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Earnings Release FY22 Q1

Microsoft Cloud Strength Drives First Quarter Results

REDMOND, Wash. — October 26, 2021 — Microsoft Corp. today announced the following results for the quarter ended September 30, 2021, as compared to the corresponding period of last fiscal year:

·        Revenue was $45.3 billion and increased 22%

·        Operating income was $20.2 billion and increased 27%

·        Net income was $20.5 billion GAAP and $17.2 billion non-GAAP, and increased 48% and 24%, respectively

·        Diluted earnings per share was $2.71 GAAP and $2.27 non-GAAP, and increased 49% and 25%, respectively

·        GAAP results include a $3.3 billion net income tax benefit explained in the Non-GAAP Definition section below

“Digital technology is a deflationary force in an inflationary economy. Businesses – small and large – can improve productivity and the affordability of their products and services by building tech intensity,” said Satya Nadella, chairman and chief executive officer of Microsoft. “The Microsoft Cloud delivers the end-to-end platforms and tools organizations need to navigate this time of transition and change.”

“We delivered a strong start to the fiscal year with our Microsoft Cloud generating $20.7 billion in revenue for the quarter, up 36% 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 September 30,

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2020 As Reported (GAAP)

$37,154

$15,876

$13,893

$1.82

2021 As Reported (GAAP)

$45,317

$20,238

$20,505

$2.71

Net income tax benefit related to transfer of intangible properties

-

-

(3,291)

(0.44)

2021 As Adjusted (non-GAAP)

$45,317

$20,238

$17,214

$2.27

Percentage Change Y/Y (GAAP)

22%

27%

48%

49%

Percentage Change Y/Y (non-GAAP)

22%

27%

24%

25%

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

20%

24%

22%

23%

 

Business Highlights

Revenue in Productivity and Business Processes was $15.0 billion and increased 22% (up 20% in constant currency), with the following business highlights:

·        Office Commercial products and cloud services revenue increased 18% (up 16% in constant currency) driven by Office 365 Commercial revenue growth of 23% (up 21% in constant currency)

·        Office Consumer products and cloud services revenue increased 10% (up 8% in constant currency) and Microsoft 365 Consumer subscribers increased to 54.1 million

·        LinkedIn revenue increased 42% (up 39% in constant currency) driven by Marketing Solutions growth of 61% (up 59% in constant currency)

·        Dynamics products and cloud services revenue increased 31% (up 29% in constant currency) driven by Dynamics 365 revenue growth of 48% (up 45% in constant currency)

Revenue in Intelligent Cloud was $17.0 billion and increased 31% (up 29% in constant currency), with the following business highlights:

·        Server products and cloud services revenue increased 35% (up 33% in constant currency) driven by Azure and other cloud services revenue growth of 50% (up 48% in constant currency)

Revenue in More Personal Computing was $13.3 billion and increased 12% (up 11% in constant currency), with the following business highlights:

·        Windows OEM revenue increased 10%

·        Windows Commercial products and cloud services revenue increased 12% (up 10% in constant currency)

·        Xbox content and services revenue increased 2% (relatively unchanged in constant currency)

·        Search and news advertising revenue excluding traffic acquisition costs increased 40% (up 39% in constant currency)

·        Surface revenue decreased 17% (down 19% in constant currency)

Microsoft returned $10.9 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2022, an increase of 14% compared to the first 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 October 26, 2022.

Non-GAAP Definition

Transfer of Intangible Properties. In the first quarter of fiscal year 2022, Microsoft transferred certain intangible properties from our Puerto Rico subsidiary to the United States. The transfer of intangible properties resulted in a net tax benefit of $3.3 billion in the first quarter of fiscal 2022, as the value of future United States tax deductions exceeds the current tax liability from the United States Global Intangible Low-Taxed Income tax.

Microsoft has provided non-GAAP financial measures related to the transfer of intangible properties 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 September 30,

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2020 As Reported (GAAP)

$37,154

$15,876

$13,893

$1.82

2021 As Reported (GAAP)

$45,317

$20,238

$20,505

$2.71

2021 As Adjusted (non-GAAP)

$45,317

$20,238

$17,214

$2.27

Percentage Change Y/Y (GAAP)

22%

27%

48%

49%

Percentage Change Y/Y (non-GAAP)

22%

27%

24%

25%

Constant Currency Impact

$605

$500

$248

$0.03

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

20%

24%

22%

23%

Segment Revenue Constant Currency Reconciliation

 

Three Months Ended September 30,

 ($ in millions)

Productivity and Business Processes

Intelligent Cloud

More Personal Computing

2020 As Reported (GAAP)

$12,319

$12,986

$11,849

2021 As Reported (GAAP)

$15,039

$16,964

$13,314

Percentage Change Y/Y (GAAP)

22%

31%

12%

Constant Currency Impact

$253

$216

$136

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

20%

29%

11%

Selected Product and Service Revenue Constant Currency Reconciliation           

 

Three Months Ended September 30, 2021

Percentage Change Y/Y (GAAP)

Constant Currency Impact

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

Office Commercial products and cloud services

18%

(2)%

16%

Office 365 Commercial

23%

(2)%

21%

Office Consumer products and cloud services

10%

(2)%

8%

LinkedIn

42%

(3)%

39%

LinkedIn Marketing Solutions

61%

(2)%

59%

Dynamics products and cloud services

31%

(2)%

29%

Dynamics 365

48%

(3)%

45%

Server products and cloud services

35%

(2)%

33%

Azure and other cloud services

50%

(2)%

48%

Windows OEM

10%

0%

10%

Windows Commercial products and cloud services

12%

(2)%

10%

Xbox content and services

2%

(2)%

0%

Search and news advertising excluding traffic acquisition costs

40%

(1)%

39%

Surface

(17)%

(2)%

(19)%

  

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 September 30, 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

September 30,

 

2021

 

2020

Revenue:

   Product

 $16,631

 $15,803

   Service and other

28,686

21,351

      Total revenue

45,317

37,154

Cost of revenue:

   Product

3,792

3,597

   Service and other

9,854

7,405

      Total cost of revenue

13,646

11,002

      Gross margin

31,671

26,152

Research and development

5,599

4,926

Sales and marketing

4,547

4,231

General and administrative

1,287

1,119

Operating income

20,238

15,876

Other income, net

286

248

Income before income taxes

20,524

16,124

Provision for income taxes

19

2,231

Net income

 $20,505

 $13,893

Earnings per share:

   Basic

 $2.73

 $1.84

   Diluted

 $2.71

 $1.82

Weighted average shares outstanding:

   Basic

7,513

7,566

   Diluted

7,567

 

7,637

 


 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)


Three Months Ended

September 30,

 

2021

 

2020

Net income

 $20,505

 $13,893

Other comprehensive income (loss), net of tax:

  Net change related to derivatives

2

4

  Net change related to investments

(422)

(201)

  Translation adjustments and other

(119)

111

    Other comprehensive loss

(539)

(86)

Comprehensive income

 $19,966

 $13,807

 


 

BALANCE SHEETS

(In millions) (Unaudited)


 

September 30,

2021

 

June 30,

2021

Assets

Current assets:

   Cash and cash equivalents

 $19,165

 $14,224

   Short-term investments

111,450

116,110

      Total cash, cash equivalents, and short-term investments

130,615

130,334

   Accounts receivable, net of allowance for doubtful
      accounts of $536 and $751

27,349

38,043

   Inventories

3,411

2,636

   Other current assets

12,951

13,393

      Total current assets

174,326

184,406

Property and equipment, net of accumulated
   depreciation of $52,469 and $51,351

63,772

59,715

Operating lease right-of-use assets

11,575

11,088

Equity investments

6,393

5,984

Goodwill

50,455

49,711

Intangible assets, net

7,794

7,800

Other long-term assets

21,103

15,075

            Total assets

 $335,418

 $333,779

Liabilities and stockholders' equity

Current liabilities:

   Accounts payable

 $14,832

 $15,163

   Current portion of long-term debt

3,249

8,072

   Accrued compensation

6,894

10,057

   Short-term income taxes

6,272

2,174

   Short-term unearned revenue

38,465

41,525

   Other current liabilities

10,816

11,666

      Total current liabilities

80,528

88,657

Long-term debt

50,039

50,074

Long-term income taxes

25,715

27,190

Long-term unearned revenue

2,550

2,616

Deferred income taxes

212

198

Operating lease liabilities

10,050

9,629

Other long-term liabilities

14,346

13,427

         Total liabilities

183,440

191,791

Commitments and contingencies

Stockholders' equity:

   Common stock and paid-in capital - shares authorized
      24,000; outstanding 7,510 and 7,519

83,751

83,111

   Retained earnings

66,944

57,055

   Accumulated other comprehensive income

1,283

1,822

         Total stockholders' equity

151,978

141,988

            Total liabilities and stockholders' equity

 $335,418

 $333,779

 

 

CASH FLOWS STATEMENTS

(In millions) (Unaudited)


Three Months Ended

September 30,

 

2021

 

2020

Operations

Net income

 $20,505

 $13,893

Adjustments to reconcile net income to net cash from operations:

  Depreciation, amortization, and other

3,212

2,645

  Stock-based compensation expense

1,702

1,456

  Net recognized gains on investments and derivatives

(364)

(128)

  Deferred income taxes

(5,970)

(11)

  Changes in operating assets and liabilities:

    Accounts receivable

10,486

8,843

    Inventories

(777)

(808)

    Other current assets

940

(54)

    Other long-term assets

(598)

(62)

    Accounts payable

(471)

315

    Unearned revenue

(2,885)

(3,064)

    Income taxes

2,653

(983)

    Other current liabilities

(4,143)

(2,951)

    Other long-term liabilities

250

244

        Net cash from operations

24,540

19,335

Financing

Repayments of debt

(4,826)

0

Common stock issued

612

545

Common stock repurchased

(7,684)

(6,743)

Common stock cash dividends paid

(4,206)

(3,856)

Other, net

(172)

(235)

        Net cash used in financing

(16,276)

(10,289)

Investing

Additions to property and equipment

(5,810)

(4,907)

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

(1,206)

(481)

Purchases of investments

(10,309)

(14,580)

Maturities of investments

8,862

14,266

Sales of investments

5,630

2,414

Other, net

(417)

(2,083)

        Net cash used in investing

(3,250)

(5,371)

Effect of foreign exchange rates on cash and cash equivalents

(73)

(46)

Net change in cash and cash equivalents

4,941

3,629

Cash and cash equivalents, beginning of period

14,224

13,576

Cash and cash equivalents, end of period

 $19,165

 $17,205

 


 

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

Three Months Ended

September 30,

 

 

2021

 

2020

Revenue

 

 

 

Productivity and Business Processes

 $15,039

 

 $12,319

Intelligent Cloud

16,964

 

12,986

More Personal Computing

13,314

 

11,849

  Total

 $45,317

 

 $37,154

Operating Income

 

 

 

Productivity and Business Processes

 $7,581

 

 $5,706

Intelligent Cloud

7,562

 

5,422

More Personal Computing

5,095

 

4,748

  Total

 $20,238

 

 $15,876

 

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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