EX-99.1 2 d483053dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Microsoft Cloud Continues to Grow, Powers First Quarter Results

Commercial cloud annualized revenue run rate reaches $20.4 billion

REDMOND, Wash. — October 26, 2017 — Microsoft Corp. today announced the following results for the quarter ended September 30, 2017:


    Revenue was $24.5 billion and increased 12%


    Operating income was $7.7 billion and increased 15%


    Net income was $6.6 billion and increased 16%


    Diluted earnings per share was $0.84 and increased 17%

“This quarter we exceeded $20 billion in commercial cloud ARR, outpacing the goal we set just over two years ago,” said Satya Nadella, chief executive officer at Microsoft. “Our results reflect accelerating innovation and increased usage and engagement across our businesses as customers continue to choose Microsoft to help them transform.”

Microsoft returned $4.8 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2018. During the quarter, the company announced an 8% increase in its quarterly dividend to $0.42 per share.

“Our strong start to the fiscal year reflects the impact of our continued investment in product innovation and sales capacity to capture expanding market opportunities,” said Amy Hood, executive vice president and chief financial officer at Microsoft.

Revenue in Productivity and Business Processes was $8.2 billion and increased 28% (up 28% in constant currency), with the following business highlights:


    Office commercial products and cloud services revenue increased 10% (up 10% in constant currency) driven by Office 365 commercial revenue growth of 42% (up 42% in constant currency)


    Office consumer products and cloud services revenue increased 12% (up 10% in constant currency) and Office 365 consumer subscribers increased to 28.0 million


    Dynamics products and cloud services revenue increased 13% (up 12% in constant currency) driven by Dynamics 365 revenue growth of 69% (up 69% in constant currency)


    LinkedIn contributed revenue of $1.1 billion during the quarter

Revenue in Intelligent Cloud was $6.9 billion and increased 14% (up 13% in constant currency), with the following business highlights:


    Server products and cloud services revenue increased 17% (up 17% in constant currency) driven by Azure revenue growth of 90% (up 89% in constant currency)


    Enterprise Services revenue increased 1% (0% in constant currency) with growth in Premier Support Services offset by declines in custom support agreements

Revenue in More Personal Computing was $9.4 billion and relatively unchanged (down 1% in constant currency), with the following business highlights:


    Windows OEM revenue increased 4% (up 4% in constant currency), ahead of the overall PC market


    Windows commercial products and cloud services revenue increased 7% (up 6% in constant currency) driven by annuity revenue growth


    Search advertising revenue excluding traffic acquisition costs increased 15% (up 15% in constant currency) driven by higher revenue per search and search volume


    Surface revenue increased 12% (up 11% in constant currency) driven by sales of the new Surface Laptop


    Gaming revenue increased 1% (0% in constant currency) with Xbox software and services revenue growth of 21% (up 20% in constant currency) offset by lower hardware revenue

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 26, 2018.

New Accounting Standards

We adopted new accounting standards related to revenue recognition and leases effective July 1, 2017. The prior periods presented here have been restated to reflect adoption of these new standards.

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 the company’s 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)
















  per Share  




  2016 As Reported



























  2017 As Reported



























  Percentage Change Y/Y


























  Constant Currency Impact



























  Percentage Change Y/Y Constant Currency


























Segment Revenue Constant Currency Reconciliation



Three Months Ended September 30,



   ($ in millions)



Productivity and

Business Processes



Intelligent Cloud



More Personal





  2016 As Reported

































  2017 As Reported

































  Percentage Change Y/Y

































  Constant Currency Impact

































  Percentage Change Y/Y Constant Currency
































Selected Product and Service Revenue Constant Currency Reconciliation



Three Months Ended September 30, 2017



Percentage Change




Constant Currency




Percentage Change


Constant Currency




  Office commercial products and cloud services

































  Office 365 commercial

































  Office consumer products and cloud services

































  Dynamics products and cloud services

































  Dynamics 365

































  Server products and cloud services


































































  Enterprise Services

































  Windows OEM

































  Windows commercial products and cloud services

































  Search advertising excluding traffic acquisition costs



































































































  Xbox software and services
































Commercial Cloud Annualized Revenue Run Rate

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

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 Microsoft’s markets;


    increasing focus on services presenting execution and competitive risks;


    significant investments in new 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;


    a change in Microsoft’s ability to earn expected revenues from its intellectual property rights;


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


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


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


    cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue, increase costs, harm us competitively, or lead to liability;


    disclosure of personal data that could cause liability and harm to Microsoft’s reputation;


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


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


    government litigation and regulatory activity that may limit how Microsoft designs and markets its 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, or fines against us;


    Microsoft’s ability to attract and retain talented employees;


    adverse results in legal disputes;


    additional tax liabilities;


    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 that may disrupt our business;


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


    changes in our sales organization that may impact revenues.

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 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.

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:

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/en-us/investor.



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



Three Months Ended 

September 30, 

         2017           2016   






               $14,298                   $14,968   

 Service and other

     10,240         6,960   






 Total revenue

     24,538         21,928   






 Cost of revenue:



     2,980         3,581   

 Service and other

     5,298         4,263   






 Total cost of revenue

     8,278         7,844   






 Gross margin

     16,260         14,084   

 Research and development

     3,574         3,106   

 Sales and marketing

     3,812         3,218   

 General and administrative

     1,166         1,045   






 Operating income

     7,708         6,715   

 Other income, net

     276         112   






 Income before income taxes

     7,984         6,827   

 Provision for income taxes

     1,408         1,160   






 Net income

             $6,576                 $5,667   







 Earnings per share:



     $0.85         $0.73   


     $0.84         $0.72   

 Weighted average shares outstanding:



     7,708         7,789   


     7,799         7,876   

 Cash dividends declared per common share

     $0.42         $0.39   





(In millions)(Unaudited)



Three Months Ended 

September 30, 

         2017           2016   



 Net income

             $6,576                 $5,667   







 Other comprehensive income (loss), net of tax:


 Net change related to derivatives

     (106)         (37)   

 Net change related to investments

     (288)         83   

 Translation adjustments and other

     293         118   






 Other comprehensive income (loss)

     (101)         164   






 Comprehensive income

     $6,475         $5,831   









(In millions)(Unaudited)


     September 30,

June 30,







 Current assets:


 Cash and cash equivalents

     $6,884         $7,663   

 Short-term investments (including securities loaned of $4,774 and $3,694)

     131,587         125,318   






 Total cash, cash equivalents, and short-term investments

     138,471         132,981   

 Accounts receivable, net of allowance for doubtful accounts of $285 and $345

     14,561         22,431   


     3,211         2,181   


     4,788         5,103   






 Total current assets

     161,031         162,696   

 Property and equipment, net of accumulated depreciation of $25,523 and $24,179

     24,809         23,734   

 Operating lease right-of-use assets

     6,844         6,555   

 Equity and other investments

     5,343         6,023   


     35,389         35,122   

 Intangible assets, net

     9,598         10,106   

 Other long-term assets

     6,083         6,076   






 Total assets

     $249,097         $250,312   







 Liabilities and stockholders’ equity


 Current liabilities:


 Accounts payable

     $6,866         $7,390   

 Short-term debt

     8,170         9,072   

 Current portion of long-term debt

     1,050         1,049   

 Accrued compensation

     4,108         5,819   

 Income taxes

     920         718   

 Short-term unearned revenue

     22,778         24,013   

 Securities lending payable

     203         97   


     7,520         7,587   






 Total current liabilities

     51,615         55,745   

 Long-term debt

     76,255         76,073   

 Long-term unearned revenue

     2,126         2,643   

 Deferred income taxes

     5,513         5,734   

 Operating lease liabilities

     5,768         5,372   

 Other long-term liabilities

     18,173         17,034   






 Total liabilities

     159,450         162,601   






 Commitments and contingencies


 Stockholders’ equity:


 Common stock and paid-in capital — shares authorized 24,000; outstanding 7,720 and 7,708

     69,419         69,315   

 Retained earnings

     19,702         17,769   

 Accumulated other comprehensive income

     526         627   






 Total stockholders’ equity

     89,647         87,711   






 Total liabilities and stockholders’ equity

                 $249,097                     $250,312   









(In millions)(Unaudited)



Three Months Ended 

September 30, 

     2017       2016   





 Net income

                 $6,576                     $5,667   

 Adjustments to reconcile net income to net cash from operations:


 Depreciation, amortization, and other

     2,499         1,816   

 Stock-based compensation expense

     973         703   

 Net recognized gains on investments and derivatives

     (523)         (311)   

 Deferred income taxes

     (53)         540   

 Changes in operating assets and liabilities:


 Accounts receivable

     7,949         7,187   


     (1,023)         (867)   

 Other current assets

     (318)         (965)   

 Other long-term assets

     (278)         (93)   

 Accounts payable

     (407)         (443)   

 Unearned revenue

     (1,806)         (1,807)   

 Other current liabilities

     (1,962)         (321)   

 Other long-term liabilities

     813         443   






 Net cash from operations

     12,440         11,549   








 Repayments of short-term debt, maturities of 90 days or less, net

     (3,710)         (3,390)   

 Proceeds from issuance of debt

     3,954         24,977   

 Repayments of debt

     (1,169)         (225)   

 Common stock issued

     307         241   

 Common stock repurchased

     (2,570)         (4,362)   

 Common stock cash dividends paid

     (3,003)         (2,800)   


     (150)         (112)   






 Net cash from (used in) financing

     (6,341)         14,329   








 Additions to property and equipment

     (2,132)         (2,163)   

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

     (179)         (24)   

 Purchases of investments

     (32,961)         (57,181)   

 Maturities of investments

     5,226         8,659   

 Sales of investments

     23,036         32,323   

 Securities lending payable

     106         (84)   






 Net cash used in investing

     (6,904)         (18,470)   






 Effect of foreign exchange rates on cash and cash equivalents

     26         10   






 Net change in cash and cash equivalents

     (779)         7,418   

 Cash and cash equivalents, beginning of period

     7,663         6,510   






 Cash and cash equivalents, end of period

     $6,884         $13,928   









(In millions)(Unaudited)



Three Months Ended 

September 30, 

         2017       2016   





 Productivity and Business Processes

         $8,238             $6,436   

 Intelligent Cloud

     6,922         6,097   

 More Personal Computing

     9,378         9,395   






 Total revenue

     $24,538         $21,928   







 Operating income


 Productivity and Business Processes

     $3,006         $2,905   

 Intelligent Cloud

     2,137         1,777   

 More Personal Computing

     2,565         2,033   






 Total operating income

                 $7,708                     $6,715