EX-99.1 2 d65802dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Microsoft Cloud Strength Drives Second Quarter Results

REDMOND, Wash. — January 26, 2021 — Microsoft Corp. today announced the following results for the quarter ended December 31, 2020, as compared to the corresponding period of last fiscal year:

 

  •  

Revenue was $43.1 billion and increased 17%

  •  

Operating income was $17.9 billion and increased 29%

  •  

Net income was $15.5 billion and increased 33%

  •  

Diluted earnings per share was $2.03 and increased 34%

“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” said Satya Nadella, chief executive officer of Microsoft. “Building their own digital capability is the new currency driving every organization’s resilience and growth. Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform.”

“Accelerating demand for our differentiated offerings drove commercial cloud revenue to $16.7 billion, up 34% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We continue to benefit from our investments in strategic, high-growth areas.”

Business Highlights

Revenue in Productivity and Business Processes was $13.4 billion and increased 13% (up 11% in constant currency), with the following business highlights:

 

  •  

Office Commercial products and cloud services revenue increased 11% (up 9% in constant currency) driven by Office 365 Commercial revenue growth of 21% (up 20% in constant currency)

  •  

Office Consumer products and cloud services revenue increased 7% (up 6% in constant currency) and Microsoft 365 Consumer subscribers increased to 47.5 million

  •  

LinkedIn revenue increased 23% (up 22% in constant currency)

  •  

Dynamics products and cloud services revenue increased 21% (up 18% in constant currency) driven by Dynamics 365 revenue growth of 39% (up 37% in constant currency)

Revenue in Intelligent Cloud was $14.6 billion and increased 23% (up 22% in constant currency), with the following business highlights:

 

  •  

Server products and cloud services revenue increased 26% (up 24% in constant currency) driven by Azure revenue growth of 50% (up 48% in constant currency)

Revenue in More Personal Computing was $15.1 billion and increased 14% (up 13% in constant currency), with the following business highlights:

 

  •  

Windows OEM revenue increased 1%

  •  

Windows Commercial products and cloud services revenue increased 10% (up 8% in constant currency)

  •  

Xbox content and services revenue increased 40% (up 38% in constant currency)

  •  

Surface revenue increased 3% (up 1% in constant currency)

  •  

Search advertising revenue excluding traffic acquisition costs increased 2% (up 1% in constant currency)

Microsoft returned $10 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2021, an increase of 18% compared to the second quarter of fiscal year 2020.

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.

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.

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, Alice Jolla, 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 January 26, 2022.

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 December 31,

 

  

   ($ in millions, except per share amounts)

 

   

  Revenue  

 

     

  Operating  
  Income  

 

     

  Net Income  

 

     

  Diluted  
  Earnings per  
  Share  

 

  

  2019 As Reported

   

 

$36,906

 

   

 

$13,891

 

   

 

$11,649

 

   

 

$1.51

 

  2020 As Reported

   

 

$43,076

 

   

 

$17,897

 

   

 

$15,463

 

   

 

$2.03

 

  Percentage Change Y/Y

   

 

17%

 

   

 

29%

 

   

 

33%

 

   

 

34%

 

  Constant Currency Impact

   

 

$494

 

   

 

$383

 

   

 

$379

 

   

 

$0.05

 

  Percentage Change Y/Y Constant Currency

   

 

15%

 

   

 

26%

 

   

 

29%

 

   

 

31%

 

Segment Revenue Constant Currency Reconciliation

 

     

Three Months Ended December 31,

 

  

   ($ in millions)

 

   

Productivity and
Business Processes

 

     

Intelligent Cloud

 

     

More Personal
      Computing      

 

  

  2019 As Reported

   

 

$11,826

 

   

 

$11,869

 

   

 

$13,211

 

  2020 As Reported

   

 

$13,353

 

   

 

$14,601

 

   

 

$15,122

 

  Percentage Change Y/Y

   

 

13%

 

   

 

23%

 

   

 

14%

 

  Constant Currency Impact

   

 

$173

 

   

 

$168

 

   

 

$153

 

  Percentage Change Y/Y Constant Currency

   

 

11%

 

   

 

22%

 

   

 

13%

 

Selected Product and Service Revenue Constant Currency Reconciliation

 

     

Three Months Ended December 31,

 

  
     

Percentage Change
Y/Y (GAAP)

     

Constant Currency
Impact

 

     

Percentage Change
Y/Y Constant
Currency

 

  

  Office Commercial products and cloud services

   

 

11%

 

   

 

(2)%

 

   

 

9%

 

  Office 365 Commercial

   

 

21%

 

   

 

(1)%

 

   

 

20%

 

  Office Consumer products and cloud services

   

 

7%

 

   

 

(1)%

 

   

 

6%

 

  LinkedIn

   

 

23%

 

   

 

(1)%

 

   

 

22%

 

  Dynamics products and cloud services

   

 

21%

 

   

 

(3)%

 

   

 

18%

 

  Dynamics 365

   

 

39%

 

   

 

(2)%

 

   

 

37%

 

  Server products and cloud services

   

 

26%

 

   

 

(2)%

 

   

 

24%

 

  Azure

   

 

50%

 

   

 

(2)%

 

   

 

48%

 

  Windows OEM

   

 

1%

 

   

 

0%

 

   

 

1%

 

  Windows Commercial products and cloud services

   

 

10%

 

   

 

(2)%

 

   

 

8%

 

  Xbox content and services

   

 

40%

 

   

 

(2)%

 

   

 

38%

 

  Surface

   

 

3%

 

   

 

(2)%

 

   

 

1%

 

  Search advertising excluding traffic acquisition costs

   

 

2%

 

   

 

(1)%

 

   

 

1%

 

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 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;

 

  •  

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 December 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
December 31,

     

Six Months Ended
December 31,

  
    

     2020

     

          2019

     

     2020

     

          2019

  

 

  

 Revenue:

            

 Product

   

 

$19,460 

 

   

 

$18,255 

 

   

 

$35,263 

 

   

 

$34,023 

 

 Service and other

   

 

23,616 

 

   

 

18,651 

 

   

 

44,967 

 

   

 

35,938 

 

 

     

 

 

     

 

 

     

 

 

  

 Total revenue

   

 

43,076 

 

   

 

36,906 

 

   

 

80,230 

 

   

 

69,961 

 

 

     

 

 

     

 

 

     

 

 

  

 Cost of revenue:

            

 Product

   

 

6,058 

 

   

 

4,966 

 

   

 

9,655 

 

   

 

8,271 

 

 Service and other

   

 

8,136 

 

   

 

7,392 

 

   

 

15,541 

 

   

 

14,493 

 

 

     

 

 

     

 

 

     

 

 

  

 Total cost of revenue

   

 

14,194 

 

   

 

12,358 

 

   

 

25,196 

 

   

 

22,764 

 

 

     

 

 

     

 

 

     

 

 

  

 Gross margin

   

 

28,882 

 

   

 

24,548 

 

   

 

55,034 

 

   

 

47,197 

 

 Research and development

   

 

4,899 

 

   

 

4,603 

 

   

 

9,825 

 

   

 

9,168 

 

 Sales and marketing

   

 

4,947 

 

   

 

4,933 

 

   

 

9,178 

 

   

 

9,270 

 

 General and administrative

   

 

1,139 

 

   

 

1,121 

 

   

 

2,258 

 

   

 

2,182 

 

 

     

 

 

     

 

 

     

 

 

  

 Operating income

   

 

17,897 

 

   

 

13,891 

 

   

 

33,773 

 

   

 

26,577 

 

 Other income, net

   

 

440 

 

   

 

194 

 

   

 

688 

 

   

 

194 

 

 

     

 

 

     

 

 

     

 

 

  

 Income before income taxes

   

 

18,337 

 

   

 

14,085 

 

   

 

34,461 

 

   

 

26,771 

 

 Provision for income taxes

   

 

2,874 

 

   

 

2,436 

 

   

 

5,105 

 

   

 

4,444 

 

 

     

 

 

     

 

 

     

 

 

  

 Net income

   

 

$15,463 

 

   

 

$11,649 

 

   

 

$29,356 

 

   

 

$22,327 

 

  

 

 

     

 

 

     

 

 

     

 

 

  

 Earnings per share:

            

 Basic

   

 

$2.05 

 

   

 

$1.53 

 

   

 

$3.88 

 

   

 

$2.93 

 

 Diluted

   

 

$2.03 

 

   

 

$1.51 

 

   

 

$3.85 

 

   

 

$2.90 

 

 Weighted average shares outstanding:

            

 Basic

   

 

7,555 

 

   

 

7,621 

 

   

 

7,561 

 

   

 

7,628 

 

 Diluted

   

 

7,616 

 

   

 

7,691 

 

   

 

7,627 

 

   

 

7,701 

 

 

  

MICROSOFT CORPORATION    

 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)

 

    

Three Months Ended
December 31,

     

Six Months Ended
December 31,

  
    

         2020

     

         2019

     

         2020

     

         2019

  

 

  

 Net income

   

 

$15,463 

 

   

 

$11,649 

 

   

 

$29,356 

 

   

 

$22,327 

 

  

 

 

     

 

 

     

 

 

     

 

 

  

 Other comprehensive income (loss), net of tax:

            

 Net change related to derivatives

   

 

8 

 

   

 

(4) 

 

   

 

12 

 

   

 

(6) 

 

 Net change related to investments

   

 

(492) 

 

   

 

(420) 

 

   

 

(693) 

 

   

 

157 

 

 Translation adjustments and other

   

 

741 

 

   

 

230 

 

   

 

852 

 

   

 

(66) 

 

 

     

 

 

     

 

 

     

 

 

  

 Other comprehensive income (loss)

   

 

257 

 

   

 

(194) 

 

   

 

171 

 

   

 

85 

 

 

     

 

 

     

 

 

     

 

 

  

 Comprehensive income

   

 

$15,720 

 

   

 

$11,455 

 

   

 

$29,527 

 

   

 

$22,412 

 

  

 

 

     

 

 

     

 

 

     

 

 

  

MICROSOFT CORPORATION    

 

BALANCE SHEETS

(In millions) (Unaudited)

 

     December 31,
2020 		      June 30,
2020 		  

 

  

 Assets

      

 Current assets:

      

 Cash and cash equivalents

   

 

$14,432 

 

   

 

$13,576 

 

 Short-term investments

   

 

117,536 

 

   

 

122,951 

 

 

     

 

 

  

 Total cash, cash equivalents, and short-term investments

   

 

131,968 

 

   

 

136,527 

 

 Accounts receivable, net of allowance for doubtful accounts of $642 and $788

   

 

27,312 

 

   

 

32,011 

 

 Inventories

   

 

1,924 

 

   

 

1,895 

 

 Other current assets

   

 

12,769 

 

   

 

11,482 

 

 

     

 

 

  

 Total current assets

   

 

173,973 

 

   

 

181,915 

 

 Property and equipment, net of accumulated depreciation of $47,715 and $43,197

   

 

51,737 

 

   

 

44,151 

 

 Operating lease right-of-use assets

   

 

10,298 

 

   

 

8,753 

 

 Equity investments

   

 

3,794 

 

   

 

2,965 

 

 Goodwill

   

 

44,219 

 

   

 

43,351 

 

 Intangible assets, net

   

 

6,555 

 

   

 

7,038 

 

 Other long-term assets

   

 

13,561 

 

   

 

13,138 

 

 

     

 

 

  

 Total assets

   

 

$304,137 

 

   

 

$301,311 

 

  

 

 

     

 

 

  

 Liabilities and stockholders’ equity

      

 Current liabilities:

      

 Accounts payable

   

 

$12,770 

 

   

 

$12,530 

 

 Current portion of long-term debt

   

 

5,387 

 

   

 

3,749 

 

 Accrued compensation

   

 

6,838 

 

   

 

7,874 

 

 Short-term income taxes

   

 

1,562 

 

   

 

2,130 

 

 Short-term unearned revenue

   

 

30,402 

 

   

 

36,000 

 

 Other current liabilities

   

 

10,527 

 

   

 

10,027 

 

 

     

 

 

  

 Total current liabilities

   

 

67,486 

 

   

 

72,310 

 

 Long-term debt

   

 

55,136 

 

   

 

59,578 

 

 Long-term income taxes

   

 

26,701 

 

   

 

29,432 

 

 Long-term unearned revenue

   

 

2,985 

 

   

 

3,180 

 

 Deferred income taxes

   

 

174 

 

   

 

204 

 

 Operating lease liabilities

   

 

8,875 

 

   

 

7,671 

 

 Other long-term liabilities

   

 

12,544 

 

   

 

10,632 

 

 

     

 

 

  

 Total liabilities

   

 

173,901 

 

   

 

183,007 

 

 

     

 

 

  

 Commitments and contingencies

      

 Stockholders’ equity:

      

 

 

 

 Common stock and paid-in capital—shares authorized 24,000; outstanding 7,546 and 7,571

   

 

81,896 

 

   

 

80,552 

 

 Retained earnings

   

 

44,973 

 

   

 

34,566

 

 Accumulated other comprehensive income

   

 

3,367 

 

   

 

3,186 

 

 

     

 

 

  

 Total stockholders’ equity

   

 

130,236 

 

   

 

118,304 

 

 

     

 

 

  

 Total liabilities and stockholders’ equity

   

 

            $304,137 

 

   

 

            $301,311 

 

  

 

 

     

 

 

  

MICROSOFT CORPORATION    

 

CASH FLOWS STATEMENTS

(In millions) (Unaudited)

 

     Three Months Ended 
December 31, 		      Six Months Ended 
December 31, 		  
                 2020                  2019                  2020                  2019  

 

  

 Operations

            

 Net income

      $15,463         $11,649         $29,356         $22,327   

 Adjustments to reconcile net income to net cash from operations:

                   

 Depreciation, amortization, and other

      2,761         3,203         5,406         6,174   

 Stock-based compensation expense

      1,566         1,340         3,022         2,602   

 Net recognized gains on investments and derivatives

      (354)         (203)         (482)         (192)   

 Deferred income taxes

      (17)         (53)         (28)         (230)   

 Changes in operating assets and liabilities:

                        

 Accounts receivable

      (4,008)         (4,203)         4,835         5,887   

 Inventories

      788         799         (20)         238   

 Other current assets

      730         165         676         (273)   

 Other long-term assets

      (1,499)        (517)         (1,561)         (850)   

 Accounts payable

      33         (7)         348         (554)   

 Unearned revenue

      (3,227)         (2,936)         (6,291)         (5,828)   

 Income taxes

      (2,368)         (471)         (3,351)        (3,807)   

 Other current liabilities

      1,755         1,489         (1,196)         (1,831)   

 Other long-term liabilities

      893         425         1,137         835   

 

     

 

 

     

 

 

     

 

 

  

 Net cash from operations

      12,516         10,680         31,851         24,498   

 

     

 

 

     

 

 

     

 

 

  

 Financing

                  

 Repayments of debt

      (3,250)         (18)          (3,250)         (2,518)   

 Common stock issued

      302         234         847         661   

 Common stock repurchased

      (6,535)         (5,206)         (13,278)         (10,118)   

 Common stock cash dividends paid

      (4,230)         (3,886)         (8,086)         (7,396)   

 Other, net

      79         (39)         (156)         247   

 

     

 

 

     

 

 

     

 

 

  

 Net cash used in financing

      (13,634)        (8,915)         (23,923)         (19,124)   

 

     

 

 

     

 

 

     

 

 

  

 Investing

                        

 Additions to property and equipment

      (4,174)         (3,545)         (9,081)         (6,930)   

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

      (415)         (80)         (896)         (542)   

 Purchases of investments

      (15,092)         (19,011)         (29,672)         (42,401)   

 Maturities of investments

      15,264         11,230         29,530         30,312   

 Sales of investments

      2,421         5,370         4,835         11,749   

 Other, net

      327         0         (1,756)         0   

 

     

 

 

     

 

 

     

 

 

  

 Net cash used in investing

      (1,669)         (6,036)         (7,040)         (7,812)   

 

     

 

 

     

 

 

     

 

 

  

 Effect of foreign exchange rates on cash and cash equivalents

      14         18         (32)         (54)   

 

     

 

 

     

 

 

     

 

 

  

 Net change in cash and cash equivalents

      (2,773)        (4,253)         856         (2,492)   

 Cash and cash equivalents, beginning of period

      17,205         13,117         13,576         11,356   

 

     

 

 

     

 

 

     

 

 

  

 Cash and cash equivalents, end of period

      $14,432         $8,864         $14,432         $8,864   
  

 

 

     

 

 

     

 

 

     

 

 

  

MICROSOFT CORPORATION    

 

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

    

Three Months Ended

December 31,

      Six Months Ended
December 31,		  
     2020       2019       2020       2019   

 

  

 Revenue

            

 Productivity and Business Processes

      $13,353         $11,826         $25,672         $22,903   

 Intelligent Cloud

      14,601         11,869         27,587         22,714   

 More Personal Computing

      15,122         13,211         26,971         24,344   

 

     

 

 

     

 

 

     

 

 

  

 Total

      $43,076         $36,906         $80,230         $69,961   
  

 

 

     

 

 

     

 

 

     

 

 

  

 Operating Income

            

 Productivity and Business Processes

      $6,181         $5,182         $11,887         $9,964   

 Intelligent Cloud

      6,492         4,531         11,914         8,420   

 More Personal Computing

      5,224         4,178         9,972         8,193   

 

     

 

 

     

 

 

     

 

 

  

 Total

          $17,897             $13,891             $33,773             $26,577