Microsoft reports $33.7 bn in Q4 2019 revenue

9,078

Microsoft today reported earnings for its fourth fiscal quarter of 2019, including revenue of $33.7 billion, net income of $13.2 billion, and earnings per share of $1.71 (compared to revenue of $30.1 billion, net income of $8.9 billion, and earnings per share of $1.14 in Q4 2018). All three of the company’s operating groups saw year-over-year growth.

Diluted earnings per share was $1.71 GAAP and $1.37 non-GAAP, and increased 50% and 21%, respectively, GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below

“It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry,” said Satya Nadella, chief executive officer of Microsoft.

“Every day we work alongside our customers to help them build their own digital capability – innovating with them, creating new businesses with them, and earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.”

The following table reconciles financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding non-GAAP definition 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)RevenueOperating IncomeNet IncomeDiluted Earnings per Share
2018 As Reported (GAAP)$30,085$10,379$8,873_$1.14_
  Net Impact of the Tax Cuts and Jobs Act (TCJA)(104)(0.01)
2018 As Adjusted (non-GAAP)$30,085$10,379$8,769_$1.13_
2019 As Reported (GAAP)$33,717$12,405$13,187_$1.71_
  Net Tax Impact of Transfer of Intangible Properties(2,567)(0.34)
2019 As Adjusted (non-GAAP)$33,717$12,405$10,620_$1.37_
Percentage Change Y/Y (GAAP)12%20%49%50%
Percentage Change Y/Y (non-GAAP)12%20%21%21%
Percentage Change Y/Y (non-GAAP) Constant Currency14%24%24%24%

The current quarter effective tax rate was (5)% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion for the fourth quarter of fiscal year 2019 and a net income tax benefit of $104 million for the fourth quarter of fiscal year 2018. These net tax benefits are excluded from non-GAAP results and explained in the Non-GAAP Definition section below.

Microsoft returned $7.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2019.

“Q4 commercial cloud revenue increased 39% year-over-year to $11.0 billion, driving our strongest commercial quarter ever,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes was $11.0 billion and increased 14% (up 17% in constant currency), with the following business highlights:

  • Office Commercial products and cloud services revenue increased 14% (up 16% in constant currency) driven by Office 365 Commercial revenue growth of 31% (up 34% in constant currency)
  • Office Consumer products and cloud services revenue increased 6% (up 8% in constant currency) and Office 365 Consumer subscribers increased to 34.8 million
  • LinkedIn revenue increased 25% (up 28% in constant currency) with record levels of engagement highlighted by LinkedIn sessions growth of 22%
  • Dynamics products and cloud services revenue increased 12% (up 15% in constant currency) driven by Dynamics 365 revenue growth of 45% (up 48% in constant currency)

Revenue in Intelligent Cloud was $11.4 billion and increased 19% (up 21% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 22% (up 24% in constant currency) driven by Azure revenue growth of 64% (up 68% in constant currency)
  • Enterprise Services revenue increased 4% (up 6% in constant currency)

Revenue in More Personal Computing was $11.3 billion and increased 4% (up 6% in constant currency), with the following business highlights:

  • Windows OEM revenue increased 9% (up 9% in constant currency)
  • Windows Commercial products and cloud services revenue increased 13% (up 16% in constant currency)
  • Surface revenue increased 14% (up 17% in constant currency)
  • Search advertising revenue excluding traffic acquisition costs increased 9% (up 10% in constant currency)
  • Gaming revenue declined 10% (down 8% in constant currency) with Xbox software and services revenue down 3% (down 1% in constant currency)

 

Twelve Months Ended June 30,
 ($ in millions, except per share amounts)RevenueOperating IncomeNet IncomeDiluted Earnings per Share
2018 As Reported (GAAP)$110,360$35,058$16,571_$2.13_
  Net Impact of the TCJA13,696_1.75_
2018 As Adjusted (non-GAAP)$110,360$35,058$30,267_$3.88_
2019 As Reported (GAAP)$125,843$42,959$39,240_$5.06_
  Net Tax Impact of Transfer of Intangible Properties(2,567)(0.33)
  Net Impact of the TCJA157_0.02_
2019 As Adjusted (non-GAAP)$125,843$42,959$36,830_$4.75_
Percentage Change Y/Y (GAAP)14%23%137%138%
Percentage Change Y/Y (non-GAAP)14%23%22%22%
Percentage Change Y/Y (non-GAAP) Constant Currency15%24%22%23%

The current year effective tax rate was 10% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion and a net income tax charge of $157 million for the twelve months ended June 30, 2019. GAAP results include a net income tax charge of $13.7 billion for the twelve months ended June 30, 2018. These net tax impacts are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below.

Business Outlook

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

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, Keith Dolliver, deputy general counsel, and Michael Spencer, 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 18, 2020.

Financial Performance Constant Currency Reconciliation

Three Months Ended June 30,
 ($ in millions, except per share amounts)RevenueOperating IncomeNet IncomeDiluted Earnings per Share
2018 As Reported (GAAP)$30,085_$10,379_$8,873_$1.14_
2018 As Adjusted (non-GAAP)$30,085_$10,379_$8,769_$1.13_
2019 As Reported$33,717_$12,405_$13,187_$1.71_
2019 As Adjusted (non-GAAP)$33,717_$12,405_$10,620_$1.37_
Percentage Change Y/Y (GAAP)12%_20%_49%_50%_
Percentage Change Y/Y (non-GAAP)12%_20%_21%_21%_
Constant Currency Impact$(639)$(444)$(250)$(0.03)
Percentage Change Y/Y (non-GAAP) Constant Currency14%_24%_24%_24%_

 

 

 

 

 

Twelve Months Ended June 30,

 ($ in millions, except per share amounts)RevenueOperating IncomeNet IncomeDiluted Earnings per Share
2018 As Reported (GAAP)$110,360_$35,058_$16,571_$2.13_
2018 As Adjusted (non-GAAP)$110,360_$35,058_$30,267_$3.88_
2019 As Reported$125,843_$42,959_$39,240_$5.06_
2019 As Adjusted (non-GAAP)$125,843_$42,959_$36,830_$4.75_
Percentage Change Y/Y (GAAP)14%_23%_137%_138%_
Percentage Change Y/Y (non-GAAP)14%_23%_22%_22%_
Constant Currency Impact$(1,116)$(505)$(147)$(0.02)
Percentage Change Y/Y (non-GAAP) Constant Currency15%_24%_ 22%_23%_

 

Segment Revenue Constant Currency Reconciliation

Three Months Ended June 30,
 ($ in millions)Productivity and Business ProcessesIntelligent CloudMore Personal Computing
2018 As Reported$9,668_$9,606_$10,811_
2019 As Reported$11,047_$11,391_$11,279_
Percentage Change Y/Y14%_19%_4%_
Constant Currency Impact$(249)$(229)$(161)
Percentage Change Y/Y Constant Currency17%_21%_6%_

 

 Selected Product and Service Revenue Constant Currency Reconciliation           

Three Months Ended June 30, 2019
Percentage Change Y/Y (GAAP)Constant Currency ImpactPercentage Change Y/Y Constant Currency
Office Commercial products and cloud services14%2%16%
Office 365 Commercial31%3%34%
Office Consumer products and cloud services6%2%8%
LinkedIn25%3%28%
Dynamics products and cloud services12%3%15%
Dynamics 36545%3%48%
Server products and cloud services22%2%24%
Azure64%4%68%
Enterprise Services4%2%6%
Windows OEM9%0%9%
Windows Commercial products and cloud services13%3%16%
Search advertising excluding traffic acquisition costs9%1%10%
Surface14%3%17%
Gaming(10)%2%(8)%
Xbox software and services(3)%2%(1)%

 

MICROSOFT CORPORATION INCOME STATEMENTS (In millions, except per share amounts) (Unaudited)

Three Months Ended

 June 30,

Twelve Months Ended

 June 30,

 2019 2018 2019 2018
Revenue:
Product $17,103 $17,159 $66,069 $64,497
Service and other16,614 12,92659,774 45,863
Total revenue 33,717 30,085 125,843 110,360
Cost of revenue:
Product 3,298 3,517 16,273 15,420
Service and other 7,114 6,225 26,637 22,933
Total cost of revenue10,412 9,742 42,910 38,353
Gross margin 23,305 20,343 82,933 72,007
Research and development 4,513 3,933 16,876 14,726
Sales and marketing4,962 4,760 18,213 17,469
General and administrative1,425 1,271 4,885 4,754
Operating income12,405 10,379 42,959 35,058
Other income, net191 301 729 1,416
Income before income taxes12,596 10,680 43,688 36,474
Provision for (benefit from) income taxes(591) 1,807 4,448 19,903
Net income $13,187 $8,873 $39,240 $16,571
Earnings per share:
Basic $1.72 $1.15 $5.11 $2.15
Diluted $1.71 $1.14 $5.06 $2.13
Weighted average shares outstanding:
Basic7,6557,6837,6737,700
Diluted7,7307,7757,7537,794

 

COMPREHENSIVE INCOME STATEMENTS (In millions) (Unaudited)

Three Months Ended

 June 30,

Twelve Months Ended

 June 30,

 2019 2018 2019 2018
Net income$13,187 $8,873 $39,240 $16,571
Other comprehensive income (loss), net of tax:
Net change related to derivatives(80)145(173)39
Net change related to investments1,071(535)2,405(2,717)
Translation adjustments and other(66)(686)(318)(178)
Other comprehensive income (loss)925(1,076)1,914(2,856)
Comprehensive income$14,112 $7,797 $41,154 $13,715

 

BALANCE SHEETS (In millions) (Unaudited)

 June 30,

2019

 June 30,

 2018

Assets
Current assets:
Cash and cash equivalents $11,356 $11,946
Short-term investments 122,463 121,822
Total cash, cash equivalents, and short-term investments 133,819 133,768
Accounts receivable, net of allowance for doubtful accounts of $411 and $377 29,524 26,481
Inventories 2,063 2,662
Other 10,146 6,751
Total current assets 175,552 169,662
Property and equipment, net of accumulated depreciation of $35,330 and $29,223 36,477 29,460
Operating lease right-of-use assets 7,379 6,686
Equity and other investments 2,649 1,862
Goodwill42,026 35,683
Intangible assets, net 7,750 8,053
Other long-term assets 14,723 7,442
Total assets $286,556 $258,848
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $9,382 $8,617
Current portion of long-term debt 5,516 3,998
Accrued compensation 6,830 6,103
Short-term income taxes 5,665 2,121
Short-term unearned revenue32,676 28,905
Other9,351 8,744
Total current liabilities69,420 58,488
Long-term debt 66,662 72,242
Long-term income taxes29,612 30,265
Long-term unearned revenue 4,530 3,815
Deferred income taxes 233 541
Operating lease liabilities 6,188 5,568
Other long-term liabilities7,581  5,211
Total liabilities184,226 176,130
Commitments and contingencies
Stockholders’ equity:
 Common stock and paid-in capital — shares authorized 24,000; outstanding 7,643 and 7,67778,520 71,223
Retained earnings 24,150 13,682
Accumulated other comprehensive loss (340) (2,187)
Total stockholders’ equity 102,330 82,718
Total liabilities and stockholders’ equity $286,556 $258,848

 

CASH FLOWS STATEMENTS (In millions) (Unaudited)

Three Months Ended

 June 30,

Twelve Months Ended

 June 30,

 2019 2018 2019 2018
Operations
Net income$13,187 $8,873$39,240 $16,571
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other2,9242,51611,68210,261
Stock-based compensation expense1,1901,0124,6523,940
Net recognized gains on investments and derivatives(322)(567)(792)(2,212)
Deferred income taxes(5,723)(2,389)(6,463)(5,143)
Changes in operating assets and liabilities:
Accounts receivable(10,070)(9,188)(2,812)(3,862)
Inventories(113)(572)597(465)
Other current assets(854)(839)(1,718)(952)
Other long-term assets(865)550(1,834)(285)
Accounts payable1,2641,0102321,148
Unearned revenue9,0058,7024,4625,922
Income taxes3,8089032,92918,183
Other current liabilities2,4361,7731,419798
Other long-term liabilities241(366)591(20)
Net cash from operations16,10811,41852,18543,884
Financing 
Repayments of short-term debt, maturities of 90 days or less, net000(7,324)
Proceeds from issuance of debt0007,183
Repayments of debt(1,000)(681)(4,000)(10,060)
Common stock issued3082551,1421,002
Common stock repurchased(4,633)(2,362)(19,543)(10,721)
Common stock cash dividends paid(3,521)(3,226)(13,811)(12,699)
Other, net160(25)(675)(971)
Net cash used in financing(8,686)(6,039)(36,887)(33,590)
Investing 
Additions to property and equipment(4,051)(3,980)(13,925)(11,632)
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets(281)(434)(2,388)(888)
Purchases of investments(15,442)(32,380)(57,697)(137,380)
Maturities of investments5,1547,10820,04326,360
Sales of investments7,36327,02438,194117,577
Securities lending payable0(8)0(98)
Net cash used in investing(7,257)(2,670)(15,773)(6,061)
Effect of foreign exchange rates on cash and cash equivalents(21)16(115)50
Net change in cash and cash equivalents1442,725(590)4,283
Cash and cash equivalents, beginning of period11,2129,22111,9467,663
Cash and cash equivalents, end of period$11,356 $11,946$11,356 $11,946

 

SEGMENT REVENUE AND OPERATING INCOME (In millions)(Unaudited)

 Three Months Ended

 June 30,

 Twelve Months Ended

 June 30,

  
 2019 2018 2019 2018
Revenue    
Productivity and Business Processes$11,047  $9,668 $41,160  $35,865
Intelligent Cloud11,391 9,60638,985 32,219
More Personal Computing11,279 10,81145,698 42,276
Total$33,717 $30,085$125,843 $110,360
Operating Income    
Productivity and Business Processes $4,344  $3,466 $16,219  $12,924
Intelligent Cloud4,502 3,90113,920 11,524
More Personal Computing3,559 3,01212,820 10,610
Total$12,405 $10,379 $42,959 $35,058

 

 

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