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Earnings Release FY21 Q2

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

 


 

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

 


 

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


 

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


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

 

IMPORTANT NOTICE TO USERS (summary only, click here  for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our  Forms 10-Q and 10-K.

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