EX-99.1

EX-99.1 2 d844377dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Microsoft Cloud Strength Drives Third Quarter Results

REDMOND, Wash. — April 29, 2020 — Microsoft Corp. today announced the following results for the quarter ended March 31, 2020, as compared to the corresponding period of last fiscal year:

•

Revenue was $35.0 billion and increased 15%

•

Operating income was $13.0 billion and increased 25%

•

Net income was $10.8 billion and increased 22%

•

Diluted earnings per share was $1.40 and increased 23%

“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything,” said Satya Nadella, chief executive officer of Microsoft. “Our durable business model, diversified portfolio, and differentiated technology stack position us well for what’s ahead.”

“In this dynamic environment, our sales teams and partners executed a solid third quarter, with Commercial Cloud revenue generating $13.3 billion, up 39% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth.”

COVID-19 Impact

In the third quarter of fiscal year 2020, COVID-19 had minimal net impact on the total company revenue.

In the Productivity and Business Processes and Intelligent Cloud segments, cloud usage increased, particularly in Microsoft 365 including Teams, Azure, Windows Virtual Desktop, advanced security solutions, and Power Platform, as customers shifted to work and learn from home. In the final weeks of the quarter, there was a slowdown in transactional licensing, particularly in small and medium businesses, and a reduction in advertising spend in LinkedIn.

In the More Personal Computing segment, Windows OEM and Surface benefited from increased demand to support remote work and learn scenarios, offset in part by supply chain constraints in China that improved late in the quarter. Gaming benefited from increased engagement following stay-at-home guidelines. Search was negatively impacted by reductions in advertising spend, particularly in the industries most impacted by COVID-19. The effects of COVID-19 may not be fully reflected in the financial results until future periods.

Segment Highlights

Revenue in Productivity and Business Processes was $11.7 billion and increased 15% (up 16% in constant currency), with the following business highlights:

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Office Commercial products and cloud services revenue increased 13% (up 15% in constant currency) driven by Office 365 Commercial revenue growth of 25% (up 27% in constant currency)

•

Office Consumer products and cloud services revenue increased 15% (up 17% in constant currency) with continued growth in Office 365 Consumer subscribers to 39.6 million

•

LinkedIn revenue increased 21% (up 22% in constant currency)

•

Dynamics products and cloud services revenue increased 17% (up 20% in constant currency) driven by Dynamics 365 revenue growth of 47% (up 49% in constant currency)

Revenue in Intelligent Cloud was $12.3 billion and increased 27% (up 29% in constant currency), with the following business highlights:

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Server products and cloud services revenue increased 30% (up 32% in constant currency) driven by Azure revenue growth of 59% (up 61% in constant currency)

•

Enterprise Services revenue increased 6% (up 7% in constant currency)

Revenue in More Personal Computing was $11.0 billion and increased 3% (up 4% in constant currency), with the following business highlights:

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Windows OEM revenue was relatively unchanged year over year

•

Windows Commercial products and cloud services revenue increased 17% (up 18% in constant currency)

•

Search advertising revenue excluding traffic acquisition costs increased 1%

•

Xbox content and services revenue increased 2%

•

Surface revenue increased 1% (up 2% in constant currency)

Return to Shareholders

Microsoft returned $9.9 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2020, an increase of 33% compared to the third quarter of fiscal year 2019.

Business Outlook

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

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.

Quarterly 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 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, 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 April 29, 2021.

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 generally accepted accounting principles (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

2019 As Reported

$30,571

$10,341

$8,809

$1.14

2020 As Reported

$35,021

$12,975

$10,752

$1.40

Percentage Change Y/Y

15%

25%

22%

23%

Constant Currency Impact

$(404)

$(296)

$(375)

$(0.05)

Percentage Change Y/Y Constant Currency

16%

28%

26%

27%

Segment Revenue Constant Currency Reconciliation

Three Months Ended March 31,

($ in millions)

Productivity and
Business Processes

Intelligent Cloud

More Personal
Computing

2019 As Reported

$10,242

$9,649

$10,680

2020 As Reported

$11,743

$12,281

$10,997

Percentage Change Y/Y

15%

27%

Constant Currency Impact

$(162)

$(164)

$(78)

Percentage Change Y/Y Constant Currency

16%

29%

Selected Product and Service Revenue Constant Currency Reconciliation


	Three Months Ended March 31, 2020
	Percentage Change Y/Y (GAAP)		Constant Currency Impact		Percentage Change Y/Y Constant Currency
Office Commercial products and cloud services		13%		2%		15%
Office 365 Commercial		25%		2%		27%
Office Consumer products and cloud services		15%		2%		17%
LinkedIn		21%		1%		22%
Dynamics products and cloud services		17%		3%		20%
Dynamics 365		47%		2%		49%
Server products and cloud services		30%		2%		32%
Azure		59%		2%		61%
Enterprise Services		6%		1%		7%
Windows OEM		0%		0%		0%
Windows Commercial products and cloud services		17%		1%		18%
Search advertising excluding traffic acquisition costs		1%		0%		1%
Surface		1%		1%		2%
Xbox content and services		2%		0%		2%

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:

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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;

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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;

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issues about the use of artificial intelligence in our offerings that may result in competitive harm, legal liability, or reputational harm;

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

•

quality or supply problems;

•

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

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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;

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claims against us that may result in adverse outcomes in legal disputes;

•

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;

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additional tax liabilities;

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damage to our reputation or our brands that may harm our business and operating results;

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exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;

•

uncertainties relating to our business with government customers;

•

adverse economic or market conditions that may harm our business;

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catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business; and

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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, 2020. 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:

Michael Spencer, 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,

2020

2019

2020

2019

Revenue:

Product

$15,871

$15,448

$49,894

$48,966

Service and other

19,150

15,123

55,088

43,160

Total revenue

35,021

30,571

104,982

92,126

Cost of revenue:

Product

3,376

3,441

11,647

12,975

Service and other

7,599

6,729

22,092

19,523

Total cost of revenue

10,975

10,170

33,739

32,498

Gross margin

24,046

20,401

71,243

59,628

Research and development

4,887

4,316

14,055

12,363

Sales and marketing

4,911

4,565

14,181

13,251

General and administrative

1,273

1,179

3,455

3,460

Operating income

12,975

10,341

39,552

30,554

Other income (expense), net

(132)

145

538

Income before income taxes

12,843

10,486

39,614

31,092

Provision for income taxes

2,091

1,677

6,535

5,039

Net income

$10,752

$8,809

$33,079

$26,053

Earnings per share:

Basic

$1.41

$1.15

$4.34

$3.39

Diluted

$1.40

$1.14

$4.30

$3.36

Weighted average shares outstanding:

Basic

7,602

7,672

7,619

7,679

Diluted

7,675

7,744

7,693

7,759

MICROSOFT CORPORATION

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)

Three Months Ended
March 31,

Nine Months Ended
March 31,

2020

2019

2020

2019

Net income

$10,752

$8,809

$33,079

$26,053

Other comprehensive income (loss), net of tax:

Net change related to derivatives

(36)

(33)

(42)

(93)

Net change related to investments

3,508

714

3,665

1,334

Translation adjustments and other

(541)

(607)

(252)

Other comprehensive income

2,931

748

3,016

989

Comprehensive income

$13,683

$9,557

$36,095

$27,042

MICROSOFT CORPORATION

BALANCE SHEETS

(In millions) (Unaudited)


	March 31, 2020		June 30, 2019

Assets
Current assets:
Cash and cash equivalents		$11,710		$11,356
Short-term investments		125,916		122,463

Total cash, cash equivalents, and short-term investments		137,626		133,819
Accounts receivable, net of allowance for doubtful accounts of $446 and $411		22,699		29,524
Inventories		1,644		2,063
Other current assets		8,536		10,146

Total current assets		170,505		175,552
Property and equipment, net of accumulated depreciation of $41,512 and $35,330		41,221		36,477
Operating lease right-of-use assets		8,448		7,379
Equity investments		2,660		2,649
Goodwill		42,064		42,026
Intangible assets, net		6,855		7,750
Other long-term assets		13,696		14,723

Total assets		$285,449		$286,556

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$9,246		$9,382
Current portion of long-term debt		3,748		5,516
Accrued compensation		6,254		6,830
Short-term income taxes		3,296		5,665
Short-term unearned revenue		27,012		32,676
Other current liabilities		9,151		9,351

Total current liabilities		58,707		69,420
Long-term debt		62,862		66,662
Long-term income taxes		28,888		29,612
Long-term unearned revenue		3,385		4,530
Deferred income taxes		185		233
Operating lease liabilities		7,248		6,188
Other long-term liabilities		9,673		7,581

Total liabilities		170,948		184,226

Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital — shares authorized 24,000; outstanding 7,590 and 7,643		79,813		78,520
Retained earnings		32,012		24,150
Accumulated other comprehensive income (loss)		2,676		(340)

Total stockholders’ equity		114,501		102,330

Total liabilities and stockholders’ equity		$285,449		$286,556

MICROSOFT CORPORATION

CASH FLOWS STATEMENTS

(In millions) (Unaudited)

Three Months Ended

March 31,

Nine Months Ended

March 31,

2020

2019

2020

2019

Operations

Net income

$10,752

$8,809

$33,079

$26,053

Adjustments to reconcile net income to net cash from operations:

Depreciation, amortization, and other

3,118

2,926

9,292

8,758

Stock-based compensation expense

1,338

1,172

3,940

3,462

Net recognized losses (gains) on investments and derivatives

(95)

(140)

(470)

Deferred income taxes

(206)

(320)

(436)

(740)

Changes in operating assets and liabilities:

Accounts receivable

891

460

6,778

7,258

Inventories

181

419

710

Other current assets

(14)

(179)

(864)

Other long-term assets

124

(517)

(726)

(969)

Accounts payable

546

(197)

(8)

(1,032)

Unearned revenue

(736)

(6,564)

(4,543)

Income taxes

765

276

(3,042)

(879)

Other current liabilities

695

649

(1,136)

(1,017)

Other long-term liabilities

(110)

339

725

350

Net cash from operations

17,504

13,520

42,002

36,077

Financing

Repayments of debt

(3,000)

(5,518)

(3,000)

Common stock issued

342

274

1,003

834

Common stock repurchased

(7,059)

(4,753)

(17,177)

(14,910)

Common stock cash dividends paid

(3,876)

(3,526)

(11,272)

(10,290)

Other, net

(1,052)

404

(805)

(835)

Net cash used in financing

(14,645)

(7,601)

(33,769)

(28,201)

Investing

Additions to property and equipment

(3,767)

(2,565)

(10,697)

(9,874)

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

(329)

(269)

(871)

(2,107)

Purchases of investments

(15,910)

(5,846)

(58,311)

(42,255)

Maturities of investments

17,247

5,893

47,559

14,889

Sales of investments

2,810

1,424

14,559

30,831

Net cash from (used in) investing

(1,363)

(7,761)

(8,516)

Effect of foreign exchange rates on cash and cash equivalents

(64)

(118)

(94)

Net change in cash and cash equivalents

2,846

4,574

354

(734)

Cash and cash equivalents, beginning of period

8,864

6,638

11,356

11,946

Cash and cash equivalents, end of period

$11,710

$11,212

$11,710

$11,212

MICROSOFT CORPORATION

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

Three Months Ended
March 31,

Nine Months Ended
March 31,

2020

2019

2020

2019

Revenue

Productivity and Business Processes

$11,743

$10,242

$34,646

$30,113

Intelligent Cloud

12,281

9,649

34,995

27,594

More Personal Computing

10,997

10,680

35,341

34,419

Total

$35,021

$30,571

$104,982

$92,126

Operating Income

Productivity and Business Processes

$4,788

$3,979

$14,752

$11,875

Intelligent Cloud

4,560

3,208

12,980

9,418

More Personal Computing

3,627

3,154

11,820

9,261

Total

$12,975

$10,341

$39,552

$30,554