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Earnings Release FY21 Q3


Microsoft Cloud Fuels Third Quarter Results


REDMOND, Wash. — April 27, 2021 — Microsoft Corp. today announced the following results for the quarter ended March 31, 2021, as compared to the corresponding period of last fiscal year:

·        Revenue was $41.7 billion and increased 19%

·        Operating income was $17.0 billion and increased 31%

·        Net income was $15.5 billion GAAP and $14.8 billion non-GAAP, and increased 44% and 38%, respectively

·        Diluted earnings per share was $2.03 GAAP and $1.95 non-GAAP, and increased 45% and 39%,respectively

·        GAAP results include a $620 million net income tax benefit explained in the Non-GAAP Definition section below

 

“Over a year into the pandemic, digital adoption curves aren’t slowing down. They’re accelerating, and it’s just the beginning,” said Satya Nadella, chief executive officer of Microsoft. “We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform.”


“The Microsoft Cloud, with its end-to-end solutions, continues to provide compelling value to our customers generating $17.7 billion in commercial cloud revenue, up 33% 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

2020 As Reported (GAAP)

$35,021

$12,975

$10,752

$1.40

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

Percentage Change Y/Y (GAAP)

19%

31%

44%

45%

Percentage Change Y/Y (non-GAAP)

19%

31%

38%

39%

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

16%

27%

32%

34%

 

Business Highlights

Revenue in Productivity and Business Processes was $13.6 billion and increased 15% (up 12% in constant currency), with the following business highlights:

·        Office Commercial products and cloud services revenue increased 14% (up 10% in constant currency) driven by Office 365 Commercial revenue growth of 22% (up 19% in constant currency)

·        Office Consumer products and cloud services revenue increased 5% (up 2% in constant currency) and Microsoft 365 Consumer subscribers increased to 50.2 million

·        LinkedIn revenue increased 25% (up 23% in constant currency)

·        Dynamics products and cloud services revenue increased 26% (up 22% in constant currency) driven by Dynamics 365 revenue growth of 45% (up 40% in constant currency)

Revenue in Intelligent Cloud was $15.1 billion and increased 23% (up 20% in constant currency), with the following business highlights:

·        Server products and cloud services revenue increased 26% (up 23% in constant currency) driven by Azure revenue growth of 50% (up 46% in constant currency)

Revenue in More Personal Computing was $13.0 billion and increased 19% (up 16% in constant currency), with the following business highlights:

·        Windows OEM revenue increased 10%

·        Windows Commercial products and cloud services revenue increased 10% (up 7% in constant currency)

·        Xbox content and services revenue increased 34% (up 32% in constant currency)

·        Search advertising revenue excluding traffic acquisition costs increased 17% (up 14% in constant currency)

·        Surface revenue increased 12% (up 7% in constant currency)

Microsoft returned $10.0 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2021, an increase of 1% compared to the third quarter of fiscal year 2020.


Business Outlook


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


Quarterly Highlights, Product Releases, and Enhancements  


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

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

Responding to COVID-19


At Microsoft, our focus remains on ensuring the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology and resources to our customers and partners to help them do their best work while remote. Additional information about Microsoft’s COVID-19 response can be found here.


Environmental, Social, and Governance (ESG)

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

Webcast Details


Satya Nadella, 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 27, 2022.

Non-GAAP Definition

The India Supreme Court Decision Impact. In March 2021, the India Supreme Court issued a decision on withholding taxes in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax. The decision involves appeals filed by 86 individual companies operating in India, some dating back to 2012. Microsoft was not a party to any of the appeals but is impacted by the decision.

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 the companies in the 86 separate appeals, 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

2020 As Reported (GAAP)

$35,021

$12,975

$10,752

$1.40

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

Percentage Change Y/Y (GAAP)

19%

31%

44%

45%

Percentage Change Y/Y (non-GAAP)

19%

31%

38%

39%

Constant Currency Impact

$972

$634

$615

$0.08

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

16%

27%

32%

34%

Segment Revenue Constant Currency Reconciliation

 

Three Months Ended March 31,

 ($ in millions)

Productivity and Business Processes

Intelligent Cloud

More Personal Computing

2020 As Reported

$11,743

$12,281

$10,997

2021 As Reported

$13,552

$15,118

$13,036

Percentage Change Y/Y

15%

23%

19%

Constant Currency Impact

$366

$367

$239

Percentage Change Y/Y Constant Currency

12%

20%

16%

Selected Product and Service Revenue Constant Currency Reconciliation           

 

Three Months Ended March 31, 2021

Percentage Change Y/Y (GAAP)

Constant Currency Impact

Percentage Change Y/Y Constant Currency

Office Commercial products and cloud services

14%

(4)%

10%

Office 365 Commercial

22%

(3)%

19%

Office Consumer products and cloud services

5%

(3)%

2%

LinkedIn

25%

(2)%

23%

Dynamics products and cloud services

26%

(4)%

22%

Dynamics 365

45%

(5)%

40%

Server products and cloud services

26%

(3)%

23%

Azure

50%

(4)%

46%

Windows OEM

10%

0%

10%

Windows Commercial products and cloud services

10%

(3)%

7%

Xbox content and services

34%

(2)%

32%

Surface

12%

(5)%

7%

Search advertising excluding traffic acquisition costs

17%

(3)%

14%

 

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 liability under trade protection, 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, 2021. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

For more information, press only:

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

For more information, financial analysts and investors only:

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

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


 

MICROSOFT CORPORATION


INCOME STATEMENTS

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


Three Months Ended

March 31,

Nine Months Ended

March 31,

 

2021

 

2020

 

2021

 

2020

Revenue:

   Product

 $16,873

 $15,871

 $52,136

 $49,894

   Service and other

24,833

 

19,150

 

69,800

 

55,088

      Total revenue

41,706

 

35,021

 

121,936

 

104,982

Cost of revenue:

   Product

4,277

3,376

13,932

11,647

   Service and other

8,768

 

7,599

 

24,309

 

22,092

      Total cost of revenue

13,045

 

10,975

 

38,241

 

33,739

      Gross margin

28,661

24,046

83,695

71,243

Research and development

5,204

4,887

15,029

14,055

Sales and marketing

5,082

4,911

14,260

14,181

General and administrative

1,327

1,273

3,585

3,455

Operating income

17,048

 

12,975

 

50,821

 

39,552

Other income (expense), net

188

 

(132)

 

876

 

62

Income before income taxes

17,236

12,843

51,697

39,614

Provision for income taxes

1,779

 

2,091

 

6,884

 

6,535

Net income

 $15,457

 

 $10,752

 

 $44,813

 

 $33,079

Earnings per share:

   Basic

 $2.05

 $1.41

 $5.93

 $4.34

   Diluted

 $2.03

 $1.40

 $5.88

 $4.30

Weighted average shares outstanding:

   Basic

7,539

7,602

7,554

7,619

   Diluted

7,597

 

7,675

 

7,617

 

7,693

 


 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)


Three Months Ended

March 31,

Nine Months Ended

March 31,

 

2021

 

2020

 

2021

 

2020

Net income

 $15,457

 

 $10,752

 

 $44,813

 

 $33,079

Other comprehensive income (loss), net of tax:

  Net change related to derivatives

18

(36)

30

(42)

  Net change related to investments

(1,705)

3,508

(2,398)

3,665

  Translation adjustments and other

(218)

 

(541)

 

634

 

(607)

   Other comprehensive income (loss)

(1,905)

 

2,931

 

(1,734)

 

3,016

Comprehensive income

 $13,552

 

 $13,683

 

 $43,079

 

 $36,095

 


 

BALANCE SHEETS

(In millions) (Unaudited)


 

March 31,

2021

 

June 30,

2020

Assets

Current assets:

   Cash and cash equivalents

 $13,702

 $13,576

   Short-term investments

111,705

 

122,951

      Total cash, cash equivalents, and short-term investments

125,407

136,527

   Accounts receivable, net of allowance for doubtful
      accounts of $620 and $788

26,322

32,011

   Inventories

2,245

1,895

   Other current assets

11,640

 

11,482

      Total current assets

165,614

181,915

Property and equipment, net of accumulated
   depreciation of $49,681 and $43,197

54,945

44,151

Operating lease right-of-use assets

10,673

8,753

Equity investments

5,395

2,965

Goodwill

49,698

43,351

Intangible assets, net

8,127

7,038

Other long-term assets

14,427

 

13,138

            Total assets

 $308,879

 

 $301,311

Liabilities and stockholders' equity

Current liabilities:

   Accounts payable

 $13,412

 $12,530

   Current portion of long-term debt

8,051

3,749

   Accrued compensation

8,032

7,874

   Short-term income taxes

2,165

2,130

   Short-term unearned revenue

30,083

36,000

   Other current liabilities

10,450

 

10,027

      Total current liabilities

72,193

72,310

Long-term debt

50,007

59,578

Long-term income taxes

27,157

29,432

Long-term unearned revenue

2,631

3,180

Deferred income taxes

173

204

Operating lease liabilities

9,272

7,671

Other long-term liabilities

12,941

 

10,632

         Total liabilities

174,374

 

183,007

Commitments and contingencies

Stockholders' equity:

   Common stock and paid-in capital - shares authorized
      24,000; outstanding 7,534 and 7,571

82,308

80,552

   Retained earnings

50,735

34,566

   Accumulated other comprehensive income

1,462

3,186

         Total stockholders' equity

134,505

 

118,304

            Total liabilities and stockholders' equity

 $308,879

 

 $301,311

 


CASH FLOWS STATEMENTS

(In millions) (Unaudited)


Three Months Ended

March 31,

Nine Months Ended

March 31,

 

2021

 

2020

 

2021

 

2020

Operations

Net income

 $15,457

 $10,752

 $44,813

 $33,079

Adjustments to reconcile net income to net cash from

   operations:

   Depreciation, amortization, and other

2,936

3,118

8,342

9,292

   Stock-based compensation expense

1,525

1,338

4,547

3,940

   Net recognized losses (gains) on investments and

      derivatives

(351)

52

(833)

(140)

   Deferred income taxes

(88)

(206)

(116)

(436)

   Changes in operating assets and liabilities:

      Accounts receivable

290

891

5,125

6,778

      Inventories

(329)

181

(349)

419

      Other current assets

478

94

1,154

(179)

      Other long-term assets

(885)

124

(2,446)

(726)

      Accounts payable

833

546

1,181

(8)

      Unearned revenue

(473)

(736)

(6,764)

(6,564)

      Income taxes

1,074

765

(2,277)

(3,042)

      Other current liabilities

1,590

695

394

(1,136)

      Other long-term liabilities

122

 

(110)

 

1,259

 

725

         Net cash from operations

22,179

 

17,504

 

54,030

 

42,002

Financing

Cash premium on debt exchange

(1,754)

0

(1,754)

0

Repayments of debt

(500)

(3,000)

(3,750)

(5,518)

Common stock issued

396

342

1,243

1,003

Common stock repurchased

(6,930)

(7,059)

(20,208)

(17,177)

Common stock cash dividends paid

(4,221)

(3,876)

(12,307)

(11,272)

Other, net

(183)

 

(1,052)

 

(339)

 

(805)

         Net cash used in financing

(13,192)

 

(14,645)

 

(37,115)

 

(33,769)

Investing

Additions to property and equipment

(5,089)

(3,767)

(14,170)

(10,697)

Acquisition of companies, net of cash acquired, and

   purchases of intangible and other assets

(7,512)

(329)

(8,408)

(871)

Purchases of investments

(18,375)

(15,910)

(48,047)

(58,311)

Maturities of investments

15,016

17,247

44,546

47,559

Sales of investments

5,876

2,810

10,711

14,559

Other, net

400

0

(1,356)

0

         Net cash from (used in) investing

(9,684)

 

51

 

(16,724)

 

(7,761)

Effect of foreign exchange rates on cash and cash  

   equivalents

(33)

 

(64)

 

(65)

 

(118)

Net change in cash and cash equivalents

(730)

2,846

126

354

Cash and cash equivalents, beginning of period

14,432

 

8,864

 

13,576

 

11,356

Cash and cash equivalents, end of period

 $13,702

 

 $11,710

 

 $13,702

 

 $11,710

 

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

Three Months Ended

March 31,

 

Nine Months Ended

March 31,

 

 

 

2021

 

2020

 

2021

 

2020

Revenue

 

 

 

 

 

 

 

Productivity and Business Processes

$13,552

 

$11,743

 

 $39,224

 

 $34,646

Intelligent Cloud

15,118

 

12,281

 

42,705

 

34,995

More Personal Computing

13,036

 

10,997

 

40,007

 

35,341

  Total

$41,706

 

$35,021

 

$121,936

 

$104,982

Operating Income

 

 

 

 

 

 

 

Productivity and Business Processes

 $6,029

 

 $4,788

 

 $17,916

 

 $14,752

Intelligent Cloud

6,425

 

4,560

 

18,339

 

12,980

More Personal Computing

4,594

 

3,627

 

14,566

 

11,820

  Total

 $17,048

 

$12,975

 

 $50,821

 

$39,552

 

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