EX-99.1 2 d121006dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Microsoft Cloud Strength Highlights Second Quarter Results

Commercial cloud annualized revenue run rate exceeds $9.4 billion; Windows 10 active on over 200 million devices

REDMOND, Wash. — January 28, 2016 — Microsoft Corp. today announced the following results for the quarter ended December 31, 2015:

 

    Revenue was $23.8 billion GAAP, and $25.7 billion non-GAAP
    Operating income was $6.0 billion GAAP, and $7.9 billion non-GAAP
    Net income was $5.0 billion GAAP, and $6.3 billion non-GAAP
    Earnings per share was $0.62 GAAP, and $0.78 non-GAAP

During the quarter, Microsoft returned $6.5 billion to shareholders in the form of share repurchases and dividends.

“Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas,” said Satya Nadella, chief executive officer at Microsoft. “Businesses are also piloting Windows 10, which will drive deployments beyond 200 million active devices.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

 

     

Three Months Ended December 31,

 

 
                                     
($ in millions, except per share amounts)        Revenue          Operating
      Income      
     Net Income          Earnings per
        Share        
 

2014 As Reported (GAAP)

 

    

 

$26,470

 

  

 

    

 

$7,776

 

  

 

    

 

$5,863

 

  

 

    

 

$0.71

 

  

 

  Net Impact from Revenue Deferrals

 

    

 

(326)

 

  

 

    

 

(326)

 

  

 

    

 

(248)

 

  

 

    

 

(0.03)

 

  

 

  Integration and Restructuring Charges

 

    

 

-

 

  

 

    

 

243

 

  

 

    

 

175

 

  

 

    

 

0.02

 

  

 

2014 As Adjusted (non-GAAP)

 

    

 

$26,144

 

  

 

    

 

$7,693

 

  

 

    

 

$5,790

 

  

 

    

 

$0.70

 

  

 

2015 As Reported (GAAP)

 

    

 

$23,796

 

  

 

    

 

$6,026

 

  

 

    

 

$4,998

 

  

 

    

 

$0.62

 

  

 

  Net Impact from Revenue Deferrals

 

    

 

1,897

 

  

 

    

 

1,897

 

  

 

    

 

1,277

 

  

 

    

 

0.16

 

  

 

2015 As Adjusted (non-GAAP)

 

    

 

$25,693

 

  

 

    

 

$7,923

 

  

 

    

 

$6,275

 

  

 

    

 

$0.78

 

  

 

Percentage Change Y/Y (GAAP)

 

    

 

(10)%

 

  

 

    

 

(23)%

 

  

 

    

 

(15)%

 

  

 

    

 

(13)%

 

  

 

Percentage Change Y/Y (non-GAAP)

 

    

 

(2)%

 

  

 

    

 

3%

 

  

 

    

 

8%

 

  

 

    

 

11%

 

  

 

Percentage Change Y/Y (non-GAAP) Constant Currency

 

    

 

3%

 

  

 

    

 

13%

 

  

 

    

 

20%

 

  

 

    

 

23%

 

  

 

“We delivered double-digit operating income growth in non-GAAP constant currency while investing in key strategic areas that position Microsoft for continued long term growth,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes declined 2% (up 5% in constant currency) to $6.7 billion, with the following business highlights:

 

    Office commercial products and cloud services revenue grew 5% in constant currency driven by Office 365 revenue growth of nearly 70% in constant currency
    Office 365 consumer subscribers increased to 20.6 million
    Dynamics revenue grew 11% in constant currency with Dynamics CRM Online seat adds more than doubling year-over-year for the fifth consecutive quarter


Revenue in Intelligent Cloud grew 5% (up 11% in constant currency) to $6.3 billion, with the following business highlights:

 

    Server products and cloud services revenue grew 10% in constant currency
    Azure revenue grew 140% in constant currency with revenue from Azure premium services growing nearly 3x year-over-year
    Over one third of the Fortune 500 have chosen our Enterprise Mobility solutions, up nearly 3x year-over-year

Revenue in More Personal Computing declined 5% (down 2% in constant currency) to $12.7 billion, with the following business highlights:

 

    Windows OEM revenue declined 5% in constant currency, outperforming the PC market, driven by higher consumer premium and mid-range device mix
    Surface revenue increased 29% in constant currency driven by the launch of Surface Pro 4 and Surface Book
    Phone revenue declined 49% in constant currency reflecting our strategy change announced in July 2015
    Search advertising revenue excluding traffic acquisition costs grew 21% in constant currency with continued benefit from Windows 10 usage
    Xbox Live monthly active users grew 30% year-over-year to a record 48 million

“It was a strong holiday season for Microsoft highlighted by Surface and Xbox,” said Kevin Turner, chief operating officer at Microsoft. “Our commercial business executed well as our sales teams and partners helped customers realize the value of Microsoft’s cloud technologies across Azure, Office 365 and CRM Online.”

Business Outlook

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

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel and corporate secretary, and Chris Suh, 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/investor. The webcast will be available for replay through the close of business on January 28, 2017.

Adjusted Financial Results and non-GAAP Measures

During the second quarter of fiscal year 2016, GAAP revenue, operating income, net income, and earnings per share include the net impact from revenue deferrals. For the second quarter of fiscal year 2015, GAAP revenue, operating income, net income, and earnings per share include the recognition of previously deferred net revenue and charges related to integration and restructuring expenses. These items are defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these non-GAAP measures gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.


Non-GAAP Definitions

Revenue Deferrals. Microsoft recorded a net $1.9 billion revenue deferral during the three months ended December 31, 2015, primarily related to Windows 10 and Halo 5.

Microsoft recognized a net $326 million of previously deferred revenue during the three months ended December 31, 2014, primarily related to sales of bundled products and services.

Integration and Restructuring Charges. Integration and restructuring expenses were $243 million during the three months ended December 31, 2014. Integration and restructuring expenses include employee severance expenses and costs associated with the consolidation of facilities and manufacturing operations related to restructuring activities, and systems consolidation and other business integration expenses associated with the acquisition of Nokia’s Devices and Services business.

Constant Currency

Microsoft presents constant currency information to provide a non-GAAP 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 non-GAAP 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. The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

Financial Performance Constant Currency Reconciliation

 

     

Three Months Ended December 31,

 

 
  ($ in millions, except per share amounts)        Revenue          Operating
    Income    
         Net Income          Earnings per
        Share        
 

 

2014 As Reported (GAAP)

 

  

 

 

 

 

$26,470

 

 

  

 

  

 

 

 

 

$7,776

 

 

  

 

  

 

 

 

 

$5,863

 

 

  

 

  

 

 

 

 

$0.71

 

 

  

 

 

2014 As Adjusted (non-GAAP)

 

  

 

 

 

 

$26,144

 

 

  

 

  

 

 

 

 

$7,693

 

 

  

 

  

 

 

 

 

$5,790

 

 

  

 

  

 

 

 

 

$0.70

 

 

  

 

 

2015 As Reported (GAAP)

 

  

 

 

 

 

$23,796

 

 

  

 

  

 

 

 

 

$6,026

 

 

  

 

  

 

 

 

 

$4,998

 

 

  

 

  

 

 

 

 

$0.62

 

 

  

 

 

2015 As Reported (non-GAAP)

 

  

 

 

 

 

$25,693

 

 

  

 

  

 

 

 

 

$7,923

 

 

  

 

  

 

 

 

 

$6,275

 

 

  

 

  

 

 

 

 

$0.78

 

 

  

 

 

Percentage Change Y/Y (GAAP)

 

  

 

 

 

 

(10)%

 

 

  

 

  

 

 

 

 

(23)%

 

 

  

 

  

 

 

 

 

(15)%

 

 

  

 

  

 

 

 

 

(13)%

 

 

  

 

 

Percentage Change Y/Y (non-GAAP)

 

  

 

 

 

 

(2)%

 

 

  

 

  

 

 

 

 

3%

 

 

  

 

  

 

 

 

 

8%

 

 

  

 

  

 

 

 

 

11%

 

 

  

 

 

Constant Currency Impact

 

  

 

 

 

 

$(1,212)

 

 

  

 

  

 

 

 

 

$(766)

 

 

  

 

  

 

 

 

 

$(676)

 

 

  

 

  

 

 

 

 

$(0.08)

 

 

  

 

 

Percentage Change Y/Y (non-GAAP) Constant Currency

 

  

 

 

 

 

3%

 

 

  

 

  

 

 

 

 

13%

 

 

  

 

  

 

 

 

 

20%

 

 

  

 

  

 

 

 

 

23%

 

 

  

 

Segment Revenue Constant Currency Reconciliation

 

     

Three Months Ended December 31,

 

 

  ($ in millions)

 

  

Productivity and
    Business Processes    

 

    

    Intelligent Cloud    

 

    

More Personal
            Computing             

 

 

 

2014 As Reported (GAAP)

 

  

 

 

 

 

$6,822

 

 

  

 

  

 

 

 

 

$6,041

 

 

  

 

  

 

 

 

 

$13,282

 

 

  

 

 

2015 As Reported (GAAP)

 

  

 

 

 

 

$6,690

 

 

  

 

  

 

 

 

 

$6,343

 

 

  

 

  

 

 

 

 

$12,660

 

 

  

 

 

Percentage Change Y/Y (GAAP)

 

  

 

 

 

 

(2)%

 

 

  

 

  

 

 

 

 

5%

 

 

  

 

  

 

 

 

 

(5)%

 

 

  

 

 

Constant Currency Impact

 

  

 

 

 

 

$(439)

 

 

  

 

  

 

 

 

 

$(369)

 

 

  

 

  

 

 

 

 

$(404)

 

 

  

 

 

Percentage Change Y/Y (GAAP) Constant Currency

 

  

 

 

 

 

5%

 

 

  

 

  

 

 

 

 

11%

 

 

  

 

  

 

 

 

 

(2)%

 

 

  

 


About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) is the leading platform and productivity company for the mobile-first, cloud-first world and 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 Microsoft’s markets;

 

    increasing focus on services presents execution and competitive risks;

 

    significant investments in new products and services that may not be profitable;

 

    acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;

 

    impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;

 

    Microsoft’s continued ability to protect and earn revenues from its intellectual property rights;

 

    claims that Microsoft has infringed the intellectual property rights of others;

 

    the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;

 

    cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;

 

    disclosure of personal data that could cause liability and harm to Microsoft’s reputation;

 

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

 

    government litigation and regulation that may limit how Microsoft designs and markets its products;

 

    potential liability under trade protection and anti-corruption laws resulting from our international operations;

 

    laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims or fines against us;

 

    Microsoft’s ability to attract and retain talented employees;

 

    adverse results in legal disputes;

 

    unanticipated tax liabilities;

 

    Microsoft’s hardware and software products may experience quality or supply problems;

 

    exposure to increased economic and operational uncertainties from operating a global business;

 

    catastrophic events or geo-political conditions may disrupt our business; and

 

    adverse economic or market conditions may harm our business.

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/investor.


All information in this release is as of January 28, 2016. 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:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, rrt@waggeneredstrom.com

For more information, financial analysts and investors only:

Chris Suh, 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/investor.

MICROSOFT CORPORATION

INCOME STATEMENTS

(In millions, except per share amounts)(Unaudited)

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
     2015      2014      2015      2014  

 

 

Revenue

       $     23,796           $ 26,470           $     44,175           $ 49,671   

Cost of revenue

     9,872         10,136         17,079         18,409   

 

    

 

 

    

 

 

    

 

 

 

Gross margin

     13,924         16,334         27,096         31,262   

Research and development

     2,900         2,903         5,862         5,968   

Sales and marketing

     3,960         4,315         7,293         8,043   

General and administrative

     1,038         1,097         2,122         2,248   

Impairment, integration, and restructuring

     0         243         0         1,383   

 

    

 

 

    

 

 

    

 

 

 

Operating income

     6,026         7,776         11,819         13,620   

Other income (expense), net

     (171)         74         (451)         126   

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     5,855         7,850         11,368         13,746   

Provision for income taxes

     857         1,987         1,750         3,343   

 

    

 

 

    

 

 

    

 

 

 

Net income

       $ 4,998           $ 5,863           $ 9,618           $ 10,403   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

        

Basic

       $ 0.63           $ 0.71           $ 1.21           $ 1.26   

Diluted

       $ 0.62           $ 0.71           $ 1.20           $ 1.25   

Weighted average shares outstanding:

           

Basic

     7,964         8,228         7,980         8,238   

Diluted

     8,028         8,297         8,047         8,321   

Cash dividends declared per common share

       $ 0.36           $ 0.31           $ 0.72           $ 0.62   

 

 


MICROSOFT CORPORATION

COMPREHENSIVE INCOME STATEMENTS

(In millions)(Unaudited)

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
     2015      2014      2015      2014  

 

 

Net income

       $ 4,998           $ 5,863           $ 9,618           $ 10,403   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss):

 

           

Net unrealized gains (losses) on derivatives (net of tax effects of $5, $6, $28, and $10)

 

    

 

(49)

 

  

 

    

 

247

 

  

 

    

 

8

 

  

 

    

 

566

 

  

 

Net unrealized gains (losses) on investments (net of tax effects of $86, $(124), $(222), and $(226))

 

    

 

160

 

  

 

    

 

(231)

 

  

 

    

 

(411)

 

  

 

    

 

(420)

 

  

 

Translation adjustments and other (net of tax effects of $(9), $(211), $(21), and $(258))

     (76)         (390)         (346)         (471)   

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss)

     35         (374)         (749)         (325)   

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

       $         5,033           $         5,489           $         8,869           $         10,078   
  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION

BALANCE SHEETS

(In millions)(Unaudited)

 

     December 31,
2015
     June 30,
2015
 

 

 

Assets

     

Current assets:

     

Cash and cash equivalents

       $ 7,185           $ 5,595   

Short-term investments (including securities loaned of $360 and $75)

     95,455         90,931   

 

    

 

 

 

Total cash, cash equivalents, and short-term investments

     102,640         96,526   

Accounts receivable, net of allowance for doubtful accounts of $384 and $335

     14,507         17,908   

Inventories

     2,702         2,902   

Deferred income taxes

     1,618         1,915   

Other

     6,345         5,461   

 

    

 

 

 

Total current assets

     127,812         124,712   

Property and equipment, net of accumulated depreciation of $18,008 and $17,606

     15,789         14,731   

Equity and other investments

     11,514         12,053   

Goodwill

     17,436         16,939   

Intangible assets, net

     4,619         4,835   

Other long-term assets

     2,928         2,953   

 

    

 

 

 

Total assets

       $ 180,098           $     176,223   
  

 

 

    

 

 

 

Liabilities and stockholders’ equity

     

Current liabilities:

     

Accounts payable

       $ 6,936           $ 6,591   

Short-term debt

     3,000         4,985   

Current portion of long-term debt

     750         2,499   

Accrued compensation

     3,649         5,096   

Income taxes

     493         606   

Short-term unearned revenue

     20,929         23,223   

Securities lending payable

     439         92   

Other

     6,447         6,766   

 

    

 

 

 

Total current liabilities

     42,643         49,858   

Long-term debt

     40,679         27,808   

Long-term unearned revenue

     4,102         2,095   

Deferred income taxes

     2,194         2,835   

Other long-term liabilities

     13,700         13,544   

 

    

 

 

 

Total liabilities

     103,318         96,140   

 

    

 

 

 

Commitments and contingencies

     

Stockholders’ equity:

     

Common stock and paid-in capital - shares authorized 24,000; outstanding 7,925 and 8,027

     68,279         68,465   

Retained earnings

     6,728         9,096   

Accumulated other comprehensive income

     1,773         2,522   

 

    

 

 

 

Total stockholders’ equity

     76,780         80,083   

 

    

 

 

 

Total liabilities and stockholders’ equity

       $     180,098           $     176,223   
  

 

 

    

 

 

 


MICROSOFT CORPORATION

CASH FLOWS STATEMENTS

(In millions)(Unaudited)

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
     2015      2014      2015      2014  

 

 

Operations

           

Net income

   $ 4,998       $ 5,863       $ 9,618       $ 10,403   

Adjustments to reconcile net income to net cash from operations:

           

Depreciation, amortization, and other

     1,544         1,521         3,005         2,949   

Stock-based compensation expense

     658         633         1,332         1,279   

Net recognized losses (gains) on investments and derivatives

     50         (179)         151         (124)   

Excess tax benefits from stock-based compensation

     (20)         (22)         (302)         (524)   

Deferred income taxes

     (247)         314         (174)         615   

Deferral of unearned revenue

     12,570         10,200         22,993         18,222   

Recognition of unearned revenue

     (11,929)         (11,495)         (23,284)         (22,138)   

Changes in operating assets and liabilities:

           

Accounts receivable

     (3,118)         (3,378)         3,258         3,249   

Inventories

     1,104         1,070         167         587   

Other current assets

     (912)         (159)         (1,192)         (439)   

Other long-term assets

     56         170         51         449   

Accounts payable

     369         137         234         (522)   

Other current liabilities

     105         (986)         (1,919)         (2,152)   

Other long-term liabilities

     370         651         254         840   

 

    

 

 

    

 

 

    

 

 

 

Net cash from operations

     5,598         4,340         14,192         12,694   

 

    

 

 

    

 

 

    

 

 

 

Financing

           

Proceeds from issuance (repayments) of short-term debt, maturities of 90 days or less, net

     (7,031)         4,798         (2,141)         7,797   

Proceeds from issuance of debt

     13,128         0         13,249         0   

Repayments of debt

     (121)         0         (1,871)         (1,500)   

Common stock issued

     117         121         336         337   

Common stock repurchased

     (3,678)         (2,145)         (8,435)         (5,033)   

Common stock cash dividends paid

     (2,868)         (2,547)         (5,343)         (4,854)   

Excess tax benefits from stock-based compensation

     20         22         302         524   

Other

     (65)         285         (243)         285   

 

    

 

 

    

 

 

    

 

 

 

Net cash from (used in) financing

     (498)         534         (4,146)         (2,444)   

 

    

 

 

    

 

 

    

 

 

 

Investing

           

Additions to property and equipment

     (2,024)         (1,490)         (3,380)         (2,772)   

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

     (381)         (2,794)         (771)         (2,935)   

Purchases of investments

     (34,750)         (19,167)         (72,320)         (43,252)   

Maturities of investments

     5,351         2,389         11,037         4,082   

Sales of investments

     28,191         16,108         56,693         32,553   

Securities lending payable

     285         238         347         (129)   

 

    

 

 

    

 

 

    

 

 

 

Net cash used in investing

     (3,328)         (4,716)         (8,394)         (12,453)   

 

    

 

 

    

 

 

    

 

 

 

Effect of exchange rates on cash and cash equivalents

     (18)         (34)         (62)         (40)   

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     1,754         124         1,590         (2,243)   

Cash and cash equivalents, beginning of period

     5,431         6,302         5,595         8,669   

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 7,185       $ 6,426       $ 7,185       $ 6,426   
  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION

SEGMENT REVENUE AND OPERATING INCOME

(In millions)(Unaudited)

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
         2015          2014      2015      2014  

 

 

Revenue

           

Productivity and Business Processes

       $ 6,690           $ 6,822           $ 12,990           $ 13,312   

Intelligent Cloud

     6,343         6,041         12,232         11,516   

More Personal Computing

     12,660         13,282         22,114         24,548   

Corporate and Other

     (1,897)         325         (3,161)         295   

 

    

 

 

    

 

 

    

 

 

 

Total revenue

       $ 23,796           $ 26,470           $ 44,175           $ 49,671   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Income (Loss)

           

Productivity and Business Processes

       $ 3,305           $ 3,587           $ 6,460           $ 6,988   

Intelligent Cloud

     2,580         2,600         4,977         4,705   

More Personal Computing

     2,038         1,506         3,542         3,014   

Corporate and Other

     (1,897)         83         (3,160)         (1,087)   

 

    

 

 

    

 

 

    

 

 

 

Total operating income

       $ 6,026           $ 7,776           $ 11,819           $ 13,620