Microsoft FY2026 MD&A Lightweight Ontology
A lightweight ontology modeling the recurring structure of Microsoft Corporation's Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7, Form 10-K, fiscal year ended June 30, 2026): reportable segments and their per-segment financial attributes.
Microsoft FY2026 MD&A Ontology
Reportable Segment
A reportable business segment as defined by Microsoft's internal management reporting structure and disclosed in its MD&A.
Productivity and Business Processes Segment
The reportable segment comprising Microsoft 365 Commercial and Consumer, LinkedIn, and Dynamics products and cloud services.
Intelligent Cloud Segment
The reportable segment comprising Server products and cloud services (including Azure) and Enterprise and partner services.
More Personal Computing Segment
The reportable segment comprising Windows and Devices, XBOX, and Search advertising.
revenue growth percent
Year-over-year fractional change in segment revenue (e.g. 0.16 for 16%).
operating income growth percent
Year-over-year fractional change in segment operating income (e.g. 0.20 for 20%).
reported for segment
Links a segment-dimensional schema:MonetaryAmount fact to the reportable segment it was reported for.
Microsoft Corporation
Microsoft
OpenAI
Deloitte & Touche LLP
Internal Revenue Service
United States
Ireland
Satya Nadella
Chief Executive Officer
Amy E. Hood
Executive Vice President and Chief Financial Officer
Alice L. Jolla
Corporate Vice President and Chief Accounting Officer
Management's Discussion and Analysis of Financial Condition and Results of Operations — Microsoft Corporation, Fiscal Year Ended June 30, 2026
A management-centric analysis of Microsoft Corporation's fiscal year 2026 MD&A (Form 10-K, Part II, Item 7): revenue and operating income drivers, segment performance, operating expenses, non-GAAP reconciliation, liquidity, and critical accounting estimates.
Overview
Microsoft's fiscal 2026 highlights: Microsoft Cloud revenue up 27% to $214.4 billion; commercial remaining performance obligation up 84% to $678 billion; continued expansion of the OpenAI partnership.
Microsoft is a technology company committed to making digital technology and artificial intelligence ('AI') available broadly and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more. Highlights from fiscal year 2026 compared with fiscal year 2025 included: Microsoft Cloud revenue increased 27% to $214.4 billion; commercial remaining performance obligation increased 84% to $678 billion; Microsoft 365 Commercial cloud revenue increased 17%; Microsoft 365 Consumer cloud revenue increased 28%; LinkedIn revenue increased 11%; Dynamics 365 revenue increased 18%; Azure and other cloud services revenue increased 41%; Windows OEM and Devices revenue decreased slightly; XBOX content and services revenue decreased 5%; Search advertising revenue excluding traffic acquisition costs increased 12%. Microsoft has a long-term strategic partnership with OpenAI, originally established in 2019 and extended in October 2025 and April 2026; Microsoft is a major investor in OpenAI, continues to receive revenue-sharing payments, and holds rights to OpenAI's intellectual property, including models and infrastructure, for integration into its products.
Summary Results of Operations, Fiscal Year 2026 vs. 2025
Revenue $331,839 million (2026) vs. $281,724 million (2025), up 18%. Gross margin $225,465 million vs. $193,893 million, up 16%. Operating income $155,237 million vs. $128,528 million, up 21%. Net income $133,749 million vs. $101,832 million, up 31%. Diluted earnings per share $17.95 vs. $13.64, up 32%. Revenue increased $50.1 billion driven by growth in Microsoft Cloud. Operating expenses increased $4.9 billion or 7% driven by continued investments in research and development compute capacity, AI talent and data, XBOX impairment and other related expenses, investments in commercial sales, and higher Copilot advertising expenses. Current year net income and diluted EPS were positively impacted by $5.0 billion and $0.67, respectively, from net gains on investments in OpenAI; the prior year was negatively impacted by $3.6 billion and $0.49, respectively, from net losses on investments in OpenAI.
Segment Results of Operations
Microsoft reports financial performance across three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
Productivity and Business Processes
Revenue increased $19.2 billion or 16%. Microsoft 365 Commercial products and cloud services revenue increased $14.2 billion or 16%; Microsoft 365 Commercial cloud revenue grew 17% with growth in revenue per user driven by Microsoft 365 Copilot and Microsoft 365 E5; Microsoft 365 Commercial seats grew 6%. Microsoft 365 Consumer products and cloud services revenue increased $1.8 billion or 24%, with Consumer cloud revenue up 28%. LinkedIn revenue increased $2.0 billion or 11% with growth across all lines of business. Dynamics products and cloud services revenue increased $1.2 billion or 15%, with Dynamics 365 revenue up 18%. Operating income increased $14.1 billion or 20%, driven by gross margin growth of $16.6 billion or 17% in Microsoft 365 Commercial cloud, offset in part by operating expense growth of $2.5 billion or 9% from continued AI infrastructure and talent investment. Revenue, gross margin, and operating income included a favorable foreign currency impact of 2%, 3%, and 3%, respectively.
Intelligent Cloud
Revenue increased $31.5 billion or 30%. Server products and cloud services revenue increased $31.0 billion or 31%, driven by Azure and other cloud services revenue growth of 41% across all workloads; Server products revenue increased 1%. Enterprise and partner services revenue increased $500 million or 6% driven by growth in Enterprise Support Services. Operating income increased $12.4 billion or 28%; cost of revenue increased $17.7 billion or 44% driven by investments in AI infrastructure to support growing customer demand; gross margin increased $13.8 billion or 21% while gross margin percentage decreased due to continued AI infrastructure investment and sales mix shift to Azure, offset in part by efficiency gains in Azure. Cost of revenue included an unfavorable foreign currency impact of 2%.
More Personal Computing
Revenue decreased $597 million or 1%. Windows and Devices revenue decreased $230 million or 1%, with Windows OEM growth of 5% offset by a decline in Devices. XBOX revenue decreased $1.7 billion or 7%; XBOX content and services revenue decreased 5% on a strong prior-year comparable, offset in part by growth in XBOX Game Pass; XBOX hardware revenue decreased 29% on lower console volume. Search advertising revenue increased $1.3 billion or 9%, with search advertising revenue excluding traffic acquisition costs up 12% driven by higher search volume and revenue per search. Operating income increased $220 million or 2%: cost of revenue decreased $1.8 billion or 7% on lower hardware sales; gross margin increased $1.2 billion or 4%; operating expenses increased $940 million or 6% driven by impairment and other related expenses in the XBOX business and continued research and development investment. Operating income included a favorable foreign currency impact of 2%.
Operating Expenses
Research and development, sales and marketing, and general and administrative expense trends for fiscal year 2026.
Research and Development Expense
Research and development expenses were $35,562 million in fiscal 2026 versus $32,488 million in fiscal 2025, an increase of 9%, or 11% of revenue (down 1 percentage point). The increase was driven by continued investments in compute capacity, AI talent, and data supporting product development across the portfolio, as well as impairment and other related expenses in the XBOX business.
Sales and Marketing Expense
Sales and marketing expenses were $26,710 million in fiscal 2026 versus $25,654 million in fiscal 2025, an increase of 4%, or 8% of revenue (down 1 percentage point). The increase was driven by investments in commercial sales and higher Copilot advertising expenses.
General and Administrative Expense
General and administrative expenses were $7,956 million in fiscal 2026 versus $7,223 million in fiscal 2025, an increase of 10%, or 2% of revenue (down 1 percentage point). The increase was driven by higher legal expenses and gains on divestitures recorded in the prior period.
Other Income (Expense), Net
Other income (expense), net totaled $10,697 million in fiscal 2026 versus $(4,901) million in fiscal 2025, comprising interest and dividends income of $3,301 million, interest expense of $(3,051) million, net recognized gains on investments of $4,385 million, net gains on derivatives of $1,867 million, net losses on foreign currency remeasurements of $(527) million, and Other, net of $4,722 million. Other income (expense), net included $6.5 billion of net gains (fiscal 2026) and $4.8 billion of net losses (fiscal 2025) from investments in OpenAI, primarily net recognized gains/losses on the equity method investment reflected in Other, net; the fiscal 2026 gain primarily relates to the dilution gain from the OpenAI Recapitalization.
Income Taxes
Effective Tax Rate
The effective tax rate was 19% in fiscal 2026 and 18% in fiscal 2025; the increase was primarily due to changes in the mix of earnings and tax expenses between the U.S. and foreign countries. In fiscal 2026, U.S. income before income taxes was $103.6 billion and foreign income before income taxes was $62.3 billion; in fiscal 2025 the figures were $69.2 billion and $54.4 billion, respectively. The effective rate remains lower than the U.S. federal statutory rate primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing products and services through the foreign regional operations center in Ireland.
Uncertain Tax Positions
Microsoft remains under IRS audit for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on September 26, 2023, Microsoft received Notices of Proposed Adjustment (NOPAs) from the IRS relating primarily to intercompany transfer pricing, seeking an additional tax payment of $28.9 billion plus penalties and interest. As of June 30, 2026, management believes its allowances for income tax contingencies are adequate, disagrees with the proposed adjustments, and will vigorously contest the NOPAs through IRS administrative appeals and, if necessary, judicial proceedings. Microsoft's operations in Ireland remain subject to examination for tax years 2021 and thereafter.
Non-GAAP Financial Measures
Adjusted other income (expense), net, adjusted net income, and adjusted diluted EPS are non-GAAP financial measures that exclude net gains and losses from investments in OpenAI; management uses them alongside GAAP results to evaluate business performance and clarify underlying trends. Fiscal 2026 adjusted net income was $128,786 million (up 22% from $105,452 million in fiscal 2025) and adjusted diluted EPS was $17.28 (up 22% from $14.13). GAAP net income was $133,749 million (up 31%) and GAAP diluted EPS was $17.95 (up 32%). Adjusted other income (expense), net was $4,167 million in fiscal 2026 versus $(138) million in fiscal 2025. These non-GAAP measures should not be considered a substitute for, or superior to, GAAP financial performance measures.
Liquidity and Capital Resources
Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and short-term investments totaled $76.8 billion as of June 30, 2026, versus $94.6 billion as of June 30, 2025. Equity and other investments were $36.3 billion (2026) versus $15.4 billion (2025). Short-term investments are primarily highly liquid investment-grade fixed-income securities, predominantly U.S. dollar-denominated, managed for interest rate risk and credit risk.
Cash Flows
Cash from operations increased $46.8 billion to $182.9 billion for fiscal 2026, primarily due to higher cash received from customers and lower cash used to pay income taxes, offset in part by higher cash paid to suppliers. Cash used in financing increased $847 million to $52.5 billion, primarily due to a $3.9 billion increase in common stock repurchases and a $2.4 billion increase in dividends paid, offset by a $6.0 billion decrease in cash used for debt repayments. Cash used in investing increased $66.9 billion to $139.5 billion, primarily due to a $51.4 billion increase in additions to property and equipment and a $22.2 billion increase in other investing cash used to facilitate component purchases.
Unearned Revenue
Unearned revenue comprises mainly volume licensing programs, including cloud services and Software Assurance, generally invoiced annually and recognized ratably over the coverage period. As of June 30, 2026, total unearned revenue expected to be recognized was $75,712 million: $28,589 million in the quarter ending September 30, 2026; $22,556 million ending December 31, 2026; $15,457 million ending March 31, 2027; $6,363 million ending June 30, 2027; and $2,747 million thereafter.
Material Cash Requirements and Contractual Obligations
As of June 30, 2026, total outstanding contractual obligations were $743,821 million, comprising long-term debt principal payments of $46,136 million, interest payments of $25,553 million, construction commitments of $34,566 million, operating and finance leases (including imputed interest) of $443,506 million, and purchase commitments (primarily datacenters) of $194,060 million.
Share Repurchases
Microsoft repurchased 36 million shares for $16.7 billion in fiscal 2026 and 31 million shares for $13.0 billion in fiscal 2025, all funded from cash resources. As of June 30, 2026, $40.6 billion remained available under the $60 billion share repurchase program.
Dividends
Microsoft's Board of Directors declared dividends totaling $27.0 billion in fiscal 2026 and $24.7 billion in fiscal 2025. Management intends to continue returning capital to shareholders through dividends, subject to Board declaration.
Critical Accounting Estimates
Areas involving significant estimation uncertainty that could materially affect Microsoft's financial condition or results of operations: revenue recognition, investment securities measurement and impairment, goodwill, research and development costs, legal contingencies, and income taxes.
Revenue Recognition
Determining whether products and services are distinct performance obligations requires significant judgment, including whether on-premises licenses are distinct from bundled cloud services. Office 365 desktop applications and cloud services are accounted for together as one performance obligation, recognized ratably. Judgment is also required to determine standalone selling price for each performance obligation and to estimate remaining performance obligations, variable consideration, returns, and credits.
Measurement and Impairment of Investment Securities
Investments are accounted for as available-for-sale debt securities, equity investments with readily determinable fair values, or equity investments without readily determinable fair values measured under the equity method or at cost less impairments. Debt investments are reviewed quarterly for credit losses and impairment; equity investments without readily determinable fair values are assessed qualitatively on a periodic basis and written down if impaired.
Goodwill
Goodwill is allocated to reporting units and tested for impairment annually (May 1) and between annual tests if triggering events occur. Fair value of each reporting unit is estimated primarily through a discounted cash flow methodology requiring significant judgments about future cash flows, long-term growth rates, and weighted average cost of capital.
Research and Development Costs
Internal software development costs are expensed until technological feasibility is established, then capitalized until general release. Microsoft determines technological feasibility is reached after all high-risk development issues have been resolved through coding and testing, generally shortly before release to production.
Legal and Other Contingencies
An estimated loss from a legal proceeding or claim is accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated, evaluating the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of loss.
Tax benefits from uncertain tax positions are recognized only if more likely than not to be sustained on examination, measured at the largest benefit with greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is required in assessing future tax consequences of events recognized in the consolidated financial statements or tax returns.
Statement of Management's Responsibility for Financial Statements
Management is responsible for preparing the consolidated financial statements and related information, prepared in conformity with GAAP and including amounts based on management's estimates and judgments. The Company designs and maintains accounting and internal control systems, augmented by written policies, division of responsibilities, qualified personnel, and internal audits. Deloitte & Touche LLP, an independent registered public accounting firm, was engaged to audit and render an opinion on the consolidated financial statements and internal control over financial reporting. The Board of Directors, through its Audit Committee of independent directors, meets periodically with management, internal auditors, and the independent registered public accounting firm.
How Microsoft's Fiscal Year 2026 MD&A Is Structured
The sequence of disclosures management uses in Item 7 of the Form 10-K to walk investors from top-line results to segment drivers, expense trends, non-GAAP reconciliation, liquidity, and the judgment areas behind the financial statements.
Read the Overview and fiscal year highlights
Start with the Overview, which frames Microsoft's AI-centric strategy, the OpenAI partnership, and the summary results of operations table (revenue, gross margin, operating income, net income, diluted EPS) for fiscal 2026 versus 2025.
Review Segment Results of Operations
Examine the three reportable segments — Productivity and Business Processes, Intelligent Cloud, and More Personal Computing — for revenue, cost of revenue, operating expenses, and operating income, each with year-over-year percentage change.
Examine Operating Expenses by category
Break down research and development, sales and marketing, and general and administrative expenses, each shown in dollars, as a percent of revenue, and with a management explanation of the year-over-year driver.
Analyze Other Income (Expense), Net
Review the components of other income (expense), net, including the impact of net gains and losses from Microsoft's investments in OpenAI.
Assess Income Taxes
Review the effective tax rate, the drivers of its year-over-year change, and disclosed uncertain tax positions including the ongoing IRS transfer-pricing dispute.
Reconcile Non-GAAP Financial Measures
Reconcile GAAP net income and diluted EPS to adjusted (non-GAAP) net income and diluted EPS by excluding net gains and losses from OpenAI investments.
Evaluate Liquidity and Capital Resources
Review cash and investment balances, cash flow drivers, unearned revenue recognition schedule, contractual obligations, share repurchases, and dividends.
Understand Critical Accounting Estimates
Review the areas of significant estimation uncertainty — revenue recognition, investment securities impairment, goodwill, research and development costs, legal contingencies, and income taxes — that could materially affect reported results.
Frequently Asked Questions
What was Microsoft's total revenue for fiscal year 2026?
Microsoft reported total revenue of $331,839 million for fiscal year 2026, an increase of 18% over fiscal year 2025's $281,724 million, driven primarily by growth in Microsoft Cloud.
How much did Microsoft Cloud revenue grow in fiscal 2026?
Microsoft Cloud revenue increased 27% to $214.4 billion in fiscal year 2026.
What drove the increase in Intelligent Cloud segment operating income?
Intelligent Cloud operating income increased $12.4 billion or 28%, driven by 30% revenue growth (led by Azure and other cloud services growing 41%) and 21% gross margin growth, though gross margin percentage decreased due to continued AI infrastructure investment and sales mix shift to Azure.
Why did Microsoft's effective tax rate increase in fiscal 2026?
The effective tax rate increased from 18% in fiscal 2025 to 19% in fiscal 2026, primarily due to changes in the mix of earnings and tax expenses between the U.S. and foreign countries.
Why does management exclude OpenAI investment gains and losses from non-GAAP measures?
Management excludes net gains and losses from investments in OpenAI from adjusted (non-GAAP) net income and adjusted diluted EPS because it believes doing so provides additional insight into financial performance and helps clarify underlying business trends, since these amounts primarily reflect equity-method investment gains and losses rather than core operations.
How did the Productivity and Business Processes segment perform in fiscal 2026?
Productivity and Business Processes revenue increased $19.2 billion or 16% to $139,996 million, and operating income increased $14.1 billion or 20% to $83,879 million, driven by Microsoft 365 Commercial cloud, LinkedIn, and Dynamics 365 growth.
What factors drove the decrease in More Personal Computing segment revenue?
More Personal Computing revenue decreased $597 million or 1% to $54,052 million, driven by a 7% decline in XBOX revenue (including a 29% drop in XBOX hardware revenue), offset in part by 9% growth in Search advertising revenue.
How much did research and development expenses increase and why?
Research and development expenses increased $3.1 billion or 9% to $35,562 million, driven by continued investments in compute capacity, AI talent, and data supporting product development, as well as impairment and other related expenses in the XBOX business.
What is management's approach to the critical accounting estimate for revenue recognition?
Management exercises significant judgment in determining distinct performance obligations, standalone selling price, and the treatment of bundled offerings such as Office 365, where desktop applications and cloud services are accounted for together as one performance obligation recognized ratably.
How does Microsoft assess goodwill impairment?
Goodwill is tested for impairment at the reporting unit level annually on May 1, and between annual tests if triggering events occur, primarily using a discounted cash flow methodology requiring judgment about future cash flows, long-term growth rates, and weighted average cost of capital.
What are the key liquidity metrics reported for fiscal year 2026?
As of June 30, 2026, cash, cash equivalents, and short-term investments totaled $76.8 billion, and equity and other investments were $36.3 billion. Cash from operations was $182.9 billion for the fiscal year.
How much cash did Microsoft generate from operations in fiscal 2026?
Cash from operations increased $46.8 billion to $182.9 billion for fiscal year 2026, primarily due to higher cash received from customers and lower cash used to pay income taxes, offset in part by higher cash paid to suppliers.
What is the status of Microsoft's IRS transfer pricing dispute?
Microsoft received Notices of Proposed Adjustment from the IRS for tax years 2004 to 2013 relating primarily to intercompany transfer pricing, with the IRS seeking an additional tax payment of $28.9 billion plus penalties and interest. Management believes its allowances for income tax contingencies are adequate, disagrees with the proposed adjustments, and will contest them through IRS administrative appeals and, if necessary, judicial proceedings.
How much has Microsoft committed to under contractual obligations?
As of June 30, 2026, total outstanding contractual obligations were $743,821 million, comprising long-term debt principal and interest, construction commitments, operating and finance leases, and purchase commitments (primarily for datacenters).
Who is responsible for Microsoft's financial statements per the Statement of Management's Responsibility?
Management, including Chief Executive Officer Satya Nadella, Chief Financial Officer Amy E. Hood, and Chief Accounting Officer Alice L. Jolla, is responsible for preparing the consolidated financial statements in conformity with GAAP; Deloitte & Touche LLP was engaged to audit and render an opinion on the financial statements and internal control over financial reporting.
Financial Concepts (FASB US-GAAP XBRL Taxonomy)
Financial-statement line items in this analysis, aligned to the exact FASB US-GAAP XBRL taxonomy concepts Microsoft used to tag them in its own XBRL instance document for this filing.
Revenue
FASB US-GAAP XBRL taxonomy concept for revenue from contracts with customers, excluding assessed tax; the element Microsoft tags its total revenue with in this filing's XBRL instance.
Gross margin
FASB US-GAAP XBRL taxonomy concept for gross profit (revenue less cost of revenue).
Operating income
FASB US-GAAP XBRL taxonomy concept for income or loss from operations before other income/expense and income taxes.
Net income
FASB US-GAAP XBRL taxonomy concept for consolidated net income or loss attributable to the reporting entity.
Diluted earnings per share
FASB US-GAAP XBRL taxonomy concept for diluted net income per share, reflecting the potential dilution of common stock equivalents.
Interest and dividends income
FASB US-GAAP XBRL taxonomy concept for net investment income, the element Microsoft tags interest and dividends income with in this filing.
Interest expense
FASB US-GAAP XBRL taxonomy concept for nonoperating interest expense.
Net recognized gains (losses) on investments
FASB US-GAAP XBRL taxonomy concept for net realized and unrealized gains or losses on investments.
Net gains (losses) on derivatives
FASB US-GAAP XBRL taxonomy concept for the net pretax gain or loss on derivative instruments.
Net gains (losses) on foreign currency remeasurements
FASB US-GAAP XBRL taxonomy concept for the pretax gain or loss from foreign currency transaction remeasurement.
Other, net
FASB US-GAAP XBRL taxonomy concept for other nonoperating income and expense not separately classified, including equity-method investment gains/losses such as Microsoft's OpenAI investment.
Other income (expense), net
FASB US-GAAP XBRL taxonomy concept for total nonoperating income and expense, net.
Research and development
FASB US-GAAP XBRL taxonomy concept for research and development expense.
Sales and marketing
FASB US-GAAP XBRL taxonomy concept for selling and marketing expense.
General and administrative
FASB US-GAAP XBRL taxonomy concept for general and administrative expense.
Unearned revenue
FASB US-GAAP XBRL taxonomy concept for the contract liability recognized for consideration received or receivable in advance of satisfying performance obligations.
Effective tax rate
FASB US-GAAP XBRL taxonomy concept for the effective income tax rate from continuing operations.
Financial Facts (XBRL-Aligned Monetary Values)
Individually typed monetary and rate facts for fiscal years 2026 and 2025, each linked to its FASB US-GAAP XBRL taxonomy concept, replacing prose-embedded figures with machine-actionable values.
Revenue — FY2026
Revenue — FY2025
Gross margin — FY2026
Gross margin — FY2025
Operating income — FY2026
Operating income — FY2025
Net income — FY2026
Net income — FY2025
Research and development expense — FY2026
Research and development expense — FY2025
Sales and marketing expense — FY2026
Sales and marketing expense — FY2025
General and administrative expense — FY2026
General and administrative expense — FY2025
Interest and dividends income — FY2026
Interest and dividends income — FY2025
Interest expense — FY2026
Interest expense — FY2025
Net recognized gains (losses) on investments — FY2026
Net recognized gains (losses) on investments — FY2025
Net gains (losses) on derivatives — FY2026
Net gains (losses) on derivatives — FY2025
Net gains (losses) on foreign currency remeasurements — FY2026
Net gains (losses) on foreign currency remeasurements — FY2025
Other, net — FY2026
Other, net — FY2025
Other income (expense), net — FY2026
Other income (expense), net — FY2025
Diluted earnings per share — FY2026
Dollar value is per diluted share.
Diluted earnings per share — FY2025
Unearned revenue (expected future recognition) — as of June 30, 2026
Effective tax rate — FY2026
fraction of pretax income
Effective tax rate — FY2025
Glossary
MD&A
Management's Discussion and Analysis of Financial Condition and Results of Operations — the section of a Form 10-K in which management explains the results of operations and financial condition of the registrant, supplementing the consolidated financial statements.
Microsoft Cloud revenue
Revenue from Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365.
Commercial remaining performance obligation
The commercial portion of revenue allocated to remaining performance obligations, including unearned revenue and amounts that will be invoiced and recognized as revenue in future periods.
Non-GAAP financial measures
Financial measures, such as adjusted net income and adjusted diluted EPS, that exclude net gains and losses from investments in OpenAI; used by management alongside GAAP results but not a substitute for GAAP measures.
Adjusted net income (non-GAAP)
GAAP net income adjusted to exclude net gains and losses, net of tax, from investments in OpenAI.
Standalone selling price (SSP)
The price at which a distinct product or service would be sold separately to a customer, used to allocate revenue across multiple performance obligations in a contract.
Amounts invoiced or collected in advance of revenue recognition, comprising mainly volume licensing programs including cloud services and Software Assurance, recognized ratably over the coverage period.
Critical accounting estimate
An estimate involving a significant level of estimation uncertainty that could have a material impact on financial condition or results of operations.
Goodwill impairment test
An annual (and event-driven) assessment of whether a reporting unit's carrying value exceeds its estimated fair value, typically determined using a discounted cash flow methodology.
Total income tax expense divided by income before income taxes, reflecting the blended impact of statutory rates across the jurisdictions in which a company earns income.
Reportable segment
A component of a business for which discrete financial information is reviewed by the chief operating decision maker and disclosed separately in financial reporting; Microsoft reports Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
Microsoft 365 Commercial seat
A paid user covered by a Microsoft 365 Commercial subscription at the end of a reporting period, used as a leading indicator of Microsoft 365 Commercial cloud revenue growth.
kg-generator skill
A Claude Code skill that generates standards-compliant RDF Knowledge Graphs from web and document sources using curated schema.org prompt templates.