAAP) Constant Currency 8% 10% (2)%

 


 

Selected Product Revenue Constant Currency Reconciliation

  Three Months Ended June 30,
Percentage Change Y/Y (GAAP) Constant Currency Impact Percentage Change Y/Y (non-GAAP) Constant Currency
Office commercial products and cloud services 5% 4% 9%
Office 365 commercial 54% 5% 59%
Office consumer products and cloud services 19% (1)% 18%
Dynamics products and cloud services 6% 1% 7%
Server products and cloud services 5% 3% 8%
Azure 102% 6% 108%
Windows OEM non-Pro 27% 0% 27%
Windows OEM Pro 2% 0% 2%
Surface 9% 0% 9%
Phone (71)% 1% (70%)
Search advertising excluding traffic acquisition costs 16% 1% 17%

Reconciliation of GAAP and Non-GAAP Effective Tax Rates

The following table provides a reconciliation of the GAAP and non-GAAP effective tax rates for the current quarter and current year:

  Effective Tax Rate
Three Months Ended June 30, Twelve Months Ended June 30,
2016 As Reported (GAAP) 7% 15%
Net Impact from Windows 10 Revenue Deferrals 5% 4%
Impairment, Integration, and Restructuring Expenses 3% 0%
2016 As Adjusted (non-GAAP) 15% 19%

Commercial Cloud Annualized Revenue Run Rate

Commercial cloud annualized revenue run rate is calculated by taking revenue in the final month of the quarter multiplied by twelve for Office 365 commercial, Azure, Dynamics Online, and other cloud properties.

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) is the leading platform and productivity company for the mobile-first, cloud-first world and 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 Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft’s continued ability to protect and earn revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under trade protection and anti-corruption laws resulting from our international operations;
  • laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, or fines against us;
  • Microsoft’s ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • Microsoft’s hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

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 July 19, 2016. 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.

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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postheadericon Microsoft Cloud strength highlights second quarter results

REDMOND, Wash. — January 28, 2016 — Microsoft Corp. today announced the following results for the quarter ended December 31, 2015:

  • Revenue was $ 23.8 billion GAAP, and $ 25.7 billion non-GAAP
  • Operating income was $ 6.0 billion GAAP, and $ 7.9 billion non-GAAP
  • Net income was $ 5.0 billion GAAP, and $ 6.3 billion non-GAAP
  • Earnings per share was $ 0.62 GAAP, and $ 0.78 non-GAAP

During the quarter, Microsoft returned $ 6.5 billion to shareholders in the form of share repurchases and dividends.

“Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas,” said Satya Nadella, chief executive officer at Microsoft. “Businesses are also piloting Windows 10, which will drive deployments beyond 200 million active devices.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

table_01

“We delivered double-digit operating income growth in non-GAAP constant currency while investing in key strategic areas that position Microsoft for continued long term growth,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes declined 2% (up 5% in constant currency) to $ 6.7 billion, with the following business highlights:

  • Office commercial products and cloud services revenue grew 5% in constant currency driven by Office 365 revenue growth of nearly 70% in constant currency
  • Office 365 consumer subscribers increased to 20.6 million
  • Dynamics revenue grew 11% in constant currency with Dynamics CRM Online seat adds more than doubling year-over-year for the fifth consecutive quarter

Revenue in Intelligent Cloud grew 5% (up 11% in constant currency) to $ 6.3 billion, with the following business highlights:

  • Server products and cloud services revenue grew 10% in constant currency
  • Azure revenue grew 140% in constant currency with revenue from Azure premium services growing nearly 3x year-over-year
  • Over one third of the Fortune 500 have chosen our Enterprise Mobility solutions, up nearly 3x year-over-year

Revenue in More Personal Computing declined 5% (down 2% in constant currency) to $ 12.7 billion, with the following business highlights:

  • Windows OEM revenue declined 5% in constant currency, outperforming the PC market, driven by higher consumer premium and mid-range device mix
  • Surface revenue increased 29% in constant currency driven by the launch of Surface Pro 4 and Surface Book
  • Phone revenue declined 49% in constant currency reflecting our strategy change announced in July 2015
  • Search advertising revenue excluding traffic acquisition costs grew 21% in constant currency with continued benefit from Windows 10 usage
  • Xbox Live monthly active users grew 30% year-over-year to a record 48 million

“It was a strong holiday season for Microsoft highlighted by Surface and Xbox,” said Kevin Turner, chief operating officer at Microsoft. “Our commercial business executed well as our sales teams and partners helped customers realize the value of Microsoft’s cloud technologies across Azure, Office 365 and CRM Online.”

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel and corporate secretary, and Chris Suh, 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/investor. The webcast will be available for replay through the close of business on January 28, 2017.

Adjusted Financial Results and non-GAAP Measures

During the second quarter of fiscal year 2016, GAAP revenue, operating income, net income, and earnings per share include the net impact from revenue deferrals. For the second quarter of fiscal year 2015, GAAP revenue, operating income, net income, and earnings per share include the recognition of previously deferred net revenue and charges related to integration and restructuring expenses. These items are defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these non-GAAP measures gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definitions

Revenue Deferrals. Microsoft recorded a net $ 1.9 billion revenue deferral during the three months ended December 31, 2015, primarily related to Windows 10 and Halo 5.

Microsoft recognized a net $ 326 million of previously deferred revenue during the three months ended December 31, 2014, primarily related to sales of bundled products and services.

Integration and Restructuring Charges. Integration and restructuring expenses were $ 243 million during the three months ended December 31, 2014. Integration and restructuring expenses include employee severance expenses and costs associated with the consolidation of facilities and manufacturing operations related to restructuring activities, and systems consolidation and other business integration expenses associated with the acquisition of Nokia’s Devices and Services business.

Constant Currency

Microsoft presents constant currency information to provide a non-GAAP 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 non-GAAP 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.  The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

 

table_02

table_03

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) is the leading platform and productivity company for the mobile-first, cloud-first world and 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 Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft’s continued ability to protect and earn revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under trade protection and anti-corruption laws resulting from our international operations;
  • laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims or fines against us;
  • Microsoft’s ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • Microsoft’s hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

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/investor.

All information in this release is as of January 28, 2016. 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:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, rrt@waggeneredstrom.com

For more information, financial analysts and investors only:

Chris Suh, 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/investor.

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postheadericon Strength in Microsoft Cloud Highlights Q3 Results

REDMOND, Wash. — April 23, 2015 — Microsoft Corp. today announced that revenues for the quarter ended March 31, 2015 grew to $ 21.7 billion.  Gross margin, operating income, and diluted earnings per share (“EPS”) for the quarter were $ 14.6 billion, $ 6.6 billion, and $ 0.61 per share, respectively.

These financial results include $ 190 million of integration and restructuring expenses, or a $ 0.01 per share negative impact, related to Microsoft’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services (“NDS”) business.

During the quarter, Microsoft returned $ 7.5 billion to shareholders in the form of share repurchases and dividends.

The following table notes the impact of the integration and restructuring expenses on the company’s financial performance (“Noted Items”).  This financial information is provided to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.fig1b

 

The strengthening of the U.S. dollar compared to foreign currencies had a significant impact on results in the quarter. Excluding the effect of foreign exchange rate changes on the GAAP amounts, on a constant currency basis, revenue and gross margin would have grown 9% and 4%, respectively, and operating income and EPS would have declined 4% and 7%, respectively.

“Customers continue to choose Microsoft to transform their business and as a result we saw incredible growth across our cloud services this quarter,” said Satya Nadella, chief executive officer at Microsoft. “Next week at Build we’re excited to share more about how we’re empowering every individual and organization on the planet to achieve more with the next generation of our platforms.”

“We executed with strong operational and financial discipline again this quarter, and are seeing positive impact from our investments in key growth areas,” said Amy Hood, chief financial officer at Microsoft.  “We remain focused on maximizing shareholder value and again increased our overall return of capital to shareholders.”

Devices and Consumer revenue grew 8% (up 11% in constant currency) to $ 9.0 billion, with the following business highlights:

  • Office 365 Consumer subscribers increased to over 12.4 million, up 35% sequentially
  • Windows OEM Pro revenue declined 19%, as Pro mix returned to pre-Windows XP end-of-support levels and the business PC market declined
  • Windows OEM non-Pro revenue declined 26%, primarily due to channel inventory drawdown and ongoing mix shift to opening price point devices
  • Search advertising revenue grew 21% (up 24% in constant currency), with Bing U.S. market share at 20.1%, up 150 basis points over prior year
  • Xbox Live usage grew over 30%, driven by increased users and deeper user engagement
  • Surface revenue of $ 713 million, up 44% (up 53% in constant currency) driven by Surface Pro 3
  • Phone Hardware revenue of $ 1.4 billion, with 8.6 million Lumia units sold

Commercial revenue grew 5% (up 7% in constant currency) to $ 12.8 billion, with the following business highlights:

  • Commercial cloud revenue grew 106% (up 111% in constant currency) driven by Office 365, Azure and Dynamics CRM Online, and is now on an annualized revenue run rate of $ 6.3 billion
  • Server products and services revenue grew 12% (up 16% in constant currency), with premium versions of Windows Server, System Center Server and SQL Server together growing 25%
  • Office Commercial products and services revenue declined 2% (up 1% in constant currency); transactional revenue was impacted by the continued transition to Office 365 and declines in business PC sales following the XP refresh cycle
  • Windows volume licensing revenue declined 2% (up 1% in constant currency), with transactional revenue declining following the XP refresh cycle partially offset by annuity revenue growth

 

“We remain focused on strong execution from our sales teams. Around the world we’re seeing high interest in deployment of our cloud and server products, as well as participation in the enterprise early adopter program for Windows 10,” said Kevin Turner, chief operating officer at Microsoft.

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) 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/investor. The webcast will be available for replay through the close of business on April 23, 2016.

Constant Currency

We present 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.  The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

fig2b

Noted Items Definition

Integration and restructuring expenses were $ 190 million during the three months ended March 31, 2015.  Integration and restructuring expenses include employee severance expenses and costs associated with the consolidation of facilities and manufacturing operations, including asset write-downs and contract termination costs, resulting from Microsoft’s restructuring plan. Integration and restructuring expenses also include systems consolidation and other business integration expenses, as well as transaction fees and direct acquisition costs, associated with the acquisition of NDS.

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services, devices, and solutions that help people and businesses realize their full potential.

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 Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft’s continued ability to protect and earn revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under trade protection and anti-corruption laws resulting from our international operations;
  • Microsoft’s ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • Microsoft’s hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

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/investor.

All information in this release is as of April 23, 2015. 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:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, rrt@waggeneredstrom.com

For more information, financial analysts and investors only:

Chris Suh, 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. PDT conference call with investors and analysts, is available at http://www.microsoft.com/investor.

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postheadericon Microsoft cloud strength and hardware progress drive record first-quarter revenue

Strong performance across commercial and consumer segments delivers revenue of $ 23.20 billion.

REDMOND, Wash. — October 23, 2014 — Microsoft Corp. today announced revenue of $ 23.20 billion for the quarter ended September 30, 2014. Gross margin, operating income and diluted earnings per share (“EPS”) for the quarter were $ 14.93 billion, $ 5.84 billion and $ 0.54 per share, respectively.

These financial results include $ 1.14 billion of integration and restructuring expenses, or an $ 0.11 per share negative impact, related to both Microsoft’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services (“NDS”) business.

The following table notes the impact of the integration and restructuring expenses on the company’s financial performance (“Noted Items”). This financial information is provided to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

Earnings 10-23-14“We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth,”  said Satya Nadella, chief executive officer of Microsoft. “Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization.”

“We delivered a strong start to the year, with continued cloud momentum and meaningful progress across our device businesses,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We will continue to invest in high-growth opportunities and drive efficiencies across the organization to deliver long-term shareholder value.”

Devices and Consumer revenue grew 47% to $ 10.96 billion, with the following business highlights:

  • Office 365 Home and Personal subscribers totaled more than 7 million, representing more than 25% sequential growth over the previous quarter.
  • Surface Pro 3 momentum drove Surface revenue of $ 908 million.
  • New Windows consumer licensing programs drove positive unit growth while OEM non-Pro revenue declined 1%.
  • Total Xbox console sales were 2.4 million, growing 102%, and Xbox One launched in 28 new markets.
  • Phone hardware revenue exceeded $ 2.6 billion with ongoing focus on execution discipline.

Commercial revenue grew 10% to $ 12.28 billion, with the following business highlights:

  • Server products and services revenue increased 13%, with double-digit growth for SQL Server, System Center and Windows Server.
  • Office Commercial products and services revenue grew 5% as customers transition to Office 365.
  • Commercial cloud revenue grew 128% driven by Office 365, Azure and Dynamics CRM.
  • Lync, SharePoint and Exchange, our productivity server offerings, collectively grew double-digits.
  • Windows volume licensing revenue increased 10%.

“Customers are embracing our latest technologies from Surface Pro 3 and Office 365 to Azure and SQL Server,” said Kevin Turner, chief operating officer of Microsoft. “Through great execution by our sales teams and our partners, we have been able to deliver our truly differentiated value to the marketplace.”

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) 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/investor. The webcast will be available for replay through the close of business on October 23, 2015.

Noted Items Definition

Integration and restructuring expenses include employee severance expenses and costs associated with the consolidation of facilities and manufacturing operations, including asset write-downs and contract termination costs, resulting from Microsoft’s  restructuring plan. Integration and restructuring expenses also include systems consolidation and other business integration expenses, as well as transaction fees and direct acquisition costs, associated with the acquisition of NDS.

Integration and restructuring expenses were $ 1.14 billion during the three months ended September 30, 2014, due mainly to restructuring charges of $ 1.05 billion, including employee severance expenses and the write-down of certain assets in connection with the restructuring plan.

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services, devices and solutions that help people and businesses realize their full potential.

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 Microsoft’s markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft’s continued ability to earn expected revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • cyber-attacks and security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft’s reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under anti-corruption and trade protection laws resulting from our international operations;
  • Microsoft’s ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • our hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

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/investor.

All information in this release is as of October 23, 2014. 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, financial analysts and investors only:

Chris Suh, 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://news.microsoft.com/. 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. PDT conference call with investors and analysts, is available at http://www.microsoft.com/investor.

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