Form 8-K MICROSOFT CORP For: Oct 27

October 27, 2020 4:13 PM

Exhibit 99.1

Microsoft Cloud Strength Fuels First Quarter Results

REDMOND, Wash. — October 27, 2020 — Microsoft Corp. today announced the following results for the quarter ended September 30, 2020, as compared to the corresponding period of last fiscal year:

 

   

Revenue was $37.2 billion and increased 12%

   

Operating income was $15.9 billion and increased 25%

   

Net income was $13.9 billion and increased 30%

   

Diluted earnings per share was $1.82 and increased 32%

“The next decade of economic performance for every business will be defined by the speed of their digital transformation,” said Satya Nadella, chief executive officer of Microsoft. “We are innovating across our full modern tech stack to help our customers in every industry improve time to value, increase agility, and reduce costs.”

“Demand for our cloud offerings drove a strong start to the fiscal year with our commercial cloud revenue generating $15.2 billion, up 31% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We continue to invest against the significant opportunity ahead of us to drive long-term growth.”

Business Highlights

Revenue in Productivity and Business Processes was $12.3 billion and increased 11%, with the following business highlights:

 

   

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

   

Office Consumer products and cloud services revenue increased 13% and Microsoft 365 Consumer subscribers increased to 45.3 million

   

LinkedIn revenue increased 16%

   

Dynamics products and cloud services revenue increased 19% (up 18% in constant currency) driven by Dynamics 365 revenue growth of 38% (up 37% in constant currency)

Revenue in Intelligent Cloud was $13.0 billion and increased 20% (up 19% in constant currency), with the following business highlights:

 

   

Server products and cloud services revenue increased 22% (up 21% in constant currency) driven by Azure revenue growth of 48% (up 47% in constant currency)

Revenue in More Personal Computing was $11.8 billion and increased 6%, with the following business highlights:

 

   

Windows OEM revenue declined 5%

   

Windows Commercial products and cloud services revenue increased 13% (up 12% in constant currency)


   

Xbox content and services revenue increased 30%

   

Surface revenue increased 37% (up 36% in constant currency)

   

Search advertising revenue excluding traffic acquisition costs decreased 10% (down 11% in constant currency)

Microsoft returned $9.5 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2021, an increase of 21% compared to the first 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 October 27, 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 GAAP.


Financial Performance Constant Currency Reconciliation

 

     

Three Months Ended September 30,

 

 

   ($ in millions, except per share amounts)

 

  

  Revenue  

 

    

  Operating  
  Income  

 

    

  Net Income  

 

    

  Diluted  
  Earnings per  
  Share  

 

 

  2019 As Reported

  

 

$33,055

 

  

 

$12,686

 

  

 

$10,678

 

  

 

$1.38

 

  2020 As Reported

  

 

$37,154

 

  

 

$15,876

 

  

 

$13,893

 

  

 

$1.82

 

  Percentage Change Y/Y

  

 

12%

 

  

 

25%

 

  

 

30%

 

  

 

32%

 

  Constant Currency Impact

  

 

$108

 

  

 

$71

 

  

 

$231

 

  

 

$0.03

 

  Percentage Change Y/Y Constant Currency

  

 

12%

 

  

 

25%

 

  

 

28%

 

  

 

30%

 

Segment Revenue Constant Currency Reconciliation

 

     

Three Months Ended September 30,

 

 

   ($ in millions)

 

  

Productivity and
Business Processes

 

    

Intelligent Cloud

 

    

More Personal
      Computing      

 

 

  2019 As Reported

  

 

$11,077

 

  

 

$10,845

 

  

 

$11,133

 

  2020 As Reported

  

 

$12,319

 

  

 

$12,986

 

  

 

$11,849

 

  Percentage Change Y/Y

  

 

11%

 

  

 

20%

 

  

 

6%

 

  Constant Currency Impact

  

 

$32

 

  

 

$42

 

  

 

$34

 

  Percentage Change Y/Y Constant Currency

  

 

11%

 

  

 

19%

 

  

 

6%

 

Selected Product and Service Revenue Constant Currency Reconciliation

 

     

Three Months Ended September 30, 2020

 

 
     

Percentage Change

Y/Y (GAAP)

 

    

Constant Currency
Impact

 

    

Percentage Change
Y/Y Constant
Currency

 

 

  Office Commercial products and cloud services

  

 

9%

 

  

 

0%

 

  

 

9%

 

  Office 365 Commercial

  

 

21%

 

  

 

(1)%

 

  

 

20%

 

  Office Consumer products and cloud services

  

 

13%

 

  

 

0%

 

  

 

13%

 

  LinkedIn

  

 

16%

 

  

 

0%

 

  

 

16%

 

  Dynamics products and cloud services

  

 

19%

 

  

 

(1)%

 

  

 

18%

 

  Dynamics 365

  

 

38%

 

  

 

(1)%

 

  

 

37%

 

  Server products and cloud services

  

 

22%

 

  

 

(1)%

 

  

 

21%

 

  Azure

  

 

48%

 

  

 

(1)%

 

  

 

47%

 

  Windows OEM

  

 

(5)%

 

  

 

0%

 

  

 

(5)%

 

  Windows Commercial products and cloud services

  

 

13%

 

  

 

(1)%

 

  

 

12%

 

  Xbox content and services

  

 

30%

 

  

 

0%

 

  

 

30%

 

  Surface

  

 

37%

 

  

 

(1)%

 

  

 

36%

 

  Search advertising excluding traffic acquisition costs

  

 

(10)%

 

  

 

(1)%

 

  

 

(11)%

 

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;

 

   

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;

 

   

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;

 

   

additional tax liabilities;

 

   

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

 

   

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;

 

   

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

 

   

the dependence of our business on our ability to attract and retain talented employees.

For more information about risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/en-us/investor.

All information in this release is as of September 30, 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
September 30,

 
    

     2020

    

          2019

 

 

 

 Revenue:

     

 Product

  

 

$15,803 

 

  

 

$15,768 

 

 Service and other

  

 

21,351 

 

  

 

17,287 

 

 

    

 

 

 

 Total revenue

  

 

37,154 

 

  

 

33,055 

 

 

    

 

 

 

 Cost of revenue:

     

 Product

  

 

3,597 

 

  

 

3,305 

 

 Service and other

  

 

7,405 

 

  

 

7,101 

 

 

    

 

 

 

 Total cost of revenue

  

 

11,002 

 

  

 

10,406 

 

 

    

 

 

 

 Gross margin

  

 

26,152 

 

  

 

22,649 

 

 Research and development

  

 

4,926 

 

  

 

4,565 

 

 Sales and marketing

  

 

4,231 

 

  

 

4,337 

 

 General and administrative

  

 

1,119 

 

  

 

1,061 

 

 

    

 

 

 

 Operating income

  

 

15,876 

 

  

 

12,686 

 

 Other income, net

  

 

248 

 

  

 

 

 

    

 

 

 

 Income before income taxes

  

 

16,124 

 

  

 

12,686 

 

 Provision for income taxes

  

 

2,231 

 

  

 

2,008 

 

 

    

 

 

 

 Net income

  

 

$13,893 

 

  

 

$10,678 

 

  

 

 

    

 

 

 

 Earnings per share:

     

 Basic

  

 

$1.84 

 

  

 

$1.40 

 

 Diluted

  

 

$1.82 

 

  

 

$1.38 

 

 Weighted average shares outstanding:

     

 Basic

  

 

7,566 

 

  

 

7,634 

 

 Diluted

  

 

7,637 

 

  

 

7,710 

 

 

 


MICROSOFT CORPORATION    

 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)

 

    

Three Months Ended
September 30,

 
    

         2020

    

         2019

 

 

 

 Net income

  

 

$13,893 

 

  

 

$10,678 

 

  

 

 

    

 

 

 

 Other comprehensive income (loss), net of tax:

     

 Net change related to derivatives

  

 

 

  

 

(2) 

 

 Net change related to investments

  

 

(201) 

 

  

 

577 

 

 Translation adjustments and other

  

 

111 

 

  

 

(296) 

 

 

    

 

 

 

 Other comprehensive income (loss)

  

 

(86) 

 

  

 

279 

 

 

    

 

 

 

 Comprehensive income

  

 

$13,807 

 

  

 

$10,957 

 

  

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

BALANCE SHEETS

(In millions) (Unaudited)

 

    

September 30,

2020 

    

June 30,

2020 

 

 

 

 Assets

     

 Current assets:

     

 Cash and cash equivalents

  

 

$17,205 

 

  

 

$13,576 

 

 Short-term investments

  

 

120,772 

 

  

 

122,951 

 

 

    

 

 

 

 Total cash, cash equivalents, and short-term investments

  

 

137,977 

 

  

 

136,527 

 

 Accounts receivable, net of allowance for doubtful accounts of $610 and $788

  

 

22,851 

 

  

 

32,011 

 

 Inventories

  

 

2,705 

 

  

 

1,895 

 

 Other current assets

  

 

13,544 

 

  

 

11,482 

 

 

    

 

 

 

 Total current assets

  

 

177,077 

 

  

 

181,915 

 

 Property and equipment, net of accumulated depreciation of $45,417 and $43,197

  

 

47,927 

 

  

 

44,151 

 

 Operating lease right-of-use assets

  

 

9,047 

 

  

 

8,753 

 

 Equity investments

  

 

3,103 

 

  

 

2,965 

 

 Goodwill

  

 

43,890 

 

  

 

43,351 

 

 Intangible assets, net

  

 

6,923 

 

  

 

7,038 

 

 Other long-term assets

  

 

13,034 

 

  

 

13,138 

 

 

    

 

 

 

 Total assets

  

 

$301,001 

 

  

 

$301,311 

 

  

 

 

    

 

 

 

 Liabilities and stockholders’ equity

     

 Current liabilities:

     

 Accounts payable

  

 

$12,509 

 

  

 

$12,530 

 

 Current portion of long-term debt

  

 

6,497 

 

  

 

3,749 

 

 Accrued compensation

  

 

5,714 

 

  

 

7,874 

 

 Short-term income taxes

  

 

2,384 

 

  

 

2,130 

 

 Short-term unearned revenue

  

 

33,476 

 

  

 

36,000 

 

 Other current liabilities

  

 

9,476 

 

  

 

10,027 

 

 

    

 

 

 

 Total current liabilities

  

 

70,056 

 

  

 

72,310 

 

 Long-term debt

  

 

57,055 

 

  

 

59,578 

 

 Long-term income taxes

  

 

28,204 

 

  

 

29,432 

 

 Long-term unearned revenue

  

 

2,829 

 

  

 

3,180 

 

 Deferred income taxes

  

 

187 

 

  

 

204 

 

 Operating lease liabilities

  

 

7,753 

 

  

 

7,671 

 

 Other long-term liabilities

  

 

11,525 

 

  

 

10,632 

 

 

    

 

 

 

 Total liabilities

  

 

177,609 

 

  

 

183,007 

 

 

    

 

 

 

 Commitments and contingencies

     

 Stockholders’ equity:

     

 Common stock and paid-in capital—shares authorized 24,000; outstanding 7,564 and 7,571

  

 

81,089 

 

  

 

80,552 

 

 Retained earnings

  

 

39,193 

 

  

 

34,566 

 

 Accumulated other comprehensive income

  

 

3,110 

 

  

 

3,186 

 

 

    

 

 

 

 Total stockholders’ equity

  

 

123,392 

 

  

 

118,304 

 

 

    

 

 

 

 Total liabilities and stockholders’ equity

  

 

            $301,001 

 

  

 

            $301,311 

 

  

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

CASH FLOWS STATEMENTS

(In millions) (Unaudited)

 

    

Three Months Ended 

September 30, 

 
                 2020                   2019   

 

 

 Operations

     

 Net income

                 $13,893         $10,678   

 Adjustments to reconcile net income to net cash from operations:

     

 Depreciation, amortization, and other

     2,645         2,971   

 Stock-based compensation expense

     1,456         1,262   

 Net recognized losses (gains) on investments and derivatives

     (128)         11   

 Deferred income taxes

     (11)         (177)   

 Changes in operating assets and liabilities:

     

 Accounts receivable

     8,843         10,090   

 Inventories

     (808)         (561)   

 Other current assets

     (54)         (438)   

 Other long-term assets

     (62)         (333)   

 Accounts payable

     315         (547)   

 Unearned revenue

     (3,064)         (2,892)   

 Income taxes

     (983)         (3,336)   

 Other current liabilities

     (2,951)         (3,320)   

 Other long-term liabilities

     244         410   

 

    

 

 

 

 Net cash from operations

     19,335         13,818   

 

    

 

 

 

 Financing

     

 Repayments of debt

            (2,500)   

 Common stock issued

     545         427   

 Common stock repurchased

     (6,743)         (4,912)   

 Common stock cash dividends paid

     (3,856)         (3,510)   

 Other, net

     (235)         286   

 

    

 

 

 

 Net cash used in financing

     (10,289)         (10,209)   

 

    

 

 

 

 Investing

     

 Additions to property and equipment

     (4,907)         (3,385)   

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

     (481)         (462)   

 Purchases of investments

     (14,580)         (23,390)   

 Maturities of investments

     14,266         19,082   

 Sales of investments

     2,414         6,379   

 Other, net

     (2,083)          

 

    

 

 

 

 Net cash used in investing

     (5,371)         (1,776)   

 

    

 

 

 

 Effect of foreign exchange rates on cash and cash equivalents

     (46)         (72)   

 

    

 

 

 

 Net change in cash and cash equivalents

     3,629         1,761   

 Cash and cash equivalents, beginning of period

     13,576         11,356   

 

    

 

 

 

 Cash and cash equivalents, end of period

     $17,205         $13,117   
  

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

    

Three Months Ended 

September 30, 

 
     2020       2019   

 

 

 Revenue

 

     

 Productivity and Business Processes

 

    

 

$12,319 

 

 

 

    

 

$11,077 

 

 

 

 Intelligent Cloud

 

    

 

12,986 

 

 

 

    

 

10,845 

 

 

 

 More Personal Computing

 

    

 

11,849 

 

 

 

    

 

11,133 

 

 

 

 

    

 

 

 

 Total

    

 

$37,154 

 

 

 

    

 

$33,055 

 

 

 

  

 

 

    

 

 

 

 Operating Income

 

     

 Productivity and Business Processes

 

    

 

$5,706 

 

 

 

    

 

$4,782 

 

 

 

 Intelligent Cloud

 

    

 

5,422 

 

 

 

    

 

3,889 

 

 

 

 More Personal Computing

 

    

 

4,748 

 

 

 

    

 

4,015 

 

 

 

 

    

 

 

 

 Total

    

 

    $15,876 

 

 

 

    

 

    $12,686 

 

 

 

  

 

 

    

 

 

 

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