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Earnings Release FY22 Q3

Microsoft Cloud Strength Fuels Third Quarter Results

REDMOND, Wash. — April 26, 2022 — Microsoft Corp. today announced the following results for the quarter ended March 31, 2022, as compared to the corresponding period of last fiscal year:

·        Revenue was $49.4 billion and increased 18%

·        Operating income was $20.4 billion and increased 19%

·        Net income was $16.7 billion and increased 8% GAAP (up 13% non-GAAP)

·        Diluted earnings per share was $2.22 and increased 9% GAAP (up 14% non-GAAP)

Revenue and diluted earnings per share results include $(302) million and $(0.03) of additional impact from unfavorable foreign exchange rate movement within the quarter and $111 million and $(0.01) from Nuance, which closed on March 4, 2022, neither of which were included in the forward-looking guidance provided on January 25, 2022. Additional details are provided in the Earnings Call Slides.

“Going forward, digital technology will be the key input that powers the world’s economic output,” said Satya Nadella, chairman and chief executive officer of Microsoft. “Across the tech stack, we are expanding our opportunity and taking share as we help customers differentiate, build resilience, and do more with less.”

“Continued customer commitment to our cloud platform and strong sales execution drove better than expected commercial bookings growth of 28% and Microsoft Cloud revenue of $23.4 billion, up 32% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. 

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

 

Three Months Ended March 31,

 

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2021 As Reported (GAAP)

$41,706

$17,048

$15,457

$2.03

Net income tax benefit related to India Supreme Court decision on withholding taxes

-

-

(620)

(0.08)

2021 As Adjusted (non-GAAP)

$41,706

$17,048

$14,837

$1.95

2022 As Reported (GAAP)

$49,360

$20,364

$16,728

$2.22

Percentage Change Y/Y (GAAP)

18%

19%

8%

9%

Percentage Change Y/Y (non-GAAP)

18%

19%

13%

14%

Percentage Change Y/Y (non-GAAP) Constant Currency

21%

23%

17%

18%

 

 Business Highlights

Revenue in Productivity and Business Processes was $15.8 billion and increased 17%, with the following business highlights:

·        Office Commercial products and cloud services revenue increased 12% (up 14% CC) driven by Office 365 Commercial revenue growth of 17% (up 20% CC)

·        Office Consumer products and cloud services revenue increased 11% (up 12% CC) and Microsoft 365 Consumer subscribers grew to 58.4 million

·        LinkedIn revenue increased 34% (up 35% CC)

·        Dynamics products and cloud services revenue increased 22% (up 25% CC) driven by Dynamics 365 revenue growth of 35% (up 38% CC)

Revenue in Intelligent Cloud was $19.1 billion and increased 26%, with the following business highlights:

·        Server products and cloud services revenue increased 29% (up 32% CC) driven by Azure and other cloud services revenue growth of 46% (up 49% CC)

Revenue in More Personal Computing was $14.5 billion and increased 11%, with the following business highlights:

·        Windows OEM revenue increased 11%

·        Windows Commercial products and cloud services revenue increased 14% (up 19% CC)

·        Xbox content and services revenue increased 4% (up 6% CC)

·        Search and news advertising revenue excluding traffic acquisition costs increased 23% (up 25% CC)

·        Surface revenue increased 13% (up 18% CC)

Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2022, an increase of 25% compared to the third quarter of fiscal year 2021.

Business Outlook

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

Quarterly Highlights, Product Releases, and Enhancements  

Every quarter Microsoft delivers hundreds of products, either as new releases, services, or enhancements to current products and services. These releases are a result of significant research and development investments, made over multiple years, designed to help customers be more productive and secure and to deliver differentiated value across the cloud and the edge.

Here are the major product releases and other highlights for the quarter, organized by product categories, to help illustrate how we are accelerating innovation across our businesses while expanding our market opportunities.


Environmental, Social, and Governance (ESG)

To better execute Microsoft’s mission, we focus our Environmental, Social, and Governance (ESG) efforts where we can have the most positive impact. To learn more about our latest initiatives and priorities, please visit our investor relations ESG website

Webcast Details

Satya Nadella, chairman and chief executive officer, Amy Hood, executive vice president and chief financial officer, Alice Jolla, chief accounting officer, Keith Dolliver, deputy general counsel, and Brett Iversen, general manager of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on April 26, 2023.

Non-GAAP Definition

The India Supreme Court Decision Impact. In March 2021, the India Supreme Court issued a decision on withholding taxes in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax. Microsoft has historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. The India Supreme Court ruled favorably for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although Microsoft was not a party to the appeals, Microsoft’s software sales in India were determined to be not subject to withholding taxes. Therefore, Microsoft recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.

Microsoft has provided non-GAAP financial measures related to the India Supreme Court decision to aid investors in better understanding our performance. Microsoft believes these non-GAAP measures assist investors by providing additional insight into its operational performance and help clarify trends affecting its business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Constant Currency

Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Financial Performance Constant Currency Reconciliation

 

Three Months Ended March 31,

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2021 As Reported (GAAP)

$41,706

$17,048

$15,457

$2.03

2021 As Adjusted (non-GAAP)

$41,706

$17,048

$14,837

$1.95

2022 As Reported (GAAP)

$49,360

$20,364

$16,728

$2.22

Percentage Change Y/Y (GAAP)

18%

19%

8%

9%

Percentage Change Y/Y (non-GAAP)

18%

19%

13%

14%

Constant Currency Impact

$(1,003)

$(677)

$(577)

$(0.08)

Percentage Change Y/Y (non-GAAP) Constant Currency

21%

23%

17%

18%

Segment Revenue Constant Currency Reconciliation

 

Three Months Ended March 31,

 ($ in millions)

Productivity and Business Processes

Intelligent Cloud

More Personal Computing

2021 As Reported (GAAP)

$13,552

$15,118

$13,036

2022 As Reported (GAAP)

$15,789

$19,051

$14,520

Percentage Change Y/Y (GAAP)

17%

26%

11%

Constant Currency Impact

$(332)

$(418)

$(253)

Percentage Change Y/Y (non-GAAP) Constant Currency

19%

29%

13%

Selected Product and Service Revenue Constant Currency Reconciliation        

 

Three Months Ended March 31, 2022

Percentage Change Y/Y (GAAP)

Constant Currency Impact

Percentage Change Y/Y (non-GAAP) Constant Currency

Office Commercial products and cloud services

12%

2%

14%

Office 365 Commercial

17%

3%

20%

Office Consumer products and cloud services

11%

1%

12%

LinkedIn

34%

1%

35%

Dynamics products and cloud services

22%

3%

25%

Dynamics 365

35%

3%

38%

Server products and cloud services

29%

3%

32%

Azure and other cloud services

46%

3%

49%

Windows OEM

11%

0%

11%

Windows Commercial products and cloud services

14%

5%

19%

Xbox content and services

4%

2%

6%

Search and news advertising excluding traffic acquisition costs

23%

2%

25%

Surface

13%

5%

18%

 

 About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

·        intense competition in all of our markets that may lead to lower revenue or operating margins;

·        increasing focus on cloud-based services presenting execution and competitive risks;

·        significant investments in products and services that may not achieve expected returns;

·        acquisitions, joint ventures, and strategic alliances that may have an adverse effect on our business;

·        impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;

·        cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position;

·        disclosure and misuse of personal data that could cause liability and harm to our reputation;

·        the possibility that we may not be able to protect information stored in our products and services from use by others;

·        abuse of our advertising or social platforms that may harm our reputation or user engagement;

·        the development of the internet of things presenting security, privacy, and execution risks;

·        issues about the use of artificial intelligence in our offerings that may result in competitive harm, legal liability, or reputational harm;

·        excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;

·        quality or supply problems;

·        government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;

·        potential consequences under trade, anti-corruption, and other laws resulting from our global operations;

·        laws and regulations relating to the handling of personal data that may impede the adoption of our services or result in increased costs, legal claims, fines, or reputational damage;

·        claims against us that may result in adverse outcomes in legal disputes;

·        uncertainties relating to our business with government customers;

·        additional tax liabilities;

·        the possibility that we may fail to protect our source code;

·        legal changes, our evolving business model, piracy, and other factors may decrease the value of our intellectual property;

·        claims that Microsoft has infringed the intellectual property rights of others;

·        damage to our reputation or our brands that may harm our business and operating results;

·        adverse economic or market conditions that may harm our business;

·        catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business;

·        exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange and

·        the dependence of our business on our ability to attract and retain talented employees.

For more information about risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/en-us/investor.

All information in this release is as of March 31, 2022. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

For more information, press only:

Microsoft Media Relations, WE Communications for Microsoft, (425) 638-7777, rrt@we-worldwide.com

For more information, financial analysts and investors only:

Brett Iversen, General Manager, Investor Relations, (425) 706-4400

Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news. Web links, telephone numbers, and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. Pacific time conference call with investors and analysts, is available at http://www.microsoft.com/en-us/investor

MICROSOFT CORPORATION


INCOME STATEMENTS

(In millions, except per share amounts) (Unaudited)


Three Months Ended

March 31,

Nine Months Ended

March 31,

 

2022

 

2021

 

2022

 

2021

Revenue:

   Product

 $17,366

 $16,873

 $54,776

 $52,136

   Service and other

31,994

 

24,833

 

91,629

 

69,800

      Total revenue

49,360

 

41,706

 

146,405

 

121,936

Cost of revenue:

   Product

4,584

4,277

14,707

13,932

   Service and other

11,031

 

8,768

 

31,514

 

24,309

      Total cost of revenue

15,615

 

13,045

 

46,221

 

38,241

      Gross margin

33,745

28,661

100,184

83,695

Research and development

6,306

5,204

17,663

15,029

Sales and marketing

5,595

5,082

15,521

14,260

General and administrative

1,480

1,327

4,151

3,585

Operating income

20,364

 

17,048

 

62,849

 

50,821

Other income (expense), net

(174)

 

188

 

380

 

876

Income before income taxes

20,190

17,236

63,229

51,697

Provision for income taxes

3,462

 

1,779

 

7,231

 

6,884

Net income

 $16,728

 

 $15,457

 

 $55,998

 

 $44,813

Earnings per share:

   Basic

 $2.23

 $2.05

 $7.46

 $5.93

   Diluted

 $2.22

 $2.03

 $7.41

 $5.88

Weighted average shares outstanding:

   Basic

7,493

7,539

7,504

7,554

   Diluted

7,534

 

7,597

 

7,552

 

7,617

 


 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)


Three Months Ended

March 31,

Nine Months Ended

March 31,

 

2022

 

2021

 

2022

 

2021

Net income

 $16,728

 

 $15,457

 

 $55,998

 

 $44,813

Other comprehensive income (loss), net of tax:

  Net change related to derivatives

6

18

8

30

  Net change related to investments

(2,882)

(1,705)

(4,047)

(2,398)

  Translation adjustments and other

(37)

 

(218)

 

(259)

 

634

   Other comprehensive loss

(2,913)

 

(1,905)

 

(4,298)

 

(1,734)

Comprehensive income

 $13,815

 

 $13,552

 

 $51,700

 

 $43,079

 


 

BALANCE SHEETS

(In millions) (Unaudited)


 

March 31,

2022

 

June 30,

2021

Assets

Current assets:

   Cash and cash equivalents

 $12,498

 $14,224

   Short-term investments

92,195

 

116,110

      Total cash, cash equivalents, and short-term investments

104,693

130,334

   Accounts receivable, net of allowance for doubtful
      accounts of $505 and $751

32,613

38,043

   Inventories

3,296

2,636

   Other current assets

13,320

 

13,393

      Total current assets

153,922

184,406

Property and equipment, net of accumulated
   depreciation of $58,053 and $51,351

70,298

59,715

Operating lease right-of-use assets

12,916

11,088

Equity investments

6,907

5,984

Goodwill

67,371

49,711

Intangible assets, net

11,348

7,800

Other long-term assets

21,845

 

15,075

            Total assets

 $344,607

 

 $333,779

Liabilities and stockholders' equity

Current liabilities:

   Accounts payable

 $16,085

 $15,163

   Current portion of long-term debt

1,749

8,072

   Accrued compensation

9,067

10,057

   Short-term income taxes

4,646

2,174

   Short-term unearned revenue

34,027

41,525

   Other current liabilities

11,865

 

11,666

      Total current liabilities

77,439

88,657

Long-term debt

48,177

50,074

Long-term income taxes

26,483

27,190

Long-term unearned revenue

2,769

2,616

Deferred income taxes

304

198

Operating lease liabilities

11,357

9,629

Other long-term liabilities

15,154

 

13,427

         Total liabilities

181,683

 

191,791

Commitments and contingencies

Stockholders' equity:

   Common stock and paid-in capital - shares authorized
      24,000; outstanding 7,483 and 7,519

85,767

83,111

   Retained earnings

79,633

57,055

   Accumulated other comprehensive income (loss)

(2,476)

1,822

         Total stockholders' equity

162,924

 

141,988

            Total liabilities and stockholders' equity

 $344,607

 

 $333,779

 


 

CASH FLOWS STATEMENTS

(In millions) (Unaudited)


Three Months Ended

March 31,

Nine Months Ended

March 31,

 

2022

 

2021

 

2022

 

2021

Operations

Net income

 $16,728

 $15,457

 $55,998

 $44,813

Adjustments to reconcile net income to
   net cash from operations:

   Depreciation, amortization, and other

3,773

2,936

10,481

8,342

   Stock-based compensation expense

1,906

1,525

5,505

4,547

   Net recognized losses (gains) on investments and derivatives

105

(351)

(566)

(833)

   Deferred income taxes

(198)

(88)

(5,985)

(116)

   Changes in operating assets and liabilities:

      Accounts receivable

857

290

5,800

5,125

      Inventories

(279)

(329)

(662)

(349)

      Other current assets

91

478

1,861

1,154

      Other long-term assets

(724)

(885)

(2,230)

(2,446)

      Accounts payable

520

833

284

1,181

      Unearned revenue

(209)

(473)

(7,437)

(6,764)

      Income taxes

1,091

1,074

1,687

(2,277)

      Other current liabilities

1,287

1,590

(1,111)

394

      Other long-term liabilities

438

 

122

 

781

 

1,259

         Net cash from operations

25,386

 

22,179

 

64,406

 

54,030

Financing

Cash premium on debt exchange

0

(1,754)

0

(1,754)

Repayments of debt

(4,197)

(500)

(9,023)

(3,750)

Common stock issued

477

396

1,380

1,243

Common stock repurchased

(8,822)

(6,930)

(23,939)

(20,208)

Common stock cash dividends paid

(4,645)

(4,221)

(13,503)

(12,307)

Other, net

(158)

 

(183)

 

(522)

 

(339)

         Net cash used in financing

(17,345)

 

(13,192)

 

(45,607)

 

(37,115)

Investing

Additions to property and equipment

(5,340)

(5,089)

(17,015)

(14,170)

Acquisition of companies, net of cash acquired, and purchases
   of intangible and other assets

(18,719)

(7,512)

(20,775)

(8,408)

Purchases of investments

(8,723)

(18,375)

(21,537)

(48,047)

Maturities of investments

1,099

15,016

15,214

44,546

Sales of investments

16,693

5,876

25,218

10,711

Other, net

(1,181)

400

(1,687)

(1,356)

         Net cash used in investing

(16,171)

 

(9,684)

 

(20,582)

 

(16,724)

Effect of foreign exchange rates on cash and cash equivalents

24

 

(33)

 

57

 

(65)

Net change in cash and cash equivalents

(8,106)

(730)

(1,726)

126

Cash and cash equivalents, beginning of period

20,604

 

14,432

 

14,224

 

13,576

Cash and cash equivalents, end of period

 $12,498

 

 $13,702

 

 $12,498

 

 $13,702

 


 

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

Three Months Ended

March 31,

 

Nine Months Ended

March 31,

 

 

 

2022

 

2021

 

2022

 

2021

Revenue

 

 

 

 

 

 

 

Productivity and Business Processes

$15,789

 

$13,552

 

 $46,764

 

 $39,224

Intelligent Cloud

19,051

 

15,118

 

54,342

 

42,705

More Personal Computing

14,520

 

13,036

 

45,299

 

40,007

  Total

$49,360

 

$41,706

 

$146,405

 

$121,936

Operating Income

 

 

 

 

 

 

 

Productivity and Business Processes

 $7,184

 

 $6,029

 

 $22,453

 

 $17,916

Intelligent Cloud

8,281

 

6,425

 

24,040

 

18,339

More Personal Computing

4,899

 

4,594

 

16,356

 

14,566

  Total

$20,364

 

$17,048

 

$62,849

 

$50,821

 

IMPORTANT NOTICE TO USERS (summary only, click here  for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our  Forms 10-Q and 10-K.

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Information contained in these documents is current as of the earnings date, and not restated for new accounting standards