Microsoft reports record revenue of $24.52 billion in second quarter

REDMOND, Wash. — January 23, 2014 — Microsoft Corp. today announced revenue of $24.52 billion for the quarter ended December 31, 2013. Gross margin, operating income, net income, and diluted earnings per share for the quarter were $16.24 billion, $7.97 billion, $6.56 billion, and $0.78 per share, respectively.

The following table reconciles these financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. We have provided this non-GAAP financial information to aid investors in better understanding the company’s performance.

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“Our Commercial segment continues to outpace the overall market, and our Devices and Consumer segment had a great holiday quarter,” said Steve Ballmer, chief executive officer at Microsoft. “The investments we are making in devices and services that deliver high-value experiences to our customers, and the work we are doing with our partners, are driving strong results and positioning us well for long-term growth.”

“We delivered record revenue as demand for our business offerings remains high and we made strong progress in our Devices and Consumer segment,” said Amy Hood, chief financial officer at Microsoft. “These results reflect our focus on execution, cost discipline, and long-term shareholder value as we continue to drive the strategic transformation of the company.”

Devices and Consumer revenue grew 13% to $11.91 billion.

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  Windows OEM revenue declined 3%, reflecting strong 12% growth in Windows OEM Pro revenue, offset by continued softness in the consumer PC market.
  
  
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  Surface revenue more than doubled sequentially, from $400 million in the first quarter to $893 million in the second quarter.
  
  
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  The company sold 7.4 million Xbox console units into the retail channel, including 3.9 million Xbox One consoles and 3.5 million Xbox 360 consoles.
  
  
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  Bing search share grew to 18.2% and search advertising revenue grew 34%.
  

Commercial revenue grew 10% to $12.67 billion.

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  SQL Server continued to gain market share with revenue growing double-digits.
  
  
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  System Center showed continued strength with double-digit revenue growth.
  
  
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  Commercial cloud services revenue more than doubled.
  
  
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  Office 365 commercial seats and Azure customers both grew triple-digits.
  

"We significantly outpaced enterprise IT spend as we continue to take share from our competitors by delivering the devices and services our customers need as they transition to the cloud,” said Kevin Turner, chief operating officer at Microsoft. “Our commercial cloud services revenue grew more than 100% year-over-year, as customers are embracing Office 365, Azure, and Dynamics CRM Online, and making long-term commitments to the Microsoft platform.”

Business Outlook

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

Webcast Details

Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PST (5:30 p.m. EST) 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 23, 2015.

Adjusted Financial Results and Non-GAAP Measures

During the second quarter of fiscal year 2013, GAAP revenue, operating income, and diluted earnings per share included the net deferral of $1.3 billion of revenue for the Windows Upgrade Offer, the Office Upgrade Offer and Pre-sales, and the Video Game Deferral, and the recognition of previously deferred revenue of $783 million for Windows 8 Pre-sales. These items are defined below. In addition to these financial results reported in accordance with GAAP, we have provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. Presenting these measures without the impact of these items 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 deferred on sales of Windows 7 with an option to upgrade to Windows 8 Pro at a discounted price (“Windows Upgrade Offer”).

Revenue deferred on pre-sales of Windows 8 to OEMs and retailers before general availability (“Windows 8 Pre-sales”).

Revenue deferred on sales of the previous version of the Microsoft Office system with a guarantee to be upgraded to the new Office at minimal or no cost and pre-sales of the new Office to OEMs and retailers before general availability (collectively, the “Office Deferral”).

Revenue deferred on sales of video games with the right to receive specified software upgrades/enhancements (“Video Game Deferral”).

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

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  intense competition in all of Microsoft’s markets;
  
  
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  increasing focus on services presents execution and competitive risks;
  
  
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  significant investments in new products and services that may not be profitable;
  
  
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  acquisitions, joint ventures, and strategic alliances, including our acquisition of Nokia’s Devices and Services business, may have an adverse effect on our business;
  
  
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  Microsoft’s continued ability to protect its intellectual property rights;
  
  
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  claims that Microsoft has infringed the intellectual property rights of others;
  
  
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  the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  
  
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  cyber-attacks and security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;
  
  
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  disclosure of personal data that could result in liability and harm to Microsoft’s reputation;
  
  
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  outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  
  
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  government litigation and regulation that may limit how Microsoft designs and markets its products;
  
  
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  Microsoft’s ability to attract and retain talented employees;
  
  
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  delays in product development and related product release schedules;
  
  
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  adverse economic or market conditions may harm our business;
  
  
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  adverse results in legal disputes;
  
  
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  unanticipated tax liabilities;
  
  
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  our hardware and software products may experience quality or supply problems;
  
  
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  impairment of goodwill or amortizable intangible assets causing a charge to earnings;
  
  
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  exposure to increased economic and regulatory uncertainties from operating a global business; and
  
  
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  catastrophic events or geo-political conditions may disrupt 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 23, 2014. 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, 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. PST conference call with investors and analysts, is available at http://www.microsoft.com/investor/.

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